UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
Re: for the period ending May 31, 2007
COMMISSION FILE NUMBER: 0-22216
Suite 1710 - 650 West Georgia Street
Vancouver, British Columbia
Canada V6B 4N9
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-For Form 40-F
Form 20-F þ | Form 40-F ¨ |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Yes¨ | No þ |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Yes ¨ | No þ |
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 13g3-2(b) under the Securities Exchange Act of 1934.
Yes ¨ | No þ |
If ‘Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):
Financial Statements
(Unaudited - Prepared By Management)
(A Development Stage Company)
March 31, 2007
Index
Balance Sheets
Statements of Operations and Deficit
Statements of Cash Flows
Notes to Financial Statements
1
| March 31 | December 31 | ||||||
| 2007 | 2006 | ||||||
| (unaudited) | (audited) | ||||||
ASSETS | |||||||
Current assets | |||||||
| Cash and cash equivalents | $ | 17,661,638 | $ | 13,608,364 | |||
| Short-term investments (Note 2) | 9,902,708 | 15,478,718 | |||||
| Marketable securities (Note 2) | 250,000 | 250,000 | |||||
| Other receivable and prepaid expense | 171,135 | 269,426 | |||||
| 27,985,481 | 29,606,508 | ||||||
Resource interests (Note 3) | 28,546,419 | 26,700,256 | |||||
Plant and equipment (Note 4) | 446,862 | 455,422 | |||||
| $ | 56,978,762 | $ | 56,762,186 | ||||
LIABILITIES | |||||||
Current liabilities | |||||||
| Accounts payable and accrued liabilities | $ | 622,664 | $ | 464,347 | |||
Future income tax liabilities (Note 8) | 3,863,600 | 1,134,000 | |||||
Asset retirement obligations (Note 5) | 1,399,347 | 1,380,120 | |||||
| 5,885,611 | 2,978,467 | ||||||
SHAREHOLDERS' EQUITY | |||||||
Share capital (Note 6) | 57,394,521 | 59,993,621 | |||||
Contributed surplus (Note 6) | 6,451,846 | 6,478,846 | |||||
Deficit | (12,753,216 | ) | (12,688,748 | ) | |||
| 51,093,151 | 53,783,719 | ||||||
| $ | 56,978,762 | $ | 56,762,186 | ||||
| See accompanying notes | |||||||
Approved by the Directors:
“John F. Kearney” | “Robert Gayton” | ||||
| John F. Kearney | Robert Gayton | ||||
2
Three Months ended March 31 2007 | Three Months ended March 31 2006 | ||||||
Income Interest Income | $ | 320,006 | $ | 181,361 | |||
Expenses | |||||||
| Amortization of office furniture and equipment | 920 | 1,092 | |||||
| Listing and regulatory fees | 33,536 | 27,123 | |||||
| Management and directors fees | 64,200 | 49,600 | |||||
| Office and general | 104,215 | 103,533 | |||||
| Professional fees | 93,294 | 87,768 | |||||
| Project evaluation | 39,009 | 14,722 | |||||
| Shareholder and investor communications | 49,300 | 52,669 | |||||
| 384,474 | 336,507 | ||||||
Net loss for the period | (64,468 | ) | (155,146 | ) | |||
Deficit, end of period | $ | (12,753,216 | ) | $ | (11,357,478 | ) | |
Loss per share - basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | |
Weighted average number of common shares outstanding - basic and diluted | 107,670,212 | 89,242,252 | |||||
See accompanying notes
3
Three Months ended March 31 2007 | Three Months ended March 31 2006 | ||||||
Cash flows from (used in) operating activities | |||||||
| Loss for the period | $ | (64,468 | ) | $ | (155,146 | ) | |
| Adjustment for items not involving cash: | |||||||
| - amortization of office furniture and equipment | 920 | 1,092 | |||||
| (63,548 | ) | (154,054 | ) | ||||
| Change in non-cash working capital items: | |||||||
| - other receivables and prepaid expenses | 98,291 | (1,282 | ) | ||||
| - accounts payable and accrued liabilities | 158,317 | 213,149 | |||||
| 193,060 | 57,813 | ||||||
Cash flows from financing activities | |||||||
| Proceeds from shares issued and subscribed, net of | |||||||
| issuance costs | 103,500 | 9,609,858 | |||||
Cash flows from (used in) investing activities | |||||||
| Purchase of equipment | (26,253 | ) | (3,901 | ) | |||
| Short-term investments redeemed | 5,576,010 | - | |||||
| Lease and property abandonment deposit | (30,000 | ) | (30,000 | ) | |||
| Deferred exploration and development costs, excluding | |||||||
| amortization and accretion | (1,763,043 | ) | (250,499 | ) | |||
| 3,756,714 | (284,400 | ) | |||||
Increase in cash and cash equivalents | 4,053,274 | 9,383,271 | |||||
Cash and cash equivalents, beginning of period | 13,608,364 | 16,063,876 | |||||
Cash and cash equivalents, end of period | $ | 17,661,638 | $ | 25,447,147 | |||
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| 1. | Continued operations |
These interim financial statements have been prepared using the same accounting policies and methods of their application as the most recent annual financial statements of the Company. These interim financial statements do not include all disclosures normally provided in the annual financial statements and should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2006. In management's opinion, all adjustments necessary for fair presentation have been included in these interim financial statements. Interim results are not necessarily indicative of the results expected for the fiscal year. Certain comparative figures have been reclassified to conform to the current period's presentation.
