UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F/A
AMENDMENT NO. 1
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedNovember 30, 2008
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: _________________ to _________________
OR
[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report:Not Applicable
Commission file number:000-25489
PURE NICKEL INC.
(Exact name of Registrant as specified in its charter)
Yukon Territory
(Jurisdiction of incorporation or organization)
Suite 900 – 95 Wellington St. West, Toronto, Ontario Canada, M5J 2N7
(Address of principal executive offices)
Jeffrey D. Sherman, 416.644.0066, Chief Financial Officer, info@purenickel.com,
Suite 900 – 95 Wellington St. West, Toronto, Ontario Canada, M5J 2N7
(Name, Telephone, E-mail and/ or Facsimile number and Address of Company Contact Person)
Securities to be registered pursuant to Section 12(b) of the Act:None
Securities to be registered pursuant to Section 12(g) of the Act:Common Shares, without par value
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None
Number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:67,765,559
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934.
Yes [X] No [ ]
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| U.S. GAAP [ ] | International Financial Reporting Standards [ ] | Other [X] |
Indicate by check mark which financial statement item the registrant has elected to follow
Item 17 [X] Item 18 [ ]
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
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TABLE OF CONTENTS
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EXPLANATORY NOTE – INFORMATION REGARDING THIS AMENDMENT
This Amendment No. 1 to our Form 20-F/A (the “Amended Report”) amends the original Annual Report on Form 20-F of Pure Nickel Inc. for the fiscal year ended November 30, 2008 (the “Original Report”) in order to correct some errors in the information originally presented. The calculation of the reverse takeover transaction on March 30, 2007 when Nevada Star Resource Corp. acquired the issued and outstanding common shares of our predecessor corporation (“old Pure Nickel”) has been recalculated so that it is based upon the 84,319,285 shares of Nevada Star Resource Corp. that were then outstanding, rather than 89,508,515 shares that were used in the calculation. Various other errors were also corrected, as set out below. The restatement had no effect on the results of operations disclosed herein, the consolidated statements of operations and deficit including loss per share, nor on the consolidated statements of cash flows, in the attached financial statements. Selected information is set out below, for further details please refer to Part III, Item 17: Note 20 to the financial statements for the years ended November 30, 2008 and 2007.
Item 3 – Key Information – Selected Financial Data and Item 5 – Operating and Financial Review and Prospects have been changed to include additional information for the period from May 18, 2006 to November 30, 2006.
Item 3 – Key Information – Selected Financial Data and Item 5 – Operating and Financial Review and Prospects, as well as notes 8 and 18 in the financial statements included in Item 17 have been changed for the following reasons:
- The Reverse Takeover Transaction has been restated to correct an error in the calculation of the fair value of the net assets of Nevada Star which is now recorded as $12,647,893, a reduction of $778,383 from the amount of $13,426,276 previously shown.
- Mineral Properties and Commitments has been restated to correct the recorded values for mineral properties acquired as a result of the Reverse Takeover Transaction. Expenditures capitalized and balances acquired during 2007 as well as the balance at November 30, 2007 were decreased as follows: Milford Copper reduced from $4,128,838 to $3,800,629, MAN Project reduced from $8,835,811 to $8,386,385, and Salt Chuck reduced from $164,976 to $164,228. The balance at November 30, 2008 decreased as follows: Milford Copper reduced from $4,128,838 to $3,800,629, MAN Project reduced from $9,233,860 to $8,784,434, and Salt Chuck reduced from $200,260 to $199,512.
- Continuity of share capital has been restated to correct the presentation of the number of shares in order to correct the disclosure of the number of shares in the reverse take-over transaction in 2007, as required under EIC 10 – Reverse Takeover Accounting. This had no effect on the closing balances, nor on the dollar amounts presented.
- Notes explaining the differences between Generally Accepted Accounting Principles in Canada and the United States have been restated to give effect to United States GAAP requirements under EITF 04-02 which requires that acquisition costs of mineral rights be capitalized. Previously, the acquisition costs of mineral rights for the purposes of United States GAAP reconciliation note had been expensed. For details of this change please refer to Note 20 to the financial statements for the years ended November 30, 2008 and 2007.
- Some additional minor changes are described in Note 20 to the financial statements for the years ended November 30, 2008 and 2007.
Some other minor changes in this Annual Report on Form 20-F/A for the Fiscal Year Ended November 30, 2008 have also been made.
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SPECIAL INFORMATION
Glossary of Technical Terms
| AeroTEM | Helicopter-borne Time Domain Electromagnetic System: a helicopter-borne electromagnetic system used to identify potential deposits based upon conductive properties. |
| BHEM | Bore Hole Electro Magnetic: an imaging system that involves placing a transmitter and receiver a borehole, and the underlying geological structure is viewed by a process similar to medical tomographic imaging. This creates an image of the structure from a series of flat cross-sectional images. |
| breccia | A rock in which angular fragments are surrounded by a mass of finer-grained material. |
| chalcopyrite | A sulphide mineral of copper and iron; the most common ore mineral of copper. |
| concentrate | A fine, powdery product of the milling process containing a high percentage of valuable metal. |
| diamond drill(ing) | A rotary type of rock drill in which the cutting is done by abrasion rather than percussion. The cutting bit is set with diamonds and is attached to the end of long hollow rods through which water or other fluid is pumped to the cutting face as a lubricant. The drill cuts a core of rock that is recovered in long cylindrical sections, two centimeters or more in diameter. |
| disseminated | Ore carrying small particles of valuable minerals spread more or less uniformly through the host rock. |
| exploration stage | The search for mineral deposits which are not in either the development or production stage. |
| fault | A break in the Earth’s crust caused by tectonic forces which have moved the rock on one side with respect to the other. Faults may extend many kilometers, or be only a few centimeters in length. Similarly, the movement or displacement along the fault may vary widely. |
| fracture | A break in the rock, the opening of which affords the opportunity for entry of mineral-bearing solution. A ‘cross fracture’ is a minor break extending at more- or-less right angles to the direction of the principal fracture. |
| form 43-101 | Technical report issued pursuant to Canadian security rules, the objective of which is to provide a summary of scientific and technical information concerning mineral exploration, development and production activities on a mineral property that is material to an issuer. The Form 43-101F1 is prepared in accordance with the National Instrument 43-101 Standards of Disclosure for Mineral Projects. The 43-101 form sets out specific requirements for the preparation and contents of a technical report. |
| feasibility study | An economic study assessing whether a mineral deposit can be mined profitably, by estimating costs of a mine and the potential revenues from production. |
| grade | The metal content of rock with precious metals. Grade can be expressed as troy ounces or grams per tonne of rock. |
| hectare | A metric unit of area measurement equivalent to 10,000m² |
| hydrothermal | Relating to hot fluids circulating in the earth’s crust. |
| igneous | A type of rock which has been formed from magna, a molten substance from the earth’s core. |
| intrusion | A body of igneous rock formed by the consolidation of magma intruded into other rocks, in contrast to lavas, which are extruded upon the surface. |
| mafic | Igneous rock composed mostly of dark, iron and magnesium-rich minerals. |
| metasedimentary. | Originally sedimentary rocks which have been subsequently affected by the process of metamorphism |
| metamorphic | A type of rock which, through heat and pressure, has been changed from igneous or sedimentary rock. |
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| mineral reserve | National Instrument 43-101Standards of Disclosure for Mineral Projectsof the Canadian Securities Administrators, adopting the definition of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), defines a ‘mineral reserve’ as the economically mineable part of a Measured or Indicated Mineral Resource demonstrated by at least a Preliminary Feasibility Study (a comprehensive study of the viability of a mineral project that has advanced to a stage where the mining method has been established and an effective method of mineral processing has been determined and includes a financial analysis based on reasonable assumptions of technical, engineering, legal, operating, economic, social, and environmental factors and the evaluation of other relevant factors which are sufficient for a Qualified Person (an individual who is an engineer or geoscientist with at least five years of experience in mineral exploration, mine development or operation or mineral project assessment, or any combination of these; has experience relevant to the subject matter of the mineral project and the technical report; and is a member or licensee in good standing of a professional association), acting reasonably, to determine if all or part of the Mineral Resource may be classified as a Mineral Reserve). This study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. A Mineral Reserve includes diluting materials and allowances for losses that may occur when the material is mined. Mineral Reserves are sub-divided in order of increasing confidence into Probable Mineral Reserves and Proven Mineral Reserves. A Probable Mineral Reserve has a lower level of confidence than a Proven Mineral Reserve. |
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| mineral resource | National Instrument 43-101Standards of Disclosure for Mineral Projectsof the Canadian Securities Administrators, adopting the definition of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), defines a ‘Mineral Resource’ as a concentration or occurrence of diamonds, natural solid inorganic material, or natural solid fossilized organic material including base and precious metals, coal and industrial minerals in or on the Earth’s crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge. Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories. An Inferred Mineral Resource has a lower level of confidence than that applied to an Indicated Mineral Resource. An Indicated Mineral Resource has a higher level of confidence than an Inferred Mineral Resource but has a lower level of confidence than a Measured Mineral Resource. |
| Net Smelter Royalty (NSR) | A Net Smelter Returns Royalty has been generically described as follows: “A royalty calculated on the net smelter return is essentially calculated on the amount received by the mine or mill owner from the sale of the mineral product to the treatment plant that converts the output of the mill to marketable metal. From the gross proceeds received there may be deductions for costs incurred by the owner after the product leaves the mine property and before sale, such as the costs of: transportation, insurance or security, penalties, sampling and assaying, refining and smelting, and marketing. No deductions are made for the operating costs of the mine-mill complex.” (B.J. Barton,Canadian Law of Mining (Calgary: Institute of Resources Law, 1993) at 461.) |
| ore | A mixture of minerals and host rock from which at least one metal can be extracted at a profit. |
| open pit | A mining method whereby the mineral reserves are accessed from surface by the successive removal of layers of material usually creating a large pit at the surface of the earth. |
| patent | The ultimate stage of holding a mineral claim, after which no more assessment work is necessary because all mineral rights have been earned. |
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| pegmatite | A coarse-grained, igneous rock, generally coarse, but irregular in texture, and similar to granite in composition; usually occurs in dykes or veins and sometimes contains valuable minerals. |
| pentlandite | Nickel iron sulphide, the most common nickel ore. |
| petrology | A field of geology which focuses on the study of rocks and the conditions by which they form. There are three branches of petrology, corresponding to the three types of rocks: igneous, metamorphic, and sedimentary. |
| PGE | Platinum Group Elements include platinum, palladium, rhodium, iridium, osmium, and ruthenium. They commonly occur together in nature and are among the most scarce of the metallic elements. |
| pre-feasibility study | A comprehensive study of the viability of mineral project that has advanced to a stage where the mining methods, in the case of underground mining, or the pit configurations, in the case of an open pit, has been established, where effective methods of mineral processing has been determined, and includes a financial analysis based on reasonable assumptions of technical, engineering, legal, operating, and economic factors and evaluation of other relevant factors which are sufficient or a Qualified Person, acting reasonably, to determine if all or part of the Mineral Resources ,may be classified as a Mineral Reserve. |
| probable reserve | Valuable mineralization not sampled enough to be termed “proven”. |
| prospect | The possibility of future success for economic minerals based on geological, geophysical, geochemical and other criteria. |
| production stage | All companies engaged in the exploitation of a mineral deposit (reserve). |
| qualified person | As individual who is an engineer or geoscientist with at least five years experience in mineral exploration, mine development or operation or mineral project assessment, or any combination of these; has experience relevant to the subject matter of the mineral project and the Technical Report; and is a member or licensee in good standing of a professional association. |
| reserve | A known resource that can be exploited for profit with available technology under existing political and economic conditions. |
| royalty | An amount of money paid at regular intervals, or based on production, by the lessee or operator of and exploration or mining property to the current or former owner of the mineral interests. Generally based on a certain amount per unit weight or a percentage of the total production, revenues or profits. A ‘net smelter royalty’ is a type of royalty based on a percentage of the proceeds, net of smelting, refining and transportation cost and penalties, from the sale of the metals extracted from products by the smelter or refinery. |
| sedimentary | A type of rock which has been created by the deposition of solids from a liquid. |
| serpentine | A greenish, metamorphic mineral consisting of magnesium silicate. |
| shear | The deformation of rocks by lateral movement along innumerable parallel planes, generally resulting from pressure and producing such metamorphic structures as cleavage and schistosity. |
| strike | The direction, or bearing, from true north of a vein or rock formation measured on a horizontal surface. |
| sulphide | A compound of sulphur and some other element; most base-metal ore minerals are sulphides. |
| tonne | Metric ton, equal to 2,205 pounds. |
| ultramafic | A term used to describe igneous rock or magmas that are rich in iron and magnesium and very poor in silica. |
| vein | A tabular body of rock typically of narrow thickness and mineralized occupying a fault, shear, fissure or fracture crosscutting another pre-existing rock. |
| VTEM | The VTEM (Versatile Time-Domain Electromagnetic) survey is the leading airborne geophysical system in use today and is particularly suited to the identification of copper-zinc massive sulphide deposits |
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Metric Conversion Table
The following table sets forth certain factors for converting metric measurements into imperial equivalents. To convert from metric to imperial units, divide the metric unit by its corresponding value in the middle column. To convert from imperial to metric units, multiply the imperial unit by its corresponding value in the middle column.
| Metric Units Description and abbreviation | Conversion Factor | Imperial Units Description and abbreviations |
| Length | Length | |
| Millimeters – mm | 25.400 | Inches – in |
| Meters – m | 0.3048 | Feet – ft |
| Meters – m | 0.9144 | Yards – yd |
| Kilometers – km | 1.609 | Miles – mile |
| Area | Area | |
| Square centimeters - cm² | 6.4516 | Square inches - in² |
| Square meters - m² | 0.0929 | Square feet - ft² |
| Hectares - ha | 0.40469 | Acres – acre |
| Square Kilometers - km² | 2.5900 | Square miles – sq miles |
| Weight | Weight | |
| Tonne (1,000 kg) - t | 0.907185 | Short ton (2,000 lbs) - st |
Currency
Unless otherwise indicated, all references to “dollars” or “$” are to Canadian dollars.
Other Information
Pure Nickel Inc. (formerly “Nevada Star Resource Corp.”) was incorporated under the laws of the Yukon Territory, Canada, and on March 31, 2009 our shareholders approved our continuance under theCanada Business Corporations Act. In this document, the terms “we,” “our,” “us,” and “the Company” refer to Pure Nickel Inc. and its subsidiaries. Our consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”), are reconciled to the United States generally accepted accounting principles (“GAAP”) and are presented in Canadian dollars except where indicated in conversions of convenience. We file reports and other information with the Securities and Exchange Commission (“SEC”) located at 100 F Street, N.E., Washington, D.C. 20549.
Copies of our filings with the SEC may be obtained by accessing the SEC’s website located atwww.sec.gov. Further, we also files reports under Canadian regulatory requirements on the System for Electronic Document Analysis and Retrieval, which is a filing system that provides access to most public securities documents and information filed by public companies and investment funds with the Canadian Securities Administrators (“SEDAR”). Copies of our reports filed on SEDAR can be obtained by accessing SEDAR’s website atwww.sedar.com.
Our principal executive office is located at Suite 900 – 95 Wellington St. West, Toronto, Ontario Canada, M5J 2N7, Tel: 416.644.0066, Fax: 416.644.0069, email addressinfo@purenickel.com and websitehttp://www.purenickel.com. Unless explicitly referred to herein, the information contained on our internet site is not incorporated by reference in this report and it should not be considered part of this report.
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NOTE REGARDING FORWARD LOOKING STATEMENTS
This document and the documents incorporated by reference herein contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition to this Annual Report on Form 20-F/A, our management may make forward-looking statements orally or in writing to investors, analysts, the media and others. Forward-looking statements express our expectations or beliefs regarding future events or results. They are not guarantees and are subject to many risks and uncertainties. There are a number of factors that could cause actual events or results to be significantly different from those described in the forward-looking statements. Our forward-looking statements may include, but are not limited to, the following:
requirements for additional capital and anticipated financing activities;
anticipated strategic alliances or arrangements with partners;
projected development, production and exploration timelines;
results of production and exploration activities;
the estimation or realization of mineral reserves and resources;
forecasts of the prices of minerals relevant to our exploration effort and general economic performance;
forecasts of ore grade or recovery rates;
discussions regarding the failure rates of plant, equipment or processes to operate as anticipated;
labor relations;
timing regarding governmental approvals and permits;
descriptions of plans or objectives of management for future operations;
the timing and amount of capital expenditures, costs and timing of the development of new deposits; and
descriptions or assumptions underlying or relating to any of the above items.
Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts or events. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “opportunity,” “plan,” “potential,” “believe,” or words of similar meaning. They may also use words such as “will,” “would,” “should,” “could,” or “may.” Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, we do not assume responsibility for the accuracy and completeness of such statements. We intend that the forward-looking statements contained herein will be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Securities Exchange Act of 1934, as amended. We do not intend to update any of the forward-looking statements after the date of this report to conform such statements to actual results except as required by law. Given these uncertainties, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. You should carefully consider all available information about us before you make an investment decision. You should review carefully the risks and uncertainties identified in this Annual Report on Form 20-F/A.
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PART I
ITEM 1. Identity of Directors, Senior Management and Advisors
Not Applicable.
ITEM 2. Offer Statistics and Expected Timetable
Not Applicable.
ITEM 3. Key Information
Selected Financial Data
Following is selected financial data expressed in Canadian dollars, for the period from May 18, 2006 to November 30, 2006 and the fiscal years ended November 30, 2007 and 2008 which were prepared in accordance with Canadian GAAP, which differs substantially from United States generally accepted accounting principles (“U.S. GAAP”). Reference is made to Note 18 to the audited financial statements for the years ended November 30, 2008 and 2007, and to Note 18 to the audited financial statements for the year ended November 30, 2007 and the period from May 18, 2006 to November 30, 2006, in “Item 17.Financial Statements” for a description of the differences between Canadian GAAP and U.S. GAAP, and how these differences affect our financial statements.
The selected financial data was derived from financial statements that were audited by SF Partnership LLP as indicated in the reports included elsewhere in this Annual Report. This selected financial data should be read in conjunction with the financial statements and other financial information include elsewhere in this Annual Report.
We completed the acquisition of (old) Pure Nickel Inc., a private company incorporated on May 18, 2006, and from a Canadian legal and accounting perspective, the transaction was deemed to be a reverse takeover. Our financial statements reflect the combined results of (old) Pure Nickel Inc. and Nevada Star Resources for the fiscal years ended November 30, 2008 and 2007, and the period from May 18, 2006 to November 30, 2006.
The selected financial data is set out below.
| 12 months ended Nov. 30, 2008 $ | 12 months ended Nov. 30, 2007 $ | May 18, 2006 to Nov. 30, 2006 $ | |
| Revenues | Nil | Nil | Nil |
| Operating expenses | 1,972,406 | 4,946,798 | 103,441 |
| Income (loss) from operations | (1,972,406) | (4,946,798) | (103,441) |
| Other income (expenses) | (459,634) | (2,778,777) | (35,082) |
| Net income (loss) | (2,432,040) | (7,725,575) | (138,523) |
| Total assets | 46,210,759 | 48,410,479 | 2,945,022 |
| Shareholders’ equity | 45,754,932 | 47,933,403 | 2,945,022 |
| Outstanding common shares | 67,765,559 | 67,765,559 | 24,100,001 |
| Dividends per common share | Nil | Nil | Nil |
| Net income (loss) per share, fully diluted | (0.04) | (0.18) | (0.02) |
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Under Canadian GAAP, the Company capitalizes all costs related to the acquisition, exploration and development of non-producing mineral properties. Under U.S. GAAP, acquisition costs of mineral rights are capitalized, but exploration and development costs are expensed as incurred, until the establishment of commercially mineable reserves is complete, at which time any further exploration costs are capitalized. Under Canadian GAAP, enterprises in the development stage are encouraged to disclose cumulative information from the inception of the development stage. Under U.S. GAPP, this disclosure is required. Cumulative net losses since inception aggregate $10,296,138. The differences in accounting for mineral properties under Canadian and U.S. GAAP had the following effects on the Company’s financial statements.
(i) Net Loss and Loss per Share
| 12 months ended Nov. 30, 2008 $ | 12 months ended Nov. 30, 2007 $ | May 18, 2006 to Nov. 30, 2006 $ | |
| Net loss under Canadian GAAP | (2,432,040) | (7,725,575) | (138,523) |
| Capitalized expenditures on unproven mineral properties | (3,581,188) | (14,280,085) | (1,090,652) |
| Net loss under U.S. GAAP | (6,013,228) | (22,005,660) | (1,229,175) |
| Loss per share under U.S. GAAP – basic and diluted | (0.09) | (0.50) | (0.18) |
(ii) Mineral Properties
| 12 months ended Nov. 30, 2008 $ | 12 months ended Nov. 30, 2007 $ | May 18, 2006 to Nov. 30, 2006 $ | |
| Mineral properties under Canadian GAAP | 38,365,557 | 34,723,740 | 1,190,652 |
| Capitalized expenditures on unproven mineral properties | (18,951,925) | (15,370,737) | (1,090,652) |
| Mineral properties under U.S. GAAP | 19,413,632 | 19.353,003 | 100,000 |
(iii) Deficit
| 12 months ended Nov. 30, 2008 $ | 12 months ended Nov. 30, 2007 $ | May 18, 2006 to Nov. 30, 2006 $ | |
| Deficit under Canadian GAAP | (10,296,138) | (7,864,098) | (138,523) |
| Capitalized expenditures on unproven mineral properties | (18,951,925) | (15,370,737) | (1,090,652) |
| Deficit under U.S. GAAP | (29,248,063) | (23,234,835) | (1,229,175) |
For Canadian GAAP, cash flows relating to mineral property exploration are reported as investing activities. For U.S. GAAP, these costs would be characterized as operating activities.
Since June 1, 1970, the Government of Canada has permitted a floating exchange rate to determine the value of the Canadian dollar as compared to the US dollar. On February 28, 2009, the exchange rate in effect for Canadian dollars exchanged for US dollars, expressed in terms of Canadian dollars, was $1.2707. This exchange rate is based on the average noon buying rates of the Bank of Canada, as obtained from the websitewww.bankofcanada.ca.
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For the fiscal years ended November 30, 2008 and for the six month period between September 1, 2008, and February 28, 2009, the following exchange rates were in effect for Canadian dollars exchanged for US dollars, calculated in the same manner as above:
| Period | Average | ||
| Period from May 16, 2006 to | |||
| November 30, 2006 | $ | 1.1228 | |
| Year ended November 30, 2007 | $ | 1.0867 | |
| Year ended November 30, 2008 | $ | 1.0479 |
The following table sets forth the high and low exchange rate for the six month period between September 1, 2008 and February 28, 2009:
U.S. Dollar/Canadian Dollar Exchange Rates
| Month | High | Low |
| September 2008 | 1.0821 | 1.0298 |
| October 2008 | 1.2995 | 1.0585 |
| November 2008 | 1.2952 | 1.1477 |
| December 2008 | 1.3008 | 1.1872 |
| January 2009 | 1.2765 | 1.1761 |
| February 2009 | 1.2731 | 1.2160 |
B. Capitalization and Indebtedness
Not Applicable.
C. Reasons for the Offer and Use of Proceeds
Not Applicable.
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D. Risk Factors
Any investment in our common shares involves a high degree of risk. In addition to the other information presented in this Annual Report, you should consider the following risk factors carefully in evaluating the Company, its business and the mineral exploration and mining industry. If any of these risks or uncertainties occurs, our business, financial condition or operating results could be materially harmed. In that case the trading price of our common stock could decline and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we may face. For further information you are encouraged to review our filings with the SEC, as well as those appearing on SEDAR.
We have a limited operating history and as a result there is no assurance we can operate profitably or with a positive cash flow.
We havea limited operating history and must be considered to be an exploration stage company. Our operations are subject to all the risks inherent in the establishment of an exploration stage enterprise and the uncertainties arising from the absence of a significant operating history. Investors should be aware of the difficulties normally encountered by mineral exploration companies and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration of the mineral properties that the Company plans to undertake. These potential problems include, but are not limited to, unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates. The amounts disbursed by us in the exploration of the mineral claims may not result in the discovery of mineral deposits. Problems such as unusual or unexpected formations of rock or land and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts. If the results of future exploration programs do not reveal viable commercial mineralization, we may decide to abandon our claims and acquire new claims for new exploration or cease operations. The acquisition of additional claims will be dependent upon us possessing capital resources at the time in order to purchase such claims. If no funding is available, we may be forced to abandon our operations. No assurance can be given that we will ever be able to operate on a profitable or cash-flow-positive basis.
If we do not obtain additional financing, our business will fail and investors could lose their investment.
As at November 30, 2008, we had cash of $7,700,559 and working capital of $7,369,731. We do not currently generate revenues or cash flows from operations except payments and reimbursements by development partners which are credited to “mineral resources” on the balance sheet rather than being identified as “revenues” in our consolidated statements of operations. Our business plan calls for substantial investment and costs in connection with the acquisition and exploration of our mineral properties currently under lease and option. In order to maintain certain of our property claims and joint venture agreements in good standing, we must incur certain minimum exploration expenditures annually. There can be no assurance that we will have the funds required to make such expenditures or that those expenditures will result in positive cash flow. Any direct acquisition of any of the claims under lease or option is subject to our ability to obtain the financing necessary to fund and carry out exploration programs on the subject properties. The requirements are substantial. There are no arrangements in place for additional financing and we can provide no assurance to investors that we will be able to find such financing if required. Obtaining additional financing would be subject to a number of factors, including market prices for minerals, and investor sentiment. These factors may make the timing, amount, terms or conditions of additional financing unavailable to us. The most likely source of future funds presently available to us is through the sale of equity capital. Any sale of share capital will result in dilution to existing shareholders. We may require additional financing which may not be available or, if available, may not be available on favourable terms.
We believe that we have adequate funds to finance our exploration program only until the end of the current fiscal year ending November 30, 2009. We are an exploration company with an accumulated deficit of $10,296,138 as at November 30, 2008. With ongoing cash requirements for exploration, development and new operating activities, it will be necessary in the near and over the long- term to raise substantial funds from external sources. If we do not raise these funds, we will be unable to pursue our business activities, and our investors could lose their investment. If we are able to raise funds, investors could experience a dilution of their interests that would negatively affect the market value of the shares.
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Because there is no assurance that we will generate revenues, we face a high risk of business failure.
We have not earned any revenues to date and have never had positive cash flow. We do not have any interest in any revenue generating properties. Before being able to generate revenues, we will incur substantial operating and exploration expenditures without receiving any revenues. Therefore we expect to incur significant losses into the foreseeable future. If we are unable to generate significant revenues from our activities, we will not be able to earn profits or continue operations. Based upon current plans, we expect to incur significant operating losses in the future. We cannot guarantee that we will be successful in raising capital to fund these operating losses or generate revenues in the future. We can provide investors with no assurance that we will ever generate any operating revenues or ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail and our investors could lose their entire investment.
The current credit and financial market conditions may exacerbate certain risks affecting our business.
Increased concerns about credit markets, consumer confidence, economic conditions, volatile corporate profits and reduced capital spending could negatively impact us. The current tightening of credit in financial markets may adversely affect the ability of our partners to obtain financing, which could result in a decrease in, or deferrals or cancellations of, their payment obligations to fund our exploratory activities. If global economic and market conditions, or economic conditions in the United States or Canada, remain uncertain or persist, spread, or deteriorate further, we may experience a material adverse effect on our business and financial condition. Unstable economic, political and social conditions may make it difficult for our partners to accurately forecast and plan future business activities. If such conditions persist, our business and financial condition could suffer.
The failure of any banking institution in which we deposit our funds or the failure of such banking institution to provide services in the current economic environment could have a material adverse effect on our results of operations or financial condition.
The capital and credit markets have been experiencing extreme volatility and disruption. In recent months, the volatility and disruption have reached unprecedented levels. In some cases, the markets have exerted downward pressure on stock prices and credit capacity for certain issuers, as well as pressured the solvency of some financial institutions. Some of these financial institutions, including banks, have had difficulty performing regular services and in some cases have failed or otherwise been largely taken over by governments. If we are unable to access some or all of our cash on deposit, either temporarily or permanently, it could have a negative impact on our operations or our financial position, or both.
There are no known reserves of minerals on our mineral claims and there is no assurance that we will find any commercial quantities of minerals.
We have not found any mineral reserves on our claims and there can be no assurance that any of the mineral claims under exploration contain commercial quantities of any minerals. Even if commercial quantities of minerals are identified, there can be no assurance that we will be able to exploit the reserves or, if we are able to exploit them, that it will be profitable. Substantial expenditures will be required to locate and establish mineral reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site, and substantial additional financing may be required. It is impossible to ensure that the exploration or development programs planned by us will result in a profitable commercial mining operation. The decision as to whether a particular property contains a commercial mineral deposit and should be brought into production will depend on the results of exploration programs and/or feasibility studies, and the recommendations of duly qualified engineers and geologists. Several significant factors will be considered, including, but not limited to: (i) the particular attributes of the deposit, such as size, grade and proximity to infrastructure; (ii) metal prices, which are highly cyclical; (iii) government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection; (iv) ongoing costs of production; and (v) availability and cost of additional funding. The effect of these factors cannot be accurately predicted, but the combination of these factors may result in us receiving no return or an inadequate return on invested capital.
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Because of the speculative nature of the exploration of natural resource properties, there is substantial risk that our business will fail.
While the discovery of a commercially viable ore body may result in substantial rewards, few mineral properties which are explored are ultimately developed into producing mines. There is no assurance that any of the claims that we will explore or acquire will contain commercially exploitable reserves of minerals. Exploration for natural resources is a speculative venture involving substantial risk. Even a combination of careful evaluation, experience and knowledge may not eliminate such risk. Hazards such as unusual or unexpected geological formations, formation pressures, fires, power outages, labour disruptions, flooding, cave-ins, landslides, and the inability of us to obtain suitable machinery, equipment or labour are all risks involved with the conduct of exploration programs and the operation of mines.
Development and exploration activities depend, to one degree or another, on adequate infrastructure. Reliable roads, bridges, power sources and water supply are important determinants, which affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of such infrastructure could adversely affect our operations, financial condition and results of operations.
Substantial expenditures are required for us to establish ore reserves through drilling, to develop metallurgical processes, to extract the metal from the ore and, in the case of new properties, to develop the mining and processing facilities and infrastructure at any site chosen for mining.
The economics of developing mineral properties is affected by many factors including the cost of operations, variations in the grade of ore mined, fluctuations in metal markets, costs of processing equipment and other factors such as government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals and environmental protection.
Since the probability of an individual project ever having reserves is low, any funds spent on exploration could be lost.
The probability of an individual prospect ever having reserves is low. As such, any funds spent on exploration could be lost which would result in a complete loss of investment.
We will be subject to uninsurable risk, which could reduce or eliminate any future profitability.
In the course of exploration, development and production of mineral properties, several risks and, in particular, unexpected or unusual geological or operating conditions, may occur. It is not always possible to fully insure against such risks, and we may decide not to take out insurance against such risks as a result of high premiums or other reasons. Should such liabilities arise they could reduce or eliminate any future profitability and result in an increase in costs and a decline in value of our shares.
We are not insured against environmental risks. Insurance against environmental risks (including potential liability for pollution or other hazards as a result of the disposal of waste products occurring from exploration and production) has not been generally available to companies within the industry. Without such insurance, and if we were to become subject to environmental liabilities, the payment of such liabilities would reduce or eliminate our available funds or could exceed our funds and result in bankruptcy. Should we be unable to fund fully the remedial cost of an environmental problem we might be required to enter into interim compliance measures pending completion of the required remedy.
We are subject to market factors and volatility of commodity prices beyond our control.
The marketability of mineralized material that we may acquire or discover will be affected by many factors beyond our control. These factors include market fluctuations in the prices of minerals sought which are highly volatile, the proximity and capacity of natural resource markets and processing equipment, and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The effect of these factors cannot be predicted, but may result in receiving a very low or negative return on invested capital. Prices of certain minerals have fluctuated widely, particularly in recent years, and are affected by numerous factors beyond our control. Future mineral prices cannot be accurately predicted. A severe decline in the price of a mineral being produced or expected to be produced by us would have a material adverse effect on us, and could result in the suspension of our exploration programs or mining operations.
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If we do not make certain payments or fulfill other contractual obligations, we may lose our option rights and interests in our joint ventures.
We may, in the future, be unable to meet our share of costs incurred under any option or joint venture agreements to which we are presently or become a party in the future and we may have our interest in the properties subject to such agreements reduced as a result. Furthermore, if other parties to such agreements do not meet their share of such costs, we may be unable to finance the cost required to complete recommended programs. The loss of any option rights or interest in joint ventures would have a material, adverse effect on us.
We may not have good title to our mining claims, potentially impairing our value and the price of your shares.
Our mineral property interests may be subject to prior unregistered agreements of transfers or native land claims and title may be affected by undetected defects. There can be no assurance that we will be able to obtain the required mining and other permits for any of our mineral projects, if, as, and when mining operations come viable at such mining projects.
If we cannot compete successfully for financing and for qualified managerial and technical employees, our exploration program will suffer.
Competition in the mining industry includes large established mining companies with substantial capabilities and with greater financial and technical resources than we have. As a result of this competition, we may be unable to acquire additional financing on acceptable terms. We also compete with other mining companies in the recruitment and retention of qualified managerial and technical employees. If we are not able to successfully compete for financing or for qualified employees, our exploration program may be slowed down or suspended.
If we are unable to hire key personnel, we will not be able to implement our business plan.
Our success is dependent on our ability to hire highly qualified personnel. This is particularly true in highly technical businesses such as mineral exploration. These individuals are in high demand and we may not be able to attract the personnel required. In addition, we may not be able to afford the high salaries and fees demanded by qualified personnel, or we may lose employees after they are hired. If we should fail to hire and retain key personnel when needed, or on acceptable terms, there will be a significant adverse impact on our business.
If key employees leave the company, we will be harmed since we are heavily dependent upon them for all aspects of our activities.
We are heavily dependent on key employees and contractors, and on a relatively small number of key directors and officers, the loss of any of whom could have, in the short-term, a negative impact on our ability to operate the business and could cause a decline in value or cash flows from our properties or additional costs from a delay in development or exploration of properties.
Inability of our officers and directors to devote sufficient time to the operation of the business may limit our success.
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Some of the officers and all of the directors will allocate only a portion of their time to our business. If the business requires more of their time than anticipated or if the business develops faster than anticipated, the officers and directors may not be able to devote sufficient time to the business to ensure that it continues as a going concern or the result may be a limit to the growth and success of the business.
If we do not comply with all applicable regulations, we may be forced to halt our business activities and/or incur significant expense.
We are subject to various government and environmental regulations. Permits from a variety of regulatory authorities are required for many aspects of exploration, mining operations and reclamation. We cannot predict the extent to which future legislation and regulation could cause additional expense, capital expenditures, restrictions, and delays in the development of our Canadian and/or U.S. properties, including those with respect to unpatented mining claims.
