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Via EDGAR and Facsimile
November 13, 2009
H. Roger Schwall
Assistant Director
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549
Dear Mr. Schwall:
Re:
Petaquilla Minerals Ltd.
Proposed Amendment to Form 20-F for the Transition Period Ended May 31, 2008
Form 20-F for the Fiscal Year Ended May 31, 2009
Filed September 8, 2009
Response Letter Dated September 1, 2009
File No. 000-26926
Dear Mr. Schwall:
Petaquilla Minerals Ltd. (“Petaquilla” or the “Company”) is responding to your letter dated October 8, 2009, relating to the above-referenced filings (the “Filings”). The comments contained in that letter and the Company’s responses are set forth below. The Company intends to amend its Form 20-F for the Transition Period Ended May 31, 2008 (the “2008 Form 20-F/A”) and its Form 20-F for the Period Ended May 31, 2009 (the “2009 Form 20-F/A”). A copy of the Company’s draft 2008 Form 20-F/A is attached hereto asSchedule A and 2009 Form 20-F/A is attached hereto asSchedule B. The Company will file the 2008 Form 20-F/A and 2009 Form 20-F/A following the resolution of the comments in a manner satisfactory to the Commission.
Proposed Amendment to Annual Report on Form 20-F for the Transition Period Ended May 31, 2008
SEC COMMENT:
1.
You make reference at page 24 to Exhibit 4.V. regarding Panama's requirements with respect to the Cerro Petaquilla Concession. Please file an English translation or an English summary of such exhibit. See the Instructions as to Exhibits in Form 20-F. In addition, please ensure that you have disclosed all material terms of such document in your filing. This comment also applies to your Annual Report on Form 20-F for the fiscal year ended May 31, 2009.
PETAQUILLA’S RESPONSE:
The Company acknowledges the Commission’s comment and revises its disclosure accordingly in the 2008 Form 20-F/A as indicated on pages 17 and 24 of Schedule A and in the 2009 Form 20-F/A as indicated on pages 19 and 29 of Schedule B. The Company will file an English translation as Exhibit 4.W.
Operating and Financial Review and Prospects, page 40
Operating Results, page 40
Restatement of U.S. GAAP Financial Statements, page 53
SEC COMMENT:
2.
We note numerous instances in which the amounts you report on pages 40 do not agree with the corresponding amounts on page 125 under Note 28 of your financial statements. For example, the amounts of equity investment adjustments as reported on page 40 do not agree to the corresponding amounts on page 125. Please resolve all inconsistencies.
We also note that you did not explain the nature of the $2,143,773 receivable from a related company on page 41. Please disclose the reason for this adjustment in your discussion.
PETAQUILLA’S RESPONSE:
The Company acknowledges the Commission’s comment and revises its disclosure accordingly in the 2008 Form 20-F/A as indicated on pages 40, 41 and 120 of Schedule A.
Management Report on Internal Controls Over Financial Reporting, page 81
SEC COMMENT:
3.
You state at page 81 that "[o]ther than the foregoing, during the period covered by this report, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting." However, you state at page 77 that there were no such changes to your internal control over financial reporting. Please revise your filing to provide consistent disclosure with respect to any change in your internal control over financial reporting during the period covered by your report that has materially affected, or is reasonably likely to materially affect, your internal control over financial reporting.
PETAQUILLA’S RESPONSE:
The Company acknowledges the Commission’s comment and revises its disclosure accordingly in the 2008 Form 20-F/A as indicated on page 78 of Schedule A.
Financial StatementsGeneral
SEC COMMENT:
4.
We note in response to our prior comment 10 you now present audited financial statements for the twelve month period ended January 31, 2006. However, you have excluded reference to or information about this period in the title page on page 80 and in the notes to your financial statements. Please revise your financial statements to include this omitted information. Please also address this period in your discussions at other sections of the amendment such as Item 3D on page 16, Item 4D on page 27, Item 5B on page 47 and Item 8A on page 60 where references are made to the prior periods.
PETAQUILLA’S RESPONSE:
The Company acknowledges the Commission’s comment and revises its disclosure accordingly in the 2008 Form 20-F/A as indicated on pages 16, 26, 47, 60, 79 and 81-128 of Schedule A.
Annual Report on Form 20-F for the Fiscal Year Ended May 31, 2009
Risk Factors, page 15
Risks related to mining operations could adversely affect our business, page 17
SEC COMMENT:
5.
You present numerous risks under this risk factor heading. Please revise your disclosure to present these risks under separate risk factor headings.
PETAQUILLA’S RESPONSE:
The Company acknowledges the Commission’s comment and revises its disclosure accordingly in the 2009 Form 20-F/A as indicated on pages 16 and 17 of Schedule B.
Selected Financial Data, page 14
SEC COMMENT:
6.
Please present U.S. GAAP reconciled selected financial data in this section rather than referring the reader to Note 29 of your financial statements for details of the differences between Canadian GAAP and U.S. GAAP. You may refer to Instruction 2 to Item 3.A on Form 20-F if you require additional clarification or guidance.
PETAQUILLA’S RESPONSE:
The Company acknowledges the Commission’s comment and revises its disclosure accordingly in the 2009 Form 20-F/A as indicated on pages 13 and 14 of Schedule B.
Operating and Financial Review and Prospects, page 39
Liquidity and Capital Resources, page 48
SEC COMMENT:
7.
Please revise your disclosure to discuss your liquidity in terms of the payments that you may be obligated to make with respect to the senior secured notes and the convertible senior secured notes. For example, please discuss your liquidity in the context of interest payments, redemption rights and semi-annual principal payments.
PETAQUILLA’S RESPONSE:
The Company acknowledges the Commission’s comment and revises its disclosure accordingly in the 2009 Form 20-F/A as indicated on page 48 of Schedule B.
May 31, 2009, Compared with May 31, 2008, page 49
SEC COMMENT:
8.
Please disclose in this section all material terms of the senior secured notes and the convertible senior secured notes.
PETAQUILLA’S RESPONSE:
The Company acknowledges the Commission’s comment and revises its disclosure accordingly in the 2009 Form 20-F/A as indicated on page 48 of Schedule B.
Tabular Disclosure of Contractual Obligations, page 52
SEC COMMENT:
9.
Please add a total column to the contractual obligation table to comply with Item 5.F of Form 20-F.
PETAQUILLA’S RESPONSE:
The Company acknowledges the Commission’s comment and revises its disclosure accordingly in the 2009 Form 20-F/A as indicated on page 52 of Schedule B.
Controls and Procedures, page 76
SEC COMMENT:
10.
You state at page 77 that during the period covered by your report, there were no changes in your internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, your internal control over financial reporting. Please reconcile this statement with your disclosure at page 76 regarding the measures that you have taken to address the material weaknesses in your internal controls that you identified during your transition period ended May 31, 2008.
PETAQUILLA’S RESPONSE:
The Company acknowledges the Commission’s comment and revises its disclosure accordingly in the 2009 Form 20-F/A as indicated on page 77 of Schedule B.
Financial Statements
Consolidated Statements of Cash Flows, page 91
SEC COMMENT:
11.
We note that you present “prepaid interest” on senior secured notes and convertible senior notes as cash outflows from financing activities. We would ordinarily expect interest payments to be presented as cash outflows from operating activities. Tell us the origin of these line items, and explain how your classification of these line items as cash outflow from financing activities is consistent with the guidance in paragraph 23 of SFAS 95.
PETAQUILLA’S RESPONSE:
By way of background, the senior secured notes include a requirement that an amount equal to the first year’s worth of interest be immediately paid to the lenders as “prepaid interest” on the date that the notes are issued. Because the Company’s lawyer received the gross cash proceeds from the lenders and then immediately returned the required “prepaid interest” payment, the Company initially concluded that the payment made should not be netted against the gross cash proceeds received in the statement of cash flows.
The Company does not believe that it would be appropriate to report the payment of the “prepaid interest” as an operating activity because the Company has concluded that, in substance, the payment made is a return of principal such that the notes were issued at a discount as opposed to an interest payment. This is based on the following factors:
1.
The payment was made simultaneously with the receipt of the gross proceeds. That is, the Company’s lawyer immediately segregated the payment amount such that the amount deposited into the Company’s bank account was the net proceeds, which is consistent with the outcome that would be achieved by issuing the notes at a discount.
2.
The “prepaid interest” is not refundable. This is important because interest is intended to compensate the lender for the use of money over a period of time. In the Company’s view, if the parties to the agreement had intended for this payment to represent interest, it would have been refundable in the situation where the notes were redeemed during the first year. Therefore, the Company believes that given that the Company and the lenders agreed that the payment was non-refundable, this payment was intended to be a discount against the face value of the notes to reflect the difference between the coupon rate and the market rate of interest for the notes at the time the notes were issued. This is further supported by the fact that one could argue that if the payment were considered interest, it may not be in compliance with Canadian law because there could be situations (i.e., early red emption of the note within a few days of issuance) where the interest expense would exceed the maximum amount of interest prescribed by statute. Consequently, this provides further evidence that the “prepaid interest” is actually a discount to the principal of the loan as opposed to an interest expense as established by the accounting literature.
Therefore, based on these factors, the Company believes that while the amount was calculated as being equal to a year of interest, the “prepaid interest” paid is actually an immediate principal repayment so that the notes could be issued at a discount to face value. As such, this principal repayment has been appropriately classified as a cash flow from a financing activity in the Company’s statement of cash flows.
The Company has, however, reconsidered the presentation of the two items on a gross basis and has determined that, given that the payment represents a discount against the proceeds received, the payment should be netted against the inflow of cash relating to the proceeds of the note as opposed to being shown as a separate item. As such, the Company has amended the Statement of Cash Flows for each of 2008 and 2009 to reflect this change. The Company would note that this net presentation is consistent with the guidance in CICA Emerging Issues Committee Abstract 47, Interest Discount or Premium in the Cash Flow Statement
Notes to Financial Statements, page 93
SEC COMMENT:
12.
Please add disclosure clarifying that you changed your fiscal year end from January 31 to April 30 in 2007, and again from April 30 to May 31 in 2008, also providing your reasons for enacting these changes, in the notes to your financial statements.
PETAQUILLA’S RESPONSE:
The Company acknowledges the Commission’s comment and revises its disclosure accordingly in the 2009 Form 20-F/A as indicated on page 93 of Schedule B.
Note 28-Restatement of January 31, 2007 Interim Financial Statements and May 31, 2008 Balance Sheet, page 121
SEC COMMENT:
13.
We note your disclosure in which you state that you adopted a change in accounting policy which affects the measurement of dilution gains and equity losses on a retroactive basis. Please clarify whether this accounting change was voluntary or resulted from the initial application of a primary source of Canadian GAAP. In addition, please tell us why you have not provided the disclosures outlined in CICA Handbook Section 1506-Accounting Changes for this change in accounting policy.