| 2. | Short-term Investments and Marketable Securities |
Short-term investments, which consist primarily of investments in Bankers Acceptances and Guaranteed Investment Certificates (GIC’s) are investments with maturities of three months or more when purchased. As at March 31, 2007, short-term investments consist of $9,902,708.
On December 21, 2006, the Company participated in a private placement and subscribed to 5,000,000 Units of Ste. Genevieve Resources Ltd. at $0.05 per Unit for a total of $250,000. Each Unit consists of one common share and one common share purchase warrant entitling the holder to acquire an additional common share at a price exercisable at $0.06 on or before December 29, 2008. The market value as at March 31, 2007 and December 31, 2006 was $300,000.
| 3. | Resource Interests |
The Company’s resource interests comprise the Prairie Creek Mine Property:
March 31 2007 | December 31 2006 | ||||||
| Acquisition costs: | |||||||
| - mining lands | $ | 3,158,000 | $ | 3,158,000 | |||
| - plant and mill | 500,000 | 500,000 | |||||
3,658,000 | 3,658,000 | ||||||
Reclamation security deposits | 425,000 | 395,000 | |||||
Increase from asset retirement obligations | 714,450 | 746,630 | |||||
Exploration and development costs (see table below) | 23,748,969 | 21,900,626 | |||||
$ | 28,546,419 | $ | 26,700,256 | ||||
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3. Resource Interests (continued)
Exploration and development costs incurred in 2007 are detailed below:
Three | Three | ||||||
| Months ended | Months ended | ||||||
| March 31 2007 | March 31 2006 | ||||||
Exploration and development costs | |||||||
Assaying and metallurgical studies | $ | 106,244 | $ | 46,959 | |||
| Camp operation and project development | 567,746 | 97,488 | |||||
| Drilling and underground development | 814,462 | - | |||||
| Lease rental | 6,592 | 6,592 | |||||
| Permitting and environmental | 120,352 | 90,931 | |||||
| Transportation and travel | 147,647 | 8,529 | |||||
| 1,763,043 | 250,499 | ||||||
| Amortization - asset retirement obligations | 32,180 | 32,180 | |||||
| Amortization - mining plant and equipment | 33,893 | 7,025 | |||||
| Asset retirement accretion | 19,227 | 19,727 | |||||
Total exploration and development costs for the period | 1,848,343 | 309,431 | |||||
Exploration and development costs, beginning of period | 21,900,626 | 13,771,790 | |||||
Exploration and development costs, end of period | $ | 23,748,969 | $ | 14,081,221 | |||
Prairie Creek Mine
The Company holds a 100% interest in the Prairie Creek Mine property, plant and equipment located in the Northwest Territories, Canada.
During 2003 the Company renewed two surface leases granted by the Federal Government relating to the operation and care and maintenance of the Prairie Creek Mine Property for a period of ten years terminating March 31, 2012. The Company paid $100,000 upon execution of the lease and is obligated to pay $30,000 per year for five years to a maximum of $250,000 (the final amount of which was paid in the quarter ended March 31, 2007), as a security deposit for the performance of abandonment and reclamation obligations under the leases.
On September 10, 2003 the Company was granted a Type A Land Use Permit and a Type B Water Licence (reissued February 2006) by the Mackenzie Valley Land and Water Board for a period of five years commencing September 10, 2003 for underground development and exploration and for metallurgical testing.