Failure to comply with applicable environmental laws, regulations and permitting requirements may result in enforcement actions including orders issued by regulatory or judicial authorities that may result in operations ceasing or being curtailed; and may include corrective measures requiring capital expenditures, installation of additional equipment, or other expensive and/or time-consuming remedial actions. Parties engaged in the exploration or development of exploration properties may be required to compensate those suffering loss or damage by reason of such parties’ activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.
Our activities are not only subject to extensive federal, provincial, state and local regulations controlling the exploration and mining of mineral properties, but also the possible effects of such activities upon the environment as well as costs, cancellations and delays resulting from lobbying activities of environmental groups. Future legislation and regulations could cause additional disbursements, capital expenditures, restrictions and delays in the development of our properties, the extent of which cannot be predicted. Also, as noted above, permits from a variety of regulatory authorities are required for many aspects of mine operation and reclamation. In the context of environmental permitting, including the approval of reclamation plans, we must comply with known standards, existing laws and regulations that may entail greater or lesser costs and delays, depending on the nature of the activity to be permitted and how stringently the regulations are implemented by the permitting authority.
If we become more active on our properties, compliance with environmental regulations may increase our costs. Such compliance may include feasibility studies on the surface impact of proposed operations; costs associated with minimizing surface impact, water treatment and protection, reclamation activities including rehabilitation of sites, on-going efforts at alleviating the mining impact on wildlife, and permits or bonds as may be required to ensure our compliance with applicable regulations. The costs and delays associated with such compliance may result in us deciding not to proceed with exploration, development or mining operations on any mineral properties.
Proposed legislation affecting the mining industry could have an adverse effect on us.
During the past several years, the United States Congress considered a number of proposed amendments to the General Mining Law of 1872, which governs mining claims and related activities on federal lands. For example, a broad based bill to reform the General Mining Law of 1872, the Hardrock Mining and Reclamation Act of 2007 (H.R. 2262) was introduced in the House of Representatives on May 10, 2007 and was passed by the House of Representatives on November 1, 2007, and was submitted to the Senate. Further, the U.S. House of Representatives has introduced H.R. 699 - the Hardrock Mining and Reclamation Act of 2009, which is currently in committee. There has not been material progress on either of these proposed reformations as of the latest practicable date of this report.
In 1992, a federal holding fee of $100 per claim was imposed upon unpatented mining claims located on federal lands. This fee was increased to $125 per claim in 2005 ($133.50 total with the accompanying County fees included). Beginning in October 1994, a moratorium on processing of new patent applications was approved. In addition, a variety of legislation over the years has been proposed by the sitting United States Congress to further amend the General Mining Law. If any of this legislation is enacted, the proposed legislation would, among other things, change the current patenting procedures, limit the rights obtained in a patent, impose royalties on unpatented claims, and enact new reclamation, environmental controls and restoration requirements.
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The Hardrock Mining and Reclamation Act of 2007 (H.R. 2262) royalty proposal includes a royalty of 8% on net smelter returns. The extent of any such changes that may be enacted is not presently known, and the potential impact on us as a result of future congressional action is difficult to predict. If enacted, the proposed legislation could adversely affect the economics of developing and operating our mines because many of our properties consist of unpatented mining claims on federal lands. Our financial performance could therefore be materially and adversely affected by passage of all or pertinent parts of the proposed legislation, which could force us to curtail or cease our business operations in the United States.
Exercise of outstanding warrants, options, and other future issuances of securities will result in dilution of our common shares.
As of March 31, 2009, there were 67,765,559 common shares issued and outstanding as well as warrants outstanding to purchase 4,000,000 additional common shares at a price of $2.00 each, and options outstanding to purchase 3,760,000 shares with a weighted average exercise price of $0.65.
The holders of the options are given an opportunity to profit from a rise in the market price of the common shares with a resulting dilution in the interest of the other shareholders. Our ability to obtain additional financing during the period such rights are outstanding may be adversely affected and the existence of the rights may have an adverse effect on the price of the common shares. The holders of options may exercise such securities at a time when we would otherwise be able to obtain any needed capital by a new offering of securities on terms more favourable than those provided by those outstanding rights.
The increase in the number of common shares issued and outstanding and the possibility of sales of such shares may depress the market price of our common shares. In addition, as a result of any such issuances the votes of existing shareholders will be diluted.
Our officers and directors own a significant number of our common shares and can exercise significant influence.
As of November 30, 2008 our officers and directors beneficially own, on a non-diluted basis, approximately 18.5% of our outstanding common shares. As shareholders, the officers and directors will be able to exert significant influence on matters requiring approval by shareholders, including the election of directors and the approval of any significant corporate transactions. The concentration of ownership may also have the effect of delaying, deterring or preventing a change in control and may make some transactions more difficult or impossible to complete without the support of these shareholders.
Directors and management may be subject to conflicts of interest.
Certain directors and officers are directors and/or officers of other mineral exploration companies and as such may, in certain circumstances, have a conflict of interest requiring them to abstain from certain decisions. Conflicts of interest, if any, which arise will be subject to and governed by procedures prescribed by our governing corporate law statute which requires a director of a corporation who is a party to, or is a director or an officer of, or has some material interest in any person who is a party to, a material contract or proposed material contract with the Company to disclose his or her interest and, in the case of directors, to refrain from voting on any matter in respect of such contract unless otherwise permitted under such legislation.
Wemay be adversely affected by exchange rate fluctuations.
Exchange rate fluctuations may adversely affect our financial position and results. We do not currently have in place a policy for managing or controlling foreign currency risks.
Our stock price could be volatile.
Market prices of securities of many public companies have experienced significant fluctuations in price which have not been related necessarily to the operating performance, underlying asset values or prospects of such companies. The market price of our common shares has been and is likely to remain volatile.
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Results of exploration activities, the price of nickel, future operating results, changes in estimates of our performance by securities analysts, market conditions for natural resource shares in general, and other factors beyond our control could cause a significant decline of the market price of our common shares.
The trading market for our shares is not always liquid.
Although our shares trade on the Toronto Stock Exchange and the Over the Counter Bulletin Board, the volume of shares traded at any one time can be limited, and, as a result, there may not be a liquid trading market for our shares.
Our stock is a “penny stock” which imposes significant restrictions on broker-dealers recommending the stock for purchase.
SEC regulations define “penny stock” to include common stock that has a market price of less than $5.00 per share, subject to certain exceptions. These regulations include the following requirements: broker-dealers must deliver, prior to the transaction, a disclosure schedule prepared by the SEC relating to the penny stock market; broker-dealers must disclose the commissions payable to the broker-dealer and its registered representative; broker-dealers must disclose current quotations for the securities; if a broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealers presumed control over the market; and a broker-dealer must furnish its customers with monthly statements disclosing recent price information for all penny stocks held in the customer’s account and information on the limited market in penny stocks. Additional sales practice requirements are imposed on broker-dealers who sell penny stocks to persons other than established customers and accredited investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and must have received the purchaser’s written consent to the transaction prior to sale. While our shares are subject to these penny stock rules these disclosure requirements may have the effect of reducing the level of trading activity. Accordingly, this may result in a lack of liquidity in the shares and investors may be unable to sell their shares at prices considered reasonable by them.
As a foreign private issuer, our shareholders may have less complete and timely data than they would with a typical U.S. public company.
The submission of proxy and annual meeting of shareholder information (prepared to Canadian standards) in Form 6-K may result in shareholders having less complete and timely information in connection with shareholder actions. The exemption from Section 16 of the Exchange Act and the rules promulgated thereunder regarding reports of beneficial ownership and purchases and sales of common shares by insiders and restrictions on insider trading in our securities may result in shareholders having less data and there being fewer restrictions on insiders’ activities in our securities.
We do not plan to pay any dividends in the foreseeable future.
We have never paid a dividend and it is unlikely that we will declare or pay a dividend unless and until warranted based on the factors outlined below. The declaration, amount and date of distribution of any dividends in the future will be decided by the board of directors, based upon, and subject to, our earnings, financial requirements and other conditions prevailing at the time. Investors cannot expect to receive a dividend on their investment in the foreseeable future, if at all.
United States shareholders may be subject to unwanted tax consequences as a result of acquiring, holding, or disposing of our shares.
As discussed in detail below under “Item 10.E(iv). United States Federal Income Tax Considerations,” the tax implications of an investment in our Company are difficult to determine, highly individual and generally require that an investor consult his or her investment and taxation professionals. Under certain circumstances, the acquisition, holding or disposition of our shares may generate unwanted tax consequences for a holder or investor in our shares.
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Our management may not be subject to United States legal process making it more difficult for U.S. investors to sue them.
The enforcement by investors of civil liabilities under the United States federal securities laws may not be possible because all of our officers and most of our directors are neither citizens nor residents of the United States. U.S. shareholders may not be able to effect service of process within the United States upon such persons. U.S. shareholders may not be able to enforce, in United States courts, judgments against such persons obtained in such courts predicated upon the civil liability provisions of United States federal securities laws. Appropriate foreign courts may not be able to enforce judgments of United States courts obtained in actions against such persons predicated upon the civil liability provisions of the federal securities laws. The appropriate foreign courts may not be able to enforce, in original actions, liabilities against such persons predicated solely upon the United States federal securities laws. However, U.S. laws would generally be enforced by a Canadian court provided that those laws are not contrary to Canadian public policy, are not foreign penal laws or laws that deal with taxation or the taking of property by a foreign government and provided that they are in compliance with applicable Canadian legislation regarding the limitation of actions.
As we are incorporated pursuant to the laws of the Yukon Territory, Canada, duties of our directors and officers, and the ability of shareholders to initiate a lawsuit on our behalf, are governed by the Business Corporations Act (Yukon).
ITEM 4. Information on the Company
A. History and Development of the Company
We are principally engaged in the acquisition, development, and operation of mineral properties and exploration for, in particular, nickel, PGEs, copper, gold, silver and associated base and precious metals. At present, operations are located in Canada and the United States. Operations in Canada are conducted through the parent corporation, Pure Nickel Inc., as well as through our wholly-owned subsidiary, PNI Corp. (a Canada corporation). Operations in the United States are carried out through our wholly-owned subsidiaries Nevada Star Resource Corp. (a Washington corporation), and Nevada Star Resource Corp. (U.S.) (a Nevada corporation). The Company also seeks to exploit joint venture or option agreements where appropriate to enhance shareholder value, on certain of its mineral properties and the surrounding areas.
We were incorporated under theCompany Act (British Columbia) on April 29, 1987, and on June 17, 1998 were continued under the YukonBusiness Corporations Act. On March 31, 2009 our shareholders approved our continuance under theCanada Business Corporations Act). We prepare our financial statements in Canadian dollars and in accordance with Canadian GAAP. Unless otherwise indicated herein, all dollar amounts are stated in Canadian dollars.
The address and telephone number of our principal executive office and information on the Company generally can be found above under “Special Information: Other Information.” The registered agent in the United States for our United States subsidiaries is CT Wolters Kluwer, 111 Eighth Avenue, New York, NY 10011.
On March 30, 2007, we (then known as Nevada Star Resource Corp., (“Nevada Star”), completed the acquisition of all of the shares of (old) Pure Nickel Inc. (“old PNi”), a private company incorporated on May 18, 2006. From a Canadian legal and accounting perspective, the transaction was deemed to be a reverse takeover. Old PNi, the new subsidiary of Nevada Star, was deemed to be the acquirer and its financial statements are the basis of the continuing financial statements of Nevada Star, which simultaneously changed its name to Pure Nickel Inc. As a result, our financial statements reflect the results of Nevada Star for the fiscal years ended August 31, 2004 and 2005, the three month period ended November 30, 2005, and the combined results of old PNi and Nevada Star for the period from May 18, 2006 to November 30, 2006, and the fiscal years ended November 30, 2007 and 2008.
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At the same time as the reverse takeover, we consolidated our common shares on a one-for-five basis, and they continued to be traded on the Toronto Stock Exchange Venture Exchange (TSX-V) and in the United States on the Over the Counter Bulletin Board. Our share listings have now graduated to the senior Canadian exchange and as of August 14, 2007, have been listed on the Toronto Stock Exchange.
During the second quarter, 2007, we completed a financing of $9,000,000 by the sale of 10,000,000 units for $0.90 each. Each unit consisted of one common share and one-half of one warrant. Each whole warrant is exercisable into one common share at $1.20 for a term of 18 months. The agent for this financing received a cash commission of 7% of the gross proceeds and advisory warrants equal to 5% of the gross number of securities sold in the offering. Each advisory warrant is exercisable into one common share at $0.90 each for a period of 18 months.
During the third quarter, 2007, we completed a financing of $27,500,000 by the sale of 22,000,000 units for $1.25 each. This financing contained a U.S. private placement portion, which was conducted pursuant to the rules promulgated under Section 4(2) of the Securities Act of 1933, as amended. Each unit consisted of one common share and one half of one warrant, each whole warrant being exercisable for a period of 18 months into a common share of the Company for $1.75 per share.
Prior to February 2007, we had three properties in different stages of exploration: (i) the MAN Property located in Alaska, United States; (ii) the Salt Chuck Alaska PGE Property located in Alaska, United States; and (iii) the Milford Utah Copper Property located in Beaver County, Utah. Prior to February 2007, old PNi had two exploration properties: (i) Fond du Lac, located in Saskatchewan, Canada and (ii) Fox River, located in Manitoba, Canada. The Fond du Lac property was originally under option from Red Dragon Resources Corp. and, on May 8, 2007, we acquired 100% interest in the property from Red Dragon Resources Corp. for $100,000 and the issuance of 1,000,000 shares of our common stock. On November 6, 2007, we announced we had elected not to renew the option for the Fox River property.
On August 2, 2007, we completed a major acquisition comprising the purchase of the Xstrata property portfolio for $15,250,000 in cash and the issuance of 4,000,000 warrants to purchase common shares with an exercise price of $2.00 per share for a period of three years from the issuance of the warrants. Properties included in the acquisition were:
- William Lake and Manibridge in Manitoba;
- POV, Nuvilik, SR1, HPM, East Hudson (JV with SOQUEM) and Forgues in Quebec;
- Harp Lake and Florence Lake in Newfoundland; and
- Rainbow in Nunavut.
In addition, Xstrata was granted:
a net smelter royalty of 2% on each property with us having the right to reacquire 1% by payment of $1,000,000 with respect to a particular property at any time up to twelve months after commercial production has been achieved on that property;
off-take and marketing rights for all concentrate or product produced from the properties; and
the right to retain one back-in right to 50% for any one (only) of any mining project with an economic threshold of 15,000,000 tons of resources.
On September 20, 2007, we entered into an option agreement with Exploration Syndicate Inc., a private company, for the option to earn up to 100% interest in 160,000 hectares of prospective property in central Manitoba. In March 2008, we drilled two conductors identified from a November VTEM airborne survey. Drill success was limited and in June 2008 we announced our intent to end the option agreement.
On November 6, 2007, we granted an option to Manicouagan Minerals Inc. under which they may earn up to a 70% interest in 39 mining claims comprising the Forgues and Haut Plateau East project in Québec.
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Manicouagan Minerals paid us $30,000 and as long as the agreement remains in effect, will pay $25,000 on the first and second anniversary of the agreement. Manicouagan Minerals granted us 250,000 common share purchase warrants at a price of $0.40 per share, with a four month hold period and for a term of two years. Manicouagan Minerals will earn a 50% interest in the Forgues and Haut Plateau properties by spending a minimum of $750,000 on the property on or before the second anniversary date. Manicouagan Minerals can earn an additional 20% if within 60 days of the second anniversary date of the agreement they spend an additional $1,500,000. As referenced above, on November 6, 2007, we announced that we would not renew our option for the Fox River project in Manitoba. We also announced that we had allowed our claims on the Florence Lake project in Newfoundland and Labrador to lapse.
On November 15, 2007, we announced a 50/50 joint venture agreement with Crowflight Minerals Ltd. (“Crowflight”) to explore the past producing Manibridge Mine area. Each party contributed properties and mineral rights to the joint venture and made an initial contribution of $3 million over a three year period to fund preliminary exploration activities within the joint venture area and to perform further detailed technical studies as necessary to evaluate the potential for development and mining on the properties. Crowflight is the operator of the joint venture. In addition, we have an option to earn a 50% interest from Crowflight in an area surrounding the joint venture area by spending $1.5 million over a three year period. Properties contributed by us to the joint venture contain the claims and tailings disposal area of the past producing Manibridge Mine and are subject to rights held by Xstrata pursuant to an exploration property purchase agreement entered into between Xstrata and the Company on August 2, 2007. Specifically, Xstrata will, among other things (i) retain an off-take option to purchase all or any portion of concentrates and other mineral products produced from the affected properties; and (ii) be entitled to a 2% net smelter return (NSR) royalty with respect to the our claims.
On November 20, 2007, we filed on SEDAR, and furnished on a 6-K through EDGAR, an Independent Technical Report on our 100% owned William Lake property in the Thompson Nickel Belt, Manitoba. We commissioned the NI 43-101 report from Scott Wilson Roscoe Postle Associates Inc. to summarize previous work, and in particular the exploration activity undertaken by Xstrata through its predecessor company, Falconbridge Limited. The technical report highlighted the significant nickel mineralization outlined by 13 years of previous exploration activity that commenced in 1989. This technical report conforms to NI 43-101 Standards of Disclosure for Mineral Projects and its recommendations form the basis for our future exploration programs to develop a resource estimate.
On December 19, 2007, Jay Jaski, our CEO and Chairman, unexpectedly passed away. David McPherson was appointed interim President and CEO and Robert Angrisano was appointed as interim Chairman of the Board. On April 3, 2008 these appointments became permanent.
On February 21, 2008, we announced that we had entered into an option agreement with Rockcliff Resources Inc. whereby Rockcliff may earn up to a 70% interest in the Tower VMS property. This property is comprised of 35 mining claims located at the north end of our William Lake Property. The agreement requires Rockcliff to drill 2,000 meters in the first year as well as the granting to us of warrants to purchase 1,250,000 shares of Rockcliff at $1.50 per share with a term of 2 years.
On May 15, 2008, we relinquished our rights to the East Hudson properties in Quebec.
On June 5, 2008, we granted Minergy Ltd., a private company, an option to earn up to 70% interest in 393 mining claims comprising the Nuvilik and POV properties located in the Raglan district in Quebec.
On October 31, 2008, we granted ITOCHU Corporation, a large Japanese conglomerate (“ITOCHU”), an option to earn up to a 75% interest in the MAN, Alaska property. Pursuant to the agreement, ITOCHU reimbursed us for expenditures incurred in 2008 at MAN and will fund 2009 exploration activity to a combined maximum of $6.5 million for 2008 and 2009. On an ongoing basis, exploration activity may be funded through 2014 to a total of $40 million subject to ITOCHU exercising its option to continue at the end of 2009 and 2013. Under the terms of the agreement, ITOCHU can earn a 60% interest in MAN by incurring an aggregate of $30 million of exploration expenditures over the first six years of the option period. Once ITOCHU has earned a 60% interest, it has the option to earn-in an additional 15% interest in the MAN property by incurring an additional $10 million of exploration expenditures during the seventh year of the agreement. The agreement provides for the acceleration of the earn-in timetable, and we will also earn a 10% management fee and will remain as operator.
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B. Business Overview
General
We are in the business of acquiring, exploring and developing mineral properties, primarily those containing nickel, platinum group elements, copper, gold, silver and associated base and precious metals. We have a practice of taking grassroots or undeveloped properties with the expectation of developing them to a level where an ore body is indicated or likely. If an ore body is indicated or likely, then we have a policy of looking to develop a joint venture or purchase option with a larger mining company to further develop the property and, if justified, to take the property into production. In all cases, we retain a percentage of ownership, in the case of a partnership we receive a percentage of royalty from the production of product resulting from a mining operation. Our property portfolio is summarized in the table set forth below.
Most aspects of our business require specialized skills and knowledge. Such skills and knowledge include the areas of geology, geophysics, mine development, mining, metals marketing, finance and accounting. We compete with other mineral exploration companies for the acquisition of mining claims and leases and for qualified personnel to develop and explore the Company’s property portfolio. There is significant competition for the limited number of precious metal acquisition and exploration opportunities that are economic under current and foreseeable metals prices.
The Company’s fixed assets and mineral properties by geographic distribution are as follows:
| November 30, 2008 | Canada | United States | Total | ||||||
| Fixed assets | $ | 17,269 | $ | – | $ | 17,269 | |||
| Mineral properties | 25,580,982 | 12,784,575 | 38,365,557 | ||||||
| $ | 25,598,251 | $ | 12,784,575 | $ | 38,382,826 | ||||
| November 30, 2007 | Canada | United States | Total | ||||||
| Fixed assets | $ | 27,258 | $ | – | $ | 27,258 | |||
| Mineral properties | 22,372,498 | 12,351,242 | 34,723,740 | ||||||
| $ | 22,399,756 | $ | 12,351,242 | $ | 34,750,998 |
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C. Organizational Structure
The diagram below sets out our organizational structure as at November 30, 2008 and the jurisdiction where the entities listed were incorporated or continued. Each of Nevada Star Resource Corp., Nevada Star Resource Corp. (U.S.) and PNI Corp. is a wholly-owned subsidiary of the Company. At the Annual and Special Meeting of Shareholders that was held on March 31, 2009, our shareholders approved our continuance under theCanada Business Corporations Act. As at November 30, 2008, we were governed by theBusiness Corporations Act (Yukon), which is reflected on the chart below. For further information on this continuance, see Item 10, below.
D. Property, Plant and Equipment
In most cases, we use third party contractors to carry out our exploration activities, so that we own very little property, plant and equipment in the field.
Mineral Projects
We have mineral rights to several premier properties and numerous others in various stages of exploration in North America. A summary of the properties is presented in the table below and detailed descriptions follow.
| Property | Location | Claims area (approx.) | Comments |
| MAN | Alaska (400 km NE of Anchorage, 265 km SE of Fairbanks) | 72,930 hectares | The property is currently in the early exploration stage. We regard MAN as one of our more important properties and on November 5, 2008 announced an option agreement with ITOCHU. |
| William Lake | Manitoba (50 km from Grand Rapids) | 30,553 hectares | We consider William Lake to be one of our premier properties. An extensive exploration program was conducted last winter. |
| Salt Chuck | Alaska, Prince of Wales Island | 1,082 hectares | The property is currently in the early exploration stage. It is located near the historic past producing Salt Chuck mine which was active between 1919 and 1941 with a reported production of 300,000 tons of copper sulphide ore grading 0.95% Cu , 2.0 g/t (grams per ton) Pd, 1.1 g/t Au, and 5.7 g/t Ag. |
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| Property | Location | Claims area (approx.) | Comments |
| Fond du Lac | Saskatchewan (20 km NW of Stony Rapids) | 35,650 hectares | The property is currently in the early exploration stage. The property has a historic non-compliant 43-101 estimate resource of 3,400,000 t of 0.66% Ni, 0.60% Cu, and 0.15% Co. We consider Fond du Lac to be one of our more promising properties, as results from two exploration programs have yielded encouraging results. |
| TowerProperty | Manitoba (50 km from Grand Rapids – part of William Lake) | 7,627 hectares | On February 21, 2008, we granted an option to Rockcliff Resources Inc. under which they may earn up a 70% interest in the Tower claims, which are located within the northern portion of the William Lake claim block. |
| Manibridge | Manitoba (28 km SW Thompson ) | 274 hectares | We have a 50-50 joint venture agreement with Crowflight Minerals Inc. to explore for deposits. Each of us contributes properties and funds for preliminary exploration activities. We also have an option to earn a 50% interest from Crowflight in an area surrounding the joint venture area by spending $1.5 million over a three year period. |
| Forgues andHaut PlateauEast | Quebec (180 km NW of Sept Isles) | 1,152 hectares | Manicouagan Minerals Inc. has an option to earn up to a 70% interest in 39 mining claims. Manicouagan paid us $30,000 and also granted us common share purchase warrants. |
| RaglanSR1, POV,Nuvilik | Quebec | 51,420 hectares | The properties are currently in the early exploration stage. Minergy Ltd. has an option to earn a 70% interest in 393 mining claims comprising the POV and Nuvilik properties. |
| Rainbow | Nunavut (380 km NW of Churchill, and 612 km N of Thompson) | 4,480 hectares | The property is currently in the early exploration stage. |
| Copper KingMilford | Utah | 2,830 hectares | The property is operated by Copper King Mining Corporation. We will receive 1% of net proceeds from the first 10 million pounds of copper produced, 1.5% of net proceeds on all copper produced thereafter and 2% of net smelter proceeds on all other minerals produced. Total royalties are capped at $10 million and are subject to a 12% Net Profits Interest on copper production from certain claims (held by a group of private investors which includes a current director of the Corporation) which will not exceed $1.2 million in the aggregate. |
| Harp Lake | Central Labrador | 475 hectares | This property is in the early exploration stage. |
MAN Alaska Project, Alaska
Location - The MAN project is located approximately 266 kilometres southeast of Fairbanks and 402 kilometres northeast of Anchorage along the southern flank of the Alaska Range. The nearest community is the hamlet of Paxson, which is situated at the junction of the Denali and Richardson highways.
Access - The Richardson and Denali highways traverse the southeast portion and southern perimeter respectively of the project area. Helicopters offer the best means of accessing remote parts of the project area.
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Property Status - The MAN project comprises 3,033 State and Federal mining claims and prospecting sites encompassing an area of 180,212 acres (72,930 hectares). The project property falls within the Fairbanks, Chitina and Talkeetna recording districts. All claims are 100% owned by Nevada Star Resource Corp. (U.S.), our wholly-owned subsidiary.
Geology - The Mount Hayes Quadrangle, in which the MAN Project is located, is dominated by the geology of the central Alaska Range and foothills on its southern flank. The Denali Fault bisects the eastern Alaska Range, and splays to the north and west in the central Alaska Range just north of the project area.
Exploration - Since Alaska has no assessment reporting system in place, new companies must rely on the generosity of previous property owners to supply their work records. The MAN project has greatly benefited from well-documented work programs by ACNC (American Copper and Nickel Company), Fort Knox and MAN Resources starting in 1991.
In May 2007, we conducted a VTEM B-Field airborne geophysical survey over the Alpha, Beta and East Rainy complexes of our MAN Alaska project area. Surveys over the three blocks were conducted along flight lines 100 meters apart for a total of 3,327 line kilometers. In addition three dimensional magnetic inversion modeling was completed in May and in June 2007, a follow-up soil geochemical survey was conducted on the Alpha complex. This soil survey provided additional detail and definition from over 2282 new sample sites to expand upon the existing soil geochemical results accumulated from a 4000 sample program conducted during the 2002 to 2005 programs and will bring greater precision in targeting the 2008 drill program.
In conjunction with the soil geochemical survey, a bedrock geochemical analytical program was conducted in July 2007. Detailed GPS grids on the Alpha complex were established on which 1266 sites were analyzed utilizing a portable XRF unit. The objective of this survey was to establish width and extent of several large areas known to contain disseminated Ni-Cu-PGE sulphides. The survey established that two anomalous Ni-Cu horizons, each with strike lengths of > 450 meters are present to the west of Fish Lake.
From July 17, 2007 to October 3, 2007, 14 drill holes were completed, of which two were abandoned, on the Alpha Complex. A total of 3359 meters of the proposed 4000 meters program was completed. Most of the drill holes encountered extensive zones of disseminated Ni-Cu-PGE sulphides. The best disseminated intersections appear to be associated with areas defined to have anomalous conductivity as defined by the VTEM survey.
The 2008 exploration program focused on diamond drilling which targeted geophysical anomalies, particularly VTEM conductors, in the Beta Complex. Drilling in 2008 was limited to three completed holes (one abandoned) due to poor drilling conditions. The drilling did intercept wide zones of disseminated sulphides, including 0.50 metre grading 1.39% Ni and 1.27% Cu. A map of the MAN property is shown below.
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William Lake, Manitoba
Location - The William Lake property surrounds William Lake in west-central Manitoba. William Lake is approximately 30 km northwest of Lake Winnipeg and the property claims lie between 70 and 110 kilometres north of the town of Grand Rapids.
Access - The William Lake property is accessible by Highway 6, which dissects the eastern-most property claims north of Little Limestone Lake. A network of unpaved logging and drill roads, including all-season roads, leading from Highway 6 provides access to other parts of the property. Lakes within the William Lake property are accessible by float or ski equipped fixed-wing planes; and all claims and licences are accessible by helicopter.
Property Status – The property is 100% Company owned and is comprised of 142 claims and 1 mineral exploration license covering 30,553 hectares.
Geology– Work by Xstrata and the Manitoba geological survey concluded the metasedimentary rocks in the area belong to the Thompson Nickel belt and are part of the same nickel bearing Ospawagan group that hosts all of the Thompson nickel mines. Paleozoic cover on the property typically ranges from 70-200 m in thickness and consists of flat-lying limestone and dolomite underlain by a thin package of sandstones and shale’s belonging to the Winnipeg Formation.
Exploration- Xstrata through its precursor entity, Falconbridge, carried out a successful nickel exploration program during the period of 1989 to 2002 which included airborne and ground geophysical surveys and 260 diamond drill holes. Their biggest success was the discovery of the William Lake trend (WLT) extending 18 kilometers in a northwest –southeast axis located on the southwest and east side of William Lake Xstrata’s exploration outlined 7 prospects (W55, W56N, W21, W56, W22, W42 and Lime) of nickel mineralization within the WLT.
Our exploration started at the end of October, 2007 and is following up on mineralized intersections on prospect W56. In view of the wide spaced drilling (up to 250 meters apart) the main objective of the program is to establish the continuity of the known mineralization to provide the confidence to work towards a mineral estimation for a 43-101 compliant resource on one or more sections. The program included an ongoing ground PEM and BHEM surveys and 1159 line kilometers of a VTEM airborne survey was flown over the entire WLT properties (completed on December 17th). Results have identified multiple, weak to highly enhanced conductivity zones, some with previous drilling indicating the presence of ore grade nickel mineralization and others with very little or no drilling.
The first phase of a 2007-2008 drill program began on November 8, 2007 and shut down on December 16, 2007. The second phase started in early January 2008. The surface drill program was completed on April 8, 2008 with a total of 7525 meters in 15 holes completed on budget. The drilling was completed on five zones within the 15 km William Lake trend. The winter’s program was testing nickel bearing horizons identified by the historical drilling. In view of the previous wide spaced drilling (up to 250 meters apart) one of the main objectives of the program was to establish the continuity of the known mineralization to provide confidence to work towards a mineral estimation for a 43-101- compliant resource on one or more sections. Testing for the continuity of mineralization included drilling above, below and on strike of the known zones at 50 to 100 m step outs.
Phase two drilling focused on new zones identified by the VTEM survey, as well as previously identified nickel bearing horizons with little previous drilling and/or poor understanding of the mineralization, were also explored. Drilling on zones 56 N and W 21 at William Lake discovered a significant new nickel-enriched sulphidic iron formation adjacent to an ultramafic intrusion that hosts numerous thick disseminated Ni-sulphide intervals. This association and the high Ni/Cu ratios is described by Bleeker (1990) at Inco's Pipe II and Thompson ore deposit located in the northern portion of the Thompson Nickel Belt (TBN). Our discovery is the first find of ore-grade and near ore grade Ni-enriched intersections of sulphidic iron formation in the southern extension of the Thompson Nickel Belt. As seen at the Thompson and Pipe II deposits these type of sulphidic iron formations when Ni-enriched can constitute ore and form as much as 50% of the total tonnage of the deposit. Although most macroscopic characteristics of the Ni-enriched iron formations are similar to those of their low nickel counterparts, Ni grades can range anywhere from slightly above those in the barren sulphides to the maximum grades observed in adjacent massive magmatic sulphides (e.g. 3% Ni at Pipe II and 10-12% Ni at Thompson).
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Reviewing the current exploration status of all the projects in our portfolio, the William Lake Project is the most advanced property based on the exploration activity (primarily drilling) and results (potentially economic grade and width). The William Lake project has consistently returned economic grade/width intersections with the previous drilling programs.
Salt Chuck Property, Alaska
Location- The project area is located in Southeast Alaska on Prince of Wales Island, approximately 70 kilometres northwest of Ketchikan, Alaska. The property is situated at latitude 55º 38’ N, longitude 132º 33’ 30” W.
Property Status - We holds 100% interest to 146 federal lode mining claims that constitute the Salt Chuck Property, covering 1,082 hectares.
Access – The property is accessed by ferry from Ketchikan to Hollis on the eastern part of Prince of Wales Island, then by 80 kilometres of paved road to the Salt Chuck turnoff (6 kilometres southwest of Thorne Bay), then 9.5 kilometres to the Salt Chuck property via improved gravel roads maintained by the U.S. Forest Service and the local lumber industry.
Geology - The project area is underlain by a mafic-ultramafic complex which hosts palladium bearing copper sulfide mineralization.
Exploration - A recent airborne geophysical survey released by the State of Alaska indicates that the Salt Chuck property covers prospective ground within the mafic-ultramafic complex. On the property lies the historic Salt Chuck mine. The Salt Chuck mine was active between 1919 and 1941 and had reported production of 300,000 tons of copper sulfide ore grading 0.95% Copper, 2.0 g/t Palladium, 1.1 g/t Gold, and 5.7 g/t Silver (these results preceded the implementation of national instrument 43-101 standards and therefore cannot be verified by modern standards). A site visit to the property was made in September 2007, and the logistic for a 2500 metres drill program was laid out.
Fond du Lac Project, Saskatchewan
Location - The Fond du Lac property is located in northern Saskatchewan, Canada, east of Lake Athabasca and immediately north of the Fond du Lac river. The centre of the property is located just 20 km northwest of Stony Rapids, Saskatchewan at latitude 59° 22.1’ North and Longitude 104° 0.7’ West.
Access - Access to the property is via float or ski-equipped fixed-wing aircraft, readily available for charter from Yellowknife, Northwest Territories or Stony Rapids and Points North, Saskatchewan. Helicopter chartering is also available. There is an old winter road that traverses to the centre of the property. Stony Rapids has year round road access and offers a wide range of supply and transportation services to the mining and exploration industry. There are daily direct flights connecting Stony Rapids to Saskatoon and Regina.
Property Status - The Fond du Lac Project claim area consists of permits totalling approximately 30,798 hectares of prospective ground. The Company is the registered claim holder, and owns 100% of the property.
Geology - Mineralization on the property is associated with magmatic nickel-copper sulphides. Mineralization has been transported along a prominent fault conduit formed in an extensional rift environment within the Snowbird Tectonic Zone.
Exploration – The area was first discovered in the 1930s and was explored by several different companies until 1991. The Fond du Lac property was staked in January of 2005. A Geotech airborne survey was flown in March-April of 2005 and additional staking was undertaken to cover airborne responses lying outside of the original block. In June of 2005, an organic soil-sampling program was conducted contemporaneously with a cursory mapping and exploration program to look at the geology on the property. A drill program in 2006 intersected mineralization in all 7 drill holes completed including one intersection of a half meter length grading 1.86% nickel. Drilling was cut short due to a large forest fire forcing early evacuation and an end to the drill program.
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During the second quarter of 2007, we completed a drill program of 19 diamond drill holes totalling 3,127 meters. Drilling tested a focused area of known mineralization on the Rea Lake mineralized horizon, a strong magnetic feature 600 meters to the south, and a possible extension to the Axis Lake East Zone horizon. The program confirmed extensive zones of nickel mineralization.