PETAQUILLA’S RESPONSE:
The change in accounting policy was voluntary and was disclosed as such in Note 2 to the consolidated statements in the 2009 Form 20-F/A as indicated on page 99 of Schedule B. The Company has provided the necessary disclosure as outlined in CICA Handbook Section 1506-Accounting Changes accordingly in the 2009 Form 20-F/A as indicated on pages 100-101 of Schedule B.
Note 29-Differences Between Canadian and United States Generally Accepted Accounting Principles, page 122
SEC COMMENT
14.
We note your disclosure on page 99 in which you state that you changed your accounting policy for mineral properties during the current fiscal year "...whereby exploration and development costs are to be expensed until such time as reserves are proven and financing to complete development has been obtained." Please modify your accounting policy disclosure for U.S. GAAP as necessary to differentiate between exploration, development and production costs, and to ensure correlation of these terms with your reserve findings, and stage of operations, based on the definitions set forth in Industry Guide 7. The costs incurred after mineral reserves have been established are commonly developmental in nature, when they relate to constructing the infrastructure necessary to extract the reserves, preparing the mine for production, and are on this basis capitalized. On the other hand, exploratory costs are those typically associated with efforts to search for and establish mineral reserves, beyond those already found, and should be expensed as incurred. Therefore, the accounting treatment that you describe for exploration and development costs does not reflect sufficient distinction in the character of these costs for U.S. GAAP purposes.
We note you continue to present a difference in accounting for mineral properties and deferred costs in your U.S. GAAP reconciliation. Please clarify the origination of the difference you have quantified in your U.S. GAAP reconciliation.
PETAQUILLA’S RESPONSE:
The Company acknowledges the Commission’s comment and revises its disclosure accordingly in the 2009 Form 20-F/A as indicated on page 125 of Schedule B.
SEC COMMENT
15.
We note for U.S. GAAP purposes you indicate that commercial production has commenced while under Canadian GAAP you are in the pre-commercial production phase. Further, we note that as a result of reaching the production phase for U.S. GAAP purposes you have recognized revenue, cost of goods sold, amortization and an inventory write-down for the fiscal year ended May 31, 2009. Please expand your disclosure to explain how commercial production is defined under Canadian GAAP, and how you have determined that you are in the production phase for U.S. GAAP purposes.
Given that you have not established proven and probable reserves, any disclosure indicating that you are in theproduction phasefor U.S. GAAP purposes should include language clarifying that you have not established proven and probable reserves and would therefore not be appropriately described as in theproduction stagebased on the definitions in Industry Guide 7. We suggest that for purposes of describing the differences that you have identified between Canadian and U.S. GAAP, you focus on the actual differences rather than the stage of your operations.
We understand that for U.S. GAAP purposes, you report proceeds from the sales of minerals as revenue and recognize the associated direct costs on the statement of operations, while for Canadian GAAP purposes, you report such proceeds and costs as adjustments to mineral properties on the balance sheet.
In addition, please disclose the accounting method you use to compute amortization in determining the costs associated with sales. If you are applying the unit of production method to compute amortization, please disclose the extent to which you have used resources in your computations, differentiating between measured, indicated and inferred resources. We would not expect that estimates of inferred resources would be sufficiently reliable for use in DD&A computations or financial reporting under U.S. GAAP.
Finally, we note you present a write-down of inventory in the amount of $2,404,695 in fiscal 2009 as a reconciling item to U.S. GAAP. Tell us the origin of this item as it is not clear why the sale of minerals would result in this type of charge irrespective of whether you are in the pre-production or production phase.
PETAQUILLA’S RESPONSE:
The Company acknowledges the Commission’s comment and revises its disclosure accordingly in the 2009 Form 20-F/A as indicated on page 127 of Schedule B.
Exhibits, page 130
SEC COMMENT
16.
Please file as exhibits to your filing the instruments defining the rights of the holders of your senior secured notes and convertible senior secured notes. See the Instructions as to Exhibits in Form 20-F.
PETAQUILLA’S RESPONSE:
The Company acknowledges the Commission’s comment and revises its disclosure accordingly in the 2009 Form 20-F/A by including Exhibit 2B to Schedule B.
In connection with responding to your comments, the Company acknowledges that:
·
the Company is responsible for the adequacy and accuracy of the disclosure in the Filings;
·
staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the Filings; and
·
the Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
The Company welcomes the opportunity to discuss the foregoing points further, if necessary, and to clarify any open questions you may have at your convenience. I can be reached at (604) 694-0021.
Sincerely,
/s/ Bassam Moubarak
Bassam Moubarak
Chief Financial Officer
Petaquilla Minerals Ltd.
cc:
Graham Scott, VECTOR Corporate Finance Lawyers
Richard Schroeder, Ernst & Young LLP
Thomas M. Rose, Esq., Troutman Sanders LLP
SCHEDULE A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549 USA
FORM 20-F/A
AMENDMENT NO. 2
(Mark One)
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
o
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
___________________________
OR
þ
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
o
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
________________________________
For the transition period from May 1, 2007 to May 31, 2008
Commission file number:000-26296
Petaquilla Minerals Ltd.
(Exact name of Registrant as specified in its charter)
Not applicable
(Translation of Registrant's name into English)
Province of British Columbia, Canada
(Jurisdiction of incorporation or organization)
Suite 410, 475 West Georgia Street, Vancouver, British Columbia, Canada V6B 4M9
(Address of principal executive offices)
Bassam Moubarak, telephone (604) 694-0021, fax (604) 694-0063,
Suite 410, 475 West Georgia Street,Vancouver, British Columbia, Canada V6B 4M9
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 1 |
Securities registered or to be registered pursuant to Section 12(b) of the Act.
| | |
Title of each class | | Name of each exchange on which registered |
None | | Not applicable |
| | |
| | |
| | |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Shares Without Par Value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the 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.
95,958,641
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o Yes þ No
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.
o Yesþ 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes o 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):
o Large accelerated filer þ Accelerated filer o Non-accelerated filer
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 2 |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| | | | | |
o | U.S. GAAP | o | International Financial reporting Standards as issued by the International Accounting Standards Board | þ | Other |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
þ Item 17 o 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).
o Yes þ No
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 3 |
Explanatory Note
Petaquilla Minerals Ltd. (the “Company”) has filed this Amendment No. 2 (“Amendment No. 2”) to its Annual Report on Form 20-F for the transition period ended May 31, 2008, to (i) expand the Company’s disclosures concerning the material effects of governmental regulation on the Company’s Molejon gold project in Panama; (ii) update its operating results, liquidity and capital resources to reflect changes to the Company’s amended financial statements included in the Amendment No. 2 and to include additional disclosure regarding the Company’s ability to continue as a going concern; (iii) expand the Company’s disclosure regarding its controls and procedures and how it intends to take remedial actions with respect to identified material weaknesses; (iv) file certain material contracts as exhibits that were not previously filed; (v) update its list of subsidiaries; and (vi) update its presentation of e xploration results. The Company directs the reader of Amendment No. 2 to the following specific Items in this Amendment No. 2 for further details: Item 3.A – Selected Financial Data, Item 3.D. – Key Information – Risk Factors, Item 4.A. – History and Development of Our Company, Item 4.B – Business Overview, Item 4.D.– Property, Plants and Equipment, Item 5.A. – Operating Results, Item 5.B. – Liquidity and Capital Resources, Item 8.A. – Financial Information – Consolidated Statements and Other Financial Information, Item 15 (Controls and Procedures), Item 17 (Financial Statements) and Item 19 (Exhibits). Further, pursuant to Rule 13a-10(g)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which does not permit transition reports to cover periods longer than 12 months, this Amendment No. 2 amends the periods of the Company’s financial disclosures from the 15-month period ended April 30, 2007, and the 13-month period ended May 31, 2008, to the 12-month period ended January 31, 2007, the three-month period ended April 30, 2007, the 12-month period ended April 30, 2008, and the one-month period ended May 31, 2008.
This Amendment No. 2 sets forth the complete text of the above-referenced Items and all amendments thereto as well as updated responses to the other Form 20-F Items, and includes new certifications pursuant to Rules 13a-14(a) and 15d-14(a) and Rules 13a-14(b) and 15d-14(b) under the Exchange Act.
The information set forth in this report on Form 20-F is as at November 6, 2009, unless an earlier or later date is indicated.
Financial information in this Amendment No. 2 is presented in accordance with accounting principles generally accepted in Canada (“Canadian GAAP”). Measurement differences between accounting principles generally accepted in Canada and in the United States, as applicable to the Company are set forth in Item 5 of this Amendment No. 2 and in Note 28 to the accompanying financial statements of the Company.
This Amendment No. 2 contains forward-looking statements within the meaning of applicable securities laws. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
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. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Statements in this Amendment No. 2 regarding expected completion dates of feasibility studies, anticipated commencement dates of mining or metal production operations, including when our Molejon project is anticipated to begin production, projected quantities of future metal production and anticipated production rates, operating efficiencies, costs and expenditures are forward-looking statements. Actual results could differ materially depending upon the availability of materials, equipment, required permits or approvals and financing, the occurrence of unusual weather or operating conditions, the accuracy of reserve estimates, lower than expected ore grades or the failure of equipment or processes to operate in accordance with specifications. See“Item 3 – Key Information – 3.D. Risk Factors” for other factors that may affect our future financial performance.
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 4 |
As used in this report, the terms "we", "us" and "our" mean Petaquilla Minerals Ltd. and its subsidiaries, unless otherwise indicated.
Unless otherwise indicated, all dollar amounts referred to herein are in Canadian dollars.
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 5 |
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PETAQUILLA MINERALS LTD.
SECURITIES AND EXCHANGE COMMISSION
FORM 20-F/A
AMENDMENT NO. 2
TABLE OF CONTENTS
Page No.