On June 12, 2006, under the terms of the Land Use Permit (MV2001C0023 Part 3C, Section 38) and Water Licence (MV2001L2-0003, Part B, Section 2) the Company contributed $30,000 and $70,000, respectively, as security deposits for reclamation obligations.
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3. | Resource Interests (continued) |
Prairie Creek Mine (cont’d)
On May 11, 2006 the Mackenzie Valley Land and Water Board issued a Land Use Permit for the Phase 3 Exploration Drilling Program. The Land Use Permit (MV2004C0030), is valid for five years and allows surface exploration and diamond drilling at up to 60 sites. Under the terms of the Permit (Part C, Section 56), a security deposit for $75,000 was made on June 12, 2006.
On April 11, 2007, the Mackenzie Valley Land and Water Board issued a Land Use Permit for use of the road which connects the Prairie Creek Mine with the Liard Highway. The Land Use Permit (MV2003F0028) is valid for five years to April 10, 2012. Under the terms of the Permit (Condition #38; 26 (1)(I)) a security deposit in the amount of $100,000 is payable prior to the first use of the road.
In 1996, the Company concluded a Co-operation Agreement with the Nahanni Butte Dene Band (“Nahanni”), part of the Deh Cho First Nations. In return for co-operation and assistance undertakings given by the Nahanni towards the development of the Prairie Creek Project, the Company granted the following net profit interest and purchase option to the Nahanni:
| (i) | A 5% annual net profits, before taxation, interest in the Prairie Creek Project, payable following the generation of profits after taxation equivalent to the aggregate cost of bringing the Prairie Creek Project into production and establishing the access road; and |
| (ii) | An option to purchase either a 10% or a 15% interest in the Prairie Creek Project at any time prior to the expiry of three months following permitting for the Project, for the cash payment of either $6 million or $9 million, subject to price adjustment for exploration expenditure and inflation, respectively. |
In October 2003 the Nahanni informed the Company that Nahanni considers the Agreement terminated. Such termination is not in accordance with the provisions of the Agreement.
During 2006, the Company staked six new mineral claims [the WAY 1-6] at Prairie Creek. The WAY claims cover 4,126.25 hectares and are in good standing until November 11, 2008.
| 4. | Plant and Equipment |
| March 31, 2007 | December 31 2006 | |||
Cost | Accumulated Amortization | Net Book Value | Net Book Value | |
Mining equipment | $ 645,541 | $ 248,720 | $ 396,821 | $ 401,678 |
| Pilot plant | 108,161 | 73,845 | 34,316 | 37,099 |
| Furniture, fixtures & equipment | 92,077 | 76,352 | 15,725 | 16,645 |
$ 845,779 | $ 398,917 | $ 446,862 | $ 455,422 | |
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| 5. | Asset Retirement Obligation |
| March 31 | December 31 | |||
| 2007 | 2006 | |||
Opening balance - beginning of the period | $ | 1,380,120 | $ | 1,302,212 |
| Obligations re-measured during the period | - | - | ||
Accretion expense | 19,227 | 77,908 | ||
Ending balance - end of the period | $ | 1,399,347 | $ | 1,380,120 |
The Company’s asset retirement obligation arises from its obligations to undertake site reclamation and remediation in connection with its mining activities. In addition the Company has posted reclamation security deposits of $425,000.
The total discounted amount of the estimated cash flows required to settle the asset retirement obligation as at March 31, 2007 is estimated to be $1,399,347 in 2007 dollars (December 31, 2006 - $1,380,120) excluding the security deposits. While it is anticipated that some expenditures will be incurred during the life of the operation to which they relate, a significant component of this expenditure will only be incurred at the end of the mine life. In determining the carrying value of the asset retirement obligation, the Company has assumed a long-term inflation rate of 2.5%, a credit-adjusted risk-free discount rate of 6.5% and a weighted average useful life of production facilities and equipment of ten years. Elements of uncertainty in estimating this amount include changes in the projected mine life, reclamation expenditures incurred during ongoing operations and reclamation and remediation requirements and alternatives.
| 6. | Share Capital |
Authorized: Unlimited (2006 - unlimited) common shares with no par value.