We commissioned a National Instrument 43-101 technical report on the property. Historical exploration established an inferred mineral resource of 3.4 million tonnes at the Axis Lake horizon grading 0.66% nickel and 0.35% copper. Readers are cautioned that while this historical resource estimate is considered to be reliable and relevant and estimated under the high standards of the day, it does not comply with the modern guidelines of National Instrument 43-101.
Manibridge Property, Manitoba
Property Description- The property is located 128 km southwest of Thompson and 32 km southwest of the town of Wabowden (NTS 63J10). The Manibridge properties consist of two claims, Ore 5 and Ore 6, each of which is 135 hectares. The two claims cover the shaft, ore body and tailings pond of the former operating mine.
Exploration -A production decision was announced in June 1969 on a mineral inventory calculation derived from 26 surface drill holes cutting the mineralized zone. At this stage 51 holes had been drilled on the property for a total of 44,398 feet. Production started in June 1971 and the operation ran into continual problems, never reaching design production levels (250,000 t.p.y. milled and 13,700,000 lbs annual production of nickel). The mine was closed in June 1977, when economic reserves were exhausted. The crown pillar has since collapsed and the mine workings are no longer accessible. The initial mineral inventory during the life of the mine was 1,409,000 tones (including 15% dilution).
On November 15, 2007, we entered into a 50-50 joint venture agreement with Crowflight to explore and develop nickel deposits on properties controlled by both parties proximal to the past producing Manibridge Nickel Mine. This transaction will enable the Company to expand the potential at Manibridge by exploring not only the areas surrounding the mine but the historical mineralization along strike that are evident in exploratory drill holes from the 1960s and 1970s. Properties contributed by the Company to the joint venture contain the claims and tailings disposal area of the past producing Manibridge Mine. Crowflight is in the process of bringing its Bucko Lake project into production and is motivated to find additional mill feed for the recently fully funded mill to be built there. In 2007 Crowflight conducted a VTEM geophysical survey over the Manibridge property, shared mine data with PNI on the deposit and conducted a 2,496 metre drill program completing six holes. Drilling resulted in the discovery of two nickel zones located within 400 metres of past production and confirmed an extension to the Manibridge deposit itself.
HPM and Forgues, Quebec
Property Description - The HPM and Forgues properties are located approximately 290 kilometres north of Baie Comeau, Quebec and 180 kilometres north-northwest of Sept-Iles, Quebec. The properties can be accessed by Route 389, an all weather road connecting Baie-Comeau to Fermont to Labrador City. It is paved up to Hydro Québec Manic 5 power plant. A gravel road maintained by Hydro-Québec to access their Hart Jaune power station intersects to the east route 389 at kilometre 390. The HPE property consists of 14 map-staked claims, covering an area of 748.37 hectares. The Forgues property consists of 25 ground-staked claims covering an area of 400 hectares. The properties lie in the Manicouagan Metamorphic Complex.
Exploration- On November 6, 2007, we announced that we had entered into an option agreement with Manicouagan Minerals Inc. Since a significant shareholder and officer of Manicouagan Minerals is a director of the Company, this is reported as a related party transaction under Item 8, Section B - “Related Party Transactions” - found below.
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Nuvilik Property, Ungava, Quebec
Property Description - The Nuvilik Property is located in the central part of the Cape Smith Belt approximately 90 kilometers south of the coastal Inuit community of Salluit. A permit covering 7500 hectares was originally taken in 1995. In December 2002 and July 2003 additional claims were taken and the property now comprises 245 claims covering approximately 10,000 hectares separated into two distinct blocks; all of the claims are 100% owned.
Exploration - Historical drilling includes 15 drill holes by Ekwan River Mines Ltd. and 6 drillholes totalling 1,037m by Falconbirdge Ltd. An AeroTEM airborne EM and Magnetic survey was flown in 2004 and identified several unexplained conductive anomalies. The AeroTEM total field magnetic data highlighted numerous magnetic features, some that are potentially related to previously unrecognized ultramafic units.
POV Property, Ungava, Quebec
Property Description - The POV Park property is located 100 kilometres northeast of the coastal Inuit community of Akulivik, 160 kilometres west-southwest of the Raglan Complex. The property consists of 4 blocks comprising a total of 148 map staked claims covering an area of 5890 hectares acquired in 2003 by Falconbridge. The claims were staked to cover a prospective horizon located within a Provincial Reserve close to the Mont Puvirnituq Park project. The limited amount of field work that has been conducted on this property has already uncovered some high tenor magmatic sulphides at the base of an ultramafic complex (0.52% Ni, 0.24% Cu, 2.3g/t PGE and 1.74% S; and 0.60% Ni, 0.43% Cu, 0.9 g/t PGE and 2.51% S). This ultramafic body is positioned within the Raglan Horizon and appears to have a conductive response associated with it.
Exploration - An AeroTEM airborne EM and Magnetic survey was flown in 2004 identified several unexplained conductive anomalies. Some of these conductors are concordant with, or occur in the vicinity of previously mapped ultramafic units. The AeroTEM total field magnetic data highlighted numerous magnetic features, some that are potentially related to previously unrecognized ultramafic units.
SR1 Property, Ungava, Quebec
Property Description - The SR1 property is located approximately 55 kilometres southwest of the coastal Inuit community of Kangiqsujuaq, and 40 kilometres southeast of the Donaldson airport. Travel to the Property is only by helicopter. The SR1 property is (at the most) 45 kilometres long by 14 kilometres wide, covering a surface of 35724 hectares. It comprises 864 claims acquired from January to July 2003.
Exploration - Exploration in the southern portion of the Cape Smith Belt (i.e., South Raglan) in Northern Québec was sparked anew in 2003 by the Ni-Cu-PGE sulfide discoveries announced by Canadian Royalties Inc. At that time there was a staking rush and Falconbridge Ltd. took out several claim blocks including SR1 in the South Belt, and initiated a regional exploration project to investigate the potential of the ultramafic rocks. In the summer of 2009, a 1,100 km VTEM survey was completed on the property and geophysical interpretation of the survey has identified several potential targets.
Rainbow, Nunuvut
Property Description - The property is located 260 kilometres west of Arviat, 380 kilometres northwest of Churchill, and 612 kilometres north of Thompson. The Rainbow Property consists of a series of mining claims totaling 4,480 hectares. The project area is remotely located, Arviat is the nearest costal access route, and Churchill is the closest railhead. Access to the camp is possible via fixed wing aircraft to Cullaton Lake Airstrip (gravel strip, 4500 feet long, capable of taking HS748 aircraft).
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Exploration - The most significant previous work on the property was undertaken by Inco (1952-53, & 1997), and Noranda (1977 & 1992). From August 22 to September 10, 2004, a 1,012 metres diamond drill program in six holes was completed in the vicinity of the Main Zone Showing to test the surface showing (0.38 to 2.23% Ni). Four holes intersected disseminated sulphides with nickel grades less than 0.5% (RB04-01,-03 to -06). One hole (RB04-02) intersected a narrow 0.5 metre internal of semi-massive sulphides which assayed 0.79% Ni and 9.93% S with a low nickel tenor of 2.87% Ni in 100% sulphides. Significantly, one hole, RB-04 intersected 13.10 g/t Au and 4.73% S over 2.14 metres, including 24.20 g/t and 7.88% S over 1.0 metre.
Copper King (formerly Milford Copper Property), Utah
On November 26, 2003, Western Utah Copper Corporation (WUCC) exercised its option to acquire a 100% interest in the mining claims located in Beaver County, Utah owned by Nevada Star Resource Corp. (US), our wholly owned subsidiary, in consideration of royalty payments of up to US$10 million. Under the option agreement, WUCC had three years to put the property into production or WUCC would receive a one year extension by notifying us before that date that the property was being readied for production by the commencement of actual mine and/or plant development expenditures according to a schedule leading to production within twelve months. WUCC so notified us that it was on a path to production and since then has been granted two one year extensions up to November 1, 2008 to achieve production, failing which the mining claims are to be returned to us. Additional discussions have since occurred. We are entitled to receive 1% of the net proceeds from the first 10 million pounds of copper produced, 1.5% of net proceeds on all copper produced thereafter and 2% of net smelter proceeds on all other minerals produced. Total royalties to us are capped at US$10 million.
Property Description - The Milford Copper Property (referred to in Nevada Star Resource Corp. consolidated financial statements as the OK Copper Mine and the Beaver Lake Property) consists of 55 patented mining claims, 232 unpatented mining claims, five Utah state leases, and 93 acres of free land, aggregating approximately 7,000 acres located in Beaver County, Utah. The Milford Copper Property is owned 100% by the Company, subject to a 12% Net Profits Interest on copper production from certain claims (held by a group of private investors which includes a current director of the Company) which will not exceed $1.2 million in the aggregate.
Exploration - The Company carried out extensive drilling on the claims in 1998 and commissioned a feasibility study that year. The results of the study were positive for the production of up to 54 million pounds of copper over a 5-year production life. However, due to low copper prices at the time, the anticipated plant and production facilities were never constructed and the claims were not put into production.
Harp Lake, Labrador, Newfoundland
Property Description - The Harp Lake Property consists of one claim block staked over anomalous nickel and copper gossans in the Harp Lake Anorthositic Complex. The 19 claims (one licence) occupy 475 hectares. There has been no work performed on the property since 1999.
ITEM 4A. Unresolved Staff Comments
Not applicable.
ITEM 5. Operating and Financial Review and Prospects
The following is a discussion of our results of operations for the period from May 18, 2006 to November 30, 2006 and the fiscal years ended November 30, 2007 and 2008.
The following discussion should be read in conjunction with our audited consolidated financial statements, together with the accompanying notes, included elsewhere in this Annual Report. Unless indicated otherwise, all references herein are to Canadian dollars. Please refer to “Item 3:Key Information” for exchange rate information on the Canadian dollar.
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We completed the acquisition of (old) Pure Nickel Inc., a private company incorporated on May 18, 2006, and from a Canadian legal and accounting perspective, the transaction was deemed to be a reverse takeover. Results of operations reflect the combined results of (old) Pure Nickel Inc. and Nevada Star Resources for the period from May 18, 2006 to November 30, 2006 and the fiscal years ended November 30, 2007 and 2008.
The financial statements have been prepared in accordance with Canadian GAAP. Reference is made to Note 18 of the audited financial statements for the years ended November 30, 2008 and 2007, and to Note 18 of the audited financial statements for the year ended November 30, 2007 and the period from May 18, 2006 to November 30, 2006, for a discussion of the material differences between Canadian GAAP and US GAAP, and their effect on the Company’s annual audited financial statements. In addition to historical information, the following discussion contains forward-looking statements that involve risk and uncertainties. The Company’s actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors, including those discussed in “Risk Factors” and elsewhere in this Annual Report.
Overview
A. Operating Results
Selected financial information is set out below.
| 12 months ended Nov. 30, 2008 $ | 12 months ended Nov. 30, 2007 $ | May 18, 2006 to Nov. 30, 2006 $ | |
| Revenues | Nil | Nil | Nil |
| Operating expenses | 1,972,406 | 4,946,798 | 103,441 |
| Income (loss) from operations | (1,972,406) | (4,946,798) | (103,441) |
| Other income (expenses) | (459,634) | (2,778,777) | (35,082) |
| Net income (loss) | (2,432,040) | (7,725,575) | (138,523) |
| Total assets | 46,210,759 | 48,410,479 | 2,945,022 |
| Shareholders’ equity | 45,754,932 | 47,933,403 | 2,945,022 |
| Outstanding common shares | 67,765,559 | 67,765,559 | 24,100,001 |
| Dividends per common share | Nil | Nil | Nil |
| Net income (loss) per share, fully diluted | (0.04) | (0.18) | (0.02) |
Under Canadian GAAP, the Company capitalizes all costs related to the acquisition, exploration and development of non-producing mineral properties. Under U.S. GAAP, acquisition costs of mineral rights are capitalized, but exploration and development costs are expensed as incurred, until the establishment of commercially mineable reserves is complete, at which time any further exploration costs are capitalized. Under Canadian GAAP, enterprises in the development stage are encouraged to disclose cumulative information from the inception of the development stage. Under U.S. GAPP, this disclosure is required. Cumulative net losses since inception aggregate $10,296,138. The differences in accounting for mineral properties under Canadian and U.S. GAAP had the following effects on the Company’s financial statements.
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(i) Net Loss and Loss per Share
| 12 months ended Nov. 30, 2008 $ | 12 months ended Nov. 30, 2007 $ | May 18, 2006 to Nov. 30, 2006 $ | |
| Net loss under Canadian GAAP | (2,432,040) | (7,725,575) | (138,523) |
| Capitalized expenditures on unproven mineral properties | (3,581,188) | (14,280,085) | (1,090,652) |
| Net loss under U.S. GAAP | (6,013,228) | (22,005,660) | (1,229,175) |
| Loss per share under U.S. GAAP – basic and diluted | (0.09) | (0.50) | (0.18) |
(ii) Mineral Properties
| 12 months ended Nov. 30, 2008 $ | 12 months ended Nov. 30, 2007 $ | May 18, 2006 to Nov. 30, 2006 $ | |
| Mineral properties under Canadian GAAP | 38,365,557 | 34,723,740 | 1,190,652 |
| Capitalized expenditures on unproven mineral properties | (18,951,925) | (15,370,737) | (1,090,652) |
| Mineral properties under U.S. GAAP | 19,413,632 | 19,353,003 | 100,000 |
(iii) Deficit
| 12 months ended Nov. 30, 2008 $ | 12 months ended Nov. 30, 2007 $ | May 18, 2006 to Nov. 30, 2006 $ | |
| Deficit under Canadian GAAP | (10,296,138) | (7,864,098) | (138,523) |
| Capitalized expenditures on unproven mineral properties | (18,951,925) | (15,370,737) | (1,090,652) |
| Deficit under U.S. GAAP | (29,248,063) | (23,234,835) | (1,229,175) |
For Canadian GAAP, cash flows relating to mineral property exploration are reported as investing activities. For U.S. GAAP, these costs would be characterized as operating activities.
We received no operating revenues during the year ended November 30, 2008, which is unchanged from the previous year. We do not currently generate revenues or cash flows from operations (except for interest income and some small payments that are credited to mineral resources on the balance sheet rather than being identified as revenues in our statement of operations). This was in accordance with expectations as we are an exploration stage company and expect to finance activities through joint ventures, the sale of property interests, and by raising additional share capital when market conditions are suitable.
We reported a net loss of $2,432,040 or $0.04 per share for the year ended November 30, 2008, compared to a net loss of $7,725,575 or $0.18 per share for the year ended November 30, 2007, and a net loss of $138,523 for the period from May 18, 2006 to November 30, 2006. Of the loss, $302,950 is from a gain on foreign exchange for which the comparative figure for 2007 is a loss of $331,560 and for the period from May 18, 2006 to November 30, 2006 is nil. Our policy has been to maintain U.S. cash balances for the payment of expenses incurred in U.S. dollars (the conduct of the exploration programs on the MAN and Salt Chuck properties) so the gain results from the depreciation of the Canadian dollar during the last part of the year.
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General and administrative expenses for the year ended November 30, 2008 were $1,972,406 compared to $4,946,798 in the previous year and $103,441 for the period from May 18, 2006 to November 30, 2006. The decrease in expenses is primarily attributable to lower stock-based compensation costs including those attributed from option grants to officers, directors and consultants of the Company pursuant to our stock option plan. Option grants were non-cash costs aggregating $253,569 for the year ended November 30, 2008 compared to $2,311,488 in the previous year and $2,700 for the period from May 18, 2006 to November 30, 2006. In addition, legal, accounting and regulatory costs decreased significantly from the prior year because the reverse-takeover transaction occurred in that year and resulted in higher professional and registration fees. The reductions in quarterly expenses from the corresponding quarters the previous year were for these same reasons.
Interest income decreased to $301,390 for the year ended November 30, 2008 compared to $378,816 in the previous year and $ nil for the period from May 18, 2006 to November 30, 2006. due to a decrease in the cash balance over the year. Interest expense decreased to $ nil for the year ended November 30, 2008 compared to $7,830 in the previous year and $35,082 for the period from May 18, 2006 to November 30, 2006 due to enhanced cash management processes in place and higher cash balances. Change in fair value of investments is reported as a loss of $399,105, compared to nil in the previous year and for the period from May 18, 2006 to November 30, 2006.When we receive warrants as part of an option agreement with a venture partner, under Canadian GAAP we are required to record the warrants at their fair value, and then record changes in their fair value at each balance sheet date. The loss resulted from changes in the fair value of the warrants received during 2008, which are recorded as investments of $2,375 at November 30, 2008.
Cash used by operating activities was $484,251, compared to $2,786,072 in the prior year and $296,633 for the period from May 18, 2006 to November 30, 2006. The cash flow use from loss for the year was reduced by the write-down for impairment of mineral properties of $647,368 for the year ended November 30, 2008 compared to $2,659,219 in the previous year and $ nil for the period from May 18, 2006 to November 30, 2006.and stock-based compensation expense of $253,569 for the year ended November 30, 2008 compared to $2,385,488 for November 30, 2007, and $2,700 for the period from May 18, 2006 to November 30, 2006.since these are both non-cash expenses. Investing activities consumed cash of $4,775,586 for the year ended November 30, 2008 compared to $22,972,609 in the previous year, the bulk of which was due to capitalization of expenditures on mineral properties. We did not raise any cash through financing activities in the year ended November 30, 2008. Financing activities provided cash of $38,200,924 for the comparative prior period and $3,001,845 for the period from May 18, 2006 to November 30, 2006.
Critical accounting estimates
The preparation of our financial statements requires management to make various judgments with respect to estimates and assumptions. On an ongoing basis, management regularly reevaluates its estimates and assumptions; however actual amounts could differ from those based on such estimates and assumptions. In the opinion of management, none of the accounting estimates reflect matters that are highly uncertain at the time the accounting estimate is made or that would have a material impact on the Company’s financial condition, changes in financial condition or results of operations.
Mineral property costs
One of the most critical areas where estimates are used is in the area of the valuation of its carrying value of its mineral property costs. Under Canadian GAAP, the costs of acquiring mineral properties are capitalized until the viability of the mineral property is determined and would be amortized against future production following commencement of commercial production or are written off if the properties are sold, allowed to lapse or abandoned. General and administrative costs are expensed in the period incurred. The estimated values of mineral properties are assessed by management on a continual basis. If the carrying values exceed estimated recoverable values, then the costs are written down to the estimated recoverable values. Management’s estimates of mineral prices, recoverable resources, and operating, capital and reclamation costs are subject to certain risks and uncertainties that may affect the recoverability of mineral property costs. Although management has made its best estimate of these factors, it is possible that changes could occur that would adversely affect management’s estimate of the net cash flows to be generated from the properties. At present we have no proven or probable reserves.
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Exchange rates and currency risk
We maintain our accounting records using Canadian dollars as our functional currency. United States dollar transactions are converted to the functional currency as follows: At the transaction date, each asset, liability, revenue and expense is translated into Canadian dollars at the exchange rate in effect on that date. At each period end, all monetary assets and liabilities are translated into the functional currency by using the exchange rate in effect at that date. The resulting foreign exchange gains and losses are included in the consolidated statement of operations. We do not hedge our currency exposure except to the extent that the activity provides a natural hedge when expected disbursements in United States funds offset expected receipts. Fluctuation in the exchange rates between the United States dollar and the Canadian dollar could have a material effect on our financial condition and results of operations. At November 30, 2008, we had net monetary assets denominated in United States funds of $2,244,812. This represented a higher than normal balance and resulted from a U.S.-dollar cash receipt at the year end, and was significantly reduced shortly after the year-end. Based upon the year-end balance, an increase of 15% in the Canada to U.S. dollar exchange would result in an increase in the net loss and comprehensive loss of $417,000, and a reduction of 15% would result in a reduction in the net loss and comprehensive loss of $417,000. We believe that it is not likely but it is possible that the exchange rate could fluctuate by more than 15% within the next 12 months.
B. Liquidity and Capital Resources
On March 15, 2007, we completed a brokered private placement of 10,000,000 subscription receipts for $0.90 each, for gross proceeds of $9,000,000. Upon completion of the amalgamation with Pure Nickel Inc., the subscription receipts were automatically converted into units comprised of one post-consolidation common share of the Company and one-half of one post-consolidation warrant. Each whole warrant is exercisable into a common share at price of $1.20 for a term of 18 months. The agent employed for this financing received a cash commission of 7% of the gross proceeds and agent’s compensation and advisory warrants equal to 5% of the gross number of securities sold in the offering. Each agent’s warrant and advisory warrant is exercisable into one post-consolidation common share at a price of $0.90 each for a period of 18 months.
During the third quarter 2007, we completed a financing of $27,500,000 by the sale of 22,000,000 units for $1.25 each consisting of one common share and one half warrant, each whole warrant being exercisable for a period of 18 months into a common share of the Company for $1.75 per share.
Currently, none of our property interests generate revenue. Our capital needs have historically been met by the issuance of securities (either through private placements, the exercise of stock options, shares for services, property or other assets).
We had cash and equivalents of $7,700,559 at November 30, 2008 compared to $12,960,396 at November 30, 2007 and $514,560 at November 30, 2006. Working capital was $7,369,731 at November 30, 2008 compared to $13,182,405 at November 30, 2007 and $1,736,470 at November 30, 2006. Current liabilities at November 30, 2008 consisted of accounts payable and accrued liabilities payable totalling $455,827 compared to $477,076 at November 30, 2007 and $79,000 at November 30, 2006
The exploration and development of our mineral projects will require substantial additional capital. A significant portion of the 2009 exploration program will be funded by ITOCHU as part of the MAN project. During 2009 we will focus on our high priority properties (MAN and William Lake), and continue to seek joint venture, earn-in or other arrangements by which to advance the exploration of our properties without the cost of all of the work being borne by us. Management reviews the properties on a regular basis and abandons claims and writes off their book value when it is determined that further exploration is not likely to be productive. Management last carried out this review at November 30, 2008.
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Management believes that the working capital on hand at November 30, 2008 will be sufficient to cover general and administrative expenses and property holding and exploration costs for the current fiscal year.
C. Research and development, patents and licenses, etc.
Not applicable.
D. Trend information
Our financial performance will be directly affected by the exploration activities to be conducted on our projects, the results of those activities, and the possible development of the properties for commercial production of nickel and/or other valuable minerals. Should the results of such exploration activities warrant bringing any of the projects into commercial production, substantial additional funds would be required. Until such time as commercial production is achieved (and there can be no assurance it will be), we will continue to incur administrative costs and exploration expenditures that are either deferred or expensed, depending upon the nature of those expenditures, resulting in continuing operating losses and significant cash requirements. In the future, should the development of our mineral projects occur, financial performance will become more closely linked to the prices obtained for the nickel and/or other metals produced. We are of the view that the previous historically high price of nickel may not be regained; however the long-term forecast price is sufficiently attractive to justify our focus on nickel projects. Demand for nickel and base metals is expected to remain strong for the foreseeable future, primarily due to demand from China, India and other developing areas. While this will encourage increased exploration and production, the overall growth in supply is not expected to keep pace with demand growth in the near future.
We report our financial results in Canadian dollars, although a significant portion of our revenues, if any, could be earned in U.S. dollars, and our costs are historically primarily in Canadian dollars, although this could change if the MAN Alaska project accounts for a significant portion of our activities. The Canadian dollar has shown significant volatility against the U.S. dollar. If this volatility continues, the effect could be to add further uncertainty to our future financial results.
E. Off-Balance Sheet Arrangements
We are not engaged in any off-balance sheet arrangements.
F. Tabular Disclosure of Contractual Obligations
Disclosure of Contractual Obligations as at November 30, 2008
(a) We have commitments for an office lease requiring minimum payments of $4,388 per month until its expiry in 2010:
| 2009 | $ | 52,660 | |
| 2010 | 8,777 | ||
| 2011 | nil | ||
| Total | $ | 61,437 |
(b) We are conditionally committed to payments of up to $1,000,000 as at November 30, 2008 in respect of joint venture investments and mineral property development.
| Total | 2 years | 3 years | More than 5 | |||||||||
| years | ||||||||||||
| Crowflight | $ | 2,000,000 | $ | 1,000,000 | $ | 1,000,000 | $ | nil | ||||
| Total | $ | 2,000,000 | $ | 1,000,000 | $ | 1,000,000 | $ | nil |
G. Safe Harbor
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Statements included herein, which are not historical in nature, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including without limitation, statements as to management’s beliefs, strategies, plans, expectations or opinions in connection with the Company’s performance, which are based on a number of assumptions concerning future conditions that may ultimately prove to be inaccurate and may differ materially from actual future events or results.
Readers are referred to the documents filed by the Company with the pertinent security exchange commissions, specifically the most recent quarterly reports, annual report and material change reports, as each may be amended from time to time, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT, AND EMPLOYEES
A. Directors and Senior Management
Information about our directors and officers as of February 28, 2009 is set forth below:
| Date of first election | |||
| Name | Position | Age | or appointment |
| David McPherson | Director, President and Chief Executive Officer | 56 | March 26, 2007 |
| Robert Angrisano | Director, Chair of the Board | 55 | February 10, 1999 |
| Jeffrey D. Sherman | Chief Financial Officer | 53 | February 6, 2008 |
| Harry Blum | Director | 48 | March 26,2007 |
| R. David Russell | Director | 53 | March 27, 2006 |
| Constantine Salamis | Director | 75 | March 26,2007 |
| W.S. (Steve) Vaughan | Director | 72 | March 26, 2007 |
| Lisa Buchan | Business Manager and Corporate Secretary | 43 | January 22, 2007 |
A brief biography of our Directors and Officers follows:
Mr. David McPherson was appointed President and CEO of the Company in December 2007. From October 2001 until October 2005 Mr. McPherson was a Vice-President with First Ontario Credit Union and led strategy development, product and marketing groups. From November 2005 he has maintained his own management consultant practice. Mr. McPherson has over 25 years of financial institution experience with Canadian Imperial Bank of Commerce, a number of those years being at the executive level. He has had responsibility for large regional retail and small business banking operations. He has served in an advisory capacity to a number of community based economic development groups including Niagara Growth Fund, a regional venture capital fund based in Niagara.
Mr. Robert Angrisano became Chairman of the Board in December 2007. He was president of the Company between 2005 and March 27, 2007; CEO of the Company from May, 2006 to March 27, 2007. He retired from Microsoft Corp. in July, 2004 after spending more than 11 years in a variety of positions including Director of Technology, Director of Business Windows and Senior Principal Technologist. Mr. Angrisano was the President, a director and a principal shareholder of M.A.N. Resources, Inc., which Nevada Star Resource Corp. acquired in February, 2002. Mr. Angrisano has spent 28 years in consulting and management in the high technology industry and has been involved in the mining industry since 1995. He graduated from the University of Oregon with a degree in Business Administration.
Mr. Jeffrey Sherman is a Chartered Accountant and MBA who has been the CFO of numerous public and private companies, written many books, and lectured extensively on finance, treasury and governance, including as an adjunct professor at York University from 1984 to 2000, and executive development and other programs for the Institute of Chartered Accountants of Ontario since 1980. From October, 1999 to October 2003, he was Vice President and CFO at Herbert A. Watts Limited, a business services company. From October 2003 to April 2005, Mr. Sherman served as Vice President and CFO of VisualSonics Inc., a manufacturer of laboratory instrumentation, and from April 2005 to present Mr. Sherman has been President of Anagram Services, a consulting company.
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Mr. Harry Blum, managing partner of Collins Barrow Toronto LLP, Chartered Accountants was previously a partner with the transaction advisory services group of DMCT, LLP, which merged with Collins Barrow Toronto LLP in 2008. He has over 20 years of audit, tax and advisory experience. Formerly a senior professional with Price Waterhouse, Mr. Blum joined DMCT in 1992 and was admitted to its partnership in 1995. Since that time, his practice has focused on the mid-market offering specialized transaction and financial advisory services across various industry sectors including manufacturing, financial services, technology, professional services, and consumer products. Mr. Blum previously served as President and Director of Whitmore Resource Corp. from July, 2000 to November 2004. Harry graduated with a Bachelor of Commerce from the University of Toronto and obtained his designation as a Chartered Accountant in 1989.
Mr. David Russell graduated from the Montana School of Mineral, Science and Technology with a Bachelor of Science Degree in Mining Engineering. With over 27 years in the mining industry, Mr. Russell has been President and Chief Executive Officer and a director of Apollo Gold since 2002. Apollo Gold is a gold mining company with operations and exploration projects in Canada, USA and Mexico. Mr. Russell is responsible for all mine operations, exploration and development and for general financial accounting and recording. Mr. Russell’s past positions include the following: Vice-President and Chief Operating Officer of Getchell Gold Company/Placer Dome Gold, General Manager, US Operations, LAC Minerals Ltd. (now Barrick Gold Corporation), Manager, Underground Mining, Independence Mining Company, Project Manager, Hecla Mining Company, Manager, Lincoln Project FMC/Meridian Gold.
Mr. Constantine Salamis, a mining engineer, has been involved in numerous mineral exploration and production companies throughout his 50 year career including Falconbridge Nickel, Inco Ltd., SOQUEM and Manicouagan Minerals, a Canadian public company he founded in 2004. In addition to Mr. Salamis’ North American experience, overseas he has completed geological evaluation assignments for international agencies including the World Bank and the United Nations.
Mr. W.S. (Steve) Vaughan has been a partner at the law firm Heenan Blaikie since February, 2007 and was a partner of McMillan Binch and Mendelsohn from February, 2002 to January, 2007. Mr. Vaughan has participated in natural resource transactions in more than 50 countries over the past five years. He served as a director of Atomic Energy of Canada Limited from 1992 to 1998 and was Chair of its Environmental Committee. Mr. Vaughan has also served on various committees advising Canadian governments, the Ontario Securities Commission and Toronto Stock Exchange on issues such as mineral policy, mineral strategy, mining finance, mining taxation, seed capital, junior resource policies, over-the-counter trading and nuclear issues. Mr. Vaughan is a director and member of the Securities Committee of the Prospectors and Developers Association of Canada. He is a former director of the Toronto Branch of the Canadian Institute of Mining, Metallurgy and Petroleum and a past member of the Joint Toronto Stock Exchange Ontario Securities Commission Mining Standards Task Force. Mr. Vaughan has a Bachelor of Science and Master of Science Degree in Geology as well as a law degree and has worked in, or been closely associated with all facets of the mineral exploration, mine finance and securities industries since 1955.
Ms. Buchan was appointed Corporate Secretary in April 2008. Ms. Buchan is a Chemical Engineer and MBA. Ms. Buchan has been the Business Manger of Pure Nickel since January 2007. Prior to joining Pure Nickel Ms. Buchan was an independent consultant, working in the merchant and investment banking field.
B. Compensation
For purposes of this section:
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“LTIP” or “long term incentive plan” means a plan providing compensation intended to motivate performance over a period greater than one financial year. LTIPs do not include option or SAR plans or plans for compensation through shares or units that are subject to restrictions on resale.
“SAR” or “stock appreciation right” means a right, granted by the Company or any of its subsidiaries, as compensation for employment services or office to receive cash or an issue or transfer of securities based wholly or in part on changes in the trading price of publicly traded securities.
There were four Named Executive Officers of the Company during the year ended November 30, 2008: David McPherson, President and CEO, J. Jay Jaski, former Chairman and CEO until he passed away on December 19, 2007, Jeffrey Sherman, CFO, and Jay Richardson, former CFO until his resignation on February 6, 2008. “Named Executive Officer” or “NEO” means (a) each Chief Executive Officer; (b) each Chief Financial Officer; (c) each of the Company’s three most highly compensated executive officers, other than the Chief Executive Officer and the Chief Financial Officer, who were serving as executive officers at the end of the most recently completed financial year and whose total salary and bonus exceeds $150,000; and (d) any additional individual for whom disclosure would have been provided under (c) except that the individual was not serving as an officer of the Company at the end of the most recently completed financial year.
SUMMARY COMPENSATION TABLE
Name and Principal Position (a) | Annual Compensation | Long Term Compensation | ||||||
Year (b) | Salary ($) (c) | Bonus ($) (d) | Other Annual Compen- sation ($) (e) | Awards | Payouts | All other Compen- sation (S) (i) | ||
Securities Under Options/ SARs Granted (#) (1) | Common Shares or Units Subject to Resale Restrictions ($) (g) | LTIP Payouts (S) (h) | ||||||
| David McPherson,(1) President, CEO and Director | 2008 | 220,000 | 120,000 | 600 | 250,000 | Nil | Nil | Nil |
| Jeffrey D. Sherman,(2) CFO | 2008 | 59,250 | 12,500 | Nil | 100,000 | Nil | Nil | Nil |
| J. Jay Jaski,(3)former CEO | 2008 | 28,000 | Nil | Nil | Nil | Nil | Nil | Nil |
| Jay Richardson,(4)former CFO | 2008 | 36,000 | Nil | Nil | Nil | Nil | Nil | Nil |
| Robert Angrisano,(5) Director | 2008 | Nil | Nil | 6,000 | 100,000 | Nil | Nil | Nil |
| Harry Blum,(6)Director | 2008 | Nil | Nil | 12,000 | 100,000 | Nil | Nil | Nil |
| R. David Russell,(7) Director | 2008 | Nil | Nil | 10,200 | 100,000 | Nil | Nil | Nil |
| Constantine Salamis,(8) Director | 2008 | Nil | Nil | 6,000 | 100,000 | Nil | Nil | Nil |
| W. S. (Steve) Vaughan,(9) Director | 2008 | Nil | Nil | 4,200 | 100,000 | Nil | Nil | Nil |
___________________________________________
Notes:
| (1) | Mr. McPherson became President and CEO of the Company on December 20, 2007. Of the salary amount shown, $60,000 was paid as consulting fees for the period January 1, 2008 to March 31, 2008. The options granted during 2008 expire April 21, 2011. He had previously been granted options as a director of the Company on 100,000 common shares with an exercise price of $0.90 each on March 27, 2007. Subsequent to the year-end, on December 17, 2008, he was granted options on 400,000 common shares with an exercise price of $0.06 each. | |
| (2) | Mr. Sherman became CFO of the Company on February 6, 2008. The options granted during 2008 expire February 5, 2011. Subsequent to the year-end, on December 17, 2008, he was granted options on 25,000 common shares with an exercise price of $0.06 each. |
| (3) | Mr. Jaski was Chairman and CEO of the Company until he passed away on December 19, 2007. | |
| (4) | Mr. Richardson resigned as CFO on February 6, 2008. | |
| (5) | (6) (7) (8) (9) The options expire on April 21, 2011. |
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Termination Agreements for Directors and Senior Officers
Mr. McPherson became President and CEO on December 20, 2007. Under an employment contract that was effective April 1, 2008, Mr. McPherson is paid an annual salary of $240,000, payable monthly. Under the contract, he also receives a monthly car allowance of $1,500, and premiums for life and disability insurance paid for by the Company. In the event of termination without cause or if a terminating event occurs because of a change in control of the Company (or similar event, as defined in the contract), Mr. McPherson will receive a minimum of 24 months’ salary plus $100,000.