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| GLOSSARY OF MINING TERMS | 10 |
| CAUTIONARY NOTE REGARDING RESOURCE AND RESERVE ESTIMATES | 11 |
| | |
PART I | | 12 |
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ITEM 1 | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 12 |
| | |
ITEM 2 | OFFER STATISTICS AND EXPECTED TIMETABLE | 12 |
| | |
ITEM 3 | KEY INFORMATION | 12 |
3.A. | Selected Financial Data | 12 |
3.B. | Capitalization and Indebtedness | 13 |
3.C. | Reasons For The Offer and Use of Proceeds | 13 |
3.D. | Risk Factors | 14 |
| Risks related to our exploration, construction and mining operations could adversely affect our business | 14 |
| Our estimates of reserves, mineral deposits and potential future production costs may be inaccurate, which could impact our results of operations in the future | 14 |
| Our properties may be subject to undetected title defects | 15 |
| Our directors may have conflicts of interest | 15 |
| Exchange rate fluctuations may effectively increase our costs of exploration and production | 15 |
| We are dependent upon additional funding in order to sustain our operations | 15 |
| Our company has a history of losses and there is substantial uncertainty regarding our ability to continue as a going concern | 16 |
| The requirements of the Ley Petaquilla may have an adverse impact on our company | 16 |
| We have a history of net losses, an accumulated deficit and a lack of revenue from operations | 17 |
| We have limited experience with development-stage mining operations | 17 |
| Our common shares are subject to penny stock rules, which could affect trading in our shares | 17 |
| We face strong competition for the acquisition of mining properties. | 18 |
| Mineral prices can fluctuate dramatically and have a material adverse effect on our results of operations | 18 |
| We face risks related to our operations in foreign countries | 18 |
| Our operations are subject to environmental and other regulation | 18 |
| We face political risks in Panama | 19 |
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 6 |
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| We have not paid dividends in the past and do not expect to pay dividends in the foreseeable future | 19 |
| U.S. investors may not be able to enforce their civil liabilities against us or our directors, controlling person and officers | 19 |
| If We are Characterized as a Passive Foreign Investment Company (“PFIC”), Our U.S. Shareholders May Be Subject to Adverse U.S. Federal Income Tax Consequences | 20 |
ITEM 4 | INFORMATION ON THE COMPANY | 20 |
4.A. | History and Development of the Company | 20 |
| Molejon Property – Panama | 21 |
| Mineral Properties – Other | 22 |
| Directors and Officers of Our Company | 22 |
| Principal Capital Expenditures/Divestitures Over Last Three Fiscal Years | 23 |
| Current and Planned Capital Expenditures/Divestitures | 23 |
| Public Takeover Offers | 23 |
4.B. | Business Overview | 23 |
4.C. | Organizational Structure | 24 |
4.D. | Property, Plants and Equipment | 26 |
| Cerro Petaquilla Concession, Panama | 26 |
| Introduction | 26 |
| Property Location | 26 |
| Location, Access & Physiography | 27 |
| Plants and Equipment | 28 |
| Title | 29 |
| Exploration History | 30 |
| Outlook – 2010 | 33 |
| Regional and Local Geology | 34 |
| Mineralization | 36 |
| Doing Business in Panama | 37 |
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ITEM 4A | UNRESOLVED STAFF COMMENTS | 40 |
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ITEM 5 | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | 40 |
5.A. | Operating Results | 40 |
| Restatement of U.S. GAAP Financial Statements | 40 |
| Restatement of January 31, 2007 Interim Financial Statements and May 31, 2008 Balance Sheet | 41 |
| One Month Ended May 31, 2008 Compared to One Month Ended May 31, 2007 | 43 |
| 12 Months Ended April 30, 2008,Compared to 12 Months Ended April 30, 2007 | 44 |
| Three Months Ended April 30, 2008 Compared to Three Months Ended April 30, 2007 | 46 |
| 12 Months Ended January 31, 2007 Compared to Fiscal Year Ended January 31, 2006 | 47 |
5.B. | Liquidity and Capital Resources | 47 |
| May 31, 2008, Compared to April 30, 2008 | 48 |
| April 30, 2008, Compared to April 30, 2007 | 48 |
| April 30, 2007, Compared to January 31, 2007 | 49 |
| January 31, 2007, Compared to January 31, 2006 | 49 |
5.C. | Research and Development, Patents and Licenses, etc. | 50 |
5.D. | Trend Information | 50 |
5.E. | Off-Balance Sheet Arrangements | 50 |
5.F. | Tabular Disclosure of Contractual Obligations | 50 |
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 7 |
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ITEM 6 | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | 52 |
6.A. | Directors and Senior Management | 52 |
6.B. | Compensation | 53 |
| Cash and Non-Cash Compensation - Executive Officers and Directors | 53 |
| Option Grants in Last Two Fiscal Periods | 54 |
| Aggregated Option Exercises in Last Two Fiscal Periods | 55 |
| Defined Benefit or Actuarial Plan Disclosure | 55 |
| Termination of Employment, Change in Responsibilities and Employment Contracts | 55 |
| Directors | 55 |
6.C. | Board Practices | 56 |
6.D. | Employees | 57 |
6.E. | Share Ownership | 57 |
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ITEM 7 | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | 58 |
7.A. | Major Shareholders | 58 |
7.B. | Related Party Transactions | 59 |
7.C. | Interests of Experts and Counsel | 60 |
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ITEM 8 | FINANCIAL INFORMATION | 60 |
8.A. | Consolidated Statements and Other Financial Information | 60 |
8.B. | Significant Changes | 60 |
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ITEM 9 | THE OFFER AND LISTING | 62 |
9.A. | Offer and Listing Details | 62 |
9.B. | Plan of Distribution | 64 |
9.C. | Markets | 64 |
9.D. | Selling Shareholders | 64 |
9.E. | Dilution | 64 |
9.F. | Expenses of the Issue | 64 |
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ITEM 10 | ADDITIONAL INFORMATION | 64 |
10.A. | Share Capital | 64 |
10.B. | Memorandum and Articles of Association | 64 |
10.C. | Material Contracts | 68 |
10.D. | Exchange Controls | 68 |
10.E. | Taxation | 70 |
| Material Canadian Federal Income Tax Consequences | 70 |
| Dividends | 70 |
| Capital Gains | 70 |
| Material United States Federal Income Tax Consequences | 71 |
| U.S. Holders | 71 |
| Distributions on our Common Shares | 71 |
| Disposition of Our Common Shares | 72 |
| Passive Foreign Investment Company | 72 |
| Foreign Tax Credit | 73 |
| Controlled Foreign Corporations | 73 |
| Information Reporting: Backup Withholding | 74 |
10.F. | Dividends and Paying Agents | 74 |
10.G. | Statements by Experts | 74 |
10.H. | Documents on Display | 74 |
10.I. | Subsidiary Information | 74 |
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 8 |
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ITEM 11 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 74 |
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ITEM 12 | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | 74 |
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PART II | | 75 |
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ITEM 13 | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | 75 |
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ITEM 14 | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 75 |
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ITEM 15 | CONTROLS AND PROCEDURES | 77 |
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ITEM 16 | [RESERVED] | 78 |
16.A. | Audit Committee Financial Expert | 78 |
16.B. | Code of Ethics | 78 |
16.C. | Principal Accountant Fees and Services | 79 |
16.D. | Exemptions From the Listing Standards for Audit Committees | 79 |
16.E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 79 |
16.F. | Change in Registrant’s Certifying Accountant | 79 |
16.G. | Corporate Governance | 80 |
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PART III | | 80 |
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ITEM 17 | FINANCIAL STATEMENTS | 80 |
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ITEM 18 | FINANCIAL STATEMENTS | 129 |
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ITEM 19 | EXHIBITS | 129 |
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| SIGNATURES | 131 |
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 9 |
GLOSSARY OF MINING TERMS
The following is a glossary of some of the terms used in the mining industry and referenced herein:
cutoff grade - deemed grade of mineralization, established by reference to economic factors, above which material is included in mineral deposit calculations and below which material is considered waste. May be either an external cutoff grade, which refers to the grade of mineralization used to control the external or design limits of an open pit based upon the expected economic parameters of the operation, or an internal cutoff grade, which refers to the minimum grade required for blocks of mineralization present within the confines of an open pit to be included in mineral deposit estimates.
diamond drill - a machine designed to rotate under pressure an annular diamond-studded cutting tool to produce a more or less continuous solid sample (drill core) of the material that is drilled.
epithermal - a term applied to those mineral deposits formed in and along fissures or other openings in rocks by deposition at shallow depths from ascending hot solutions.
indicated reserves orprobable reserves - reserves for which quantity and grade and/or quality are computed from information similar to that used for measured or proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for measured reserves, is high enough to assume continuity between points of observation.
junior resource company - as used herein means a company whose mineral resource properties are in the exploration phase only and which is wholly or substantially dependent on equity financing or joint ventures to fund its ongoing activities.
measured reserves orproven reserves - reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling; and (b) the sites for inspection, sampling and measurement are spaced so closely and the geological character is so well defined that size, shape, depth and mineral content of reserves are well established.
mineral deposit, deposit ormineralized material - a mineralized body which has been physically delineated by sufficient drilling, trenching and/or underground work, and found to contain a sufficient average grade of metal or metals to warrant further exploration and/or development expenditures. Such a deposit does not qualify under Commission standards as a commercially mineable ore body or as containing ore reserves, until final legal, technical and economic factors have been resolved.
open pit mining - the process of mining an ore body from the surface in progressively deeper steps. Sufficient waste rock adjacent to the ore body is removed to maintain mining access and to maintain the stability of the resulting pit.
ore - a natural aggregate of one or more minerals which, at a specified time and place, may be mined and sold at a profit, or from which some part may be profitably separated.
ounces - troy ounces.
oz/tonne - troy ounces per metric ton.
ppb - parts per billion.
ppm - parts per million.
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 10 |
porphyry deposit - a disseminated mineral deposit often closely associated with porphyritic intrusive rocks.
reserve - that part of a mineral deposit which can be economically and legally extracted or produced at the time of the reserve determination. Reserves are customarily stated in terms of "ore" when dealing with metalliferous minerals.
stockwork - a rock mass so interpenetrated by small veins of ore that the whole must be mined together. Stockworks are distinguished from tabular or sheet deposits, i.e. veins or beds, which have a small thickness in comparison with their extension in the main plane of the deposit.
strike length - the longest horizontal dimensions of a body or zone of mineralization.
stripping ratio - the ratio of waste material to ore that is experienced in mining an ore body.
tonne - metric ton (2,204 pounds).
CAUTIONARY NOTE REGARDING RESOURCE AND RESERVE ESTIMATES
The terms “mineral reserve”, “proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined in accordance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) -CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended. These definitions differ from the definitions in SEC Industry Guide 7 under the United States Securities Act of 1993, as amended (the “Securities Act”). Under SEC Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves and the primary environmental analy sis or report must be filed with the appropriate governmental authority.
In addition, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the ba sis of feasibility or pre-feasibility studies, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC Industry Guide 7 standards as in place tonnage and grade without reference to unit measures.
Accordingly, information contained in this Amendment No. 2 contains descriptions of our mineral deposits that may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 11 |
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
This Amendment No. 2 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide the information called for by this item.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
This Amendment No. 2 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide the information called for by this item.
ITEM 3. KEY INFORMATION
3.A. Selected Financial Data
The following tables summarize our selected financial data (stated in Canadian dollars) prepared in accordance with Canadian GAAP and reconciled for measurement differences to United States generally accepted accounting principles (“U.S. GAAP”). The information in the tables was extracted from the more detailed financial statements and related notes included with this filing and should be read in conjunction with these financial statements and with the information appearing under the heading “Item 5 – Operating and Financial Review and Prospects”. Note 28 of our consolidated financial statements , included with this filing , sets forth the material variations in U.S. GAAP. Results for the periods presented are not necessarily indicative of results for future periods.