Shares outstanding:
Number of Shares | Amount | |
Balance, December 31, 2006 | 107,590,212 | $ 59,993,621 |
| Stock options exercised at $0.23 per share (including $27,000 from contributed surplus attributed to stock-based compensation) | 450,000 | 130,500 |
| Income tax effect on flow-through share renouncement (Note 8) | - | (2,729,600) |
Balance, March 31, 2007 | 108,040,212 | $ 57,394,521 |
8
| 6. | Share Capital (continued) |
Stock Options
The Company has outstanding directors and employee stock options, fully vested entitling the holders to acquire additional common shares as follows:
Number of Shares | Exercise Price | Expiry Date |
2,860,000 | $0.60 | January 14, 2010 |
270,000 | $0.89 | June 27, 2011 |
1,200,000 | $0.90 | December 13, 2011 |
4,330,000 |
A summary of the stock option activity for the period is as follows:
Shares | Weighted Average Exercise Price | ||
Options outstanding and exercisable at December 31, 2006 | 4,780,000 | $ | 0.66 |
Exercised | (450,000) | 0.23 | |
Options outstanding and exercisable at March 31, 2007 | 4,330,000 |
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| 6. | Share Capital (continued) |
Warrants
A summary of the Company’s warrants issued and outstanding as at March 31, 2007 is as follows:
Balance of Warrants Outstanding at December 31, 2006 | Balance of Warrants Outstanding at March 31, 2007 | Exercise Price Per Warrant | Expiry Date | Warrant Value |
| 6,666,666 | 6,666,666 | $1.00 | January 30, 2008 | 2,263,858 |
| 814,093 | 814,093 | $0.72 | January 30, 2008 | 508,676 |
| 666,666 | 666,666 | $1.00 | January 30, 2008 | 319,999 |
| 2,777,778 | 2,777,778 | $1.15 | November 23, 2008 | 845,077 |
| 194,444 | 194,444 | $1.15 | November 23, 2008 | 73,362 |
| 486,957 | 486,957 | $1.15 | November 23, 2008 | 183,723 |
| 388,889 | 388,889 | $0.93 | November 23, 2008 | 166,549 |
11,995,493 | 11,995,493 | $4,361,244 |
Contributed Surplus
Options | Warrants | Unexercised Options and Warrants | Total | |||||
| Balance, December 31, 2006 | $ | 2,004,303 | $ | 4,361,244 | $ | 113,299 | $ | 6,478,846 |
Exercise of options | (27,000) | - | - | (27,000) | ||||
Balance, March 31, 2007 | $ | 1,977,303 | $ | 4,361,244 | $ | 113,299 | $ | 6,451,846 |
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| 7. | Related Party Transactions |
The Company incurred the following expenses to directors and corporations controlled by directors of the Company:
March 31 | March 31 | |||
| 2007 | 2006 | |||
| Executive and director compensation | 108,200 | 85,600 | ||
| Rent | 3,000 | 3,300 | ||
$ | 111,200 | $ | 88,900 |
All transactions with related parties were within the normal course of business. These transactions have been recorded at amounts agreed to by the transacting parties.
| 8. | Income Taxes |
The Company’s future income tax liability arises from the renunciation of mineral exploration expenditures on flow-through shares issued to investors. During the year ended December 31, 2006, the Company renounced to subscribers of flow-through shares Canadian Exploration Expenditures (CEE) of $8,000,000. The Company has applied the accounting treatment recommended by the Canadian Institute of Chartered Accountants Emerging Issues Committee #146 which requires the recognition of a future income tax liability of $2,729,600, representing the tax effect of the renunciation, and a corresponding reduction in shareholders’ equity to be recorded in the first quarter of 2007. The future income tax liability (net of future tax assets) was $1,134,000 at December 31, 2006.
Flow-through shares entitle a company that incurs certain resource expenditures in Canada to renounce such exploration expenditure to the subscribers allowing the expenditures to be deducted for income tax purposes by the investors who purchased the shares. A future income tax liability arises from the renunciation of mineral exploration costs to investors of flow-through shares.
Funds raised through the issuance of flow-through shares are required to be expended on qualified Canadian mineral exploration expenditures, as defined pursuant to Canadian income tax legislation. The flow-through gross proceeds less the qualified expenditures made to date represent the funds received from flow-through shares issuances which have not been spent and which are held by the Company. As at March 31, 2007, the amount of flow-through proceeds remaining to be expended is $5,032,669.
| 9. | Non-cash Transactions |
In the fiscal period ended March 31, 2007 and December 31, 2006, there were no non-cash transactions.
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EXHIBIT LIST | |
SIGNATURES | ||
| Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | ||
CANADIAN ZINC CORPORATION | ||
| Date: June 4, 2007 | By: | /s/ John F. Kearney |
| John F. Kearney | ||
| President and Chairman | ||