Under the terms of an employment agreement, dated February 1, 2008, as amended, Mr. Sherman is paid an annual salary of $67,000, and received 100,000 share options exercisable at $0.31, half vesting February 5, 2008, the balance vesting one year later.
Stock Option Plans
Our stock option plans provide for equity participation by directors, officers, employees and service providers of the Company or affiliate of the Company and permitted assigns of such individuals (“Eligible Person”) through the acquisition of common shares pursuant to the grant of options. Our Board of Directors administers the plan. Options may be granted to purchase common shares on terms that the directors may determine, subject to the limitations of the stock option plan and the requirements of the TSX.
The following is a summary of the terms of the stock option plan and is qualified in its entirety by the full text of the stock option plan which is available for review at our offices and is attached as Exhibit 4.3 to our Annual Report on Form 20-F filed with the SEC on May 21, 2008:
1. The number of common shares to be reserved and authorized for issuance, pursuant to options granted under the stock option plan, is 10% of our issued and outstanding common shares from time to time;
2. Subject to limited exceptions, the exercise price for options granted under the our stock option plan will not be less than the volume weighted average price of our common shares on the TSX for the five (5) trading days immediately preceding the relevant date;
3. In the event that no specific determination is made by the Board with respect to the expiry date and the vesting schedule of options granted pursuant to the stock option plan, each option shall be exercisable 10 years from the date it was granted and may be exercised for no more than 20% of the common shares covered by the option during each 12 month period following the first anniversary of the date of the grant;
4. Subject to limited exceptions, an option and all rights to purchase common shares pursuant thereto shall expire and terminate immediately upon the optionee who holds such option ceasing to be an Eligible Person. The Board, however, can pass a resolution stating that an option can remain outstanding despite the optionee ceasing to be an Eligible Person; and
5. Options granted under the stock option plan are non-assignable, except in limited circumstances.
See Item 6.E - “Share Ownership of Director and Officers” - below for a table setting out the stock options currently outstanding to our directors and officers.
C. Board Practices
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Each director is currently serving a one year term, renewable at the annual shareholder meeting.
Audit Committee
We have an Audit Committee that appoints the independent auditor to be engaged by the Company and reviews with the independent auditor the scope and results of the audits, our internal accounting controls, and the professional services furnished by the independent auditors. The members of the Audit Committee are Harry Blum (Chair) and R. David Russell. David McPherson resigned from the committee on December 20, 2007 when he became CEO and President of the Company. The Board expects to appoint a third member of the Audit Committee shortly. All current members of the Audit Committee meet the independence criteria set out in Multilateral Instrument 52-110 –Audit Committees (“52-110”), and the Corporate Governance Guidelines and the Audit Committee performs the role described in section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The responsibilities and operation of the Audit Committee are set out in the charter of the Audit Committee, the complete text of which is set forth below:
Introduction and Purpose
Pure Nickel Inc. (the “Company”) is a publicly-held company and operates in a highly competitive and regulated environment. The Company’s business involves an environment that is highly regulated at both the federal and state level in the United States and the provincial level in Canada.
The Audit Committee is appointed by and shall assist the Board of Directors (the “Board”) of Pure Nickel Inc. in fulfilling its oversight responsibilities in the following principal areas: (1) accounting policies and practices, (2) the financial reporting process, (3) financial statements provided by the Company to the public, (4) risk management including systems of accounting and financial controls, (5) appointing, overseeing and evaluating the work and independence of the external auditors, and (6) compliance with applicable legal and regulatory requirements. In addition to the responsibilities specifically enumerated in this Mandate, the Board may refer to the Committee such matters and questions relating to the financial position and operations of the Company as the Board may from time to time see fit.
Composition and Membership
The Committee shall consist of at least three directors appointed annually by the Board and selected based upon the following, in accordance with applicable laws, rules and regulations:
Independence. Each member shall be independent in accordance with applicable legal and regulatory requirements and in such regard shall have no direct or indirect material relationship with the Company which could, in the view of the Board, reasonably interfere with the exercise of a member’s independent judgment.
Financially Literate. Each member shall be financially literate or must become financially literate within a reasonable period of time after his or her appointment to the Committee. For these purposes, an individual is financially literate if he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company’s financial statements.
Meetings. The Audit Committee shall meet at least four times annually, in person or by telephone and more frequently as circumstances dictate. The Audit Committee Chair shall prepare or approve an agenda in advance of each meeting.
Responsibilities and Duties. The Company’s management is responsible for preparing the Company’s financial statements, while the external auditors are responsible for auditing those financial statements. The Committee is responsible for overseeing the conduct of those activities by the Company’s management and external auditors, and overseeing the activities of any internal audit initiatives. The Company’s external auditors are accountable to the Committee as representatives of the Company’s shareholders.
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It is recognized that members of the Committee are not full-time employees of the Company and do not represent themselves to be accountants or auditors by profession or experts in the fields of accounting or auditing or the preparation of financial statements. It is not the duty or responsibility of the Committee or its members to conduct auditing or accounting reviews or procedures. Each member of the Committee shall be entitled to rely on (i) the integrity of those persons and organizations within and outside the Company from whom it receives information, and (ii) the accuracy of the financial and other information provided to the Committee by such persons or organizations absent actual knowledge to the contrary.
The specific responsibilities of the Committee are as follows:
- Make regular reports to the Board of Directors of the Company.
- Appoint the independent auditors to be engaged by the Company, establish the audit fees of the independent auditors, pre-approve any non-audit services provided by the independent auditors, including tax services, before the services are rendered.
- Review the scope of the independent auditor’s audit examination, including their engagement letter, prior to the annual audit of the Company’s financial statements.
- Instruct the independent auditors to report directly to the Audit Committee any serious difficulties or disputes with management, and ensure they are appropriately resolved.
- Review and evaluate the performance of the independent auditors and review with the Board of Directors all proposed discharges of the independent auditors.
- Review each annual audit with the independent auditor at the conclusion of the audit. The review shall include all comments or recommendations of the independent auditor, all audit problems or difficulties and management’s response.
- Review and discuss with management the procedures undertaken in connection with the required certifications for regulatory filings and other reports including their evaluation of the Company’s disclosure controls and procedures and internal controls, as well as any and all fraud, whether or not material, that involves management or others who have a significant role in the Company’s internal controls.
- Review management’s assessment of the effectiveness of the Company’s internal controls over financial reporting and disclosure, and the independent auditor’s related attestation. Consider with management and the independent auditors whether any changes to such internal controls are appropriate.
- Review with management the Company’s quarterly and annual financial results prior to regulatory filings and the issuance of related press releases.
- Be authorized to hire outside counsel or other consultants as necessary.
- Perform such other duties as are assigned by the Board of Directors.
- Review the Audit Committee’s charter annually and recommend all proposed changes to the Board of Directors.
- Periodically evaluate and take steps to improve the effectiveness of the Audit Committee in meeting its responsibilities under this Charter.
Public Disclosure
This Charter shall be included on the Company’s website. The Company’s annual report to shareholders will state that this Charter is available on the Company’s website and will be available upon request to the Company’s Corporate Secretary.
Compensation Committee
The Company’s Compensation Committee is comprised of three independent directors. The current members of the Compensation Committee are Harry Blum (Chair) and R. David Russell. David McPherson resigned from the committee on December 20, 2007 when he became CEO and President of the Company. The Board expects to appoint a third member to the Compensation Committee in due course. The responsibilities and operation of the Compensation Committee are set out in the Compensation Committee Mandate, the text of which is set forth below:
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General
The Board of Directors (the “Board”) of Pure Nickel Inc. (the “Company”) has delegated the responsibilities, authorities and duties described below to the compensation committee (the “Committee”). For the purpose of this mandate, the term “Company” includes the Company and its subsidiaries.
The overall purpose of the Committee is to assist the Board in fulfilling its oversight responsibilities in relation to compensation by developing, monitoring and assessing the Company’s approach to the compensation of its directors, senior management and employees.
Members
1. The Committee will be comprised of a minimum of three directors, each of whom shall be, in the determination of the Board, “independent” for the purposes of National Instrument 58-101Disclosure of Corporate Governance Practices. Each Committee member shall satisfy the independence and experience requirements, if any, imposed by applicable securities laws, rules or guidelines, any applicable stock exchange requirements or guidelines and any other applicable regulatory rules. Determinations as to whether a particular director satisfies the requirements for membership on the Committee shall be made by the Board.
2. Members of the Committee shall be appointed annually by the Board at the first meeting of the Board after the annual general meeting of shareholders. Each member shall serve until such member’s successor is appointed, unless that member resigns or is removed by the Board or otherwise ceases to be a director of the Corporation. The Board shall fill any vacancy if the membership of the Committee is less thanthree directors.
3. The Chair of the Committee will be designated by the Board, on the recommendation of the Corporate Governance and Nominating Committee, or, if it does not do so, the members of the Committee may elect a Chair by vote of a majority of the full Committee membership. The Chair of the Committee shall be responsible for overseeing the performance by the Committee of its duties, for assessing the effectiveness of the Committee and individual Committee members and for reporting periodically to the Board.
Meetings
4. The Committee will meet at least once a year and meetings will be scheduled to facilitate the committee carrying out its responsibilities. Additional meetings will be held as deemed necessary by the Chair of the Committee. The Committee shall have an in-camera session without non-independent directors and management as a regular feature of each regularly scheduled meeting.
5. Meetings of the Committee shall be validly constituted if a majority of the members of the Committee is present in person or by telephone conference. A resolution in writing signed by all the members of the Committee entitled to vote on that resolution at a meeting of the Committee is as valid as if it had been passed at a meeting of the Committee.
6. The Committee shall submit the minutes of all meetings to the Board, and when requested to, shall discuss the matters discussed at each Committee meeting with the Board.
Committee Charter and Performance
7. The Committee shall have a written charter that sets out its mandate and responsibilities and the Committee shall review and assess the adequacy of such charter and the effectiveness of the Committee at least annually or otherwise, as it deems appropriate, and propose any recommended changes to the Corporate Governance and Nominating Committee who will do same and recommend any changes to the Board for approval. Unless and until replaced or amended, this mandate constitutes that charter.
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Committee Authority and Responsibilities
8. The Committee shall have the power and authority to perform the following duties and fulfill the following responsibilities:
(i) Review the compensation practices and policies of the Company to ensure that they are competitive and that they provide appropriate motivation for corporate performance and increased shareholder value and make recommendations to the Board regarding same.
(ii) Oversee the administration of the Companies compensation programs, including incentive compensation plans and equity-based plans, and the nature of the compensation provided under such programs to ensure that all management compensation programs are linked to meaningful and measurable performance targets.
(iii) Make recommendations to the Board regarding the adoption, amendment or termination of compensation programs and the formal approval of the adoption, amendment and termination of compensation programs of the Company, including for greater certainty, ensuring that if any equity-based compensation plan is subject to shareholder approval, that such approval is sought.
(iv) Establish and evaluate the appropriateness of performance goals for performance-based compensation and make recommendations to the Board regarding same.
(v) Periodically survey the executive compensation practices of other comparable companies and report back to the Board.
(vi) Annually review and make recommendations to the Board regarding retainers and fees paid to members of the Board;
(vii) Annually review and make recommendations to the Board regarding the annual base salary and bonus targets for the senior executives of the Company.
(viii) Review and make recommendations to the Board regarding annual corporate goals and objectives for the Chief Executive Officer (the “CEO,”) evaluate the CEO’s performance against such goals and objectives and report its findings and conclusions to the Board.
(ix) Annually review and make such recommendations to the Board, as are appropriate based on its review, regarding the CEO’s annual base salary, the CEO’s bonus and any stock option grants and other awards to the CEO under the Companies compensation programs. In evaluating the CEO’s compensation, the Committee will consider the Corporation’s performance and relative shareholder return, the compensation of CEOs at other companies, and the CEO’s compensation in past years.
(x) Annually review and make recommendations to the Board regarding the Companies director’s and officer’s liability insurance policies.
(xi) Review and recommend to the Board for approval the annual report on executive compensation required to be prepared under applicable corporate and securities legislation, regulation and rules including the disclosure concerning members of the Committee and settle the reports required to be made by the Committee in any document required to be filed with a regulatory authority and/or distributed to shareholders.
(xii) Determine and recommend to the Board for approval the award to employees of stock options under the Companies stock option plan.
(xiii) Annually review and make such recommendations to the Board, as are appropriate, the Corporation’s key human resources policies and programs.
(xiv) At the request of the Board, investigate and report on such other matters as it considers necessary or appropriate in the circumstances.
Authority to engage outside advisors
9. The Committee has the authority to engage outside advisors as it determines necessary to carry out its duties.
10. The Company shall provide appropriate funding, as determined by the Committee, in its capacity as a committee of the Board, for payment (a) of compensation to any advisors engaged by the Committee, and (b) of ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.
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The Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee is comprised of three independent directors. The current members of the Corporate Governance and Nominating Committee are Harry Blum (Chair) and R. David Russell. The Board expects to appoint a third member shortly. The responsibilities and operation of the Corporate Governance and Nominating Committee are set out in the Corporate Governance and Nominating Committee Mandate, the text of which is set forth below:
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE CHARTER
Introduction and Purpose
1. The Board of Directors (the “Board”) of Pure Nickel Inc. (the “Company”) has delegated the responsibilities, authorities and duties described below to the corporate governance and nomination committee (the “Committee”). For the purpose of this charter, the term “Company” includes the Corporation and its subsidiaries.
2. The Company is publicly-held and operates in a highly competitive and regulated environment. The Company’s business involves an environment that is highly regulated at both the federal and state level in the United States and the provincial level in Canada. To assist the Board in its responsibilities relating to reviewing the Company’s operational compliance with applicable legal requirements and sound ethical standards, the Board has created a Committee.
Composition and Membership
3. The Committee shall be comprised of three or more directors, each of whom the Board has determined is “independent” for the purposes of National Instrument 58-101 Disclosure of Corporate Governance Practices and satisfies the independence and experience requirements, if any, imposed by applicable securities laws, rules or guidelines, any applicable stock exchange requirements or guidelines and any other applicable regulatory rules. The members of the Committee are appointed by the Board at the annual organizational meeting of the Board and serve until their successors are duly appointed and qualified. Unless a Chair is elected by the full Board, the members of the Committee may designate a Chair by majority vote of the full Committee membership.
Meetings
4. The Committee shall meet annually or more frequently in person, telephonically or electronically as circumstances dictate. A majority of the Committee members currently holding office constitutes a quorum for the transaction of business. The Committee shall take action by the affirmative vote of a majority of the Committee members present at a duly held meeting.
Responsibilities and Duties
5. The Committee shall undertake the following responsibilities and duties:
Development of Guidelines and Procedures
(i) Oversee the development, issuance and distribution and review of appropriate ethics and legal compliance guidelines and procedures.
(ii) Oversee the development and implementation of guidelines and procedures to ensure satisfactory relationships with the Corporation’s principal regulatory authorities.
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(iii) Oversee the development and implementation of employee communication and training on ethics and compliance issues.
Ensure Adequate Guidance, Reporting and Investigation Processes
(i) Monitor and review periodically the systems that management has established to implement the Company’s ethics and compliance guidelines.
(ii) Ensure that the Company maintains clear channels of communication.
(iii) Oversee receiving periodic reports regarding investigations of compliance violations.
(iv) Ensure that business units have processes in place for receiving and investigating reports of compliance violations, and advising the Committee of these reports.
(v) Review with the Company’s General Counsel legal compliance matters, including corporate securities trading policies.
(vi) Review current/pending litigation and regulatory proceedings bearing on corporate governance in which the Company is a party.
Monitor Compliance with Compliance Guidelines and Ethics Policies
(i) Ensure that appropriate internal and/or external audits and surveys are conducted to verify adherence to Company compliance guidelines and procedures.
(ii) Commission special audits as necessary to verify adherence to the Company’s compliance guidelines and procedures.
(iii) Review significant cases of employee conflict of interest and related-party transactions, misconduct or fraud.
(iv) Monitor audits/examinations by governmental or other regulatory agencies.
Evaluation and Recommendation of Board Membership
(i) Evaluate and make recommendations to the full Board concerning the number and accountability of Board committees, committee assignments and committee membership rotation practices.
(ii) Establish and articulate qualifications, desired background, and selection criteria for members of the Board imposed by applicable securities laws, rules or guidelines, any applicable stock exchange requirements or guidelines and any other applicable regulatory rules.
(iii) Make recommendations to the full Board concerning all nominees for Board membership, including the re-election of existing Board members. The Committee may retain any reputable search firm to be used to identify director candidates. The Committee has the sole authority to retain and terminate search firms and approve the search firm’s fees and other retention terms.
(iv) On an annual basis, solicit input from the full Board and conduct a review of the effectiveness of the operation of the Board, Board committees and individual Board members, including reviewing and monitoring compliance with governance and operating practices and the Corporate Governance Principles.
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Governance and Evaluation
(i) Guide the directors in the evaluation of corporate governance as and when appropriate.
(ii) Develop and recommend to the Board a set of corporate governance principles applicable to the Company and review these principles at least annually.
(iii) Report to the Board summarizing the Committee’s actions and any significant issues considered by the Committee.
(iv) Perform such other functions as assigned by law, the Company’s Articles of Incorporation or Bylaws, or the Board.
Delegation to Subcommittees
The Committee may, in its discretion, form and delegate authority to subcommittees when appropriate.
Performance Evaluation
The Committee shall, from time to time, conduct an evaluation of the Committee, which evaluation shall compare the performance of the Committee with the requirements of this charter. The performance evaluation shall also include a review of the adequacy of this charter and shall recommend to the Board any revisions to this charter deemed necessary or desirable, although the Board shall have the sole authority to amend this charter. The performance evaluation shall be conducted in such a manner as the Committee deems appropriate.
Public Disclosure
This charter shall be included on the Company’s website and the charter and/or a reference thereto may be included in the Company’s public continuous disclosure record as may be required by applicable securities laws or as deemed advisable by management of the Company.
Miscellaneous Internal Governance Charters
On September 18, 2008, our Board of Directors adopted (i) an Insider Trading Policy, (ii) a Financial Management Code of Conduct, (iii) a Health and Safety Policy, (iv) an Environmental Policy and (v) a Communication and Disclosure policy, copies of which can be found on our website at http://www.purenickel.com/s/Governance.asp. The information contained on our internet site is not incorporated by reference in this report and it should not be considered part of this report.
D. Employee
As at November 30, 2008, we employed five people on a full or part time basis, and retained five individuals on contracts for service. In addition, the Company employs numerous outside contractors on a fee-for-service basis for conducting exploration activities.
E. Share Ownership
The following table shows the shareholdings of the Directors and Senior Management as at February 28, 2009.
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1. Common Shares Owned by Officers and Directors
Table No. 7: Shareholdings of Directors and Senior Management as at February 28, 2009
| Number of common | Percentage of common shares | |
| Director or Officer | shares owned(1) | outstanding at February 28, 2009(1)(2) |
| Robert Angrisano | 2,616,479(3) | 3.86% |
| Harry Blum | 301,200(4) | 0.44% |
| David McPherson | 515,000(5) | 0.76% |
| David Russell | 350,000(6) | 0.52% |
| Constantine Salamis | 200,000(7) | 0.30% |
| W.S. (Steve) Vaughan | 200,000(8) | 0.30% |
| Jeffrey Sherman | 300,000(9) | 0.44% |
| (1) | Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days of February 28, 2009, are deemed outstanding for purposes of computing the percentage ownership of the person holding such option or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person. |
| (2) | Percentages are based on 67,765,599 Common Shares issued and outstanding as of February 28, 2009 unless otherwise noted. |
| (3) | Includes 200,000 Common Shares Robert Angrisano has the right to acquire pursuant to outstanding stock options. |
| (4) | Includes 200,000 Common Shares Harry Blum has the right to acquire pursuant to outstanding stock options. |
| (5) | Includes 475,000 Common Shares David McPherson has the right to acquire pursuant to outstanding stock options. |
| (6) | Includes 300,000 Common Shares David Russell has the right to acquire pursuant to outstanding stock options. |
| (7) | Includes 200,000 Common Shares Constantine Salamis has the right to acquire pursuant to outstanding stock options. |
| (8) | Includes 100,000 Common Shares Steve Vaughan has the right to acquire pursuant to outstanding stock options. |
| (9) | Includes 125,000 Common Shares Jeffrey Sherman has the right to acquire pursuant to outstanding stock options. |
Table No. 8: Stock Options held by directors and officers outstanding as at February 28, 2009.
Director or Officer | Number of Common Shares | Exercise Price ($) | Expiry Date |
| R. David Russell | 200,000 | $0.90 | March 27, 2010 |
| R. David Russell | 100,000 | $0.26 | April 21, 2011 |
| Robert Angrisano | 100,000 | $0.90 | March 27, 2010 |
| Robert Angrisano | 100,000 | $0.26 | April 21, 2011 |
| Steve Vaughan | 100,000 | $0.90 | March 27, 2010 |
| Steve Vaughan | 100,000 | $0.26 | April 21, 2011 |
| David McPherson | 100,000 | $0.90 | March 27, 2010 |
| David McPherson | 250,000 | $0.26 | April 21, 2011 |
| David McPherson | 400,000 | $0.06 | December 17, 2011 |
| Harry Blum | 100,000 | $0.90 | March 27, 2010 |
| Harry Blum | 100,000 | $0.26 | April 21, 2011 |
| Constantine Salamis | 100,000 | $0.79 | September 18, 2010 |
| Constantine Salamis | 100,000 | $0.26 | April 21, 2011 |
| Jeffrey Sherman | 100,000 | $0.31 | February 6, 2011 |
| Jeffrey Sherman | 25,000 | $0.06 | December 17, 2011 |
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ITEM 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
As of February 28, 2009, no shareholder is known to be the beneficial owner of more than 5% of our Common Shares. We believe that the two major shareholders that in last year’s Annual Report on Form 20-F were noted as beneficially owning 9.72% and 6.42% of our shares respectively disposed of their shares such that they no longer own more than 5% of our common shares.
Geographic Breakdown of Shareholders
The following lists the geographical distribution of shareholders at February 28, 2009:
| Location | Number of registered shareholders | Number of shares |
| Canada | 22 | 41,875,320 |
| United States Other | 109 3 | 18,001,239 7,889,000 |
| Total | 134 | 67,765,559 |
Shares registered in intermediaries were assumed to be held by residents of the same country in which the clearing-house was located. Note that many shareholders hold shares in street name through their brokerage accounts, consequently the number of beneficial shareholders is considerably greater than the number of registered shareholders shown above.
B. Related Party Transactions
During the year ended November 30, 2008, we entered into the following transactions with related parties:
(a) We paid a legal firm, of which a Mr. S. Vaughan, a director was a principal during the year, $255,666 (previous year, $348,536) for legal services.
(b) We paid directors, and companies controlled by directors, $79,037 (previous year, $42,170) for consulting services. A director, Mr. Robert Angrisano, is part of a group of investors that has a net profit interest in copper production of the Copper King property, and a director, Mr. Constantine Salamis, is the founder and a significant shareholder of Manicouagan Minerals Inc., which holds an option on one of our properties. These transactions were in the normal course of operation and were measured at the exchange value which represented the amount of consideration established and agreed to by the related parties. These transactions were equivalent to terms agreed upon in similar transactions with non-affiliated parties.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
Reference is made to Item 17 Financial Statements for the financial statements included in this Annual Report.
There are no legal proceedings of a material nature pending against the Company, or its subsidiaries. We are not aware of any legal claim known to be contemplated by any governmental authorities.
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We have never paid a dividend and it is unlikely that we will declare or pay a dividend until warranted.
B. Significant Changes
Reference is made to Item 17 Financial Statements, specifically Note 18 of the November 30, 2008 financial statements, for a description of the differences between Canadian GAAP and U.S. GAAP.
ITEM 9. Offer and Listing Details
A. Price History
TSX (Canadian dollars)
| High | Low |
|
Month and Year | $ | $ | Volume |
November 2008 | 0.12 | 0.045 | 6,749,074 |
October 2008 | 0.10 | 0.025 | 6,504,143 |
September 2008 | 0.14 | 0.06 | 5,354,221 |
August 2008 | 0.15 | 0.12 | 3,825,413 |
July 2008 | 0.21 | 0.13 | 4,651,782 |
June 2008 | 0.34 | 0.21 | 3,007,288 |
May 2008 | 0.33 | 0.20 | 3,881,858 |
April 2008 | 0.33 | 0.23 | 3,604,115 |
March 2008 | 0.40 | 0.23 | 2,280,442 |
February 2008 | 0.45 | 0.26 | 1,660,686 |
January 2008 | 0.50 | 0.265 | 2,412,705 |
December 2007 | 0.65 | 0.355 | 5,205,867 |
NASD OTCBB (US dollars)
| High | Low | |
Month and Year | $ | $ | Volume |
November 2008 | 0.13 | 0.02 | 645,185 |
October 2008 | 0.09 | 0.02 | 741,384 |
September 2008 | 0.13 | 0.065 | 936,226 |
August 2008 | 0.16 | 0.109 | 212,486 |
July 2008 | 0.22 | 0.13 | 482,558 |
June 2008 | 0.35 | 0.201 | 151,164 |
May 2008 | 0.305 | 0.221 | 268,550 |
April 2008 | 0.30 | 0.23 | 287,658 |
March 2008 | 0.41 | 0.245 | 258,490 |
February 2008 | 0.375 | 0.297 | 172,945 |
January 2008 | 0.46 | 0.28 | 349,496 |
December 2007 | 0.633 | 0.38 | 332,895 |
Common Share Price History and Trading Information
Our common shares are listed on the Over the Counter Bulletin Board (the “OTCBB”) under the stock symbol “PNCKF”. In Canada, our common shares are currently listed for trading on the TSX under the symbol “NIC.” Prior to August 14, 2007, they were listed on the TSXV under the stock symbol “NIC.” The TSXV (prior to August 14, 2007), the TSX (as of August 14, 2007) and the OTCBB are the only exchanges on which the common shares are traded. The tables set out above present the high and low sale prices for the common shares and trading volume, on a monthly basis on each of the TSXV, TSX and OTCBB during the fiscal year ended November 30, 2008.
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ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
Common Shares
Our authorized share capital consists of an unlimited number of common shares without par value carrying one vote per share. As at February 28, 2009, there were 67,765,599 common shares issued and outstanding. The following summary of certain terms of our common shares does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all of the provisions of the Company articles of amalgamation and by-laws and applicable law. Copies of our articles of amalgamation and by-laws are attached as Exhibits 1.1, 1.2, and 1.3 to our Annual Report on Form 20-F filed with the SEC on May 21, 2008 and is incorporated by reference herein.
The holders of our common shares are entitled to:
one vote for each common share held at all meetings of shareholders of the Company; and
receive, rateably, the remaining property of the Company after payment or provision for its liabilities in the event of the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, or any other distribution of the assets of the Company among its shareholders for the purpose of winding up its affairs.
The holders of common shares have no pre-emptive, redemption, subscription or conversion rights. Modifications to the rights, privileges, restrictions and conditions attached to the common shares (including creation of another class of shares that rank prior to or on a parity with the common shares) requires an affirmative vote of two-thirds of the votes cast at a meeting of the holders of common shares.
At the Annual and Special Meeting of Shareholders that was held on March 31, 2009, our shareholders approved our continuance under theCanada Business Corporations Act (“CBCA”). We were previously governed by theBusiness Corporations Act (Yukon)(“Yukon Act”). We did this so that we could take advantage of more modern corporate law procedures provided by the CBCA, and to permit us to amalgamate with our wholly-owned subsidiary, PNI Corp., should we decide to do so, in order to reduce costs.
Articles of Continuance and By-Laws
Upon the continuance becoming effective on April 7, 2009, our current articles were replaced with the Articles of Continuance filed pursuant to the CBCA and our current by-laws were replaced with a new set of by-laws, significant terms of which are as follows:
Authorized Capital.We are authorized to issue an unlimited number of common shares.
Common Shares. Holders of common shares will be entitled to receive notice of and to attend all annual and special meetings of shareholders and to one vote in respect of each common share held at all such meetings. Holders of common shares will be entitled to receive dividends if, as and when declared by the Board of Directors in such amounts and payable in such manner as the Board of Directors may from time to time determine. In the event of our liquidation, dissolution or winding up or other distribution of assets among our shareholders for the purpose of winding up our affairs, holders of common shares shall, subject to the rights of the holders of any other class of shares entitled to receive our assets upon such a distribution in priority to or concurrently with the holders of the common shares, be entitled to participate rateably in the distribution.
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Number of Directors.We may have a minimum of 4 and a maximum of 11 directors elected to the board.Registered Office.The registered office is Suite 900, 95 Wellington St. West, Toronto, Ontario M5J 2N7.Restrictions on Business of the Corporation.There is no restriction on the business that we may carry on.
Shareholders’ Meeting Quorum. Pursuant to the new by-laws, a quorum at any meeting of shareholders shall be two persons present in person and each entitled to vote thereat and holding or representing by proxy not less than ten per cent of the votes entitled to be cast thereat.
Electronic Meetings and Delivery of Documents. The new by-laws will permit the holding of electronic meetings of our Board of Directors and shareholders and contemplate delivery of documents in electronic format, subject to compliance with applicable law.
Shareholder Protection under the CBCA
The CBCA provides to shareholders substantially the same rights as under the Yukon Act, including rights of dissent and appraisal and rights to bring derivative and oppressive actions. The following is a comparison of some of the principal provisions of the Yukon Act and the CBCA that are relevant to shareholders. Reference should be made to the full text of both statutes for particulars of the differences.
Sale of Corporation’s Undertaking. Under the CBCA, a sale of all or substantially all the property of a corporation other than in the ordinary course of business of the corporation requires approval by a majority of not less than two-thirds of the votes cast by shareholders who voted in respect of the proposed sale. The provisions of the Yukon Act are substantially the same.
Amendments to Articles of the Corporation. Under the CBCA, any substantive change to the articles of a corporation, such as a change in the name of the corporation, a change in the province in which the corporation’s registered office is situated and certain changes to the share capital of a corporation, require approval by a majority of not less than two-thirds of the votes cast by shareholders who voted at a meeting in respect of the change. Where holders of a class of shares are adversely affected by certain proposed amendments, holders of shares of that class (whether or not such shares carry a right to vote) are entitled to vote separately as a class on the proposed amendments. The provisions of the Yukon Act are substantially the same.
By-law Amendments. The CBCA provides that unless the articles, by-laws or a unanimous shareholder agreement otherwise provide, the directors may, by resolution, make, amend, or repeal any by-laws that regulate the business or affairs of a corporation. However, the directors must submit a by-law, or an amendment or a repeal of a by-law, to the shareholders of the corporation, and the shareholders may, with approval of a simple majority, confirm, reject or amend the by-law, amendment or repeal. The provisions of the Yukon Act are substantially the same.
Authorization of Unlimited Number of Shares. The CBCA permits a corporation to have an unlimited number of shares without par value. The provisions of the Yukon Act are substantially the same.
Rights of Dissent and Appraisal. The CBCA provides that shareholders who dissent to certain actions being taken by a corporation may exercise a right of dissent and require the corporation to purchase the shares held by such shareholder at the fair value of such shares. The dissent right is applicable where the corporation proposes to (a) amend the articles to add, change or remove provisions restricting or constraining the issue, transfer or ownership of shares of that class, (b) amend its articles to add, change or remove any restriction on the business that the corporation may carry on, (c) enter into a long form amalgamation, (d) continue out of the jurisdiction, (e) sell, lease or exchange all or substantially all its property, or (f) carry out a going-private transaction or a squeeze-out transaction. The dissenting shareholder is required to strictly comply with the provisions of the CBCA in order to exercise this remedy. The Yukon Act provides similar rights to shareholders but is not available to shareholders in the context of a going-private or a squeeze-out transaction.
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Oppression Remedies. Under the CBCA, a shareholder has the right to apply to a court for an order where an act or omission of the corporation or an affiliate effects a result, or the business or affairs of which are conducted in a manner, or the exercise of the directors’ of the corporation’s or any of its affiliates powers, would be oppressive or unfairly prejudicial to or would unfairly disregard the interests of any security holder, creditor, director or officer of the corporation. On such an application, the court may make any interim or final order it thinks fit, including an order restraining the conduct complained of. Under the Yukon Act, the oppression remedy is substantially the same as that in the CBCA.
Shareholder Derivative Actions. Pursuant to the CBCA, a complainant, which includes a shareholder, may apply to the court for leave to bring an action in the name of and on behalf of a corporation or any subsidiary, or to intervene in an existing action to which the corporation is a party for the purpose of prosecuting, defending or discontinuing the action on behalf of the corporation. On such an application, the court may make any order it thinks fit, including an order authorizing the complainant or any other person to control the conduct of the action. Pursuant to the Yukon Act, derivative actions are dealt with in substantially the same manner as the CBCA.
Financial Assistance.The CBCA does not restrict a corporation from giving financial assistance to shareholders or directors of the corporation or an affiliated corporation. The Yukon Act contains provisions that restrict the corporation from doing so except in specified circumstances.
Record Date for Voting.The CBCA provides for the setting of a fixed record date for voting purposes. Transfers of shares after the record date are not recognized for voting entitlement purposes. The Yukon Act does not permit the setting of a fixed record date for voting purposes and a transferee of shares requesting to have its name included in the relevant shareholder list at least ten days (or such shorter time as is provided in the by-laws) prior to the meeting is entitled to vote, provided that the transferee can establish that the transferee owns the shares.
Requisition of Meetings.The CBCA provides that holders of not less than five per cent of the issued shares of a corporation that carry the right to vote at a meeting sought to be held may requisition the directors to call a meeting of shareholders for the purposes stated in the requisition. The provisions of the Yukon Act are substantially the same.
Shareholder Communication. The CBCA contains exemptions from the restrictions on proxy solicitation that permit a shareholder to make a public announcement concerning the shareholder’s voting intentions (whether by way of a speech in a public forum or the issuance of a press release, opinion, statement or advertisement). In addition, the CBCA enables shareholders to communicate with each other, (i) for the purpose of obtaining support for shareholder proposals, (ii) if such communications relate to the business and affairs of the corporation, (iii) to organize a dissident’s proxy solicitation, (iv) if 15 or fewer shareholders are solicited, (v) as clients, by a person engaged in the business of providing proxy voting advice, and (vi) other communications as may be prescribed from time to time. The Yukon Act does not contain such broad exemptions to the proxy solicitation rules and, accordingly, shareholder communication is more limited.
Form of Proxy and Information Circular. The CBCA requires that management of a distributing corporation, concurrently with giving notice of a meeting of shareholders, send a form of proxy in prescribed form to each shareholder who is entitled to receive notice of the meeting. Where management of a corporation solicits proxies, a management proxy circular in prescribed form must also accompany the notice of the meeting. The Yukon Act contains similar provisions.
Electronic Documents.The CBCA contains innovative provisions dealing with electronic communication with shareholders. The Yukon Act contains no such provisions.