INFORMATION IN ACCORDANCE WITH CANADIAN GAAP:
| | | | | | | | | |
| 1 Month Ended May 31 | 12 Months Ended April 30 | 3 Months Ended April 30 | 12 Months Ended January 31 |
| | 2008 | 2008 | 2007 | 2007 | 2006 | 2005 | 2004 |
(a) | Total revenue | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
(b) | (Loss) before extraordinary items(1) | | | | | | | |
| | Total | ($4,513,145) | ($1,031,155) | ($6,443,991) | ($21,518,459) | ($2,567,758) | ($1,798,273) | ($811,190) |
| | Per Share(1) | ($0.05) | ($0.01) | ($0.07) | ($0.28) | ($0.05) | ($0.04) | ($0.02) |
(c) | Total assets | $106,282,486 | $93,935,092 | $46,581,365 | $42,300,633 | $12,807,172 | $1,989,474 | $2,670,561 |
(d) | Total long-term debt | $30,760,220 | $1,377,094 | $699,185 | $869,990 | $0 | $0 | $0 |
(e) | Total shareholder equity (deficiency) | $50,008,735 | $53,623,536 | $34,837,619 | $37,479,809 | $12,256,076 | $1,886,423 | $2,543,620 |
(f) | Cash dividends declared per share | n/a | n/a | n/a | n/a | n/a | n/a | n/a |
(g) | Capital stock (number of issued and outstanding common shares) | 95,958,641 | 95,958,641 | 89,876,951 | 89,367,031 | 70,246,303 | 51,264,537 | 48,829,542 |
(h) | Net earnings (loss) for the period | | | | | | | |
| | Total | ($4,513,145) | ($1,031,155) | ($6,443,991) | ($21,518,459) | ($2,567,758) | ($1,798,273) | ($811,190) |
| | Per Share(1) | ($0.05) | ($0.01) | ($0.07) | ($0.28) | ($0.05) | ($0.04) | ($0.02) |
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(1) The effect of potential share issuances pursuant to the exercise of options and warrants would be anti-dilutive and, therefore, basic and diluted losses per share are the same. |
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 12 |
INFORMATION IN ACCORDANCE WITH U.S. GAAP:
| | | | | | | | | |
| 1 Month Ended May 31 | 12 Months Ended April 30 | 3 Months Ended April 30 | 12 Months Ended January 31 |
| | 2008 | 2008 | 2007 | 2007 | 2006 | 2005 | 2004 |
(a) | Total revenue | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
(b) | Loss before extraordinary items | | | | | | | |
| | Total | ($3,280,379) | ($51,227,478) | ($16,408,094) | ($40,967,629) | ($4,979,571) | ($1,798,273) | ($811,190) |
| | Per Share(1) | ($0.04) | ($0.55) | ($0.18) | ($0.53) | ($0.09) | ($0.04) | ($0.02) |
(c) | Total assets | $40,985,357 | $27,428,456 | $17,439,671 | $22,390,538 | $10,432,778 | $2,026,893 | $2,715,567 |
(d) | Total long-term debt | $20,932,559 | $1,377,094 | $699,185 | $869,990 | $0 | $0 | $0 |
(e) | Total shareholder equity (deficiency) | ($5,460,733) | ($12,883,100) | $5,695,925 | $17,569,714 | $9,881,682 | $1,923,842 | $2,588,626 |
(f) | Cash dividends declared per share | n/a | n/a | n/a | n/a | n/a | n/a | n/a |
(g) | Capital stock (number of issued and outstanding common shares) | 95,958,641 | 95,958,641 | 89,876,951 | 89,367,031 | 70,246,303 | 51,264,537 | 48,829,542 |
(h) | Net loss for the period | | | | | | | |
| | Total | ($3,280,379) | ($51,227,478) | ($16,408,094) | ($40,967,629) | ($4,979,571) | ($1,805,860) | (766,184) |
| | Per Share(1) | ($0.04) | ($0.55) | ($0.18) | ($0.53) | ($0.09) | ($0.04) | ($0.02) |
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(1) The effect of potential share issuances pursuant to the exercise of options and warrants would be anti-dilutive and, therefore, basic and diluted losses are the same. |
We have not declared or paid any dividends in any of our last five financial years.
On November 6, 2009, the exchange rate, based on the noon buying rate published by The Bank of Canada, for the conversion of Canadian dollars into United States dollars (the "Noon Rate of Exchange") was $1.0720 (US$1.00 = $1.0720 ).
The following table sets out the high and low exchange rates for each month during the last six months.
| | | | | | |
| 2009 |
| October | September | August | July | June | May |
High for period | 1.0845 | 1.1065 | 1.1079 | 1.1655 | 1.1625 | 1.1872 |
Low for period | 1.0292 | 1.0613 | 1.0686 | 1.0790 | 1.0827 | 1.0872 |
The following table sets out the average exchange rates for the five most recent financial years calculated by using the average of the Noon Rate of Exchange on the last day of each month during the period.
| | | | | | | |
| 12 Months Ended May 31 | 1 Month Ended May 31 | 12 Months Ended April 30 | 3 Months Ended April 30 | 12 Months Ended January 31 |
| 2009 | 2008 | 2008 | 2007 | 2007 | 2006 | 2005 |
Average for the period | 1.1585 | 0.9995 | 1.0225 | 1.1581 | 1.1358 | 1.2060 | 1.2906 |
3.B. Capitalization and Indebtedness
This Amendment No. 2 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide the information called for by this item.
3.C. Reasons For The Offer and Use of Proceeds
This Amendment No. 2 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide the information called for by this item.
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 13 |
3.D. Risk Factors
We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. Investors should carefully consider the risks described below before investing in our securities. The occurrence of any of the following events could harm us. If these events occur, the trading price of our common shares could decline, and investors may lose part or even all of their investment.
Risks related to our exploration, construction and mining operations could adversely affect our business.
We are engaged in the acquisition, exploration, exploration management and sale of mineral properties, with the primary aim of developing them to a stage where they can be exploited at a profit. Our property interests are in the exploration stage and are without a known body of commercial ore. Although an open pit mine is planned and construction of a gold plant for the processing of gold-bearing ores is currently underway at the Molejon gold property, located in the Cerro Petaquilla Concession, for the processing of gold-bearing ores, there is no guarantee we will realize any profits or positive cash flow from this property. Any profitability in the future from our business will be dependent upon locating mineral reserves, which itself is subject to numerous risk factors.
The business of exploring for minerals and mining involves a high degree of risk. Few properties that are explored are ultimately developed into producing mines. Should our mineral deposits reach the development stage, we will be subjected to an array of complex economic factors and accordingly there is no assurance that a positive feasibility study or any projected results contained in a feasibility study of a mineral deposit will be attained.
Our ability to meet timing and cost estimates for properties cannot be assured. Technical considerations, delays in obtaining governmental approvals, inability to obtain financing or other factors could cause delays in exploring properties and such delays could materially adversely affect our financial performance.
The business of mining is subject to a variety of risks such as cave-ins and other accidents, flooding, environmental hazards, the discharge of toxic chemicals and other hazards. Should our mineral properties reach the production stage, such occurrences may delay production, increase production costs or result in liability. We intend to obtain insurance in amounts that we consider to be adequate to protect ourselves against certain risks of mining and processing. However, we may become subject to liability for hazards against which we cannot insure ourselves or which we may elect not to insure against because of premium costs or other reasons. In particular, we are not insured for environmental liability nor earthquake damage.
In order to further the Molejon gold property located in Panama, it will be necessary to continue construction of electrical, transportation, and other infrastructure facilities, the costs of which could be substantial.
Our estimates of reserves, mineral deposits and potential future production costs may be inaccurate, which could impact our results of operations in the future.
Although the ore reserve and mineral deposit figures included herein, some of which, as noted, are not compliant with National Instrument (“NI”) 43-101, have been carefully prepared by us, or, in some instances have been prepared, reviewed or verified by independent mining experts, these amounts are estimates only and no assurance can be given that any particular level of recovery of minerals from ore reserves will in fact be realized or that an identified mineral deposit will ever qualify as a commercially mineable (or viable) ore body which can be legally and economically exploited. Further drilling and engineering analyses are required in order to have any of our resources classified as proven reserves. Estimates of reserves, mineral deposits and potential future production costs can also be affected by such factors as permitting regulations and requirements, weather, environmental facto rs, unforeseen technical difficulties, unusual or unexpected geological formations and work interruptions. In addition, the grade of ore ultimately mined may differ from that indicated by drilling results. Short-term factors relating to ore reserves, such as the need for orderly exploration of ore bodies or the processing of new or different grades, may also have an adverse effect on mining operations and on the results of operations. Historical and comparative results should not be relied upon as indicators of potential future performance. There can be no assurance that minerals recovered in small-scale laboratory tests will be duplicated in large-scale tests under on-site conditions. Material changes in ore reserves, grades, stripping ratios or recovery rates may affect the economic viability of projects. Ore reserves are reported as general indicators of mine life. Reserves should not be interpreted as assurances of mine life or of the profitability of current or future operations.
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 14 |
Our properties may be subject to undetected title defects.
It is possible there may be undetected title defects affecting our properties. Title insurance generally is not available, and our ability to ensure that we have obtained secure claim to individual mineral properties or mining concessions may be severely constrained. Furthermore, we have not conducted surveys of the claims in which we hold interests and, therefore, the precise area and location of such claims may be in doubt. Accordingly, our properties may be subject to prior unregistered liens, agreements, transfers or claims, and title may be affected by, among other things, undetected defects which could have a material adverse impact on our operations. In addition, we may be unable to operate our properties as permitted or to enforce our rights with respect to our properties.
Our directors may have conflicts of interest.
As at November 6, 2009, two of our directors, David Levy and Daniel Small, hold positions with Platinum Management (NY) LLC, an investment advising firm to Platinum Partners Value Arbitrage Fund LP, a New York based investment fund. Platinum Partners Value Arbitrage Fund LP holds securities in our company and a portion of our debt. However, none of our directors are directors or officers of Platinum Partners Value Arbitrage Fund LP nor are any of our directors insiders of any other reporting company. While currently none of our directors beneficially owns a 10% or greater interest in the voting power of any other mineral resource companies, they could in the future. To the extent that these other companies may participate in ventures in which we may participate, our directors may have a conflict of interest in negotiating and concluding terms respecting the extent of such p articipation, which could result in competitive harm to us. In the event that such a conflict of interest arises at a meeting of our directors, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. In appropriate cases we will establish a special committee of independent directors to review a matter in which several directors, or management, may have a conflict. In accordance with the laws of the Province of British Columbia, our directors are required to act honestly, in good faith and in our best interests. In determining whether or not we will participate in a particular program and the interest therein to be acquired by it, our directors primarily consider the potential benefits to us, the degree of risk to which we may be exposed and our financial position at that time. Other than as indicated, we have no other procedures or mechanisms to prevent conflicts of interest.
Exchange rate fluctuations may effectively increase our costs of exploration and production.
Exchange rate fluctuations may affect the costs that we incur in our operations. The appreciation of non-U.S. dollar currencies against the U.S. dollar can increase the cost of exploration and production in U.S. dollar terms, which could materially and adversely affect our profitability, results of operations and financial condition.