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Place of Meetings. The CBCA provides that meetings of shareholders of a corporation must be held at the place within Canada provided in the by-laws or, in the absence of such provision, at the place within Canada that the directors determine. A meeting of shareholders of a corporation may be held at a place outside of Canada if the place is specified in the articles or all the shareholders entitled to vote at the meeting agree that the meeting is to be held at that place. Under the Yukon Act, meetings of shareholders of a corporation must be held at the place within the Yukon provided in the by-laws or, in the absence of such a provision, at the place within the Yukon that the directors determine. If the articles of the Corporation so provide, meetings of the shareholders may be held outside the Yukon at one or more places specified in the articles.
Electronic meetings. The CBCA permits any person entitled to attend a meeting of shareholders to participate by means of telephonic, electronic or other communication facilities that permit all participants to adequately communicate with each other. The CBCA also provides that a meeting may be held entirely electronically if authorized by the by-laws of the corporation. The Yukon Act does not contain similar provisions.
Quorum of Shareholders.The CBCA states that, unless the by-laws of a corporation otherwise provide, a quorum of shareholders is present at a meeting of shareholders (irrespective of the number of persons actually present at the meeting) if holders of a majority of the shares entitled to vote at the meeting are present in person or represented by proxy. The Yukon Act provides for substantially the same quorum requirements.
Shareholder Consent in Lieu of Meeting.The CBCA provides that a resolution in writing signed by all the shareholders entitled to vote on that resolution at a meeting of shareholders is as valid as if it had been passed at a meeting of the shareholders. The Yukon Act contains substantially the same provisions.
Shareholder Proposals. The CBCA contains eligibility requirements for shareholders that wish to submit proposals for inclusion in a corporation’s proxy materials, including a requirement that a shareholder have had a continuous minimum level of investment in the corporation for a specified period of time. No similar requirements are imposed by the Yukon Act.
Duties of Directors. The CBCA provides that, subject to any unanimous shareholder agreement, the directors manage, or supervise the management of, the business and affairs of the Corporation. The Yukon Act simply provides that the directors manage the business and affairs of the Corporation and does not explicitly contemplate supervision.
Directors’ Residency. The CBCA states that a distributing corporation shall have not fewer than three directors, at least two of whom are not officers or employees of the corporation or its affiliates. At least twenty-five per cent of the directors of a corporation must be resident Canadians. However, if a corporation has less than four directors, at least one director must be a resident Canadian. Furthermore, at least twenty-five percent of the directors present at a meeting of directors must be resident Canadians to properly transact business. The Yukon Act does not contain any residency requirements for directors.
Removal of Directors. The CBCA permits the removal of directors by holders of a majority of the shares being voted. Unless otherwise provided in the articles of a corporation, a quorum of directors may fill a vacancy among the directors, except for a vacancy resulting from an increase in the number or the minimum or maximum number of directors or the failure to elect the number or minimum number of directors provided for in the articles. The Yukon Act contains substantially the same provisions.
The continuance did not create a new legal entity, nor did it prejudice or affect our continuity. The continuance did not result in any change in our business nor in the persons who constitute our Board of Directors and officers.
C. Material Contracts
The following material contracts have been entered into by the Company within the past two years:
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- Amalgamation Agreement by and among Nevada Star Resource Corp., 6658482 Canada Inc. and Pure Nickel Inc., dated as of December 14, 2006. In this agreement, we completed the acquisition of (old) Pure Nickel Inc., a private company incorporated on May 18, 2006, and from a Canadian legal and accounting perspective, the transaction was deemed to be a reverse takeover.
D. Exchange Controls
There are no laws, governmental decrees or regulations in Canada that restrict the export or import of capital or which affect the remittance of dividends, interest or other payments to non-resident holders of our shares, other than the withholding tax requirements (Reference is made to Item 10E) and theProceeds of Crime (Money Laundering) and Terrorist Financing Act. TheProceeds of Crime (Money Laundering) and Terrorist Financing Act requires that persons and entities report the importation or exportation of currency or monetary instruments of a value equal to or greater than $10,000 to Canadian customs officers in the prescribed form and manner.
There are no limitations under the laws of Canada or in our constituting documents, with respect to the right of non-resident or foreign owners to hold or vote Shares other than those imposed by theInvestment Canada Act.
TheInvestment Canada Act is a federal Canadian statute which regulates the acquisition of control of existing Canadian businesses and the establishment of new Canadian businesses by an individual, government or entity that is a “non-Canadian” as defined in theInvestment Canada Act. Such investments are generally reviewable under theInvestment Canada Act by the Minister, designated as being responsible for the administration of theInvestment Canada Act. Reviewable investments, generally, may not be implemented prior to the Minister’s determining that the investment is likely to be of “net benefit to Canada” based on the criteria set out in theInvestment Canada Act. Generally investments by non-Canadians consisting of the acquisition of control of Canadian businesses which are otherwise non-reviewable and the establishment of new Canadian businesses are subject to certain notification requirements under theInvestment Canada Act in the prescribed form and manner.
Management of the Company believes that it is not currently a “non-Canadian” for purposes of theInvestment Canada Act and therefore it is not subject to the Act. However, if the Company were to become a “non-Canadian” in the future, acquisitions of control of Canadian businesses by the Company would become subject to theInvestment Canada Act. Generally, the direct acquisition by a “non-Canadian” of an existing Canadian business with gross assets of $5 million or more is reviewable under theInvestment Canada Act, unless the business is acquired by a WTO investor in which the thresholds are $250 million and $265 million for transactions closing in 2005 and 2006, respectively. Generally, indirect acquisitions of existing Canadian businesses (with gross assets over $50 million) are reviewable under theInvestment Canada Act, except in situations involving “WTO investors” where indirect acquisitions are generally not reviewable but are nonetheless subject to notification. In transactions involving Canadian businesses engaged in the production of uranium, providing financial services, providing transportation services or which are cultural businesses, the benefit of the higher “WTO investor” thresholds do not apply.
Acquisitions of businesses related to Canada’s cultural heritage or national identity (regardless of the value of assets involved) may also be reviewable under theInvestment Canada Act. In addition, investments to establish new, unrelated businesses are not generally reviewable but are nonetheless subject to notification. An investment to establish a new business that is related to the non-Canadian’s existing business in Canada is not subject to notification under theInvestment Canada Act unless such investment relates to Canada’s cultural heritage or national identity.
Any proposed take-over of the Company by a “non-Canadian” would likely only be subject to the simple notification requirements of theInvestment Canada Act, as in all likelihood that non-Canadian would be a “WTO investor” for purposes of theInvestment Canada Actprovided that the high WTO threshold is not met. Generally, a “WTO investor” is an individual, other than a Canadian, who is a national of a country that is a member of the World Trade Organization or a business entity controlled by such an individual. Virtually all countries of the Western world are members of the World Trade Organization. The Company would have to have a gross asset base of at least $5 million for a direct acquisition, and at least $50 million for an indirect acquisition, before the reviewable transaction provisions of theInvestment Canada Actwould apply to a third party non-Canadian acquirer that is not a WTO investor.
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E. Taxation
E.(i). Certain Canadian Federal Income Tax Consequences – General
The following is a brief summary of some of the principal Canadian federal income tax consequences to a holder of the common-voting shares of the Company (a “ Holder”) who deals at arm’s length with the Company, holds the shares as capital property and who, for the purposes of the Income Tax Act (Canada) (the “Act”) and the Canada – United States Income Tax Convention (the “Treaty”), is at all relevant times resident in the United States, is not and is not deemed to be resident in Canada and does not use or hold and is not deemed to use or hold the shares in carrying on a Business in Canada. Special rules, which are not discussed below, may apply to a U.S. Holder that is an insurer that carries on Business in Canada and elsewhere.
Under the Act and the Treaty, a. Holder of the common-voting shares will generally be subject to a 15% withholding tax on dividends paid or credited or deemed by the Act to have been paid or credited on such shares. The withholding tax rate is 5% where the Holder is a corporation that beneficially owns at least 10% of the voting shares of the Company and the dividends may be exempt from such withholding in the case of some Holders such as qualifying pension funds and charities. Reference is made to “Item 10E.4 –United States Taxation” for a more detailed discussion of the United States tax considerations relating to an investment in the Shares.
E (ii) Dividends
A Holder will be subject to Canadian withholding tax (“Part XIII Tax”) equal to 25%, or such lower rate as may be available under an applicable tax treaty, of the gross amount of any dividend paid or deemed to be paid on common shares. Under the Canada-U.S. Income Tax Convention (1980) as amended (the “Treaty”), the rate of Part XIII Tax applicable to a dividend on common shares paid to a Holder who is a resident of the United States and who is the beneficial owner of the dividend, shall not exceed 15%. If the Holder is a company that owns at least 10% of the voting stock of the Company paying the dividend, the withholding tax rate is reduced to 5% and, in all other cases, the tax rate is 15% of the gross amount of the dividend (under the provisions of the Treaty). In determining whether a company meets the 10% voting stock ownership requirement for the purpose of determining eligibility for the 5% withholding tax rate, a company will be deemed to own its proportionate share of company voting stock owned by an entity that is considered fiscally transparent under the laws of the United States and which is not a resident of Canada. The Company will be required to withhold the applicable amount of Part XIII Tax from each dividend so paid and remit the withheld amount directly to the Receiver General for Canada for the account of the Holder.
E (iii) Disposition of Common Shares
A Holder who disposes of a common share, including by deemed disposition on death, will not normally be subject to Canadian tax on any capital gain (or capital loss) thereby realized unless the common share constituted “taxable Canadian property” as defined by the Tax Act. Generally, a common share of a public corporation will not constitute taxable Canadian property of a Holder if the share is listed on a designated stock exchange unless the Holder or persons with whom the Holder did not deal at arm’s length alone or together held or held options to acquire, at any time within the five years preceding the disposition, 25% or more of the shares of any class of the capital stock of the Company. The TSX is a designated stock exchange under the Tax Act. A Holder who is a resident of the United States and realizes a capital gain on a disposition of a common share that was taxable Canadian property will nevertheless, by virtue of the Treaty, generally be exempt from Canadian tax thereon unless (a) more than 50% of the value of the common shares is derived from, or from an interest in, Canadian real estate, including Canadian mineral resource properties, (b) the common share formed part of the Business property of a permanent establishment that the Holder has or had in Canada within the 12 month period preceding the disposition, or (c) the Holder is an individual who (i) was a resident of Canada at any time during the 10 years immediately preceding the disposition, and for a total of 120 months during any period of 20 consecutive years, preceding the disposition, and (ii) owned the common share when he ceased to be resident in Canada.
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A Holder who is subject to Canadian tax in respect of a capital gain realized on a disposition of a common share must include one-half of the capital gain (taxable capital gain) in computing the Holder’s taxable income earned in Canada. The Holder may, subject to certain limitations, deduct one-half of any capital loss (allowable capital loss) arising on a disposition of taxable Canadian property from taxable capital gains realized in the year of disposition in respect to taxable Canadian property and, to the extent not so deductible, from such taxable capital gains realized in any of the three preceding years or any subsequent year.
E (iv) United States Federal Income Tax Considerations
General
The following discussion is for informational purposes only and is not intended as tax or legal advice. Each potential holder should seek advice based on the holder’s particular circumstances from an independent tax advisor.
The following summarizes the material U.S. federal income tax consequences of acquiring, holding, and disposing of our common shares. This discussion is based on the U.S. federal income tax laws as currently in effect as contained in the Internal Revenue Code (“Code”), Treasury Regulations, and relevant judicial decisions, and administrative guidance. The federal tax laws are subject to change, possibly on a retroactive basis, and any such change may materially affect the tax consequences of acquiring, holding, or disposing of our common shares. No rulings or opinions of counsel have been or will be requested with respect to any tax-related matter discussed herein. There can be no assurance that the positions the Company takes on tax matters will be accepted by the Internal Revenue Service (“IRS”). This discussion relates only to U.S. federal income taxes and not to any local, state or foreign taxes or U.S. federal taxes other than income taxes.
Because this discussion is a general summary, it does not address all aspects of U.S. federal income taxation that may be relevant to a particular holder in light of the holder’s particular circumstances, nor does it address certain types of holders subject to special treatment under the federal income tax laws, including but not limited to tax-exempt organizations, qualified benefit plans, insurance companies, financial institutions, broker-dealers, dealers in securities or currencies, traders in securities that elect to use the mark-to-market method of accounting for their securities, holders which are partnerships or other pass-through entities for federal income tax purposes, regulated investment companies, real estate investment companies, real estate mortgage investment conduits, expatriates, persons liable for alternative minimum tax, persons who directly or indirectly own more than 10 percent of our voting stock, persons whose “functional currency” is not the U.S. dollar, persons holding their investment as part of a hedging, constructive sale or conversion, straddle, or other risk-reducing transaction, and persons acquiring common shares in connection with the performance of services.
This discussion addresses only holders: (i) who are U.S. holders (except as specifically noted under “Non-U.S. Holders of Common Shares”); and (ii) hold our common shares as capital assets. For this purpose, “U.S. holders” are beneficial owners of our common shares who are individual citizens or residents of the United States, corporations or other business entities organized under the laws of the United States, any state, or the District of Columbia, estates with income subject to U.S. federal income tax, trusts that are subject to primary supervision by a U.S. court and for which U.S. persons control all substantial decisions, or trusts that have made a valid election under applicable Treasury Regulations to be treated as a United States person (within the meaning of the Code).
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Distributions and Dividends
Subject to the discussion of the controlled foreign corporation and passive foreign investment company rules below, a U.S. holder will be required to include in gross income as dividends (taxable as ordinary income) the amount of any distribution paid on common shares to the extent the distribution is paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. Any Canadian withholding taxes deducted from the amount of a distribution are treated as constructively distributed to at U.S. holder for this purpose. Distributions in excess of such earnings and profits will be applied against and will reduce the U.S. holder’s basis in the common shares and, to the extent in excess of such basis, will be treated as gain from the sale or exchange of common shares. In the case of a U.S. holder that is a corporation, a dividend from a non-U.S. corporation will generally be taxable at regular corporate rates of up to 35 percent and generally will not qualify for a dividends-received deduction. Certain non-corporate U.S. holders receiving dividends from a Canadian corporation may be eligible for a reduced U.S. tax rate on “qualified dividends” if received in tax years through 2010 as long as we are not passive foreign investment company and the holder satisfies certain holding period requirements. Distributions of current or accumulated earnings and profits paid in a non-U.S. currency to a U.S. holder will be includible in the income of a U.S. holder in a U.S. dollar amount calculated by reference to the exchange rate on the day the distribution is received. A U.S. holder that receives a non-U.S. currency distribution and converts the non-U.S. currency into U.S. dollars on the date of receipt will realize no foreign currency gain or loss. If the U.S. holder converts the non-U.S. currency to U.S. dollars on a date subsequent to receipt, such U.S. holder will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the non-U.S. currency against the U.S. dollar from the date of receipt to the date of conversion, which will generally be U.S. source ordinary income or loss.
Disposition of Common Shares
Subject to the discussion of the controlled foreign corporation and passive foreign investment company rules below, upon the sale, exchange, or other disposition of common shares, a U.S. holder will recognize capital gain or loss in an amount equal to the difference between such U.S. holder’s basis in its common shares and the amount realized on the disposition. A U.S. holder’s basis in its common shares is usually the cost of such common shares.
For common shares and traded on an established securities market, a U.S. holder that uses the cash method of accounting calculates the U.S. dollar value of foreign currency proceeds received on the sale date as of the date that the sale settles, while a U.S. holder that uses the accrual method of accounting is required to calculate the value of the proceeds of the sale as of the “trade date,” unless such U.S. holder has elected to use the settlement date to determine its proceeds of sale.
Capital gain from the sale, exchange or other disposition of common shares held more than one year is long-term capital gain. Long-term capital gains recognized by certain non-corporate holders on or before December 31, 2010 may qualify for a maximum rate of taxation of 15 percent. Gain or loss recognized by a U.S. holder on a sale, exchange or other disposition of common shares generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes. The deductibility of a capital loss is subject to limitations, as are losses upon a taxable disposition of common shares if the U.S. holder purchases, or enters into a contract to purchase, substantially identical securities within 30 days before or after any disposition. An U.S. holder that receives foreign currency upon disposition of common shares and converts the foreign currency into U.S. dollars subsequent to receipt will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar, which gain or loss will generally be U.S. source ordinary income or loss.
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Deduction or Credit for Foreign Taxes Withheld
U.S. holders will have the option of claiming the amount of any non-U.S. income taxes paid or withheld at source either as a deduction from gross income or as a credit against their U.S. federal income tax liability. Individuals who do not claim itemized deductions, but instead utilize the standard deduction, may not claim a deduction for the amount of the non-U.S. income taxes withheld, but such amount may be claimed as a credit. The amount of foreign income taxes which may be claimed as a credit in any year is subject to complex limitations and restrictions, which must be determined on an individual basis by each holder. These limitations include, among others, rules which limit foreign tax credits allowable with respect to specific classes of income to the U.S. federal income taxes otherwise payable with respect to each such class of income. The total amount of allowable foreign tax credits in any year cannot exceed one’s regular U.S. tax liability for the year attributable to foreign source taxable income. A U.S. holder will be denied a foreign tax credit with respect to non-U.S. income tax withheld from dividends received on the common shares to the extent such U.S. holder has not held the common shares for at least 16 days of the 31-day period beginning 15 days before the ex-dividend date or to the extent such U.S. holder is under an obligation to make related payments with respect to substantially similar or related property. Any days during which an U.S. holder has substantially diminished its risk of loss on the common shares are not counted toward meeting the 16-day holding period required by the statute.
Controlled Foreign Corporation
For U.S. federal income tax purposes, a “controlled foreign corporation” is a foreign corporation in which U.S. holders who own at least 10 percent of the voting power (directly or by constructive ownership through certain related persons) collectively own more than 50 percent of the voting power or value. If we are or become a controlled foreign corporation, such 10-percent U.S. holders must include in their current, U.S. taxable income their share of the corporation’s undistributed “Subpart F income” (i.e., certain passive income, sales or service income, insurance, shipping, ocean activity, or oil-related income, and income from specified disfavored activities or from ostracized foreign countries) and the amount of the corporation’s investments in U.S. property. These income inclusions are not eligible for the maximum capital gains tax rate on qualified dividends.
We have not conducted any investigation into whether the Company is a controlled foreign corporation. We can provide no assurance that the Company is not and has not been, or that it will not become in the future, a controlled foreign corporation. U.S. holders should consult an independent tax advisor about how the controlled foreign corporation rules in connection with their purchasing, holding, or disposing of our common shares.
Passive Foreign Investment Company
We will be a passive foreign investment company, or PFIC, if 75 percent or more of our gross income in a taxable year, including the pro rata share of the gross income of any company in which we are considered to own 25 percent or more of the common shares by value, is passive income. Alternatively, we will be a PFIC if at least 50 percent of our assets in a taxable year, averaged over the year and ordinarily determined based on fair market value, including the pro rata share of the assets of any company in which we are considered to own 25 percent or more of the common shares by value, are held for the production of, or produce, passive income. Passive income generally includes dividends, interest, rents, royalties, and gains from the disposition of passive assets. PFIC status cannot be determined until the close of the year in question and is determined annually.
If we are a PFIC, each U.S. holder, upon certain excess distributions by us and upon disposition of common shares at a gain, would be liable to pay tax at the highest then prevailing income tax rate on ordinary income plus interest on the tax, as if the distribution or gain had been recognized ratably over the taxpayer’s holding period for the common shares. Additionally, if we are a PFIC, a U.S. holder who acquires common shares from a deceased person who was a U.S. holder would not receive the step-up of the income tax basis to fair market value for such common shares. Instead, such U.S. holder would have a tax basis equal to the deceased’s tax basis, if lower. Furthermore, the IRS has issued proposed regulations that, subject to certain exceptions, would treat as taxable certain transfers of PFIC stock by a certain U.S. holders that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. This proposed regulation is not yet effective, but the IRS could make it effective at any time, possibly with retroactive effect.
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If a U.S. holder has made a qualifying electing fund (“QEF”) election covering all taxable years during which the holder held common shares and in which we were a PFIC, distributions and gains will not be taxed as described above, nor will the denial of a basis step-up at death described above apply. Instead, a U.S. holder that makes a QEF election is required for each taxable year to include in income the holder’s pro rata share of our ordinary earnings as ordinary income and a pro rata share of our net capital gain as long-term capital gain, regardless of whether such earnings or gain have in fact been distributed. Payment of taxes on undistributed income may be deferred under a separate election. If deferred, the taxes will be subject to an interest charge. Where a U.S. holder has elected the application of the QEF rules to its PFIC common shares, and the excess distribution rules do not apply to such common shares (because of a timely election or a purge of the PFIC taint), any gain realized on the appreciation of the PFIC common shares is taxable as capital gain (if the common shares are a capital asset in the hands of the investor) and no interest charge is imposed. U.S. holders making a QEF election are currently taxed on their pro rata share of the our earnings and profits. Where earnings and profits that were included in income under this rule are later distributed, the distribution is not a dividend. The basis of a U.S. shareholder’s common shares under the QEF rules is increased by amounts that are included in income, and decreased by amounts distributed but not taxed as dividends, under the above rules. In order to comply with the requirements of a QEF election, a U.S. holder must receive certain information from us. We can provide no assurance that we will possess or provide the information necessary for U.S. holders to make a QEF election.
If a U.S. holder held common shares in a year in which we were a PFIC but had not made a QEF election covering such years, such U.S. holder may make a QEF election and “purge the PFIC taint” by recognizing gain as if it had sold the common shares on the first day of the taxable year for which the QEF election is made, as long as the U.S. holder held the common shares and can establish their fair market value on that day. The U.S. holder will treat that deemed sale transaction as a disposition of PFIC stock and will, thereafter, be subject to the rules described below applicable to U.S. holders making a QEF election.
Although a determination as to a corporation’s PFIC status is made annually, an initial determination that a corporation is a PFIC will generally apply for subsequent years, whether or not it meets the tests for PFIC status in those years. A U.S. holder who makes the QEF election discussed above for the first year the U.S. holder holds or is deemed to hold common shares and for which we are determined to be a PFIC, or who has made the QEF election and purged the PFIC taint, however, is not subject to the PFIC rules or the QEF regime for the years in which we are not a PFIC.
If our common shares are treated as “regularly traded” on a “qualified exchange or other market,” as provided in applicable Treasury Regulations, a U.S. holder of our common shares may elect to mark the common shares to market annually, recognizing as ordinary income or loss each year an amount equal to the difference between the holder’s adjusted tax basis in such common shares and their fair market value. Losses would be allowed only to the extent of net mark-to-market gain previously included by the U.S. holder under the election in previous taxable years. As with the QEF election, a U.S. holder who makes a mark-to-market election would not be subject to the general PFIC regime and the denial of basis step-up at death described above. We can provide no assurance that our common shares are or will be in the future eligible for the mark-to-market election.
If we are a PFIC and, at any time, have a non-U.S. subsidiary that is classified as a PFIC, U.S. holders of common shares generally would be deemed to own, and also would be subject to the PFIC rules with respect to, their indirect ownership interests in that lower-tier PFIC. If we are a PFIC and a U.S. holder of common shares does not make a QEF election in respect of a lower-tier PFIC, the U.S. holder could incur liability for the deferred tax and interest charge described above if either (i) we receive a distribution from, or dispose of all or part of our interest in, the lower-tier PFIC or (ii) the U.S. holder disposes of all or part of its common shares. A mark-to-market election under the PFIC rules with respect to common shares would not apply to a lower-tier PFIC, and a U.S. holder would not be able to make such a mark-to-market election in respect of its indirect ownership interest in that lower-tier PFIC. Consequently, U.S. holders of common shares could be subject to the PFIC rules with respect to income of the lower-tier PFIC the value of which already had been taken into account indirectly via mark-to-market adjustments. Similarly, if a U.S. holder made a mark-to-market election under the PFIC rules in respect of the common shares and made a QEF election in respect of a lower-tier PFIC, that U.S. holder could be subject to current taxation in respect of income from the lower-tier PFIC the value of which already had been taken into account indirectly via mark-to-market adjustments. U.S. holders are urged to consult their own tax advisors regarding the issues raised by lower-tier PFICs.
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We have not conducted any investigation into whether the Company is a PFIC. We can provide no assurance that the Company is not and has not been, or that it will not become in the future, a PFIC, nor can we provide any assurance that we will have timely knowledge or notify U.S. holders of our PFIC status in the future.
The rules dealing with PFICs and with the QEF and mark-to-market elections are very complex and are affected by various factors in addition to those described above, including our ownership of any non-U.S. subsidiaries. As a result, U.S. holders of common shares are strongly encouraged to consult their tax advisors about the PFIC rules in connection with their purchasing, holding or disposing of common shares.
Non-U.S. Holders of Common Shares
Except as described in “Information Reporting and Backup Withholding” below, a non-U.S. holder of common shares will not be subject to U.S. federal income tax on the payment of dividends on common shares and gain from the disposition of common shares unless such income is U.S. source income and: (i) such item is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States and, where required by an applicable income tax treaty, such item is attributable to a permanent establishment or, in the case of an individual, a fixed place of business, in the United States; or (ii) the non-U.S. holder is an individual who holds the common shares as a capital asset and is present in the United States for 183 days or more in the taxable year of the disposition, certain other conditions are met, and such non-U.S. holder does not qualify for an exemption. If the first exception applies, the non-U.S. holder generally will be subject to U.S. federal income tax with respect to such income in the same manner as a U.S. holder unless otherwise provided in an applicable income tax treaty. A non-U.S. holder that is a corporation for U.S. federal income tax purposes may also be subject to a branch profits tax with respect to such income at a rate of 30 percent (or at a reduced rate under an applicable income tax treaty). If the second exception applies, the non-U.S. holder generally will be subject to U.S. federal income tax at a rate of 30 percent (or at a reduced rate under an applicable income tax treaty) on the amount by which such non-U.S. holder’s capital gains allocable to U.S. sources exceed capital losses allocable to U.S. sources during the taxable year of disposition of the common shares.
Information Reporting and Backup Withholding
U.S. holders generally will be subject to information reporting requirements with respect to dividends paid on common shares and on the proceeds from the sale, exchange or disposition of common shares. In addition, for payments made by or through a U.S. person or a U.S. office of a non-U.S. person: (i) U.S. holders will be subject to back-up withholding (currently at 28 percent) on dividends paid on common shares, and on the sale, exchange or other disposition of common shares, unless the U.S. holder provides a duly executed IRS Form W-9 or otherwise establishes an exemption; (ii) non-U.S. holders generally are not subject to information reporting or back-up withholding with respect to dividends paid on common shares, or the proceeds from the sale, exchange or other disposition of common shares, provided that such non-U.S. holder certifies to its foreign status on the applicable duly executed IRS Form W-8 or otherwise establishes an exemption. Back-up withholding is not an additional tax and the amount of any back-up withholding will be allowable as a credit against a holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is timely furnished to the IRS.
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F. Dividends and Paying Agents
Not applicable.
G. Statements by Experts
Not applicable.
Documents on Display
Copies of the documents referred to in this document may be inspected during normal business hours at our offices at Suite 900, 95 Wellington Street West, Toronto, Ontario, Canada M5J 2N7. Our telephone number is (416) 644.0066.
I. Subsidiary Information
Not applicable.
ITEM 11. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
ITEM 12. Description of Securities other than Equity Securities
Not Applicable.
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PART II
ITEM 13. Defaults, Dividend Arrearages and Delinquencies
None.
ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
ITEM 15T. Controls and Procedures
| (a) | Evaluation of Disclosure Controls and Procedures. Our chief executive officer (principal executive officer) and chief financial officer (principal financial and accounting officer) have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this annual report. Based on that evaluation, our chief executive officer and chief financial officer have concluded that our current disclosure controls and procedures are adequate and effective. | ||
| (b) | Management’s Annual Report on Internal Control over Financial Reporting.The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that: | ||
• | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; | ||
• | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the Company; and | ||
• | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. | ||
The framework used by management to evaluate internal controls over financial reporting isInternal Control – Integrated Frameworkissued by the Committee of Sponsoring Organizations (COSO), as implemented by their subsequent publicationInternal Control over Financial Reporting – Guidance for Smaller Public Companies. | |||
| (c) | Changes in Internal Controls. There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during our last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. | ||
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. | |||
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of November 30, 2008. Based on its assessment, management believes that, as of November 30, 2008, the Company’s internal control over financial reporting is effective.
This Annual Report on Form 20-F does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the company to provide only a management’s report in this Annual Report on Form 20-F.
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ITEM 16. Audit Committee
A. Audit Committee Financial Expert
The Company’s Audit Committee is independent and all members are considered financially literate under Canadian regulatory standards. The Audit Committee is composed of Harry Blum and Dave Russell. The Company has designated Harry Blum as an “audit committee financial expert” as that term is defined in the SEC rules adopted pursuant to the Sarbanes-Oxley Act.
B. Code of Ethics
The Company has a Code of Business Conduct and Ethics that was approved by the Company’s Board of Directors on September 19, 2006, and subsequently revised September 18, 2008, and which is posted on our website:www.purenickel.com/s/Governance.asp, and as Exhibit 11.1 to our Form 20-F filed with the SEC on May 21, 2008. The Code of Business Conduct and Ethics applies to our chief executive officer and senior financial officers.
C. Principal Accountant Fees and Services
The aggregate fees billed by the Company’s external auditors in each of the last two fiscal years for audit fees are as follows:
| Year ended November 30, 2008 | Year ended November 30, 2007 | |
| Audit fees | $35,000 | $60,000 |
| Audit related fees | — | — |
| Tax fees | — | — |
| All other fees | $2,500 | $7,500 |
| Total | $37,500 | $67,500 |
Audit fees include services that are provided by the independent auditor in connection with statutory and regulatory filings, principally for the audit of the annual financial statements. The Audit Committee must approve in advance any non-audit related services provided by the auditor to the Company, and the fees for such services, to ensure independence of the Auditor, and in accordance with applicable regulatory standards, including applicable stock exchange requirements with respect to approval of non-audit related services performed by the auditors; and as necessary, taking or recommending that the Board take appropriate action to oversee the independence of the auditors.
64
D. Exemptions From the Listing Standards for Audit Committees
Not applicable.
E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
PART III
ITEM 17. Financial Statements
Our audited consolidated financial statements prepared by our management and approved by the Audit Committee include, starting on page F-1: Consolidated Balance Sheets of Pure Nickel Inc. as at November 30, 2007, and 2008, Consolidated Statements of Operations, Comprehensive Loss, and Deficit, and Cash Flows for the years then ended, reported upon by SF Partnership LLP, Chartered Accountants. Also included are Consolidated Balance Sheets of Pure Nickel Inc. as at November 30, 2006, and 2007, Consolidated Statements of Operations, Comprehensive Loss, and Deficit, and Cash Flows for the period and year then ended respectively, also reported upon by SF Partnership LLP, Chartered Accountants.These statements are prepared in accordance with Canadian GAAP, which differ in certain respects from US GAAP. See the notes to the respective consolidated financial statements.
ITEM 18. Financial Statements
See Item 17. Financial Statements.
65
ITEM 19. Exhibits
EXHIBIT INDEX
| Exhibit | ||
| Number | Description | |
| 1.1 | Certificate and Memorandum of Incorporation (incorporated by reference from our Annual Report on Form 20-F filed with the SEC May 21, 2008). | |
| 1.2 | Articles of continuance (incorporated by reference from our Form 6-K filed with the SEC March 6, 2009). | |
| 1.3 | By-Law No. 1 of Pure Nickel Inc. (incorporated by reference from our Form 6-K filed with the SEC March 6, 2009). | |
| 4.1 | Amalgamation Agreement by and among Nevada Star Resource Corp., 6658482 Canada Inc. and Pure Nickel Inc., dated as of December 14, 2006 (incorporated by reference from our Form 6-K filed with the SEC August 16, 2007.) | |
| 4.2 | Share Option Plan approved by the shareholders of Pure Nickel Inc. March 30, 2007 (incorporated by reference from our Annual Report on Form 20-F filed with the SEC May 21, 2008). | |
| 4.3 | Share option plan approved by the shareholders of Pure Nickel Inc. May 13, 2008 (incorporated by reference from our Annual Report on Form 20-F filed with the SEC April 23, 2009. | |
| 6.1 | Employment agreement dated May 13, 2008 with Mr. David McPherson, CEO (incorporated by reference from our Annual Report on Form 20-F filed with the SEC April 23, 2009. | |
| 6.2 | Employment agreement dated January 10, 2008 with Mr. Jeffrey Sherman, CFO (incorporated by reference from our Annual Report on Form 20-F filed with the SEC April 23, 2009. | |
| 8.1 | List of subsidiaries of Pure Nickel Inc. with jurisdiction of incorporation and trade name information (incorporated by reference from our Annual Report on Form 20-F filed with the SEC May 21, 2008). | |
| 11.1 | Code of Ethics (incorporated by reference from our Annual Report on Form 20-F filed with the SEC April 23, 2009. | |
| 12.1 | Certification of the Principal Executive Officer under the Sarbanes-Oxley Act.* | |
| 12.2 | Certification of the Principal Financial Officer under the Sarbanes-Oxley Act.* | |
| 13.1 | Certification under Section 1350 of Chapter 63 of Title 18 of the United States Code.* | |
| 15.1 | Audit Committee Charter (incorporated by reference from our Annual Report on Form 20-F filed with the SEC May 21, 2008). | |
| 15.2 | Compensation Committee Mandate (incorporated by reference from our Annual Report on Form 20-F filed with the SEC May 21, 2008). | |
| 15.3 | Corporate Governance and Nominating Committee Charter (incorporated by reference from our Annual Report on Form 20-F filed with the SEC May 21, 2008). | |
| 15.4 | Corporate Governance Mandate (incorporated by reference from our Annual Report on Form | |
| 15.5 | 20-F filed with the SEC May 21, 2008). | |
| 15.6 |
* Filed herewith.
SIGNATURES
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A and that is has duly caused and authorized the undersigned to sign this annual report on its behalf.
Dated: December 22, 2009
| By: | /s/ David McPherson | |
| David McPherson, Chief Executive Officer |
66
| PURE NICKEL INC. |
| CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2008 |
| RESTATED – SEE NOTE 20 |
F-1
AUDITORS' REPORT
To the Shareholders of
Pure Nickel Inc.
We have audited the consolidated balance sheets of Pure Nickel Inc. (the "Company") as at November 30, 2008 and 2007 and the consolidated statements of operations, comprehensive loss and deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at November 30, 2008 and 2007 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.