We are dependent upon additional funding in order to sustain our operations.
We have not generated cash flow from operations in the past and, although we are currently commissioning our surface gold processing plant at the Molejon gold property, cash flow to satisfy our operational requirements, debt repayments and cash commitments is not assured from the operations of the Molejon gold plant. In the past, we have relied on sales of equity securities or debt financing to meet most of our cash requirements, together with project management fees, property payments and sales or joint ventures of properties. There can be no assurance that funding from these sources will be sufficient in the future to satisfy our operational requirements and cash commitments.
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 15 |
We do not presently have sufficient financial resources to undertake all of our planned exploration programs. Advancement of our properties depends upon our ability to obtain financing through any or all of the joint venturing of projects, debt financing, equity financing or other means. There is no assurance that we will be successful in obtaining the required financing. Failure to obtain additional financing on a timely basis could cause us to forfeit our interest in our properties and reduce or terminate our operations on such properties.
Our company has a history of losses and there is substantial uncertainty regarding our ability to continue as a going concern.
In their report on the consolidated financial statements for the periods ended May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007 , and January 31, 2006, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
As at May 31, 2008, we had an accumulated deficit of $85,065,382 and for the one month ended May 31, 2008 and 12 months ended April 30, 2008, incurred a net loss from continuing operations of $4,513,145 and $1,031,155, respectively. Continuing operations are dependent on us achieving profitable operations and being able to raise capital, if and when necessary to meet our obligations and repay liabilities when they come due.
We are executing a business plan to allow us to continue as a going concern, which is to achieve profitability through cost containment and increased revenues. We have reduced our losses and intend to reduce them further, ultimately achieving profitability. There is significant uncertainty that we will be successful in executing this plan. Should we fail to achieve profitability, or if necessary, raise sufficient capital to sustain operations, we may be forced to suspend our operations, and possibly even liquidate our assets and wind-up and dissolve our company.
During May 2007 and January 2008, we completed private placements for gross proceeds of $2,824,305 and $9,421,500, respectively. In May 2008, we raised gross proceeds of $31,801,725 through debt financing.
We did not generate revenue from operations during the one month ended May 31, 2008, 12 months ended April 30, 2008, three months ended April 30, 2007 , twelve months ended January 31, 2007 , or twelve months ended January 31, 2006. Expenses for the one month ended May 31, 2008 were $4,709,927, for the twelve months ended April 30, 2008 were $14,889,731, for the three months ended April 30, 2007 were $4,890,565 , for the twelve months ended January 31, 2007 were $23,951,217 , and for the twelve months ended January 31, 2006 were $2,538,350.
Our consolidated financial statements are prepared on a going concern basis, which assumes that we will be able to realize our assets at the amounts recorded and discharge our liabilities in the normal course of business in the foreseeable future. Should this assumption not be appropriate, adjustments in the carrying amounts of the assets and liabilities to their realizable amounts and the classifications thereof will be required and these adjustments and reclassifications may be material.
The requirements of the Ley Petaquilla may have an adverse impact on our company.
Our operations in Panama are governed primarily by Law No. 9 of the Legislative Assembly of Panama (the “Ley Petaquilla”), a project-specific piece of legislation enacted in February 1997 to deal with the orderly development of the Cerro Petaquilla Concession.
The Ley Petaquilla granted a mineral exploration and exploitation concession to Minera Petaquilla, S.A. (“MPSA”), a Panamanian company formed in 1997 to hold the Cerro Petaquilla Concession covering approximately 136 square kilometers in north-central Panama. Although we no longer hold an interest in MPSA, we continue to hold the rights to the Molejon gold deposit and, as the Cerro Petaquilla Concession encompasses this deposit, the Ley Petaquilla governs our exploration activities.
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 16 |
The Ley Petaquilla contains fiscal and legal stability clauses necessary in order to obtain project financing and includes tax exemptions on income, dividends and imports. The Ley Petaquilla also provides for an increase in the annual available infrastructure tax credit, higher depreciation rates for depreciable assets, which cannot be used in the infrastructure tax credit pool, and a favorable depletion allowance.
In order to maintain the Cerro Petaquilla Concession in good standing, MPSA must pay to the Government of Panama an annual rental fee of US$1.00 per hectare during the first five years of the concession, US$2.50 per hectare in the sixth to the tenth years of the concession and US$3.50 per hectare thereafter. Initially, the annual rental was approximately US$13,600 payable by MPSA and was funded pro rata by its shareholders. The current annual rental is approximately US$34,000. The concession was granted for a 20-year term with up to two 20-year extensions permitted subject to the requirement to begin mine development and to make a minimum investment, as described below.
Under the Ley Petaquilla, MPSA was required to begin mine development by May 2001. However, MPSA was able to defer commencing development operations for one month for every month that the price of copper remained below US$1.155 per pound for up to a further five years (i.e., until May 2006 at the latest). The Ley Petaquilla also requires MPSA to (i) make a minimum investment of US$400 million in the development of the Cerro Petaquilla Concession; (ii) deliver an environmental report to the General Direction of Mineral Resources of the Ministry of Commerce and Industiries (“MICI”) for evaluation; (iii) submit, prior to extraction, an environmental feasibility study specific to the project area in which the respective extradition will take place; (iv) submit annually a work plan comprising the projections and approximate costs for the respective year to the MICI; (v) post letters of credit in support of required complia nce and environmental protection guarantees; (vi) annually pay surface canons; (vii) annually pay royalties for extracted minerals; (viii) annually present to the MICI detailed reports covering operations and employment and training; (ix) create and participate in the administration of a scholarship fund to finance studies and training courses or professional training for the inhabitants of the communities neighboring the Cerro Petaquilla Concession in the provinces of Cocle and Colon; and (x) maintain all mining and infrastructure works and services of the project, always complying with the standards and regulations of general application in force that pertain to occupational safety, health and construction.
For reference, a copy of Law No. 9 as passed by the Legislative Assembly of Panama on February 26, 1997, is attached to this Amendment No. 2 as Exhibit 4.V. and an English translation of the law has also been provided as Exhibit 4.W.
We have a history of net losses, an accumulated deficit and a lack of revenue from operations.
We have incurred net losses to date. Our deficit as of May 31, 2008, was $85,065,382. We have not yet had any revenue from the exploration activities on our properties. The Molejon gold property is our most advanced property. Even if we generate future revenue from any of our properties, including the Molejon gold property, we may continue to incur losses beyond the period of commencement of such activity. There is no certainty that we will produce revenue, operate profitably or provide a return on investment in the future and recent significant increases in metal commodity prices may not be sustainable. They may not be reliable as indicators of future consistent realizable values, should any of our mineral deposits reach commercial production.
We have limited experience with development-stage mining operations.
We have limited experience in placing resource properties into production and our ability to do so will be dependent upon using the services of appropriately experienced personnel or entering into agreements with other major resource companies that can provide such expertise. There can be no assurance that we will have available to us the necessary expertise when and if we place our resource properties into production. There also exists significant risk in being able to recruit experienced employees or contractors to allow us to move forward in pursuing development-stage mining operations.
Our common shares are subject to penny stock rules, which could affect trading in our shares.
Our common shares are classified as “penny stock” as defined in Rule 15g-9 promulgated under the Exchange Act. In response to perceived abuse in the penny stock market generally, the Exchange Act was amended in 1990 to add new requirements in connection with penny stocks. In connection with effecting any transaction in a penny stock, a broker or dealer must give the customer a written risk disclosure document that (a) describes the nature and level of risk in the market for penny stocks in both public offerings and secondary trading, (b) describes the broker's or dealer's duties to the customer and the rights and remedies available to such customer with respect to violations of such duties, (c) describes the dealer market, including “bid” and “ask” prices for penny stock and the significance of the spread between the bid and ask prices, (d) contains a toll-free telephone number for inquiries on disciplinary histories of brokers and dealers, and (e) defines significant terms used in the disclosure document or the conduct of trading in penny stocks. In addition, the broker-dealer must provide to a penny stock customer a written monthly account statement that discloses the identity and number of shares of each penny stock held in the customer’s account, and the estimated market value of such shares. The extensive disclosure and other broker-dealer compliance related to penny stocks may result in reducing the level of trading activity in the secondary market for our common shares, thus limiting the ability of our shareholder to sell their shares.
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 17 |
We face strong competition for the acquisition of mining properties.
Significant and increasing competition exists for the limited number of mineral property acquisition opportunities available. As a result of this competition, some of which is with large established mining companies with substantial capabilities and greater financial and technical resources than we have, we may be unable to acquire additional attractive mineral properties on terms we consider acceptable. Accordingly, there can be no assurance that our exploration and acquisition programs will yield any new reserves or result in any commercial mining operation.
Mineral prices can fluctuate dramatically and have a material adverse effect on our results of operations.
The mining industry in general is intensely competitive and there is no assurance that, even if commercial quantities of minerals are discovered, a profitable market will exist for the sale of same. Factors beyond our control may affect the marketability of any substances discovered. The prices of minerals such as gold have experienced volatile and significant price movements over short periods of time and are affected by numerous factors beyond our control, including international economic and political trends, expectations of inflation, currency exchange fluctuations (specifically, the U.S. dollar relative to other currencies), interest rates and global or regional consumption patterns (such as the development of gold coin programs), speculative activities and increased production due to improved mining and production methods. The supply of and demand for minerals such as gold is affected by various factors, including political events, economic conditions and production costs in major producing regions and governmental policies with respect to holdings by a nation or its citizens. There can be no assurance that the price of recovered minerals will be such that our properties can be mined at a profit.
We face risks related to our operations in foreign countries.
Currently our only properties are located in Panama. Consequently, we are subject to certain risks associated with foreign ownership, including currency fluctuations, inflation, political instability and political risk. Mineral exploration and mining activities in foreign countries may be affected in varying degrees by political stability and government regulations relating to the mining industry. Any changes in regulations or shifts in political conditions are beyond our control and may adversely affect our business. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, restriction of earnings distribution, taxation laws, expropriation of property, environmental legislation, water use and mine safety. In particular, the status of Panama as a developing country may make it more difficult for us to obtain any required production financing for our properties from senior lending institutions.
Our operations are subject to environmental and other regulation.
Our current or planned operations, including development activities and commencement of production on our properties, require permits from various governmental authorities and such operations are and will be subject to laws and regulations governing prospecting, development, mining, production, exports, taxes, labour standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety, community services and other matters. Companies engaged in the development and operation of mines and related facilities generally experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits. There can be no assurance that approvals and permits required to commence production on our various properties will be obtained. Additional permits and studies, which may include environmen tal impact studies conducted before permits can be obtained, may be necessary prior to operation of the properties in which we have interests and there can be no assurance that we will be able to obtain or maintain all necessary permits that may be required to commence construction, development or operation of mining facilities at these properties on terms which enable operations to be conducted at economically justifiable costs.