As described in Note 20, the accompanying consolidated financial statements of the Company as at and for the years ended November 30, 2008 and 2007 have been restated. We therefore withdraw our previous audit report dated December 17, 2008 on those financial statements, as originally filed.
| Toronto, Canada | LICENSED PUBLIC ACCOUNTANTS |
| December 17, 2008, except as to Note 20, | |
| which is as of December 22, 2009 |
F-2
PURE NICKEL INC. |
| (An Exploration Stage Company) |
| CONSOLIDATED BALANCE SHEETS |
| November 30, 2008 and 2007 |
| 2008 | 2007 | |||||
| (Restated – | (Restated – | |||||
| Note 20 | ) | Note 20 | ) | |||
| ASSETS | ||||||
Current assets: | ||||||
| Cash and cash equivalents | $ | 7,700,559 | $ | 12,960,396 | ||
| Short-term investments (restricted – Note 5) | 50,000 | – | ||||
| Amounts receivable | 32,015 | 377,652 | ||||
| Prepaid expenses and deposits | 42,984 | 321,433 | ||||
| 7,825,558 | 13,659,481 | |||||
| Fixed assets (Note 6) | 17,269 | 27,258 | ||||
| Mineral properties (Note 7) | 38,365,557 | 34,723,740 | ||||
| Investments | 2,375 | – | ||||
| $ | 46,210,759 | $ | 48,410,479 | |||
LIABILITIES AND SHAREHOLDERS‘ EQUITY | ||||||
Current liabilities: | ||||||
| Accounts payable | $ | 158,722 | $ | 345,517 | ||
| Accrued liabilities | 297,105 | 131,559 | ||||
| 455,827 | 477,076 | |||||
Shareholders’ equity: | ||||||
| Share capital (Note 8) | 44,435,120 | 44,435,120 | ||||
| Contributed surplus (Note 9) | 11,615,950 | 11,362,381 | ||||
| Deficit | (10,296,138 | ) | (7,864,098 | ) | ||
| 45,754,932 | 47,933,403 | |||||
| $ | 46,210,759 | $ | 48,410,479 |
Nature of operations (Note 1)
The accompanying notes are an integral part of these consolidated financial statements.
Approved on behalf of the board of directors:
| “Dave McPherson” | “Harry Blum” | |
| Dave McPherson, Director | Harry Blum, Director |
F-3
PURE NICKEL INC. |
| (An Exploration Stage Company) |
| CONSOLIDATED STATEMENTS OF OPERATIONS,COMPREHENSIVE LOSS AND DEFICIT |
| Years ended November 30, 2008 and 2007 |
| 2008 | 2007 | |||||
| Revenues | $ | – | $ | – | ||
| Expenses: | ||||||
| Administration and general | 1,972,406 | 4,946,798 | ||||
| Loss before other income (expenses) | (1,972,406 | ) | (4,946,798 | ) | ||
| Other income (expenses): | ||||||
| Foreign exchange gain (loss) | 302,950 | (331,560 | ) | |||
| Interest income | 301,390 | 378,816 | ||||
| Interest expense | – | (7,830 | ) | |||
| Impairment of fixed assets | (17,501 | ) | – | |||
| Impairment of mineral properties (Note 7) | (647,368 | ) | (2,659,219 | ) | ||
| Change in fair value of investments | (399,105 | ) | – | |||
| Transaction fees for reverse takeover transaction | – | (158,984 | ) | |||
| (459,634 | ) | (2,778,777 | ) | |||
| Net loss and comprehensive loss for the year | (2,432,040 | ) | (7,725,575 | ) | ||
| Deficit, beginning of year | (7,864,098 | ) | (138,523 | ) | ||
| Deficit, end of year | $ | (10,296,138 | ) | $ | (7,864,098 | ) |
| Loss per share – basic and diluted | $ | (0.04 | ) | $ | (0.18 | ) |
| Weighted average number of shares | 67,765,559 | 43,644,922 |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
PURE NICKEL INC. |
| (An Exploration Stage Company) |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| Years ended November 30, 2008 and 2007 |
| 2008 | 2007 | |||||
| Operating activities: | ||||||
| Net loss for the year | $ | (2,432,040 | ) | $ | (7,725,575 | ) |
| Items not affecting cash: | ||||||
| Depreciation | 27,409 | 13,875 | ||||
| Impairment of fixed assets | 17,501 | – | ||||
| Impairment of mineral properties | 647,368 | 2,659,219 | ||||
| Change in fair value of investments | 399,105 | – | ||||
| Stock-based compensation | 253,569 | 2,385,488 | ||||
| (1,087,088 | ) | (2,666,993 | ) | |||
| Changes in non-cash working capital items: | ||||||
| Amounts receivable | 345,637 | (209,262 | ) | |||
| Prepaid expenses and deposits | 278,449 | (125,287 | ) | |||
| Income taxes | – | (57,937 | ) | |||
| Accounts payable | (186,795 | ) | 220,848 | |||
| Accrued liabilities | 165,546 | 52,559 | ||||
| Total cash flows used in operating activities | (484,251 | ) | (2,786,072 | ) | ||
| Investing activities: | ||||||
| Capitalized mineral property expenditures, net of recoveries | (4,690,665 | ) | (23,955,313 | ) | ||
| Purchase of short-term investments | (50,000 | ) | 1,000,000 | |||
| Acquisition of fixed assets | (34,921 | ) | (17,296 | ) | ||
| Total cash flows used in investing activities | (4,775,586 | ) | (22,972,609 | ) | ||
| Financing activities: | ||||||
| Shares issued for cash, net of cash share issue costs | – | 28,414,276 | ||||
| Proceeds from issuance of warrants | – | 6,221,887 | ||||
| Cash and cash equivalents acquired in reverse takeover transaction (Note 3) | – | 3,664,761 | ||||
| Repayments of note payable | – | (100,000 | ) | |||
| Total cash flows provided by financing activities | – | 38,200,924 | ||||
| Effects of changes in foreign exchange rates on cash and cash equivalents | – | 3,593 | ||||
| Increase (decrease) in cash and cash equivalents during the year | (5,259,837 | ) | 12,445,836 | |||
| Cash and cash equivalents, beginning of year | 12,960,396 | 514,560 | ||||
| Cash and cash equivalents, end of year | $ | 7,700,559 | $ | 12,960,396 | ||
| Cash and cash equivalents consist of: | ||||||
| Cash | $ | 5,703,031 | $ | 12,960,396 | ||
| Term deposits | 1,997,528 | – | ||||
$ | 7,700,559 | $ | 12,960,396 |
Supplementary cash flow information (Note 13)
The accompanying notes are an integral part of these consolidated financial statements.
F-5
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| 1. | NATURE OF OPERATIONS |
Pure Nickel Inc., formerly Nevada Star Resource Corp., (the “Company") was incorporated under the laws of British Columbia, Canada and continued in the Yukon Territory of Canada in 1998. On March 30, 2007, Pure Nickel Inc. was acquired in a reverse takeover transaction. | |
The Company is a mineral property exploration company and has not yet determined whether its mineral properties contain economically recoverable reserves. The recoverability of the amounts shown for mineral properties is dependent upon the confirmation of economically recoverable reserves, the ability of the Company to enter into joint ventures or obtain financing to successfully complete their development, and upon future profitable production. | |
| 2. | SIGNIFICANT ACCOUNTING POLICIES |
| (a) | Basis of presentation | |
These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. They are expressed in Canadian dollars and include the accounts of all subsidiaries. All inter-company balances and transactions have been eliminated upon consolidation. | ||
| (b) | Use of estimates | |
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in Canada requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Significant areas requiring the use of estimates relate to the recoverability or valuation of receivables and mineral properties, the utilization of future income tax assets and the valuation of asset retirement obligations and stock- based compensation. Actual results could differ from these estimates. | ||
| (c) | Cash and cash equivalents | |
Cash and cash equivalents include cash on account, demand deposits and money market investments with maturities from the date of acquisition of three months or less that are readily convertible to known amounts of cash and are subject to insignificant changes in value. | ||
| (d) | Short-term investments | |
Short-term investments consist of highly liquid short-term interest-bearing securities with a term to maturity of greater than three months on the date of purchase, and less than one year from the fiscal year-end. Short-term investments are recorded at the lower of cost or fair value. Funds that are not available for use by the Company are noted as restricted. | ||
| (e) | Fixed assets | |
Fixed assets are recorded at cost less accumulated depreciation. Depreciation is provided for based on the estimated useful lives of the assets using the declining balance basis at the following annual rates: |
| Mining equipment | 30% | |
| Office equipment | 20% | |
| Computer hardware | 30% | |
| Computer software | 100% |
F-6
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| 2. | SIGNIFICANT ACCOUNTING POLICIES (continued) |
| (f) | Mineral properties | |
Mineral property acquisition and exploration costs are recorded at cost. All direct and indirect costs related to the acquisition of the interests are capitalized until the properties to which they relate are placed into production, sold, or management determines that there is an impairment in value. The recorded cost of mineral properties consists of cash paid, the value of shares or warrants issued, and exploration and development costs incurred. These costs will be amortized on the basis of units of production produced in relation to the proven reserves available on the related property following commencement of production. Mineral properties that are sold before a property reaches the production stage have proceeds from the sale of the property credited against the cost of the property, and any excess recognized as income. | ||
| (g) | Investments | |
Investments consist of warrants received as part of option agreements negotiated with venture partners. A fair value is ascribed to the warrants at the transaction date using the Black-Scholes option-pricing model, and that amount is offset against capitalized mineral property expenditures. At each subsequent balance sheet date, the fair value is recalculated and any gain or loss is reported in the consolidated statements of operations, comprehensive loss and deficit. | ||
| (h) | Impairment of long-lived assets | |
The recoverability of long-lived assets, which include fixed assets, investments, and mineral properties, is assessed when an event occurs that indicates impairment. Recoverability is based upon factors such as future asset utilization and the future undiscounted cash flows expected to result from the use or sale of the related assets. An impairment loss is recognized in the period when it is determined that the carrying amount of the asset will not be recoverable and exceeds its fair value. At that time the carrying amount is written down to fair value. | ||
| (i) | Foreign currency translation | |
The consolidated financial statements are stated in Canadian dollars, which is the Company’s functional currency. Transactions and account balances in foreign currencies and the accounts of integrated foreign subsidiaries have been translated into Canadian dollars using the temporal method. Under the temporal method, monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet dates. Non-monetary assets and liabilities are translated at historic exchange rates. Revenue and expenses are translated at the exchange rates in effect on the transaction dates, except for depreciation, which is translated on the same basis as the related asset. The resulting exchange gains and losses are recognized in income. | ||
| (j) | Loss per share | |
Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year. Outstanding stock options, warrants, agent share warrants and agent unit warrants have not been considered in the computation of diluted loss per share as the result is anti-dilutive. |
F-7
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| 2. | SIGNIFICANT ACCOUNTING POLICIES (continued) |
| (k) | Stock-based compensation | |
The Company has a plan for granting stock options to management, directors, employees and consultants. The Company recognizes compensation expense for this plan at fair value in accordance with the Canadian Institute of Chartered Accountants (CICA)Handbooksection 3870 –Stock-Based Compensation and Other Stock-Based Payments. Under this method, the fair value of each option grant is estimated on the date of the grant and amortized over the vesting period, with the resulting amortization credited to contributed surplus. The fair value of each grant is determined using the Black-Scholes option-pricing model. Consideration paid upon the exercise of stock options is recorded as share capital. | ||
| (l) | Asset retirement obligations | |
The Company recognizes liabilities for statutory, contractual or legal obligations associated with the reclamation of mineral properties. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred and the corresponding asset retirement cost is added to the carrying amount of the related asset. The cost is amortized over the economic life of the asset using either the unit-of-production method or the straight-line method, as appropriate. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation. As at November 30, 2008 and 2007, the Company had not incurred any asset retirement obligations related to the exploration of its mineral properties. | ||
| (m) | Income taxes | |
Future income taxes are recorded using the asset and liability method whereby future income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that substantive enactment or enactment occurs. To the extent that the Company does not consider it more likely than not that a future tax asset will be recovered, it provides a valuation allowance against the excess. | ||
| (n) | Financial instruments | |
Cash and cash equivalents, short-term investments and investments are designated as held-for- trading and are measured at fair value. Amounts receivable are designated as loans and receivables and are measured at amortized cost. Accounts payable and accrued liabilities are designated as other financial liabilities and are measured at amortized cost. Changes in fair value of held-for-trading financial instruments are reflected in the consolidated statements of operations, comprehensive loss and deficit and included in deficit on the consolidated balance sheets. |
F-8
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| 3. | REVERSE TAKEOVER TRANSACTION (Restated – see Note 20) |
On March 30, 2007, Nevada Star Resources Corp. acquired the issued and outstanding common shares of old Pure Nickel Inc. by issuing 17,901,703 (89,508,515 pre-split adjusted) common shares of Nevada Star to the shareholders of old Pure Nickel in a reverse takeover transaction. Upon the completion of the transaction, old Pure Nickel was amalgamated with a subsidiary of Nevada Star and Nevada Star changed its name to Pure Nickel Inc. The transaction has been accounted for as a reverse takeover transaction. Consequently, for accounting purposes, the legal parent company (Nevada Star) in the reverse takeover transaction is deemed to be a continuation of the legal subsidiary (old Pure Nickel), which is regarded as being the acquirer. Accordingly, the consolidated financial statements reflect the significant accounting policies of old Pure Nickel and are expressed in Canadian dollars, the reporting currency of old Pure Nickel. For the purposes of this acquisition, the fair value of the net assets of Nevada Star was determined to be $12,647,893. This value is assigned to the net assets of Nevada Star and its legal subsidiaries on the acquisition date as follows: |
| Amount | ||||
| Cash and cash equivalents | $ | 3,664,761 | ||
| Amounts receivable | 58,935 | |||
| Prepaid expenses and deposits | 74,417 | |||
| Fixed assets | 26,356 | |||
| Mineral properties | 9,013,583 | |||
| Accounts payable and accrued liabilities | (126,244 | ) | ||
| Income taxes payable | (63,915 | ) | ||
| Fair value of consideration | $ | 12,647,893 |
| 4. | ADOPTION OF NEW ACCOUNTING STANDARDS |
| (a) | Financial instruments | |
In December 2006, the Canadian Institute of Chartered Accountants (CICA) issued section 3862 –Financial Instruments – Disclosures, which replaces section 3861 and provides expanded disclosure requirements that provide additional detail by financial asset and liability categories. The CICA also issued section 3863 –Financial Instruments – Presentation, to enhance the understanding of financial statement users as to the significance of financial instruments with respect to financial position, performance and cash flows. The Company adopted these standards effective December 1, 2007. Also, effective December 1, 2006, the Company adopted CICA section 3855 –Financial Instruments – Recognition and Measurement.Prior periods were not restated. Financial instrument disclosures are set out in note 15. | ||
| (b) | Capital disclosures | |
In December 2006, the CICA issued section 1535 –Capital Disclosures, which is effective for interim and annual financial statements commencing on or after October 1, 2007, and establishes standards for the disclosure of capital management strategies. The Company adopted this standard effective December 1, 2007 – see note 16. |
F-9
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| 4. | ADOPTION OF NEW ACCOUNTING STANDARDS (continued) |
| (c) | General standards of financial statement presentation | |
In June 2007, the CICA issued amended section 1400 –General Standards of Financial Statement Presentation. The section provides revised guidance related to management’s responsibility to assess and disclose the ability of an entity to continue as a going concern. This amended standard applies to interim and annual financial statements for fiscal years beginning on or after January 1, 2008. Early adoption is permitted. The Company will adopt the standard commencing for its interim and annual financial statements for the fiscal year ending November 30, 2009. The adoption of this standard is not expected to have a significant impact on the Company’s financial statements. | ||
| (d) | International Financial Reporting Standards | |
The Company will be required to adopt International Financial Reporting Standards (IFRS) in the fiscal quarter ended February 29, 2012. The Company is currently assessing the effect of the change. |
| 5. | SHORT-TERM INVESTMENTS |
Short-term investments represent funds invested in a guaranteed investment certificate placed with a Schedule I bank as security for corporate credit cards. The funds are restricted and cannot be withdrawn while the credit cards are outstanding. | |
| 6. | FIXED ASSETS |
| Accumulated | Net book | |||||||||
| November 30, 2008 | Cost | depreciation | value | |||||||
| Office equipment | $ | 3,866 | $ | 500 | $ | 3,366 | ||||
| Computer hardware | 11,511 | 1,661 | 9,850 | |||||||
| Computer software | 35,364 | 31,311 | 4,053 | |||||||
| $ | 50,741 | $ | 33,472 | $ | 17,269 |
| Accumulated | Net book | |||||||||
| November 30, 2007 | Cost | depreciation | value | |||||||
| Mining equipment | $ | 7,011 | $ | 1,402 | $ | 5,609 | ||||
| Office equipment | 7,363 | 982 | 6,381 | |||||||
| Computer hardware | 8,314 | 1,678 | 6,636 | |||||||
| Computer software | 18,507 | 9,875 | 8,632 | |||||||
| $ | 41,195 | $ | 13,937 | $ | 27,258 |
F-10
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| 7. | MINERAL PROPERTIES |
| Year ended | Expenditures | Value | ||||||||||||||
| November 30, 2008 | Balance, | capitalized, | ascribed to | Balance, | ||||||||||||
| (Restated – see | beginning | net of | Impair- | warrants | end | |||||||||||
| Note 20) | of year | recoveries | ment | received | of year | |||||||||||
| Copper King Milford (a) | $ | 3,800,629 | $ | – | $ | – | $ | – | $ | 3,800,629 | ||||||
| MAN Project (b) | 8,386,385 | 398,049 | – | – | 8,784,434 | |||||||||||
| Salt Chuck (c) | 164,228 | 35,284 | – | – | 199,512 | |||||||||||
| Fond du Lac (d) | 4,347,657 | (22,475 | ) | – | – | 4,325,182 | ||||||||||
| Thompson* | 602,911 | 38,033 | (640,944 | ) | – | – | ||||||||||
| William Lake (e) | 17,445,139 | 3,463,323 | – | (371,080 | ) | 20,537,382 | ||||||||||
| Forgues and Haut Plateau East (f) | (30,000 | ) | (14,724 | ) | – | (30,400 | ) | (75,124 | ) | |||||||
| Manibridge (g) | 2,550 | 427,062 | – | – | 429,612 | |||||||||||
| Raglan (h) | – | 351,392 | – | – | 351,392 | |||||||||||
| East Hudson* | 4,241 | 2,183 | (6,424 | ) | – | – | ||||||||||
| Rainbow | – | 12,538 | – | – | 12,538 | |||||||||||
| $ | 34,723,740 | $ | 4,690,665 | $ | (647,368 | ) | $ | (401,480 | ) | $ | 38,365,557 |
*During the year the Company suspended exploration on the Thompson property and ended the option agreement with respect to that property. The Company also relinquished its rights to the claims and licences associated with the East Hudson property.
| Year ended | Expenditures | |||||||||||||||
| November 30, 2007 | Balance, | capitalized, | Value ascribed | Balance, | ||||||||||||
| (Restated – see | beginning | net of | Impair- | to warrants | end | |||||||||||
| Note 20) | of year | recoveries | ment | received | of year | |||||||||||
| Copper King Milford (a) | $ | – | $ | 3,800,629 | $ | – | $ | – | $ | 3,800,629 | ||||||
| MAN Project (b) | – | 8,386,385 | – | – | 8,386,385 | |||||||||||
| Salt Chuck (c) | – | 164,228 | – | – | 164,228 | |||||||||||
| Fond du Lac (d) | 1,111,345 | 3,236,312 | – | – | 4,347,657 | |||||||||||
| Fox River | 79,307 | 2,579,912 | (2,659,219 | ) | – | – | ||||||||||
| Thompson | – | 602,911 | – | – | 602,911 | |||||||||||
| William Lake (e) | – | 17,445,139 | – | – | 17,445,139 | |||||||||||
| Forgues and Haut Plateau East (f) | – | (30,000 | ) | – | – | (30,000 | ) | |||||||||
| Manibridge (g) | – | 2,550 | – | – | 2,550 | |||||||||||
| East Hudson | – | 4,241 | – | – | 4,241 | |||||||||||
| $ | 1,190,652 | $ | 36,192,307 | $ | (2,659,219 | ) | $ | – | $ | 34,723,740 |
F-11
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| 7. | MINERAL PROPERTIES (continued) |
(a) Copper King Milford, Utah, United States
The Copper King Milford property in Utah is approximately 2,830 hectares. Under an agreement, the Company will receive 1% of net proceeds from the first 10,000,000 pounds of copper produced, 1.5% of the net proceeds on all copper produced thereafter, and 2% of net smelter proceeds on all other minerals produced. Total royalties are capped at US$10 million (approximately $12 million), and are subject to a 12% net profits interest (held by a group of private investors that includes a director of the Company – Note 14).
(b) MAN property, Alaska, United States
The 72,519 hectare MAN property is located 400 km northeast of Anchorage, Alaska. During the year the Company entered into an agreement with Itochu Corporation under which it agreed to reimburse the Company for exploration expenses incurred at MAN to a maximum of US$6.5 million (approximately $8.0 million) in 2008 and 2009. The reimbursement for 2008 was received during the fiscal year, and exploration expenses capitalized are recorded net of the reimbursement received. Under the agreement, Itochu has the right to earn up to a 75% interest in the MAN property by investing an aggregate of US$40 million (approximately $49 million) and meeting certain other conditions, by 2013.
(c) Salt Chuck, Alaska, United States
The Salt Chuck property consists of mining claims covering approximately 1,081 hectares, near the historic Salt Chuck mine on Prince of Wales Island, Alaska.
(d) Fond du Lac Project (formerly known as Axis Lake Project), Saskatchewan, Canada
Fond du Lac is located in northern Saskatchewan and comprises six contiguous claims covering 30,640 hectares, on the northern edge of the Athabaska Basin. In 2007, the Company agreed with Red Dragon Resource Corp. to acquire 100% ownership of the project by paying $100,000 and issuing 1,000,000 common shares to Red Dragon.
(e) William Lake, Manitoba, Canada
The William Lake property is located in central Manitoba. In 2007, the Company paid Xstrata Nickel, a division of Falconbridge Limited, $15,250,000 and issued 4,000,000 common share purchase warrants to acquire the property. Each warrant entitles Xstrata to acquire one common share at $2.00 for a term expiring on May 11, 2010. The warrants were valued at $1,963,411 using the Black-Scholes option-pricing model. Under the agreement, the Company granted Xstrata a 2% net smelter return royalty and the right to repurchase a 50% working interest in the property. During 2008, the Company entered into an option agreement with Rockcliff Resources Inc. under which Rockcliff may earn up to a 70% interest in the Tower property located within the William Lake property area.
F-12
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| 7. | MINERAL PROPERTIES (continued) | |
| (f) Forgues and Haut Plateau East, Quebec, Canada | ||
In 2007, the Company granted Manicouagan Minerals Inc. an option to earn up to a 70% interest in 39 mining claims comprising the Forgues and Haut Plateau East project in Quebec. Manicouagan may earn 50% interest in the properties by spending a minimum of $750,000 on the property before the second anniversary date. Manicouagan may earn an additional 20% if, within 60 days of the second anniversary of the agreement, Manicouagan elects to spend an additional $1,500,000 for a further 12 months in the same manner. This is a related party transaction as a director of the Company is the founder and a significant shareholder of Manicouagan (Note 14). | ||
| (g) Manibridge, Manitoba, Canada | ||
The Manibridge property is located in Manitoba, 128 km southwest of Thompson. The Company has a 50-50 joint venture agreement with Crowflight Minerals Inc. to explore for deposits. Each party must contribute properties as well as $3 million each, over a four year period ending December 31, 2011, to fund preliminary exploration activities. The Company also has an option to earn a 50% interest from Crowflight in an area surrounding the joint venture area subject to spending a cumulative amount of $3,000,000 on exploration by December 31, 2012. | ||
| (h) Raglan, Quebec, Canada | ||
The Company has three properties in the Raglan area: SR1, POV, and Nuvilik. During 2008 the Company commissioned a VTEM aerial survey of the SR1 claims in the Raglan area. Also, during 2008, the Company entered into an agreement with Minergy Limited under which it granted Minergy an option to earn an interest of up to 70% in 393 mining claims comprising the Nuvilik and POV properties, by incurring up to $6 million of exploration costs over five years. | ||
F-13
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| 8. | SHARE CAPITAL |
| (a) | Authorized share capital | |
Authorized share capital consists of unlimited common shares without par value. | ||
| (b) | Issued and outstanding share capital(Restated – see Note 20) |
| Number of | |||||||
| shares | Amount | ||||||
| Balance, November 30, 2006 | 17,552,583 | 2,901,845 | |||||
| Issued for cash upon exercise of stock options | 74,281 | 20,000 | |||||
| Issued for services to an officer of the Company | 274,839 | 74,000 | |||||
| Transferred from contributed surplus upon exercise of stock options | – | 2,700 | |||||
| Shares issued upon reverse takeover transaction | 16,863,857 | 12,647,893 | |||||
| 34,765,560 | 15,646,438 | ||||||
| – | |||||||
| Issued in two private placements for cash, net of share issue costs | 31,999,999 | 27,528,682 | |||||
| Issued for acquisition of mineral property | 1,000,000 | 1,260,000 | |||||
| Balance, November 30, 2008 and 2007 | 67,765,559 | $ | 44,435,120 |
The issued and outstanding shares have been restated from November 30, 2006, to give effect to a one-for-five reverse split of common shares in 2007.
F-14
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| 8. | SHARE CAPITAL (continued) | |
| (c) | Stock options | |
On May 13, 2008, the shareholders approved a stock option plan that permits the Company to issue share options up to a cumulative amount that may not exceed 10% of shares outstanding. This limit includes options issued under the Company’s previous option plan. The exercise price for each option granted under the Plan is based upon the five-day weighted average market price at the date of the grant, and the term may not exceed ten years from the date of the grant of the option. The specific terms including vesting period and term of the option are set by the board of directors. | ||
Stock option activity since November 30, 2006 is presented below: | ||
| Weighted | |||
| average | |||
| Number of | exercise | ||
| shares | price $ | ||
| Outstanding, November 30, 2006 | 100,000 | 0.20 | |
| Granted | 3,650,000 | 0.99 | |
| Exercised | (100,000) | 0.20 | |
| Outstanding, November 30, 2007 | 3,650,000 | 0.99 | |
| Granted | 1,075,000 | 0.26 | |
| Forfeited | (300,000) | 0.79 | |
| Expired | (250,000) | 0.90 | |
| Outstanding, November 30, 2008 | 4,175,000 | 0.83 |
The following stock options are outstanding and exercisable at November 30, 2008:
| Options outstanding | Options exercisable | |||||
| Weighted | ||||||
| average | Weighted | Weighted | ||||
| Exercise | remaining | average | average | |||
| prices | Number of | contractual life | exercise price | Number of | exercise | |
| $ | shares | in years | $ | shares | price $ | |
| 0.26 | 975,000 | 2.4 | 0.26 | 760,000 | 0.26 | |
| 0.31 | 100,000 | 2.2 | 0.31 | 50,000 | 0.31 | |
| 0.79 | 300,000 | 0.6 | 0.79 | 300,000 | 0.79 | |
| 0.90 | 1,975,000 | 0.7 | 0.90 | 1,975,000 | 0.90 | |
| 1.07 | 100,000 | 1.9 | 1.07 | 100,000 | 1.07 | |
| 1.30 | 250,000 | 1.5 | 1.30 | 250,000 | 1.30 | |
| 1.45 | 100,000 | 1.5 | 1.45 | 100,000 | 1.45 | |
| 1.50 | 250,000 | 1.5 | 1.50 | 250,000 | 1.50 | |
| 1.55 | 125,000 | 1.5 | 1.55 | 125,000 | 1.55 | |
| 4,175,000 | 1.3 | 0.83 | 3,910,000 | 0.86 | ||
F-15
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| 8. | SHARE CAPITAL (continued) |
Stock options outstanding at November 30, 2008 expire from December 19, 2008 to June 19, 2011. | ||
| (d) | Warrants | |
Outstanding warrants are presented below: |
| Weighted | |||
| average | |||
| Number | exercise | ||
| of shares | price $ | ||
| Outstanding, November 30, 2006 | – | – | |
| Issued | 20,000,004 | 1.66 | |
| Outstanding, November 30, 2007 | 20,000,004 | 1.66 | |
| Expired | (5,000,003) | 1.20 | |
| Outstanding, November 30, 2008 | 15,000,001 | 1.82 |
Warrants expire between January 10, 2009 and May 11, 2010. | ||
| (e) | Agent Share Warrants |
| Weighted | |||
| average | |||
| Number of | exercise | ||
| shares | price $ | ||
| Outstanding, November 30, 2006 | – | – | |
| Issued | 500,000 | 0.90 | |
| Outstanding, November 30, 2007 | 500,000 | 0.90 | |
| Expired | (500,000) | 0.90 | |
| Outstanding, November 30, 2008 | – | – |
| (f) | Agent Unit Warrants |
| Weighted | |||
| average | |||
| Number of | exercise | ||
| units | price $ | ||
| Outstanding, November 30, 2008 and 2007 | 629,370 | 1.25 |
Agent unit warrants outstanding at November 30, 2008 expire on January 9, 2009.
F-16
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| 9. | CONTRIBUTED SURPLUS |
| Year ended | Year ended | ||||||
| November | November | ||||||
| 30, 2008 | 30, 2007 | ||||||
| Balance, beginning of year | $ | 11,362,381 | $ | 2,700 | |||
| Stock-based compensation expense | 253,569 | 2,311,488 | |||||
| Relative fair value of warrants issued in private placements | – | 6,221,887 | |||||
| Fair value of agent share warrants issued for share issue costs | – | 297,062 | |||||
| Fair value of agent unit warrants issued for share issue costs | – | 568,533 | |||||
| Fair value of warrants issued for mineral properties | – | 1,963,411 | |||||
| Amount transferred to share capital upon exercise of stock options | – | (2,700 | ) | ||||
| Balance, end of year | $ | 11,615,950 | $ | 11,362,381 |
| 10. | STOCK-BASED COMPENSATION |
During the year ended November 30, 2008, the Company granted 1,075,000 stock options to directors, officers, employees and consultants of the Company (November 30, 2007 – 3,650,000). The weighted average fair value of each option granted was $0.26 (November 30, 2007 - $0.69) using the Black-Scholes option-pricing model at the date of each grant using the following assumptions: |
| Year ended | Year ended | ||
| November 30, | November | ||
| 2008 | 30, 2007 | ||
| Expected option lives | 3.0 years | 3.0 years | |
| Risk-free interest rate | 3.0% - 3.5% | 4.1% | |
| Expected dividend yield | 0% | 0% | |
| Expected stock price volatility | 108% - 117% | 88.3% |
During the year ended November 30, 2008, the Company recognized $253,569 of compensation expense (2007 - $2,311,488), which has been recorded in the consolidated statements of operations, comprehensive loss and deficit. | |
| 11. | INCOME TAXES |
In assessing the realization of the Company’s future income tax assets, management considers whether it is more likely than not that some portion or all of the future income tax assets will not be realized. The ultimate realization of future tax assets is dependent upon the generation of taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of future income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The amount of future income tax assets considered realizable could change materially in the near term based on future taxable income generated during the carry-forward period. |
F-17
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| 11. | INCOME TAXES (continued) |
| (a) | Income Tax Reconciliation | |
Income tax expense presented in the statements of operations differs from the amounts that would be computed by applying the combined Canadian federal and provincial income tax rate of 33.5% (November 30, 2007 – 35.2%) to income before income taxes as follows: |
| November | November | ||||||
| 30, 2008 | 30, 2007 | ||||||
| Income tax recovery expected at statutory rates | $ | 839,000 | $ | 2,511,000 | |||
| Non-deductible items | (302,000 | ) | (1,755,000 | ) | |||
| Change in valuation allowance | (537,000 | ) | (756,000 | ) | |||
| Income tax recovery | $ | – | $ | – |
| (b) | Future income tax assets and liabilities | |
The significant components of the Company’s future tax assets are as follows: |
| November | November | ||||||
| 30, 2008 | 30, 2007 | ||||||
| Future income tax assets: | |||||||
| Non-capital tax losses carried forward | $ | 1,646,000 | $ | 1,453,000 | |||
| Property and equipment | 15,000 | 7,000 | |||||
| Cumulative eligible capital | 45,000 | 47,000 | |||||
| Reduction of fair value of investments | 134,000 | – | |||||
| Canadian exploration and development expenses | 457,000 | 253,000 | |||||
| Total gross future income tax assets | 2,297,000 | 1,760,000 | |||||
| Valuation allowance | (2,297,000 | ) | (1,760,000 | ) | |||
| Net future income tax assets | $ | – | $ | – |
| (c) | Non-capital losses | |
As at November 30, 2008, the Company has non-capital losses carried forward for income tax purposes available to reduce taxable income in future years of $4,913,000 expiring as follows: |
| $ | ||
| 2009 | 446,000 | |
| 2010 | 159,000 | |
| 2014 | 96,000 | |
| �� | 2015 | 19,000 |
| 2026 | 178,000 | |
| 2027 | 2,836,000 | |
| 2028 | 1,179,000 | |
| 4,913,000 |
F-18
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| 11. | INCOME TAXES (continued) |
| (d) | Exploration expenditures | |
Under the Income Tax Act, the Company can accumulate its resource related exploration expenses and development expenses (as defined by Canada Revenue Agency), carry them forward indefinitely and use them to reduce taxable income in the future. As of November 30, 2008, the Company has Cumulative Canadian Exploration expenses (CCEE) of $26,724,000 (2007 - $22,868,000) and Cumulative Canadian Development expenses (CCDE) of $223,000 (2007 - $223,000) that can be used to reduce exploration and development taxable income in the future. |
| 12. | LOSS PER SHARE |
The weighted average number of shares outstanding used in the computation of loss per share for the year ended November 30, 2008 was 67,765,559 (November 30, 2007 – 43,644,922). Outstanding stock options, warrants, agent share warrants and agent unit warrants have not been considered in the computation of diluted loss per share as the result is anti-dilutive. | |
| 13. | SUPPLEMENTARY CASH FLOW INFORMATION (Restated – see Note 20) |
| November | November | ||||||
| 30, 2008 | 30, 2007 | ||||||
| Non-cash investing and financing activities: | |||||||
| Common shares issued in reverse takeover transaction (Note 3 and 20) | $ | – | $ | 8,983,132 | |||
| Common shares issued for acquisition of mineral property | – | 1,260,000 | |||||
| Warrants issued for acquisition of mineral property | – | 1,963,411 | |||||
| Agent share warrants issued as financing commissions | – | 297,062 | |||||
| Agent unit warrants issued as financing commissions | – | 568,533 | |||||
| Warrants received for options on mineral property | 401,480 | – | |||||
Cash paid for: | |||||||
| Interest | $ | – | $ | 32,380 | |||
| Income taxes | $ | – | $ | 57,937 |
| 14. | RELATED PARTY BALANCES AND TRANSACTIONS |
During the year ended November 30, 2008, the Company incurred legal expenses, which are included within administration and general expenses, with a firm of which a director of the Company was a principal, of $255,666 (2007 - $348,536), and paid directors of the Company, and companies controlled by directors of the Company, $79,037 (2007 - $42,170) for consulting services. These transactions were in the normal course of operations and have been recorded at the exchange amounts which the parties believe to be fair value. | |
As described in Notes 7(a) and 7(f) respectively, a director of the Company is part of a group of investors that has a net profit interest in copper production of the Copper King property, and a director is the founder and a significant shareholder of Manicouagan Minerals which holds an option in one of the Company’s properties. |
F-19
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| 15. | FINANCIAL INSTRUMENTS |
| (a) | Fair value | |
The Company has various financial instruments comprising of cash and cash equivalents, short- term investments, amounts receivable, accounts payable and accrued liabilities. The carrying values of these financial instruments approximate their fair value due to their short-term maturities. | ||
Investments consist of warrants to purchase common shares of other entities. These are accounted for as derivatives, and thus recorded at their fair value, which at November 30, 2008 was $2,375. The valuation was calculated using the Black-Scholes option pricing model which takes into account various factors including the strike price of the warrants, the current market prices of the underlying securities and the expected volatility of the prices of the underlying securities. The latter two factors may fluctuate significantly during the term that the warrant is held. In addition, the value of the warrants is reduced as time goes by and the time remaining until expiry is reduced. For these reasons, the fair value of the investments may fluctuate significantly, with the maximum loss restricted to the fair value of the investments noted above. | ||
| (b) | Credit risk | |
The Company maintains all of its cash and cash equivalents and short-term investments invested in short-term instruments of major financial institutions. Most of these amounts are not insured but depend upon the general creditworthiness of the institutions. | ||
| (c) | Liquidity risk | |
The Company has no debt and almost all of its financial assets are liquid, therefore has very limited exposure to liquidity risk. | ||
| (d) | Interest rate risk | |
The Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary assets and liabilities. | ||
| (e) | Currency risk | |
As the Company operates in the United States, some of the Company’s financial instruments and transactions are denominated in United States funds. Fluctuation in the exchange rates between the United States dollar and the Canadian dollar could have a material effect on the Company’s business, financial condition and results of operations. | ||
At November 30, 2008, the Company had net monetary assets denominated in United States funds of $2,244,812. This represented a higher than normal balance and resulted from a U.S.- dollar cash receipt at the year end, and was significantly reduced shortly after the year-end. Based upon the year-end balance, an increase of 15% in the Canada to U.S. dollar exchange would result in an increase in the net loss and comprehensive loss of $417,000, and a reduction of 15% would result in a reduction in the net loss and comprehensive loss of $417,000. Management believes that it is not likely but it is possible that the exchange rate could fluctuate by more than 15% within the next 12 months. |
F-20
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| 16. | CAPITAL DISCLOSURES |
The Company considers all of the components of shareholders’ equity to be capital. The Company’s objectives in managing capital are to safeguard its ability to operate as a going concern and to generate a superior return to shareholders. The Company has no debt and does not expect to enter into debt financing. It expects to finance exploration activity through joint ventures, sales of property interests, and by raising additional share capital when market conditions are suitable. Neither the Company nor its subsidiaries are subject to externally imposed capital requirements. There were no changes to the Company’s approach to capital management during the year. | |
| 17. | SEGMENT DISCLOSURES (Restated – see Note 20) |
The Company’s fixed assets and mineral properties by geographic distribution are as follows: |
| November 30, 2008 | Canada | United States | Total | |||||||
| Fixed assets | $ | 17,269 | $ | – | $ | 17,269 | ||||
| Mineral properties | 25,580,982 | 12,784,575 | 38,365,557 | |||||||
| $ | 25,598,251 | $ | 12,784,575 | 38,382,826 |
| November 30, 2007 | Canada | United States | Total | |||||||
| Fixed assets | $ | 27,258 | $ | – | $ | 27,258 | ||||
| Mineral properties | 22,372,498 | 12,351,242 | 34,723,740 | |||||||
| $ | 22,399,756 | $ | 12,351,242 | $ | 34,750,998 |
F-21
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| 18. | DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES (Restated – see Note 20) |
These financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”), which differ in certain respects from those generally accepted in the United States of America (“U.S. GAAP”). Under Canadian GAAP, the Company capitalizes all costs related to the acquisition, exploration and development of non-producing mineral properties. Under U.S. GAAP, acquisition costs of mineral rights are capitalized, but exploration and development costs are expensed as incurred, until the establishment of commercially mineable reserves is complete, at which time any further exploration costs are capitalized. Under Canadian GAAP, enterprises in the development stage are encouraged to disclose cumulative information from the inception of the development stage. Under U.S. GAPP, this disclosure is required. Cumulative net losses since inception aggregate $10,296,138. | |
For Canadian GAAP, cash flows relating to mineral property exploration are reported as investing activities. For U.S. GAAP, these costs would be characterized as operating activities. | |
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157 –Fair Value Measurements,which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 also establishes a fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability. SFAS No. 157 is effective for the Company beginning in fiscal year 2009. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS No. 157 on its consolidated financial statements. | |
In May 2008, the FASB issued SFAS No. 162 –Hierarchy of Generally Accepted Accounting Principles. This statement is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements of nongovernmental entities that are presented in conformity with GAAP. This statement will be effective 60 days following the U.S. Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendment to AU Section 411 –The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS No. 162 on its consolidated financial statements. |
F-22
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| 18. | DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES (continued) (Restated – see Note 20) |
The differences in accounting for mineral properties under Canadian and U.S. GAAP had the following effects on the Company’s financial statements. |
| (i) | Net Loss and Loss per Share |
| Year ended | Year ended | ||||||
| November | November | ||||||
| 30, 2008 | 30, 2007 | ||||||
| Net loss under Canadian GAAP | $ | (2,432,040 | ) | $ | (7,725,575 | ) | |
| Capitalized expenditures on unproven mineral properties | (3,581,188 | ) | (14,280,085 | ) | |||
| Net loss under U.S. GAAP | $ | (6,013,228 | ) | $ | (22,005,660 | ) | |
| Loss per share under U.S. GAAP – basic and diluted | $ | (0.09 | ) | $ | (0.50 | ) |
| (ii) | Mineral Properties |
| November 30, | November 30, | ||||||
| 2008 | 2007 | ||||||
| Mineral properties under Canadian GAAP | $ | 38,365,557 | $ | 34,723,740 | |||
| Capitalized expenditures on unproven mineral properties | (18,951,925 | ) | (15,370,737 | ) | |||
| Mineral properties under U.S. GAAP | $ | 19,413,632 | $ | 19,353,003 |
| (iii) | Deficit |
| November 30, | November 30, | ||||||
| 2008 | 2007 | ||||||
| Deficit under Canadian GAAP | $ | (10,296,138 | ) | $ | (7,864,098 | ) | |
| Capitalized expenditures on unproven mineral properties | (18,951,925 | ) | (15,370,737 | ) | |||
| Deficit under U.S. GAAP | $ | (29,248,063 | ) | $ | (23,234,835 | ) |
| 19. | COMPARATIVE FIGURES |
Certain comparative figures have been reclassified to conform to the current presentation. |
F-23
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| 20. | RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS |
These financial statements have been restated because those previously filed contained certain errors as set out below. The restatement had no effect on the consolidated statements of operations and deficit including loss per share, nor on the consolidated statements of cash flows. | |
Balance Sheet and Note 3 – Reverse Takeover Transactionhas been restated to correct an error in the 2007 calculation of the fair value of the net assets of Nevada Star which is now recorded as $12,647,893, a reduction of $778,383 from the amount of $13,426,276 previously shown.This resulted from an accounting error whereby the calculation had been based upon 89,508,515 shares of Nevada Star issued pursuant to the transaction, rather than the 84,319,285 shares of Nevada Star that were outstanding prior to the transaction. As a result, at November 30, 2008, mineral properties has been reduced from $39,143,940 to $38,365,557, total assets and total liabilities and shareholders’ equity have been reduced from $46,989,142 to $46,210,759, share capital has been reduced from $45,213,503 to $44,435,120, and shareholders’ equity has been reduced from $46,533,315 to $45,754,932. At November 30, 2007, mineral properties has been reduced from $35,502,123 to $34,723,740, total assets and total liabilities and shareholders’ equity have been reduced from $49,188,862 to $48,410,479, share capital has been reduced from $45,213,503 to $44,435,120, and shareholders’ equity has been reduced from $48,711,786 to $47,933,403. | |
Note 7 – Mineral Propertieshas been restated to correct the recorded values for mineral properties acquired as a result of the Reverse Takeover Transaction (see note 3). The balance at November 30, 2008 decreased as follows: Milford Copper reduced from $4,128,838 to $3,800,629, MAN Project reduced from $9,233,860 to $8,784,434, and Salt Chuck reduced from $200,260 to $199,512.Expenditures capitalized and balances acquired during 2007 as well as the balance at November 30, 2007 were decreased as follows: Milford Copper reduced from $4,128,838 to $3,800,629, MAN Project reduced from $8,835,811 to $8,386,385, and Salt Chuck reduced from $164,976 to $164,228. | |
Note 8 – Share Capitalhas been restated to correct the presentation of the number of shares in order to give effect to the reverse take-over transaction in 2007, as required under EIC 10 – Reverse Takeover Accounting. This restatement had no effect on the closing balances of the number of shares, nor on the dollar amounts presented. | |
Note 13 – Supplementary Cash Flow Informationhas been restated to correct an error in the calculation of the fair value of the net assets of Nevada Star (see discussion above) which had the effect of reducing the value ascribed to common shares issued in reverse takeover transaction (non- cash investing and financing activities) from $9,761,516 to $8,983,132 for the year ended November 30, 2007. | |
Note 17 – Segment Disclosureshas been restated to correct an error in the calculation of the fair value of the net assets of Nevada Star (see note 3) which had the effect of reducing the value ascribed to United States mineral properties from $13,562,958 to $12,784,575 at November 30, 2008 and from $13,129,625 to $12,351,242 at November 30, 2007. | |
Note 18 – Differences between Generally Accepted Accounting Principles in Canada and the United Stateshas been restated to give effect to United States GAAP requirements under EITF 04- 02 which requires that acquisition costs of mineral rights be capitalized. Previously, the acquisition costs of mineral rights for the purposes of United States GAAP had been expensed. The effect of the restatement of note 18 is set out below. |
F-24
PURE NICKEL INC. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year ended November 30, 2008 |
| ||
| (i) | Net Loss and Loss per Share |
| 12 months | 12 months | 12 months | 12 months | ||||||||||
| ended | ended | ended | ended | ||||||||||
| Nov. 30, | Nov. 30, | Nov. 30, 2007 | Nov. 30, | ||||||||||
| 2008 | 2008 | As restated | 2007 | ||||||||||
| As restated | As originally | As originally | |||||||||||
| disclosed | disclosed | ||||||||||||
| Net loss under Canadian GAAP | $ | (2,432,040 | ) | $ | (2,432,040 | ) | $ | (7,725,575 | ) | $ | (7,725,575 | ) | |
| Capitalized expenditures on unproven mineral properties | $ | (3,581,188 | ) | $ | (3,641,817 | ) | $ | (14,280,085 | ) | $ | (34,311,471 | ) | |
| Net loss under U.S. GAAP | $ | (6,013,228 | ) | $ | (6,073,857 | ) | $ | (22,005,660 | ) | $ | (42,037,046 | ) | |
| Loss per share under U.S. GAAP – basic and diluted | $ | (0.09 | ) | $ | (0.09 | ) | $ | (0.50 | ) | $ | (0.96 | ) |
| (ii) | Mineral Properties |
| 12 months | 12 months | ||||||||||||
| 12 months | ended Nov. | 12 months | ended Nov. | ||||||||||
| ended Nov. | 30, 2008 as | ended Nov. | 30, 2007 as | ||||||||||
| 30, 2008 as | originally | 30, 2007 as | originally | ||||||||||
| restated | disclosed | restated | disclosed | ||||||||||
| Mineral properties under Canadian GAAP | $ | 38,365,557 | $ | 39,143,940 | $ | 34,723,740 | $ | 35,502,123 | |||||
| Capitalized expenditures on unproven mineral properties | $ | (18,951,925 | ) | $ | (39,143,940 | ) | $ | (15,370,737 | ) | $ | (35,502,123 | ) | |
| Mineral properties under U.S. GAAP | $ | 19,413,632 | $ | – | $ | 19,353,003 | $ | – |
| (iii) | Deficit |
| 12 months | 12 months | ||||||||||||
| 12 months | ended Nov. | 12 months | ended Nov. | ||||||||||
| ended Nov. | 30, 2008 as | ended Nov. | 30, 2007 as | ||||||||||
| 30, 2008 as | originally | 30, 2007 as | originally | ||||||||||
| restated | disclosed | restated | disclosed | ||||||||||
| Deficit under Canadian GAAP | $ | (10,296,138 | ) | $ | (10,296,138 | ) | $ | (7,864,098 | ) | $ | (7,864,098 | ) | |
| Capitalized expenditures on unproven mineral properties | $ | (18,951,925 | ) | $ | (39,143,940 | ) | $ | (15,370,737 | ) | $ | (35,502,123 | ) | |
| Deficit under U.S. GAAP | $ | (29,248,063 | ) | $ | (49,440,078 | ) | $ | (23,234,835 | ) | $ | (43,366,221 | ) |
F-25
| PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| Restated – See Note 19 |
F-26
AUDITORS' REPORT
To the Shareholders of
Pure Nickel Inc.
We have audited the consolidated balance sheets of Pure Nickel Inc. (the "Company") as at November 30, 2007 and 2006 and the consolidated statements of operations and deficit, cash flows and comprehensive loss for the year ended November 30, 2007, and the period from inception (May 18, 2006) through to November 30, 2006. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at November 30, 2007 and 2006 and the results of its operations and cash flows for the year ended November 30, 2007, and the period from inception (May 18, 2006) through to November 30, 2006 have been restated. We therefore withdraw our previous audit report dated February 25, 2008 on those financial statements, as originally filed.
| Toronto, Canada | LICENSED PUBLIC ACCOUNTANTS |
| February 25, 2008, except as to Note 19, | |
| which is as of December 22, 2009 |
F-27
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| CONSOLIDATED BALANCE SHEETS |
| (Expressed in Canadian Dollars) |
| (Note 2 | ) | |||||
| November 30, | November 30, | |||||
| 2007 | 2006 | |||||
| Restated – Note 19 | ||||||
| ASSETS | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 12,960,396 | $ | 514,560 | ||
| Short-term investments | – | 1,000,000 | ||||
| Receivables | 377,652 | 114,810 | ||||
| Prepaid expenses and deposits | 321,433 | 125,000 | ||||
| 13,659,481 | 1,754,370 | |||||
| Property and equipment (Note 6) | 27,258 | – | ||||
| Mineral properties (Note 7) | 34,723,740 | 1,190,652 | ||||
| $ | 48,410,479 | $ | 2,945,022 | |||
| LIABILITIES AND SHAREHOLDERS‘ EQUITY | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 345,517 | $ | – | ||
| Accrued liabilities | 131,559 | 79,000 | ||||
| Note payable | – | 100,000 | ||||
| 477,076 | 179,000 | |||||
| Share capital (Note 8) | 44,435,120 | 2,901,845 | ||||
| Contributed surplus (Note 9) | 11,362,381 | 2,700 | ||||
| Deficit | (7,864,098 | ) | (138,523 | ) | ||
| 47,933,403 | 2,766,022 | |||||
| $ | 48,410,479 | $ | 2,945,022 |
Nature of operations (Note 1)
Commitments (Note 7)
Subsequent events (Note 17)
The accompanying notes are an integral part of these consolidated financial statements.
Approved on behalf of the board of directors:
| “Dave McPherson” | “Harry Blum” | |
| Dave McPherson, Director | Harry Blum, Director |
F-28
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT |
| (Expressed in Canadian Dollars) |
| (Note 2 | ) | |||||
| Period from | ||||||
| Year Ended | May 18, 2006 | |||||
| November | to November | |||||
| 30, 2007 | 30, 2006 | |||||
| Revenues | $ | – | $ | – | ||
| Expenses: | ||||||
| Amortization | 13,875 | – | ||||
| Consulting (Note 10) | 987,444 | – | ||||
| Office and miscellaneous | 148,389 | 5,153 | ||||
| Professional fees | 698,973 | 31,536 | ||||
| Promotion, advertising and investor relations | 215,188 | 6,529 | ||||
| Rent | 42,000 | – | ||||
| Transfer agent and filing fees | 159,626 | – | ||||
| Travel and entertainment | 287,554 | 3,523 | ||||
| Wages and benefits (Note 10) | 2,393,749 | 56,700 | ||||
| 4,946,798 | 103,441 | |||||
| Loss before other income (expenses) | (4,946,798 | ) | (103,441 | ) | ||
| Other income (expenses): | ||||||
| Impairment in mineral properties (Note 7(e)) | (2,659,219 | ) | – | |||
| Interest income | 378,816 | – | ||||
| Interest expense | (7,830 | ) | (35,082 | ) | ||
| Foreign exchange | (331,560 | ) | – | |||
| Transaction fees for reverse takeover transaction | (158,984 | ) | – | |||
| (2,778,777 | ) | (35,082 | ) | |||
| Net loss for the period | (7,725,575 | ) | (138,523 | ) | ||
| Deficit, beginning of period | (138,523 | ) | – | |||
| Deficit, end of period | $ | (7,864,098 | ) | $ | (138,523 | ) |
| Loss per share: | ||||||
| Basic and diluted (Note 12) | $ | (0.18 | ) | $ | (0.02 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
F-29
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (Expressed in Canadian Dollars) |
| (Note 2 | ) | |||||
| Period from | ||||||
| May 18, | ||||||
| Year Ended | 2006 to | |||||
| November | November | |||||
| 30, 2007 | 30, 2006 | |||||
| Operating activities: | ||||||
| Net loss for the period | $ | (7,725,575 | ) | $ | (138,523 | ) |
| Items not affecting cash: | ||||||
| Amortization | 13,875 | – | ||||
| Common shares issued for services (Note 8(b)) | 74,000 | – | ||||
| Impairment in mineral properties (Note 7(e)) | 2,659,219 | – | ||||
| Stock-based compensation – wages and benefits (Note 10) | 2,071,766 | 2,700 | ||||
| Stock-based compensation – consulting (Note 10) | 239,722 | – | ||||
| (2,666,993 | ) | (135,823 | ) | |||
| Changes in non-cash working capital items: | ||||||
| Receivables | (209,262 | ) | (114,810 | ) | ||
| Prepaid expenses and deposits | (125,287 | ) | (125,000 | ) | ||
| Accounts payable and accrued liabilities | 273,407 | 79,000 | ||||
| Income taxes payable | (57,937 | ) | – | |||
| Total cash flows used in operating activities | (2,786,072 | ) | (296,633 | ) | ||
| Investing activities: | ||||||
| Acquisition of property and equipment | (17,296 | ) | – | |||
| Capitalized mineral property expenditures | (23,955,313 | ) | (1,190,652 | ) | ||
| Short-term investments | 1,000,000 | (1,000,000 | ) | |||
| Total cash flows used in investing activities | (22,972,609 | ) | (2,190,652 | ) | ||
| Financing activities: | ||||||
| Proceeds from issuance of common shares, net of cash share issuance costs | 28,412,276 | 2,901,845 | ||||
| Proceeds from issuance of warrants | 6,221,887 | – | ||||
| Cash and cash equivalents acquired in reverse takeover transaction (Note 2) | 3,664,761 | – | ||||
| Proceeds from issuance of note payable | – | 600,000 | ||||
| Repayments of note payable | (100,000 | ) | (500,000 | ) | ||
| Advances from related party | – | 40,000 | ||||
| Repayments of advances from related party | – | (40,000 | ) | |||
| Total cash flows provided by financing activities | 38,200,924 | 3,001,845 | ||||
| Effects of changes in foreign exchange rates on cash and cash equivalents | 3,593 | – | ||||
| Increase in cash and cash equivalents during the period | 12,445,836 | 514,560 | ||||
| Cash and cash equivalents, beginning of period | 514,560 | – | ||||
| Cash and cash equivalents, end of period | $ | 12,960,396 | $ | 514,560 | ||
| Cash and cash equivalents consists of: | ||||||
| Demand deposits | $ | 12,960,396 | $ | 514,560 | ||
| Supplementary cash flow information (Note 13) |
The accompanying notes are an integral part of these consolidated financial statements.
F-30
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS |
| (Expressed in Canadian Dollars) |
| (Note 2 | ) | |||||
| Period from | ||||||
| May 18, | ||||||
| Year Ended | 2006 to | |||||
| November 30, | November | |||||
| 2007 | 30, 2006 | |||||
| Net loss for the period, being comprehensive loss for the period | $ | (7,725,575 | ) | $ | (138,523 | ) |
The accompanying notes are an integral part of these consolidated financial statements
F-31
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 1. | NATURE AND CONTINUANCE OF OPERATIONS |
Pure Nickel Inc., formerly Nevada Star Resources Corp., (the “Company") was incorporated under the laws of British Columbia, Canada and continued in the Yukon Territory of Canada in 1998. On March 30, 2007, the Company acquired Pure Nickel Inc. in a reverse takeover transaction (see Note 2). The Company’s principal business activities include the acquisition and exploration of mineral properties located in Canada and the United States. The Company is in the exploration stage and has not yet determined whether any of these properties contain ore reserves that are economically recoverable. | |
While the Company currently has sufficient cash on hand to conduct its exploration programs for the next year, the long term continuance of the Company’s operations is dependent on obtaining sufficient additional financing in order to realize the recoverability of the Company’s investments in mineral properties, which is dependent upon the existence of economically recoverable reserves and market prices for the underlying minerals, or by entering into joint venture arrangements by which third parties undertake the necessary expenditures. | |
| 2. | REVERSE TAKEOVER TRANSACTION (Restated – see Note 19) |
On March 30, 2007, Nevada Star Resource Corp. (“Nevada Star”) acquired the issued and outstanding common shares of old Pure Nickel Inc. (“old Pure Nickel”) by issuing 17,901,703 (89,508,515 pre-split adjusted) common shares of Nevada Star to the shareholders of old Pure Nickel in a reverse takeover transaction. Upon the completion of the transaction, old Pure Nickel was amalgamated with a subsidiary of Nevada Star and Nevada Star changed its name to Pure Nickel Inc. (“Pure Nickel”). The transaction has been accounted for using guidance relevant to reverse takeover transactions including EIC-10, “Reverse Takeover Accounting”, CICA 1581, “Business Combinations” and EIC-124, “Definition of a Business”. Under this guidance, for accounting purposes, the legal parent company (Nevada Star) in the reverse takeover transaction is deemed to be a continuation of the legal subsidiary (old Pure Nickel), which is regarded as being the acquirer. Accordingly, the consolidated financial statements reflect the significant accounting policies of old Pure Nickel (except for mineral properties – see below) and are expressed in Canadian dollars, the reporting currency of old Pure Nickel. Comparative figures are of old Pure Nickel for the period from incorporation, May 18, 2006 to November 30, 2006. For the purposes of this acquisition, the fair value of the net assets of Nevada Star was determined to be $12,647,893. This value is assigned to the net assets of Nevada Star and its legal subsidiaries on the acquisition date as follows: |
| Amount | ||||
| Cash and cash equivalents | $ | 3,664,761 | ||
| Receivables | 58,935 | |||
| Prepaid expenses and deposits | 74,417 | |||
| Property and equipment | 26,356 | |||
| Mineral properties | 9,013,583 | |||
| Accounts payable and accrued liabilities | (126,244 | ) | ||
| Income taxes payable | (63,915 | ) | ||
| Fair value of consideration | $ | 12,647,893 |
F-32
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 3. | CHANGE IN ACCOUNTING POLICY |
Upon completion of the reverse takeover transaction disclosed in Note 2, Pure Nickel retroactively adopted Canadian generally accepted accounting principles (“Canadian GAAP”) and as a result was required to restate its prior period figures that were reported in accordance with United States generally accepted accounting principles (“US GAAP”). Management of the Company believes the voluntary change in generally accepted accounting principles will result in more reliable and relevant information due to the nature of the Company’s industry. | |
A significant difference between Canadian and US GAAP impacting the Company’s consolidated financial statements relates to the accounting treatment of mineral property exploration expenditures. Under US GAAP, exploration expenditures are expensed prior to the determination that proven or probable mineral reserves exist, at which time these expenditures are considered to have the characteristics of property, plant and equipment and, accordingly, are capitalized. Under Canadian GAAP, an enterprise may capitalize mineral property expenditures, including acquisition, exploration and development costs, if the enterprise considers such costs to have the characteristics of property, plant and equipment. Mineral property expenditures that are not considered to have the characteristics of property, plant and equipment are expensed as incurred. An enterprise applies the method of accounting for mineral property expenditures that it considers to be appropriate to its operations and applies the method consistently to all its properties. The change in accounting policy had the following effects on the Company’s consolidated financial statements as at November 30, 2006 and for the period from May 18, 2006 to November 30, 2006: |
| Amount | ||||||||||
| Previously | Effect of | Restated | ||||||||
| Recorded | Change | Amount | ||||||||
| Balance sheet: | ||||||||||
| Mineral properties | $ | – | $ | 1,190,652 | $ | 1,190,652 | ||||
| Deficit | (1,329,175 | ) | 1,190,652 | (138,523 | ) | |||||
| Statements of operations and deficit and comprehensive loss: | ||||||||||
| Exploration expenses | 1,190,652 | (1,190,652 | ) | – | ||||||
| Loss for the period | (1,329,175 | ) | 1,190,652 | (138,523 | ) | |||||
| Loss per share – basic and diluted | (0.19 | ) | 0.17 | (0.02 | ) | |||||
| Comprehensive loss for the period | (1,329,175 | ) | 1,190,652 | (138,523 | ) | |||||
| Statement of cash flows: | ||||||||||
| Loss for the period | (1,329,175 | ) | 1,190,652 | (138,523 | ) | |||||
| Capitalized mineral property expenditures | – | (1,190,652 | ) | (1,190,652 | ) |
| 4. | SIGNIFICANT ACCOUNTING POLICIES |
| (a) | Basis of Presentation | |
These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. They are expressed in Canadian dollars and include the accounts of old Pure Nickel from the date of its incorporation on May 18, 2006 and the accounts of Nevada Star and its wholly-owned subsidiaries, Pure Nickel Holdings Corp. and Nevada Star Resource Corp. (U.S.), from March 30, 2007, the date of the reverse takeover transaction. All significant inter-company balances and transactions have been eliminated upon consolidation. |
F-33
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 4. | SIGNIFICANT ACCOUNTING POLICIES (continued) |
| (b) | Use of Estimates | |
The preparation of financial statements in conformity with generally accepted accounting principles in Canada requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Significant areas requiring the use of estimates relate to the recoverability or valuation of receivables and mineral properties, the utilization of future income tax assets and the valuation of asset retirement obligations and stock-based compensation. Actual results could differ from these estimates. | ||
| (c) | Cash and Cash Equivalents | |
Cash and cash equivalents include cash on account, demand deposits and money market investments with maturities from the date of acquisition of three months or less which are readily convertible to known amounts of cash and are subject to insignificant changes in value. | ||
| (d) | Short-Term Investments | |
Short-term investments include term deposits with maturities from the date of acquisition greater than three months and less than twelve months. | ||
| (e) | Property and Equipment | |
Property and equipment are stated at cost less accumulated amortization. Amortization is provided for based on the estimated useful lives of the assets using the declining balance basis at the following annual rates: |
| Mining Equipment | 30% | |||
| Office Equipment | 20% | |||
| Computer Hardware | 30% | |||
| Computer Software | 100% |
| (f) | Mineral Properties | |
All mineral property acquisition and exploration costs are capitalised,in accordance with the guidance provided by CICA 3061, "Property, Plant and Equipment" and EIC-126, "Accounting by Mining Enterprises for Exploration Costs". Development costs are capitalized, once a property is determined financially viable. Payments received for options granted to third parties to purchase the Company’s mineral properties are credited against the capitalized costs of the related mineral property when received. Capitalized mineral property costs will be amortized upon the commencement of commercial production using the unit of production basis. | ||
| (g) | Impairment of Long-lived Assets | |
The recoverability of long-lived assets, which includes property and equipment and mineral properties, is assessed when an event occurs indicating impairment. Recoverability is based on factors such as future asset utilization and the future undiscounted cash flows expected to result from the use or sale of the related assets. An impairment loss is recognized in the period when it is determined that the carrying amount of the asset will not be recoverable and exceeds its fair value. At that time the carrying amount is written down to fair value. |
F-34
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 4. | SIGNIFICANT ACCOUNTING POLICIES (continued) |
| (h) | Foreign Currency Translation | |
Revenue and expenses in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into Canadian dollars at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in income. | ||
The Company’s integrated foreign subsidiaries are financially or operationally dependent on the Company. The Company uses the temporal method to translate the accounts of its integrated operations into Canadian dollars. Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at weighted average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting exchange gains or losses are recognized in income. | ||
| (i) | Loss per Share | |
Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share is calculated by adjusting the weighted average number of common shares outstanding using the treasury stock method, to reflect the potential dilution of securities that could result from the exercise of “in the money” stock options, warrants, agent share warrants and agent unit warrants. | ||
| (j) | Stock-Based Compensation | |
The Company has a plan for granting stock options to management, directors, employees and consultants. The Company recognizes compensation expense for this plan under the fair value based method in accordance with CICA Handbook section 3870 “Stock-Based Compensation and Other Stock-Based Payments”. Under this method, the fair value of each option grant is estimated on the date of the grant and amortized over the vesting period, with the resulting amortization credited to contributed surplus. The Company estimates the fair value of each grant using the Black-Scholes option-pricing model. Consideration paid upon the exercise of stock options is recorded as share capital. | ||
| (k) | Asset Retirement Obligations | |
The Company recognizes liabilities for statutory, contractual or legal obligations associated with the reclamation of mineral properties, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement cost is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic life of the asset using either the unit-of-production method or the straight-line method, as appropriate. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation. As at November 30, 2007, the Company has not incurred any asset retirement obligations related to the exploration of its mineral properties. |
F-35
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 4. | SIGNIFICANT ACCOUNTING POLICIES (continued) |
| (l) | Income Taxes | |
The Company follows the asset and liability method of accounting for income taxes. Future income tax assets and liabilities are determined based on temporary differences between the accounting and tax bases of existing assets and liabilities, and are measured using the tax rates expected to apply when these differences reverse. A valuation allowance is recorded against any future tax asset if it is more likely than not that the asset will not be realized. |
| 5. | ADOPTION OF NEW ACCOUNTING STANDARDS AND DEVELOPMENTS |
| (a) | Accounting Changes | |
Effective December 1, 2006, the Company adopted the revised CICA 1506, “Accounting Changes”, which requires that: (i) a voluntary change in accounting principles can be made if, and only if, the changes result in more reliable and relevant information, (ii) changes in accounting policies are accompanied with disclosures of prior period amounts and justification for the change, and (iii) for changes in estimates, the nature and amount of the change should be disclosed. The Company made a voluntary change in accounting principles as described in Note 3. | ||
| (b) | Financial Instruments | |
Effective December 1, 2006, the Company adopted the three new accounting standards and related amendments to other standards on financial instruments issued by the CICA. Prior periods have not been restated. |
| (i) | CICA 3855, “Financial Instruments – Recognition and Measurement” and CICA 3861, “Financial Instruments – Disclosure and Presentation” | |
This standard prescribes when a financial asset, financial liability, or non-financial derivative is to be recognized, measured, presented and disclosed in the financial statements and whether fair value or cost-based methods are used to measure the recorded amounts. It also specifies how financial instrument gains and losses are to be presented. Effective December 1, 2006, the Company’s cash equivalents have been classified as available-for-sale and are recorded at fair value on the balance sheet. Fair values are determined directly by reference to published price quotations in an active market. Changes in the fair value of these instruments are reflected in other comprehensive income and included in shareholders’ equity on the balance sheet. All other financial instruments will be recorded at cost or amortized cost, subject to impairment reviews. The criteria for assessing an other than temporary impairment remain unchanged. Transaction costs incurred to acquire financial instruments are included in the underlying balance. Regular-way purchases and sales of financial assets are accounted for on the trade date. |
F-36
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 5. | ADOPTION OF NEW ACCOUNTING STANDARDS AND DEVELOPMENTS (continued) |
| (b) | Financial Instruments |
| (ii) | CICA 3865, “Hedges” | |
This standard is applicable when a company chooses to designate a hedging relationship for accounting purposes. It builds on the previous AcG–13, “Hedging Relationships”, and CICA 1650, “Foreign Currency Translation”, by specifying how hedge accounting is applied and what disclosures are necessary when it is applied. The Company had no hedging relationships as at December 1, 2006. There was no impact on the Company’s financial statements upon adoption of this standard. | ||
| (iii) | CICA 1530, “Comprehensive Income” | |
This standard requires the presentation of a statement of comprehensive income and its components. Comprehensive income includes both net earnings and other comprehensive income. Other comprehensive income includes holding gains and losses on available for sale investments, gains and losses on certain derivative instruments and foreign currency gains and losses relating to self-sustaining foreign operations, all of which are not included in the calculation of net earnings until realized. This statement has been included in the consolidated financial statements for the fiscal year ended November 30, 2007. | ||
| (iv) | CICA 3862, “Financial Instruments – Disclosures” | |
This standard relates to the disclosures of financial instruments. It applies to interim and annual financial statements for fiscal years beginning on or after October 1, 2007. Early adoption is permitted. CICA 3863, “Financial Instruments – Presentation” must be adopted at the same time, replacing CICA 3861, “Financial Instruments – Disclosure and Presentation”. The Company will adopt the standard commencing for its interim and annual financial statements for the fiscal year ending November 30, 2008. | ||
| (v) | CICA 3863, “Financial Instruments – Presentation” | |
This standard relates to the presentation of financial instruments. It applies to interim and annual financial statements for fiscal years beginning on or after October 1, 2007. Early adoption is permitted. CICA 3862, “Financial Instruments – Presentation” must be adopted at the same time, replacing CICA 3861, “Financial Instruments – Disclosure and Presentation”. The Company will adopt the standard commencing for its interim and annual financial statements for the fiscal year ending November 30, 2008. |
| (c) | CICA 1535, “Capital Disclosures” | |
This standard relates to the disclosure of capital management strategies. It applies to interim and annual financial statements for fiscal years beginning on or after October 1, 2007. Early adoption is permitted. The Company will adopt the standard commencing for its interim and annual financial statements for the fiscal year ending November 30, 2008. |
F-37
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 6. | PROPERTY AND EQUIPMENT |
| Accumulated | Net Book | |||||||||
| November 30, 2007 | Cost | Amortization | Value | |||||||
| Mining equipment | $ | 7,011 | $ | 1,402 | $ | 5,609 | ||||
| Office equipment | 7,363 | 982 | 6,381 | |||||||
| Computer hardware | 8,314 | 1,678 | 6,636 | |||||||
| Computer software | 18,507 | 9,875 | 8,632 | |||||||
| $ | 41,195 | $ | 13,937 | $ | 27,258 |
| 7. | MINERAL PROPERTIES AND COMMITMENTS |
| Expenditures | |||||||||||||
| Capitalized | |||||||||||||
| Year Ended November 30, 2007 | and Balances | ||||||||||||
| Balance, | Acquired | Balance, | |||||||||||
| (Restated – see Note 19) | Beginning | During the | Impairment | End | |||||||||
| of Year | Year | Charge | of Year | ||||||||||
| Milford Copper (a) | $ | – | $ | 3,800,629 | $ | – | $ | 3,800,629 | |||||
| MAN Project (b) | – | 8,386,385 | – | 8,386,385 | |||||||||
| Salt Chuck (c) | – | 164,228 | – | 164,228 | |||||||||
| Fond du Lac (d) | 1,111,345 | 3,236,312 | – | 4,347,657 | |||||||||
| Fox River (e) | 79,307 | 2,579,912 | (2,659,219 | ) | – | ||||||||
| William Lake (f) | – | 17,421,930 | – | 17,421,930 | |||||||||
| Thompson (William Lake Extension) (g) | – | 602,911 | – | 602,911 | |||||||||
| $ | 1,190,652 | $ | 36,192,307 | $ | (2,659,219 | ) | $ | 34,723,740 |
F-38
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 7. | MINERAL PROPERTIES AND COMMITMENTS (continued) |
| Expenditures | |||||||||||||
| Balance, | Capitalized | Balance, | |||||||||||
| Period from May 18, 2006 to November 30, | Beginning | During the | Impairment | End | |||||||||
| 2006 (Note 2) | of Period | Period | Charge | of Period | |||||||||
| Milford Copper (a) | $ | – | $ | – | $ | – | $ | – | |||||
| MAN Project (b) | – | – | – | – | |||||||||
| Salt Chuck (c) | – | – | – | – | |||||||||
| Fond du Lac (d) | – | 1,111,345 | – | 1,111,345 | |||||||||
| Fox River (e) | – | 79,307 | – | 79,307 | |||||||||
| William Lake (f) | – | – | – | – | |||||||||
| Thompson (William Lake Extension) (g) | – | – | – | – | |||||||||
| $ | – | $ | 1,190,652 | $ | – | $ | 1,190,652 |
| (a) | Milford Copper (formerly known as OK Copper Mine and Beaver Lake), Utah, United States | |
The Millford Copper properties in Utah aggregate approximately 7,000 acres. They are 100% owned by the Company, subject to a 12% interest in the net profits from copper production of certain claims (held by a group of private investors that includes a current director of the Company) and a 2% net smelter return royalty on certain claims (held by the property vendor) which will not exceed $3 million. On November 26, 2003, Western Utah Copper Company (“WUCC”) exercised its option to acquire 100% of the mining claims located in Beaver County, Utah for royalty payments of up to $10 million. Under the option agreement, WUCC had three years to put the property into production. The option was extended with two further one-year terms. The Company would receive 1% of net proceeds from the first 10 million pounds of copper produced, 1.5% of net proceeds on all copper produced thereafter and 2% of net smelter proceeds on all other minerals produced, capped at $10 million. WUCC has provided notice to the Company that the property is being readied for production and has undertaken the construction of a concentrator, a working on-site analytical laboratory and office building and ongoing ore reserve drilling. | ||
| (b) | MAN Project, Alaska, United States | |
The 72,519 hectare (179,200 acre) MAN Alaska Project is comprised of the Eureka Creek and Tangle Lakes Project, the Canwell Glacier property and additional claims staked by the Company. During the year ended November 30, 2007, the Company completed a B-Field VTEM airborne electromagnetic survey, an extensive soil geochemical survey, and a 3,400 metre exploration drilling program. | ||
| (c) | Salt Chuck, Alaska, United States | |
The Salt Chuck property consists of mining claims covering approximately 250 hectares (620 acres) near the historic Salt Chuck mine on Prince of Wales Island, Alaska. |
F-39
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 7. | MINERAL PROPERTIES AND COMMITMENTS (continued) |
| (d) | Fond du Lac Project (formerly known as Axis Lake Project), Saskatchewan, Canada | |
Fond du Lac is located in northern Saskatchewan and comprises eight contiguous claims covering 38,445 hectares (95,000 acres). Named for the Fond Du Lac lake and river that lies across the extent of its southern border, the Fond Du Lac Property is located on the northern edge of the Athabaska Basin. On July 27, 2007, the Company completed an agreement with Red Dragon Resource Corp. ("Red Dragon"), superseding its previous earn-in agreement with Red Dragon, to acquire 100% ownership of the project by paying $100,000 and issuing 1,000,000 common shares to Red Dragon. The common shares have been valued at $1,260,000, the market value on the measurement date. In accordance with CICA Handbook section 3870, the measurement date of the transaction was determined to be June 13, 2007, being the date the titles of the underlying mineral rights were transferred from Red Dragon to the Company. Comprehensive surveying undertaken to date includes airborne geophysics, UTEM electromagnetic ground survey and geochemical soil survey. | ||
| (e) | Fox River Project, Manitoba, Canada | |
During the year, the Company determined it would not proceed with a two year exploration program on the Fox River property. Accordingly, the amounts previously expended on this property were written off resulting in an impairment charge of $2,659,219 that has been recorded in the consolidated statements of operations and deficit. | ||
| (f) | William Lake, Manitoba, Canada | |
The William Lake property is located in central Manitoba, 50 km. from Grand Rapids. On May 15, 2007, the Company completed an agreement with Xstrata Nickel (“Xstrata”), a division of Falconbridge Limited, to pay $15,250,000 and issue 4,000,000 common share purchase warrants to acquire the property. Each warrant entitles Xstrata to acquire one common share of the Company at a price of $2.00 per share for a term expiring on May 11, 2010. The warrants were valued at $1,963,411 using the Black-Scholes option-pricing model. Under the agreement, the Company granted Xstrata a 2% net smelter return royalty and the right to repurchase a 50% working interest in the property. The Company is committed to a minimum of 2,500 metres of drilling to be completed by January 31, 2008. As at November 30, 2007, the Company has completed 1,089 metres of drilling. | ||
| (g) | Thompson Project (William Lake Extension), Manitoba, Canada | |
The Thompson Project comprises 160,000 hectares of properties adjacent to the William Lake properties. On September 18, 2007 the Company entered into an agreement with Exploration Syndicate, Inc. (“Exploration Syndicate”) to earn up to a 100% interest in this project. The Company agreed to issue Exploration Syndicate 500,000 non-transferable common share purchase warrants, exercisable when the Company earns a 50% interest in the Mineral Rights, into one common share of the Company for $2.00 per share, expiring five years from the date of the agreement. To earn a 50% interest in the Mineral Rights, the Company must incur $3,000,000 of expenditures during the first two years, of which $2,000,000 must be incurred in the first year. As at November 30, 2007, the Company has not made any significant expenditures towards earning the 50% interest. |
F-40
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 7. | MINERAL PROPERTIES AND COMMITMENTS (continued) |
| h) | On November 6, 2007, the Company entered into an Option Agreement with Manicouagan Minerals Inc. (“Manicouagan”). Pursuant to the agreement, the Company granted Manicouagan an option to earn up to a 70% interest in 39 mining claims comprising the Forgues and Haut Plateau East project in Quebec. | |
Under the agreement, Manicouagan paid $30,000 to Pure Nickel to secure the Option Agreement and as long as the Option Agreement remains in effect, $25,000 on the first and second anniversary. Manicouagan granted Pure Nickel 250,000 common share purchase warrants at $0.40 per share. The warrants have a term of two years. Manicouagan will earn 50% interest in the Forgues and Haut Plateau properties by spending a minimum of $750,000 on the property on or before the second anniversary date. Manicouagan can earn an additional 20% if, within 60 days of the second anniversary of the agreement, Manicouagan elects to carry the Company during the next 12 months by expending an additional $1,500,000 in the same manner as during the earn in period. | ||
This is a related party transaction as a member of the Company’s Board of Directors is the founder and a significant shareholder of Manicouagan, as described in Note 14. |
| 8. | SHARE CAPITAL (Restated – see Note 19) |
| (a) | Authorized Share Capital: Unlimited common shares without par value | |
| (b) | Issued and Outstanding Share Capital |
| Number of | |||||||
| Shares | Amount | ||||||
| Balance, May 18, 2006 | – | $ | – | ||||
| Issued for cash in private placements, net of share issue costs (Notes 8(b)(i) to (iv)) | 17,552,583 | 2,901,845 | |||||
| Balance, November 30, 2006 (Note 2) | 17,552,583 | 2,901,845 | |||||
| Issued for cash upon exercise of stock options | 74,281 | 20,000 | |||||
| Issued for services to an officer of the Company | 274,839 | 74,000 | |||||
| Transferred from contributed surplus upon exercise of stock options | – | 2,700 | |||||
| Shares issued upon reverse takeover transaction (Note 2) | 16,863,857 | 12,647,893 | |||||
| 34,765,560 | 15,646,438 | ||||||
| – | |||||||
| Issued in two private placements for cash, net of share issue costs (Notes 8(b)(v) and (vi)) | 31,999,999 | 27,528,682 | |||||
| Issued for acquisition of mineral property (Note | |||||||
| 8(b)(vii)) | 1,000,000 | 1,260,000 | |||||
| Balance, November 30, 2007 | 67,765,559 | $ | 44,435,120 |
The issued and outstanding shares have been restated from May 16, 2006, to give effect to a one-for-five reverse split of common shares in 2007.