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 18 |
Our potential mining and processing operations and exploration activities in Panama are subject to various federal and provincial laws governing land use, the protection of the environment, prospecting, development, production, exports, taxes, labour standards, occupational health, waste disposal, toxic substances, mine safety, community services and other matters. Such operations and exploration activities are also subject to substantial regulation under these laws by governmental agencies and may require that we obtain permits from various governmental agencies. We believe we are in substantial compliance with all material laws and regulations that currently apply to our activities. There can be no assurance, however, that all permits we may require for construction of mining facilities and conduct of mining operations will be obtainable on reasonable terms or that s uch laws and regulations would not have a material adverse effect on any mining project we might undertake.
Failure to comply with applicable laws, regulations, and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.
Amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation thereof, could have a material adverse impact on us and cause increases in capital expenditures or production costs or reduction in levels of production at producing properties or abandonment or delays in development of new mining properties.
To the best of our knowledge, we are currently operating in compliance with all applicable environmental regulations.
We face political risks in Panama.
Mineral exploration and mining activities in Panama may be affected in varying degrees by political conditions and government regulations relating to the mining industry. Any changes in regulations or shifts in political conditions are beyond our control and may adversely affect our business. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, income taxes, expropriation of property, environmental legislation and mine safety.
We have not paid dividends in the past and do not expect to pay dividends in the foreseeable future.
All of our available funds will be invested to finance the growth of our business and, therefore, investors cannot expect and should not anticipate receiving a dividend on our common shares in the foreseeable future.
U.S. investors may not be able to enforce their civil liabilities against us or our directors, controlling persons and officers.
Our company and our officers and directors are residents of countries other than the United States, and all of our assets are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or enforce in the United States against such persons judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of United States federal securities laws or state securities laws.
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 19 |
We believe that a judgment of a United States court predicated solely upon civil liability under United States securities laws would probably be enforceable in Canada if the United States court in which the judgment was obtained has a basis for jurisdiction in the matter that was recognized by a Canadian court for such purposes. However, there is doubt whether an action could be brought in Canada in the first instance on the basis of liability predicated solely upon such laws.
If We are Characterized as a Passive Foreign Investment Company (“PFIC”), Our U.S. Shareholders May Be Subject to Adverse U.S. Federal Income Tax Consequences.
We have not made a determination as to whether we are considered a PFIC as such term is defined in the U.S. Internal Revenue Code of 1986, as amended (the “Code”), for U.S. federal income tax purposes for the current tax year and any prior tax years. A non-U.S. corporation generally will be considered a PFIC for any tax year if either (1) at least 75% of its gross income is passive income or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income.
In general, if we are or become a PFIC, any gain recognized on the sale of our common stock and any “excess distributions” (as specifically defined in the Code) paid on the common stock must be ratably allocated to each day in a U.S. taxpayer’s holding period for the common stock. The amount of any such gain or excess distribution allocated to prior years of such U.S. taxpayer’s holding period for the common stock generally will be subject to U.S. federal income tax at the highest tax applicable to ordinary income in each such prior year, and the U.S. taxpayer will be required to pay interest on the resulting tax liability for each such prior year, calculated as if such tax liability had been due in each such prior year. For more information, see “Material United States Federal Income Tax Consequences-Passive Foreign Investment Company.”
ITEM 4. INFORMATION ON THE COMPANY
4.A. History and Development of the Company
Our company, Petaquilla Minerals Ltd., is a British Columbia company engaged in the acquisition, exploration and exploration management of mineral properties with the goal of bringing properties to production. Our company was incorporated under the laws of the Province of British Columbia, Canada, on October 10, 1985, by registration of our Memorandum and Articles of Association (the “Articles”) with the British Columbia Registrar of Companies under the name Adrian Resources Ltd. We changed our name to Petaquilla Minerals Ltd. on October 12, 2004.
Our head office and principal office address is Suite 410, 475 West Georgia Street, Vancouver, British Columbia, V6B 4M9 Canada. Our telephone number is (604) 694-0021 and our facsimile number is (604) 694-0063.
We have eleven subsidiaries and one joint venture interest as detailed below:
(i)
We own all of the issued shares of Adrian Resources (BVI) Ltd., incorporated in the British Virgin Islands on December 17, 1999.
(ii)
Adrian Resources (BVI) Ltd. owns all of the issued shares of Petaquilla Minerals, S.A., incorporated in the Republic of Panama on April 28, 1992, and holding title to certain of our exploration concessions in the Republic of Panama. Although originally incorporated under the name Adrian Resources, S.A., the name of this subsidiary was changed to Petaquilla Minerals, S.A. on February 3, 2005.
(iii)
Petaquilla Minerals, S.A. owns all of the issued shares of Petaquilla Gold, S.A., a Panamanian corporation formed on August 11, 2005. Petaquilla Gold, S.A. holds the Molejon gold property interest and other potential gold deposits within the Cerro Petaquilla Concession lands.
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 20 |
(iv)
Petaquilla Minerals, S.A. owns all of the issued shares of Instituto Petaquilla, S.A., a Panamanian corporation formed on April 23, 2007, to conduct training and education programs for our personnel.
(v)
Petaquilla Minerals, S.A. owns all of the issued shares of Brigadas Verdes, S.A., a Panamanian corporation formed on March 27, 2007, to coordinate and manage reforestation activities.
(vi)
Compañìa Minera Belencillo, S.A., a Panamanian corporation, was created on September 21, 2005, in accordance with the agreement signed between Petaquilla Minerals, S.A. and Madison Enterprises (Latin American), S.A. Petaquilla Minerals, S.A. owns 68.88% of Compañìa Minera Belencillo, S.A., which in turn holds a 100% interest in Zone 2 of the Rio Belencillo Concession and 68.88% of Zone 1, subject to an option by Madison Enterprises (Latin American), S.A. to earn a 31.12% interest in Zone 1 of the Rio Belencillo Concession. On May 7, 2005, we entered into an option agreement with Gold Dragon Capital Management Ltd. (“Gold Dragon”) whereby Gold Dragon could earn a 100% interest in the concession lands by the expenditure of US $500,000 over two years on mutually agreed upon property expenditures.
(vii)
Petaquilla Gold, S.A. owns 50.2% of the shares of Petaquilla Infraestructura, S.A. (formerly named Petaquilla Power & Water, S.A.), a Panamanian corporation formed on September 21, 2006, to primarily (i) design, construct, operate, maintain and install equipment and networks for the generation, transmission and commercialization of electrical energy; and (ii) to develop projects for the production, distribution and commercialization of potable water.
(viii)
Petaquilla Gold, S.A. also owns all of the issued shares of Aqua Azure, S.A., a Panamanian corporation formed on October 10, 2006, to purchase, sell, lease, manage, commercialize and hold investment in all sorts of moveable goods.
(ix)
We own all of the issued shares of Petaquilla Infrastructure Ltd., incorporated in British Columbia, Canada, on May 29, 2009.
(x)
Petaquilla Infrastructure Ltd. owns all of the issued shares of Petaquilla Infraestructura Ltd. incorporated in the British Virgin Islands on February 21, 2008.
(xi)
Petaquilla Infraestructura Ltd. owns all of the issued shares of Petaquilla Hidro, S.A., a Panamanian corporation formed on October 10, 2008.
(xii)
Petaquilla Infraestructura Ltd. owns all of the issued shares of Panama Central Electrica, S.A., a Panamanian corporation formed on February 16, 2009.
Molejon Property – Panama
Our interest in the Molejon deposit was acquired in 1992 and 1993 through two separate series of transactions and in 2005 by way of an agreement amongst the shareholders of MPSA. Specifically,in June 2005, the shareholders of MPSA agreed to separate the gold deposit and other precious metal mineral deposits that might be developed within the Cerro Petaquilla Concession from the copper mineral deposits within the Cerro Petaquilla Concession. The agreement provided for us, through our subsidiary, Petaquilla Gold, S.A., to own a 100% interest in the Molejon gold deposit, as well as all other gold and precious metal mineral deposits that might be developed within the Cerro Petaquilla Concession, subject to a graduated 1% - 5% Net Smelter Return, based on the future gold price at the time of production, payable to others.
In September 2005, the multi-phase Petaquilla Mine Development Plan (the “Plan”) submitted to the Government of Panama by MPSA was approved by Ministerial Resolution. The Molejon gold mineral deposit forms part of the Cerro Petaquilla Concession lands and the first phase of the Plan focuses on the advancement of the Molejon gold deposit by our company commencing in 2006. Subsequent phases of the plan will be the responsibility of MPSA, the joint venture company in which we no longer hold an interest.
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 21 |
As at May 31, 2008, we incurred the following costs related to the Molejon gold deposit (except as noted below for Rio Belencillo). These costs have been capitalized on our audited consolidated balance sheet as mineral property costs:
| | | | |
| Trenching – Molejon | | $ 4,308,854 | |
| Trenching – Rio Belencillo | | 48,872 | |
| Camp costs | | 6,158,386 | |
| Transportation | | 250,126 | |
| Drilling costs | | 11,046,825 | |
| Indirect drilling costs | | 1,106,528 | |
| Geologist | | 1,128,193 | |
| Topography | | 153,571 | |
| Engineering and design | | 517,156 | |
| Engineering and consulting | | 2,807,641 | |
| Technical support | | 120,272 | |
| Property permits | | 408,381 | |
| Water samples | | 3,857 | |
| Environment | | 488,040 | |
| Communications | | 192,370 | |
| Logistics | | 395,581 | |
| Plant equipment | | 3,927,704 | |
| Communications - plant | | 6,179 | |
| Plant – site | | 22,272,755 | |
| Roads | | 1,634,057 | |
| Roads agreements | | 105,939 | |
| Bridges | | 50,261 | |
| Deferred amortization on mining equipment | | 3,938,717 | |
| Reclamation costs | | 4,400,000 | |
| Stock-based compensation | | 723,668 | |
| Accreted interest | | 955,682 | |
| | | $67,149,615 | |
Mineral Properties - Other
We hold various interests in other land concession areas adjacent to the Cerro Petaquilla Concession lands in Panama, including the Rio Belencillo and Rio Petaquilla Concessions.
By an agreement dated May 7, 2005, and amended on June 10, 2005, Gold Dragon Capital Management Ltd. (“Gold Dragon”), had an option to purchase all of our interest in the Rio Belencillo and Rio Petaquilla Concessions by the expenditure of $100,000 in approved exploration costs by May 7, 2007, an additional $400,000 in approved exploration costs by February 7, 2008, and by then paying us $1,152,400. This sum is payable in shares of Gold Dragon.
The payment of $100,000 on account of exploration expenditures has not been made in accordance with the terms and conditions of the May 7, 2005 agreement and we are in the process of amending the agreement with Gold Dragon.
Directors and Officers of Our Company
Effective May 1, 2007, our Board of Directors (the “Board”) consisted of Ralph Ansley, John Cook, Richard Fifer, and Marco Tejeira. Our officers were Richard Fifer as President and Chief Executive Officer, Tony M. Ricci as interim Chief Financial Officer, and Graham Scott as Corporate Secretary. On June 11, 2007, Robert Baxter was appointed to the Board of Directors and on September 10, 2007, Pablo Mauricio Buenano joined our company as VP Finance.
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 22 |
At our Annual General Meeting of Shareholders held on November 6, 2007, the following Board members stood for election and were duly re-elected: Ralph Ansley, Robert Baxter, John Cook, Richard Fifer, and Marco Tejeira. Tony M. Ricci, who had been serving as our interim Chief Financial Officer while we conducted our search for a full-time Chief Financial Officer, stepped down when Bassam Moubarak was appointed as Chief Financial Officer on February 11, 2008. On July 7, 2008, Dr. Ralph Ansley resigned from our Board citing medical reasons.
At our Annual General Meeting of Shareholders held on November 18, 2008, the following Board members stood for election and were duly re-elected: Robert Baxter, John Cook, and Richard Fifer. Gaston Araya and John Resing were proposed for election for the first time and were duly elected to the Board. Bassam Moubarak and Graham Scott continued in their roles as Chief Financial Officer and Corporate Secretary, respectively, and on December 1, 2008, Joao Manuel joined the Company in the capacity of Chief Operating Officer.
Principal Capital Expenditures/Divestitures Over Last Three Fiscal Years
At May 31, 2008, we incurred $67,100,743 in Molejon property expenses and $48,872 in Rio Belencillo property expenses for a total of $67,149,615 that has been capitalized as mineral property costs. On February 10, 2005, we sold 500,000 of our own shares on the Toronto Stock Exchange (“TSX”) at a price of $0.65 per share. These shares were previously issued and reacquired by us some years ago pursuant to an issuer bid. Accordingly, there was no change to the number of shares issued and outstanding as a result of this sale. The proceeds of the sale were directed towards general working capital purposes.
Current and Planned Capital Expenditures/Divestitures
We have either ongoing or anticipated capital expenditures during the fiscal year ending May 31, 2010. With respect to the planned exploration and advancement of the Molejon property, we anticipate having capital expenditures of approximately $5,000,000 to $10,000,000 during the fiscal year ending May 31, 2010. However, such expenditures are subject to further consideration and to our ability to obtain external financing. There is no assurance that we will be successful in obtaining such financing.
Public Takeover Offers
During the one-month period ended May 31, 2008, the 12-month period ended April 30, 2008, the three-month period ended April 30, 2007, the 12-month period ended January 31, 2007, and the 12-month period ended January 31, 2006, we did not receive any public takeover offers from third parties nor did we make any such takeover offers.
4.B. Business Overview
Molejon Property – Panama
We currently have no significant properties in Canada and we are not actively exploring, or seeking to acquire interests in, mineral properties in Canada. Our primary focus has been the exploration of the Molejon gold deposit and other mineral properties in the Republic of Panama.
The Republic of Panama, through the Ministry of Commerce and Industry, is the regulatory body overseeing the Cerro Petaquilla Concession and potential future development thereof. Law No. 9, the Ley Petaquilla, passed by the Legislative Assembly of Panama on February 26, 1997, is a project-specific piece of legislation dealing with the orderly development of the Cerro Petaquilla Concession, including the Molejon gold deposit. The Ley Petaquilla could be amended by the government of Panama through the enaction of a subsequent law but no such law has been enacted since the Ley Petaquilla legislation passed in February 1997. At that time, the Ley Petaquilla granted a mineral exploration and exploitation concession to MPSA, a Panamanian company formed in 1997 to hold the 136 square kilometer Cerro Petaquilla Concession. Our Molejon property comprises approximately 10% of the Cerro Petaquilla l ands.
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 23 |
The Ley Petaquilla contains fiscal and legal stability clauses necessary in order to obtain project financing and includes tax exemptions on income, dividends and imports. The Ley Petaquilla also provides for an increase in the annual available infrastructure tax credit, higher depreciation rates for depreciable assets, which cannot be used in the infrastructure tax credit pool, and a favourable depletion allowance.
There were no competing bidders for the concession at the time the Ley Petaquilla was enacted and the concession was granted for an initial 20-year term with two 20-year extensions permissible subject to the requirements to begin mine development and to make a minimum required investment. In 2005, we and our former partners in MPSA delivered the Plan to the Government of Panama and the Plan was approved by Ministerial Resolution in September 2005. Development of the Molejon gold mineral deposit by our company commencing in 2006 forms the first phase of the Plan. Subsequent phases of the Plan will be the responsibility of MPSA.
This government’s approval of the Plan resulted in the extension of the land tenure for an initial 20-year period commencing September 2005, subject to MPSA meeting certain other ongoing development and operational conditions. In addition, pursuant to the Ley Petaquilla, in order to maintain the Cerro Petaquilla Concession in good standing, we and MPSA must continue to meet certain obligations.
The Ley Petaquilla comprises the agreement between the Republic of Panama and the corporation of Minera Petaquilla, S.A. and its affiliates and expresses each party’s rights and obligations. The majority of our obligations require that the Republic of Panama be provided with a variety of reports, studies and work plans, payment of surface canons, access and use of port installations, evidence of bonding, etc. An example of an obligation that requires government approvals concerns the environment and states that an Environmental Feasibility Study specific to the project area in which the respective extradition will take place must be submitted to the General Direction of Mineral Resources of the Ministry of Commerce and Industries. Said study shall be evaluated and its approval, modification or rejection shall be defined within a term of 45 days counted as of the date of its presentation to the General Direction of Mineral Resources. After the end of this term, if there is no statement from the General Direction of Mining Resources, the Environmental Feasibility Study shall be considered approved. For complete disclosure of Panama’s requirements, please refer to Exhibit 4.V., Law No. 9 as passed by the Legislative Assembly of Panama on February 26, 1997, attached to this Amendment No. 2. An English translation of the law has also been provided as Exhibit 4.W. to this Amendment No. 2.
4.C. Organizational Structure
The following chart sets out our corporate structure and the mineral properties owned by each of our subsidiaries:
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 24 |
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Form 20-F/A_Amendment No.2_Transition Period Ended 2008 May 31 | Page 25 |
4.D. Property, Plants and Equipment
All our properties are in the exploration stage and are without a known body of commercial ore. Although an open pit mine is planned and a gold processing plant is currently being commissioned at the Molejon gold property, we currently have no mineral producing properties and have not generated any revenue from any mineral producing properties in the one month ended May 31, 2008, the 12 months ended April 30, 2008, the three months ended April 30, 2007, the 12 months ended January 31, 2007, and the 12 months ended January 31, 2006 .
Cerro Petaquilla Concession, Panama
Introduction
The Cerro Petaquilla Concession is largely held by MPSA although, pursuant to the 2005 Molejon Gold Project Agreement, we hold the rights to the Molejon gold deposit found within the concession lands as well as to other gold and precious metal mineral deposits that might be developed within Cerro Petaquilla Concession. This concession contains a large copper-gold porphyry system and our epithermal gold deposit, Molejon, is amenable to open pit mining. To date, exploration has identified eight copper-gold porphyry deposits along with the Molejon gold deposit.
![](https://capedge.com/proxy/CORRESP/0001176256-09-001023/picsx1x1.jpg)
Our activities are focused on the Molejon gold deposit and the first phase of the Plan submitted by MPSA and approved by the Government of Panama in 2005. We have begun construction and development of the area for the purposes of extracting ore from the Molejon gold deposit. In addition, we intend to perform further exploration on other identified gold targets within the Cerro Petaquilla Concession, and those within our wholly owned properties surrounding the Cerro Petaquilla Concession.
Property Location
![[petamin20fa2part3001.jpg]](https://capedge.com/proxy/CORRESP/0001176256-09-001023/picsx1x2.jpg)
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 26 |
Location, Access & Physiography
Although we are currently focusing on the Molejon gold project located on the Cerro Petaquilla Concession, we also hold the rights to 659 square kilometres of virtually unexplored land surrounding the known deposits of the Cerro Petaquilla Concession including various interests in the Rio Belencillo and the Rio Petaquilla Concessions adjacent thereto.
A map of the various concession lands located in north-central Panama with the 136-square kilometre Cerro Petaquilla Concession highlighted in the colour blue is shown below:
![[petamin20fa2part3003.gif]](https://capedge.com/proxy/CORRESP/0001176256-09-001023/picsx2x1.jpg)
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 27 |
Close-up of the 136-square kilometre Cerro Petaquilla Concession with the Molejon deposit area cross-hatched in red:
![[petamin20fa2part3005.gif]](https://capedge.com/proxy/CORRESP/0001176256-09-001023/picsx3x1.jpg)
The concession lands are located approximately 75 miles west of Panama City, six miles from the Caribbean coast and lie within the Donoso District of the Province of Colon in the Republic of Panama. The Cerro Petaquilla Concession, specifically, is located 20 kilometres inland from the Caribbean coast and elevation within the concession boundaries ranges between 70 metres and 350 metres above sea level. The Cerro Petaquilla Concession falls within the rainfall shadow of the Continental Divide and the terrain is generally rugged and covered with heavy rainforest vegetation. The climate of the Cerro Petaquilla Concession is characteristic of tropical rainforests. Precipitation is high throughout the year with annual rainfall averaging at least 4,700 mm in the concession area. The heaviest precipitation is evenly distributed from May to December and the months of January to April are typically the driest months.
Access to the Molejon gold property within the Cerro Petaquilla Concession is by road or helicopter. We have completed construction of the 28-kilometre Llano Grande–Coclesito dirt road from Coclesito, a village of approximately 700 inhabitants, to the mine site. As part of the Llano Grande-Coclesito Road Improvement Project, the Cascajal Bridge has been completed and was inaugurated January 16, 2007, by the Minister of Public Works of Panama. One more bridge spanning the San Juan River is also now complete. This road replaces a network of trails, which was the previous access, and the new road portion will ultimately be upgraded to rural paved status as part of ongoing development work. While the road has initially been designed to provide access to the mine site, it will ultimately comprise part of a future expansion of the national road network connecting communities with the region. Thirty kilometres of gravel road connects Coclesito with La Pintada, a town of 5,000 people on the country's paved highway network, and the Pan-American Highway to the south. This road will also be upgraded to rural paved status as part of ongoing development work.
Plants and Equipment
Currently, a gold-processing surface plant that will initially utilize three ball mills and a carbon-in-pulp processing facility is under construction and near completion. Ball mills are operational, and construction of leach tanks, carbon-in pulp tanks, and pulp and tailings thickeners is complete. The ADR plant building and the CN detoxification system are 100% complete. The carbon, acid wash and elution columns are mounted, the regeneration kiln structure and frames are mounted, and six generator sets are in place and functioning. The emergency pond is complete. Tailings pond no. 2 is being completed in three stages, of which two have been finalized.