F-41
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 8. | SHARE CAPITAL (continued) |
| (b) | Issued and Outstanding Share Capital (continued) |
| (i) | On May 18, 2006, the Company issued 1 common share of the Company at a price of $1 to a director for cash. | |
| (ii) | On August 25, 2006, the Company issued 9,100,000 common shares of the Company at a price of $0.01 per share for gross proceeds of $91,000 to the Company’s founders. | |
| (iii) | On September 20, 2006, the Company issued 9,300,000 common shares of the Company at a price of $0.20 per share for gross proceeds of $1,860,000 under a private placement. In connection with the private placement, the Company incurred cash share issuance costs of $101,341. | |
| (iv) | On October 10, 2006, the Company issued 5,700,000 common shares of the Company at a price of $0.20 per share for gross proceeds of $1,140,000 under a private placement. In connection with the private placement, the Company incurred cash share issuance costs of $87,815. | |
| (v) | As at March 15, 2007, the Company had raised $9,000,000 of subscription receipts under a brokered private placement for 10,000,000 common shares (the “Subscription Receipts”) at a price of $0.90 per common share. Upon completion of the reverse takeover transaction with Pure Nickel on March 30, 2007, the Subscription Receipts were automatically converted into units comprised of one common share of the Company and one-half of one common share purchase warrant. Each whole warrant is exercisable into a common share at a price of $1.20 for a term of 18 months. Values of $7,393,158 and $1,606,842 were allocated to the common shares and warrants, respectively, based on their relative fair values at the closing date of the private placement. In connection with the private placement, the Company paid as agent commissions of $630,000 cash, representing 7% of the gross proceeds from the offering, and 500,000 agent share warrants, representing 5% of the gross number of common shares issued in the private placement. Each agent share warrant is exercisable into one common share at a price of $0.90 each for a period of 18 months. The fair value of the agent share warrants was computed to be $297,062 using the Black-Scholes option-pricing model and was recorded as a share issuance cost. The Company also incurred other share issuance costs of $133,677. | |
| (vi) | On July 10, 2007, the Company issued 21,999,999 units at a price of $1.25 per unit for gross proceeds of $27,499,999 under a brokered private placement. Each unit consisted of one common share and one half of one common share purchase warrant. Each whole warrant entitles the holder to acquire an additional common share of the Company for $1.75 for a term of 18 months. Values of $22,884,954 and $4,615,045 were allocated to the common shares and warrants, respectively, based on their relative fair values at the closing date of the private placement. In connection with the private placement, the Company paid cash commissions of $920,871 and issued 629,370 agent unit warrants. Each agent unit warrant entitles the agent to purchase one unit, with the characteristics described above, for $1.25 expiring on January 9, 2009. The fair value of the agent unit warrants was computed to be $568,533 using the Black-Scholes option-pricing model and was recorded as a share issuance cost. The Company also incurred other share issuance costs of $199,287. | |
| (vii) | On July 27, 2007, the Company issued 1,000,000 common shares to acquire the Fond du Lac Project. The shares were valued at $1,260,000. Refer to Note 7(d). |
F-42
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 8. | SHARE CAPITAL (continued) |
| (c) | Stock Options | |
On March 30, 2007, the Company assumed a stock option plan (the “Plan”) from Nevada Star in a reverse takeover transaction (see Note 2). The Plan allowed for the grant of stock options to purchase a maximum of 7,000,000 common shares by directors, officers, employees and consultants of the Company. On April 13, 2007, the Company completed a reverse stock split causing shares available for issuance under the Plan to decrease to 1,400,000. The board of directors approved an amendment to the Plan to increase the number of shares reserved for issuance from 1,400,000 to 4,300,000. The amendment was approved by the Company’s shareholders on May 30, 2007. The exercise price for each option granted under the Plan is determined by the board of directors and cannot be less than the discounted market price, as prescribed by the TSX Venture Exchange policy. The term of an option may not exceed ten years from the date of the grant of the option. The vesting period of options is set by the board of directors. | ||
Stock option activity since May 18, 2006 is presented below: |
| Weighted | |||||||
| Average | |||||||
| Exercise | |||||||
| Number of | Price | ||||||
| Shares | $ | ||||||
| Outstanding, May 18, 2006 | – | – | |||||
| Granted | 100,000 | 0.20 | |||||
| Outstanding, November 30, 2006 (Note 2) | 100,000 | 0.20 | |||||
| Granted | 3,650,000 | 0.99 | |||||
| Exercised | (100,000 | ) | 0.20 | ||||
| Outstanding, November 30, 2007 | 3,650,000 | 0.99 |
The following table summarizes stock options outstanding and exercisable at November 30, 2007:
| Options Outstanding | Options Exercisable | |||||
| Weighted | Weighted | |||||
| Average | Weighted | Average | ||||
| Exercise | Remaining | Average | Exercise | |||
| Prices | Number of | Contractual Life | Exercise Price | Number of | Price | |
| $ | Shares | in Years | $ | Shares | $ | |
| 0.79 | 600,000 | 2.8 | 0.79 | 300,000 | 0.79 | |
| 0.90 | 2,225,000 | 2.3 | 0.90 | 2,225,000 | 0.90 | |
| 1.07 | 100,000 | 2.9 | 1.07 | 100,000 | 1.07 | |
| 1.30 | 250,000 | 2.5 | 1.30 | 250,000 | 1.30 | |
| 1.45 | 100,000 | 2.5 | 1.45 | 100,000 | 1.45 | |
| 1.50 | 250,000 | 2.5 | 1.50 | 125,000 | 1.50 | |
| 1.55 | 125,000 | 2.5 | 1.55 | 125,000 | 1.55 | |
| 3,650,000 | 2.5 | 0.99 | 3,225,000 | 0.99 | ||
F-43
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 8. | SHARE CAPITAL (continued) |
| (c) | Stock Options (continued) | |
Stock options outstanding at November 30, 2007 expire between March 27, 2010 and October 31, 2010. | ||
| (d) | Warrants | |
Warrant activity since May 18, 2006 is presented below: |
| Weighted | |||
| Average | |||
| Exercise | |||
| Number | Price | ||
| of Shares | $ | ||
| Outstanding, May 18, 2006 and November 30, 2006 (Note 2) | – | – | |
| Issued | 20,000,004 | 1.66 | |
| Outstanding, November 30, 2007 | 20,000,004 | 1.66 |
The weighted average fair value of each warrant issued was $1.23 computed using the Black- Scholes option-pricing model at the date of each issuance. Warrants outstanding at November 30, 2007 expire between September 30, 2008 and May 11, 2010. As at November 30, 2007, the Company has committed to issuing 500,000 warrants should it earn a 50% interest in the Exploration Syndicate, Inc. mineral properties as disclosed in Note 7(g). These have not been considered as outstanding in the above table. | ||
| (e) | Agent Share Warrants | |
Agent share warrant activity since May 18, 2006 is presented below: |
| Weighted | |||
| Average | |||
| Exercise | |||
| Number of | Price | ||
| Shares | $ | ||
| Outstanding, May 18, 2006 and November 30, 2006 (Note 2) | – | – | |
| Issued | 500,000 | 0.90 | |
| Outstanding, November, 2007 | 500,000 | 0.90 |
During the year ended November 30, 2007, the Company issued 500,000 agent share warrants to purchase 500,000 common shares of the Company in connection with the private placement described in Note 8(b)(v). The weighted average fair value of each agent share warrant issued was $0.59 computed using the Black-Scholes option-pricing model at the date of issuance. Agent share warrants outstanding at November 30, 2007 expire September 30, 2008.
F-44
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 8. | SHARE CAPITAL (continued) |
| (f) | Agent Unit Warrants | |
Agent unit warrant activity since May 18, 2006 is presented below: |
| Weighted | |||
| Average | |||
| Exercise | |||
| Number of | Price | ||
| Units | $ | ||
| Outstanding, May 18, 2006 and November 30, 2006 (Note 2) | – | – | |
| Issued | 629,370 | 1.25 | |
| Outstanding, November 30, 2007 | 629,370 | 1.25 |
During the year ended November 30, 2007, the Company issued 629,370 agent unit warrants to purchase 629,370 units in connection with the private placement described in Note 8(b)(vi). The weighted average fair value of each agent unit warrant issued was $0.90 computed using the Black-Scholes option-pricing model at the date of issuance. Agent unit warrants outstanding at November 30, 2007 expire January 9, 2009.
9.
CONTRIBUTED SURPLUS
| (Note 2 | ) | ||||||
| Period | |||||||
| Year | from May | ||||||
| Ended | 18, 2006 to | ||||||
| November | November | ||||||
| 30, 2007 | 30, 2006 | ||||||
| Balance, beginning of period | $ | 2,700 | $ | – | |||
| Stock-based compensation expense | 2,311,488 | 2,700 | |||||
| Relative fair value of warrants issued in private placements | 6,221,887 | – | |||||
| Fair value of agent share warrants issued for share issue costs | 297,062 | – | |||||
| Fair value of agent unit warrants issued for share issue costs | 568,533 | – | |||||
| Fair value of warrants issued for mineral properties | 1,963,411 | – | |||||
| Amount transferred to share capital upon exercise of stock options | (2,700 | ) | |||||
| Balance, end of period | $ | 11,362,381 | $ | 2,700 |
F-45
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 10. | STOCK-BASED COMPENSATION |
During the year ended November 30, 2007, the Company granted 3,650,000 stock options to directors, officers, employees and consultants of the Company (period from May 18, 2006 to November 30, 2006 – 100,000). The weighted average fair value of each option granted was $0.69 (period from May 18, 2006 to November 30, 2006 - $0.03) using the Black-Scholes option-pricing model at the date of each grant using the following assumptions: |
| (Note 2) | |||
| Period from | |||
| May 18, | |||
| Year Ended | 2006 to | ||
| November | November | ||
| 30, 2007 | 30, 2006 | ||
| Expected option lives | 3.0 years | 0.2 years | |
| Risk-free interest rate | 4.1% | 4.2% | |
| Expected dividend yield | 0% | 0% | |
| Expected stock price volatility | 88.3% | 84.2% |
During the year ended November 30, 2007, the Company recognized $2,311,488 of compensation cost (period from May 18, 2006 to November 30, 2006 - $2,700) of which $2,071,766 has been recorded in wages and benefits expense (period from May 18, 2006 to November 30, 2006 - $2,700) and $239,722 has been recorded in consulting expenses in the statement of operations (period from May 18, 2006 to November 30, 2006 - $nil). | |
| 11. | INCOME TAXES |
In assessing the realization of the Company’s future income tax assets, management considers whether it is more likely than not that some portion or all of the future income tax assets will not be realized. The ultimate realization of future tax assets is dependent upon the generation of taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of future income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The amount of future income tax assets considered realizable could change materially in the near term based on future taxable income generated during the carry-forward period. |
F-46
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 11. | INCOME TAXES (continued) |
| (a) | Future Income Tax Assets and Liabilities | |
The significant components of the Company’s future tax assets are as follows: |
| November | November | ||||||
| 30, 2007 | 30, 2006 | ||||||
| Future income tax assets: | |||||||
| Non-capital tax losses carried forward | $ | 1,355,000 | $ | 44,000 | |||
| Share issue costs | 524,000 | – | |||||
| Property and equipment | 6,000 | – | |||||
| Cumulative eligible capital | 4,000 | ||||||
| Canadian exploration and development expenses | 872,000 | – | |||||
| Total gross future income tax assets | 2,761,000 | 44,000 | |||||
| Valuation allowance | (2,761,000 | ) | (44,000 | ) | |||
| Net future income tax assets | $ | – | $ | – |
| (b) | Non-Capital Losses | |
As at November 30, 2007, the Company has non-capital losses carried forward for income tax purposes available to reduce taxable income in future years of $4,170,000 expiring as follows: |
| $ | ||
| 2008 | 216,000 | |
| 2009 | 446,000 | |
| 2010 | 159,000 | |
| 2014 | 96,000 | |
| 2015 | 19,000 | |
| 2026 | 242,000 | |
| 2027 | 2,992,000 | |
| 4,170,000 |
F-47
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 11. | INCOME TAXES (continued) |
| (c) | Income Tax Reconciliation | |
Income tax expense presented in the statements of operations differs from the amounts that would be computed by applying the combined Canadian federal and provincial income tax rate of 32.5% (period from May 18, 2006 to November 30, 2006 – 34.1%) to income before income taxes as follows: |
| Period | |||||||
| from May | |||||||
| 18, 2006 | |||||||
| to | |||||||
| November | November | ||||||
| 30, 2007 | 30, 2006 | ||||||
| Income tax recovery expected at statutory rates | $ | 2,510,812 | $ | 47,236 | |||
| Change in reserves | 1,042,000 | – | |||||
| Timing differences in mineral properties | 984,000 | – | |||||
| Timing differences in property and equipment | 7,000 | – | |||||
| Non-deductible items | (1,615,000 | ) | – | ||||
| Change in valuation allowance | (2,717,000 | ) | (44,000 | ) | |||
| Other | (211,812 | ) | (3,236 | ) | |||
| Income tax recovery | $ | – | $ | – |
| 12. | LOSS PER SHARE |
The weighted average number of shares outstanding used in the computation of loss per share was 43,644,922 (period from May 18, 2006 to November 30, 2006 – 6,816,500). Outstanding stock options, warrants, agent share warrants and agent unit warrants have not been considered in the computation of diluted loss per share as the result is anti-dilutive. | |
| 13. | SUPPLEMENTARY CASH FLOW INFORMATION (Restated – see Note 19) |
| (Note 2 | ) | ||||||
| Period from | |||||||
| May 18, | |||||||
| Year Ended | 2006 to | ||||||
| November | November | ||||||
| 30, 2007 | 30, 2006 | ||||||
| Non-cash investing and financing activities: | |||||||
| Common shares issued in reverse takeover transaction (Notes 2 and 19) | $ | 8,983,132 | $ | – | |||
| Common shares issued for acquisition of mineral property | 1,260,000 | – | |||||
| Warrants issued for acquisition of mineral property | 1,963,411 | – | |||||
| Agent share warrants issued as financing commissions | 297,062 | – | |||||
| Agent unit warrants issued as financing commissions | 568,533 | – | |||||
| Cash paid for: | |||||||
| Interest | 32,830 | – | |||||
| Income taxes | $ | 57,937 | $ | – |
F-48
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 14. | RELATED PARTY BALANCES AND TRANSACTIONS |
During the year ended November 30, 2007, the Company entered into the following transactions with related parties: |
| (a) | The Company paid legal firms, of which a director of the Company was a principal during the year, $348,536 (period from May 18, 2006 to November 30, 2006 - $nil) for legal services. | |
| (b) | The Company paid directors of the Company, and companies controlled by directors of the Company, $271,170 (period from May 18, 2006 to November 30, 2006 - $29,225) for consulting services. |
During the period from May 18, 2006 to November 30, 2006, the Company borrowed and repaid a loan of $110,000 from a company controlled by a director of the Company. The loan was unsecured and non-interest bearing.
As described in Note 7 (h), the Company has entered into an Option Agreement with Manicouagan Minerals Inc., of which a member of the Company’s Board of Directors is the Founder and a significant shareholder.
The above transactions were in the normal course of operations and have been recorded at their exchange amounts, which is the consideration agreed upon by the related parties.
| 15. | FINANCIAL INSTRUMENTS |
| (a) | Fair Values of Financial Instruments | |
The Company has various financial instruments comprising of cash and cash equivalents, receivables, deposits, accounts payable and accrued liabilities. The carrying values of these financial instruments approximate their fair value due to their short-term maturities. | ||
| (b) | Concentration of Credit Risk | |
The Company maintains all of its cash and cash equivalents with major financial institutions. Deposits held with these institutions may exceed the amount of insurance provided on such deposits. | ||
| (c) | Currency Risk | |
As the Company operates in an international environment, some of the Company’s financial instruments and transactions are denominated in currencies other than the Canadian dollar. Fluctuation in the exchange rates between these currencies and the Canadian dollar could have a material effect on the Company’s business, financial condition and results of operations. |
F-49
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 16. | SEGMENT DISCLOSURES (Restated – see Note 19) |
The Company’s property and equipment and mineral properties by geographic distribution are as follows: |
| November 30, 2007 | Canada | United States | Total | |||||||
| Property and equipment | $ | 27,258 | $ | – | $ | 27,258 | ||||
| Mineral properties | 22,372,498 | 12,351,242 | 34,723,740 | |||||||
| $ | 22,399,756 | $ | 12,351,242 | $ | 34,750,998 |
| November 30, 2006 (Note 3) | Canada | United States | Total | |||||||
| Property and equipment | $ | – | $ | – | $ | – | ||||
| Mineral properties | 1,190,652 | – | – | |||||||
| $ | – | $ | – | $ | – |
| 17. | SUBSEQUENT EVENTS |
On December 6, 2007 the Company entered a 50-50 Joint Venture Agreement with Crowflight Minerals Inc. to explore for and develop nickel deposits on properties controlled by both parties proximal to the Pure Nickel’s past producing Manibridge Nickel Mine, approximately 20 kilometres south of the town of Wabowden, Manitoba. Pursuant to the terms of the agreement, each party will contribute properties and $3 million each over a three year period to fund preliminary exploration activities within the joint venture area. Pure Nickel will contribute two claims (ORE 5 and ORE 6) to the joint venture area and Crowflight Minerals Inc. contributes six claims (DOG 1-3,5,7,10) and three other claims it is acquiring from other parties. Furthermore Pure Nickel also has an option to earn a 50% interest from Crowflight in an area surrounding the joint venture area by spending $1.5 million over a three year period. |
F-50
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 18. | DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES (Restated – see Note 19) |
These financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”), which differ in certain respects from those generally accepted in the United States of America (“US GAAP”). As disclosed in Note 3, a significant difference between Canadian and US GAAP impacting the Company’s consolidated financial statements relates to the accounting treatment of mineral property exploration expenditures. Under Canadian GAAP, an enterprise may capitalize mineral property expenditures, including acquisition, exploration and development costs, if the enterprise considers such costs to have the characteristics of property, plant and equipment. Mineral property expenditures that are not considered to have the characteristics of property, plant and equipment are expensed as incurred. An enterprise applies the method of accounting for mineral property expenditures that it considers to be appropriate to its operations and applies the method consistently to all its properties. As disclosed in Note 4(f), the Company capitalizes acquisition and exploration costs when incurred, and capitalizes development costs once a mineral property is determined to be economically viable. | |
As at November 30, 2007, the Company has not yet identified economically recoverable reserves on any of its mineral properties. Mineral properties are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. During the year ended November 30, 2007, the Company determined that the value of its Fox River mineral property was not recoverable and recorded an impairment charge of $2,659,219 in the statement of operations. The Company has not identified any events and changes in circumstances that indicated the carrying values of its other mineral properties may not be recoverable. | |
Under US GAAP, acquisition costs are capitalized when incurred in accordance with the guidance provided in EITF 04-02, (“Whether Mineral Rights are Tangible or Intangible Assets”), acquisition costs of mineral rights are capitalized, but exploration costs are expensed as incurred and development costs are capitalized when it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves as defined by Industry Guide 7. | |
The Company assesses the carrying costs for impairment in accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets”. Under SFAS No. 144, mineral properties are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable, with further guidance as provided under EITF 04-03, “Mining Assets – Impairment and Business Combinations”. This guidance is consistent with Canadian GAAP and accordingly, during the year ended November 30, 2007, for US GAAP purposes, the Company determined that the value of its Fox River mineral property was not recoverable and recorded an impairment charge of $2,659,219 in the statement of operations. |
F-51
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 18. | DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES (continued) |
The differences in accounting for mineral properties under Canadian and US GAAP had the following effects on the Company’s financial statements. |
| (i) | Net Loss and Loss per Share |
| Period from | |||||||
| Year Ended | May 18, 2006 | ||||||
| November | to November | ||||||
| 30, 2007 | 30, 2006 | ||||||
| Net loss under Canadian GAAP | $ | (7,725,575 | ) | $ | (138,523 | ) | |
| Capitalized expenditures on unproven mineral properties | (14,280,085 | ) | (1,090,652 | ) | |||
| Net loss under US GAAP | $ | (22,005,660 | ) | $ | (1,229,175 | ) | |
| Loss per share under US GAAP – basic and diluted | $ | (0.50 | ) | $ | (0.18 | ) |
| (ii) | Mineral Properties |
| November 30, | November 30, | ||||||
| 2007 | 2006 | ||||||
| Mineral properties under Canadian GAAP | $ | 34,723,740 | $ | 1,190,652 | |||
| Capitalized expenditures on unproven mineral properties | (15,370,737 | ) | (1,090,652 | ) | |||
| Mineral properties under US GAAP | $ | 19,353,003 | $ | 100,000 |
| (iii) | Deficit |
| November 30, | November 30, | ||||||
| 2007 | 2006 | ||||||
| Deficit under Canadian GAAP | $ | (7,864,098 | ) | $ | (138,523 | ) | |
| Capitalized expenditures on unproven mineral properties | (15,370,737 | ) | (1,090,652 | ) | |||
| Deficit under US GAAP | $ | (23,234,835 | ) | $ | (1,229,175 | ) |
F-52
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
| 19. | RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS |
These financial statements have been restated because those previously filed contained certain errors as set out below. The restatement had no effect on the consolidated statements of operations and deficit including loss per share, nor on the consolidated statements of cash flows. | |
Balance Sheet and Note 2 – Reverse Takeover Transactionhas been restated to correct an error in the calculation of the fair value of the net assets of Nevada Star Resource Corp. which is now recorded as $12,647,893, a reduction of $778,383 from the amount of $13,426,276 previously shown. This resulted from an accounting error whereby the calculation had been based upon 89,508,515 shares of Nevada Star issued pursuant to the transaction, rather than the 84,319,285 shares of Nevada Star that were outstanding prior to the transaction. As a result, at November 30, 2007, mineral properties has been reduced from $35,502,123 to $34,723,740, total assets and total liabilities and shareholders’ equity have been reduced from $49,188,862 to $48,410,479, share capital has been reduced from $45,213,503 to $44,435,120, and shareholders’ equity has been reduced from $48,711,786 to $47,933,403. | |
Note 7 – Mineral Properties and Commitmentshas been restated to correct the recorded values for mineral properties acquired as a result of the reverse takeover transaction, as noted above. Expenditures capitalized and balances acquired during 2007 as well as the balance at November 30, 2007 were decreased as follows: Milford Copper reduced from $4,128,838 to $3,800,629, MAN Project reduced from $8,835,811 to $8,386,385, and Salt Chuck reduced from $164,976 to $164,228. | |
Note 8 – Share Capitalhas been restated to correct the presentation of the number of shares in order to give effect to the reverse takeover transaction in 2007, as required under EIC 10 – Reverse Takeover Accounting. This had no effect on the closing balances of the number of shares. The recorded value of share capital at November 30, 2007 has been corrected as noted above. | |
Note 13 – Supplementary Cash Flow Informationhas been restated to correct an error in the calculation of the fair value of the net assets of Nevada Star (see note 2) which had the effect of reducing the value ascribed to common shares issued in reverse takeover transaction (non-cash investing and financing activities) from $9,761,516 to $8,983,132. | |
Note 16 – Segment Disclosureshas been restated to correct an error in the calculation of the fair value of the net assets of Nevada Star (see note 2) which had the effect of reducing the value ascribed to United States mineral properties from $13,129,625 to $12,351,242. | |
Note 18 – Differences between Generally Accepted Accounting Principles in Canada and the United Stateshas been restated to give effect to United States GAAP requirements under EITF 04- 02 which requires that acquisition costs of mineral rights be capitalized. Previously, the acquisition costs of mineral rights for the purposes of United States GAAP had been expensed. |
F-53
PURE NICKEL INC. (formerly Nevada Star Resource Corp.) |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| NOVEMBER 30, 2007 AND 2006 |
| (Expressed in Canadian Dollars) |
The effect of the restatement of note 18 is set out below.
| (i) | Net Loss and Loss per Share |
| 12 months | 12 months | Period from | Period from | ||||||||||
| ended | ended | May 18, 2006 | May 18, 2006 | ||||||||||
| Nov. 30, 2007 | Nov. 30, | to Nov. 30, | to Nov. 30, | ||||||||||
| As restated | 2007 | 2006 | 2006 | ||||||||||
| $ | As originally | As restated | As originally | ||||||||||
| disclosed | $ | disclosed | |||||||||||
| $ | $ | ||||||||||||
| Net loss under Canadian GAAP | (7,725,575 | ) | (7,725,575 | ) | (138,523 | ) | (138,523 | ) | |||||
| Capitalized expenditures on unproven mineral properties | (14,280,085 | ) | (34,311,471 | ) | (1,090,652 | ) | (1,190,652 | ) | |||||
| Net loss under U.S. GAAP | (22,005,660 | ) | (42,037,046 | ) | (1,229,175 | ) | (1,329,175 | ) | |||||
| Loss per share under U.S. GAAP – basic and diluted | (0.50 | ) | (0.96 | ) | (0.18 | ) | (0.19 | ) |
| (ii) | Mineral Properties |
| 12 months | 12 months | Period from | Period from | ||||||||||
| ended | ended | May 18, | May 18, | ||||||||||
| Nov. 30, | Nov. 30, | 2006 to | 2006 to | ||||||||||
| 2007 | 2007 | Nov. 30, | Nov. 30, | ||||||||||
| As restated | As originally | 2006 | 2006 | ||||||||||
| $ | disclosed | As restated | As originally | ||||||||||
| $ | $ | disclosed | |||||||||||
| $ | |||||||||||||
| Mineral properties under Canadian GAAP | 34,723,740 | 35,502,123 | 1,190,652 | 1,190,652 | |||||||||
| Capitalized expenditures on unproven mineral properties | (15,370,737 | ) | (35,502,123 | ) | (1,090,652 | ) | (1,190,652 | ) | |||||
| Mineral properties under U.S. GAAP | 19.353,003 | – | 100,000 | – |
| (iii) | Deficit |
| 12 months | 12 months | Period from | Period from | ||||||||||
| ended | ended | May 18, | May 18, | ||||||||||
| Nov. 30, 2007 | Nov. 30, | 2006 to | 2006 to | ||||||||||
| As restated | 2007 | Nov. 30, | Nov.30, | ||||||||||
| $ | As originally | 2006 | 2006 | ||||||||||
| disclosed | As restated | As originally | |||||||||||
| $ | $ | disclosed | |||||||||||
| $ | |||||||||||||
| Deficit under Canadian GAAP | (7,864,098 | ) | (7,864,098 | ) | (138,523 | ) | (138,523 | ) | |||||
| Capitalized expenditures on unproven mineral properties | (15,370,737 | ) | (35,502,123 | ) | (1,090,652 | ) | (1,190,652 | ) | |||||
| Deficit under U.S. GAAP | (23,234,835 | ) | (43,366,221 | ) | (1,229,175 | ) | (1,329,175 | ) |
F-54