The final construction item – completion of the plant’s crushing system – is expected to be finished in fiscal 2010. Commissioning of the Molejon gold plant is currently underway.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 28 |
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Title
Cerro Petaquilla Concession – Panama
Prior to October 18, 2006, we owned, through our indirect share ownership in MPSA, a 52% interest in the Cerro Petaquilla Concession. Specifically, our company’s 52% ownership of MPSA was held through our wholly owned subsidiary of Georecursos Internacional, S.A. (“Georecursos”). On October 18, 2006, we entered into a Plan of Arrangement with Petaquilla Copper Ltd. (“Copper”), whereby we effectively transferred ownership of Georecursos to Copper, and, thereby, our interest in the copper assets within the Cerro Petaquilla Concession lands to Copper.
We retain the rights to the Molejon gold deposit as well as to other gold and precious metal mineral deposits that may be developed within the Cerro Petaquilla Concession and continue to operate under the Ley Petaquilla as does the joint venture company, MPSA.
Molejon Property – Panama
With the above noted and as per the Molejon Gold Project Agreement dated June 2, 2005, the shareholders of MPSA agreed to separate the gold deposit and other precious metal mineral deposits that might be developed from the copper mineral deposits within the Cerro Petaquilla Concession. The agreement provides for our company, through our subsidiary, Petaquilla Gold, S.A., to own a 100% interest in the Molejon gold deposit, as well as all other gold and precious metal mineral deposits that might be developed within the Cerro Petaquilla Concession, subject to a graduated 1% - 5% Net Smelter Return, based on the future gold price at the time of production, payable to shareholders of MPSA.
Pursuant to the contract law under which the Cerro Petaquilla Concession was granted by the Government of the Republic of Panama, our company with our then partners delivered the phased Plan to the Government of Panama. In September 2005, the multi-phase Plan submitted to the Government of Panama by MPSA was approved by Ministerial Resolution. This approval resulted in the extension of the land tenure for an initial 20 year period commencing September 2005, subject to MPSA meeting certain other development and operational conditions on an ongoing basis. The land tenure provides for two additional 20-year terms that are also subject to MPSA meeting certain other ongoing development and operational conditions.
The Molejon gold mineral deposit, owned 100% by our company, forms part of the Cerro Petaquilla Concession lands and the first phase of Plan focuses on the development of the Molejon gold deposit by our company commencing in 2006. The development of the Cerro Petaquilla copper deposit is included in subsequent phases of the plan, and is the responsibility of MPSA.
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Mineral Properties – Other
We hold various interests in other land concession areas adjacent to the Cerro Petaquilla Concession in Panama, including the Rio Belencillo and Rio Petaquilla Concessions.
By an agreement dated May 7, 2005, and amended on June 10, 2005, Gold Dragon has an option to purchase all of our company’s interest in the Rio Belencillo and Rio Petaquilla Concessions by the expenditure of $100,000 in approved exploration costs by May 7, 2007, an additional $400,000 in approved exploration costs by February 7, 2008, and by then paying us $1,152,400. This sum is payable in common shares of Gold Dragon.
Exploration History
Although the Cerro Petaquilla Concession has been investigated since 1968 when the potential for copper porphyry mineral deposits within the area was first recognized, no former exploration program analyzed the drilling and surface sampling for gold. As such, the only existing gold data is that accumulated by our company. Drilling to date has shown that the distribution and intensity of gold values within mineralized zones varies directly with areas of elevated copper and depleted molybdenum contents.
Exploration - Results Obtained by Us or on Our Behalf
In October 2005, we received an NI 43-101 compliant mineral resource estimate on the Molejon gold deposit from SRK Consulting (Canada) Inc. (“SRK”). SRK estimated inferred mineral resources at 0.5 g/t cut off were 11.2 million tonnes at 2.48 g/t Au. We used a cut off grade at 0.5g/t for all resources estimates since other mines in the Central America region have operated profitably at a gold price of $500 per ounce using a resource estimate at this cut off. Inferred mineral resources at 0.5, 0.6 and 0.7 g/t Au cut-offs are included in the following table.
Table: Mineral Resource Estimate at. 0.5, 0.6 and 0.7 g/t Au Cut-Offs
| | | |
| Inferred Resources |
Au g/t Cut -Off | Million Tonnes * | Au g/t | Contained Ounces Au * |
0.5 | 11.2 | 2.48 | 893,000 |
0.6 | 10.8 | 2.56 | 889,000 |
0.7 | 10.1 | 2.68 | 870,000 |
(* Note: Tonnes and ounces have been rounded to reflect relative accuracy of the resource estimate.)
SRK found the drilling, sampling methods and approach, sample preparation, analysis, security (chain of custody), and quality assurance/quality control procedures (“QA/QC”) used during the exploration and delineation of the Molejon gold mineralization to be acceptable for resource estimation.
Based on the results of the resource estimate, SRK recommended that we proceed with the planned infill drill program, use the infill drill data along with twinned holes to revalidate the previous drilling and surface trench results, and complete specific gravity and mineralogical testwork. Upon completion of this work, a re-estimation of resources would be warranted in preparation for subsequent engineering studies. Additional metallurgical and geotechnical work was also recommended in preparation for future engineering work.
The October 2005 SRK report represents an increase of 35% over a pre-NI 43-101 resource estimate of 7.8 million tones grading 2.63 grams for total contained gold of 661,000 ounces using a bottom cut-off grade of 0.500 g/t Au.
In January 2006, during a follow-up trenching program on the Molejon gold deposit, a 200-metre strike length of high-grade gold mineralization in the Central Zone was delineated. Overall, the trenching program resulted in a significant reinterpretation of the Molejon mineralization - three or more mineralization trends in quartz breccia and silicified andesite breccia extend across the deposit.
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At the same time, we commenced, and during the course of 2006 completed, a 14,005-metre diamond-drilling program at the Molejon gold deposit. The drilling program was threefold. First, the majority of drilling, or 11,398 metres, consisted of infill drilling in the southern part (the starter pit area) of the deposit to bring the separation between existing drill holes down to 20 to 35 metres. The Molejon gold deposit was previously diamond drilled in a 124-hole program conducted by Teck Corporation, Inmet Mining Corporation and us (formerly Adrian Resources Ltd.) in 1994-95 on 50-metre grid lines with 40 to 70 metres between holes. Second, additional resource drilling totaling 1,627 metres was performed on areas where trenching had identified new targets. Third, the remaining approximately 980 metres focused on condemnation drilling and established the locat ion for the 2,200 tonne per day plant currently being constructed. Geotechnical drilling was also performed in order to characterize construction conditions.
One of our objectives when we commenced the 2006 drill program was to confirm the location of the starter pit and to upgrade SRK’s October 2005 inferred mineral resource estimate to an indicated and measured category. In April 2007, we received an NI 43-101 compliant gold resource estimate completed by AAT Mining Services (AquAeTer, Inc. dba AAT Mining Services) that significantly upgraded the prior resource estimate of 893,000 ounces of inferred gold ounces. The new resource calculation outlined 405,141 ounces of measured resources, 109,192 ounces of indicated resources and 361,011 ounces of inferred resources at the Molejon Gold deposit. AAT Mining Services also estimated that 179,934 ounces of the measured and indicated ounces contained in the low-grade material have potential for blending with the high-grade to achieve an optimum mill feed without loss of resources. Moreover, drilling confirmed the high-grade are a of 1.667 mm tonnes grading 5.0 g/tonne at a cutoff grade of 2.5 g/tonne.
| | | | |
Category | Tonnage | Cut-off (g/tonnes) | Average Grade | Ounces |
Measured | 6.846 Mio | 0.5 | 1.84 | 405,141 |
Indicated | 3.121 Mio | 0.5 | 1.09 | 109,192 |
Inferred | 10.473 Mio | 0.5 | 1.07 | 361,011 |
The 361,011 ounces of gold presently defined as inferred resources are currently being evaluated by infill drilling to 25 metre centres with an aim to convert this resource to measured and indicated resources for the Molejon Gold Plant Expansion Feasibility Study. Most of these mineralized drill holes are 50 to 75 metres away from Measured and Indicated mineralized resources. The on-site Qualified Person, Sean C. Muller, P. Geo., observed and verified that the 2006 drilling and laboratory procedures on the Molejon gold project met or exceeded NI 43-101 standards. Strict quality assurance and quality control protocols were defined and implemented under his supervision including the submission of blanks, standards and duplicate core samples to the laboratory.
More than 120 new test holes were used to update SRK’s October 2005 resource estimate.
The second objective was to test for additional mineralization. The additional resource drilling discovered another deeper mineralization trend north of the known resource at Molejon. This new trend, known as the NW Deep, exhibits two cohesive blocks of mineralization, one near the surface and another at a depth of approximately 100 metres. The extension of the known mineralization trends to the NNE, and the WSW continues to be extended through step-out drilling.
The third objective was to confirm the location of the gold processing plant. Thus, condemnation drilling was conducted to ensure that ore zones do not underlie the proposed plant, related infrastructure, and tailings impoundment sites.
In addition, the results obtained from both the 1994-95 and 2006 diamond-drilling programs will be used to assist in the completion of pit modeling and a feasibility study.
In early 2007, we continued drilling by commencing a minimum 40,000 metre exploration and development diamond-drill program focusing on the 20 square kilometer area known as the El Real Trend, which includes our 100% owned Molejon deposit and Copper’s Botija Abajo/Brazo project zones, and which is open in three directions. In August and September 2007, we released results and details concerning this drill program along the El Real copper gold trend. At the time, we and Copper had jointly been active in five different zones in the Cerro Petaquilla Concession with six drill rigs working on the El Real mineralized gold and copper trend between Molejon and Botija Abajo/Brazo. Results from several drill holes indicated the zone may be much larger in size than previously estimated, that the area had a new silver zone and confirmed the mineralized trend between the Bo tija Abajo, Botija Abajo West, Brazo and Molejon open pit. The overall goal of this large scale, wide spaced drill program was to identify and delineate the many targets on the El Real Trend and tie the Botija Abajo/Brazo zone to the Molejon open pit gold deposit.
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Two drill rigs were also working on a new extension of the Molejon deposit in the North Central zone outside of the current pit outline. Drill hole 332, included in the first results from this program and located within the south-western part of the current pit design, intercepted high grade mineralization near surface: 9 metres @ 17.24g/t Au. In addition, deep mineralization found in several holes confirmed our structural model and indicated a significant extension of known mineralized breccias outside of the current designed pit limits. The results offered encouraging support for our stated goal of increasing resources. The new hole locations were designed to test mineralization trends suggested by recent resource modeling. Results from several holes located within the south-western part of the current pit indicated a significant volume of near surface, higher grade material in an area drilled p reviously on a wide spacing and previously interpreted as a lower grade zone. The results supported upgrading previously low grade material, with new higher grade intervals.
In October 2007, we announced the results of an updated NI 43-101 compliant gold resource estimate based on results obtained through September 2007. AAT Mining Services has estimated a total measured resource of 532,801 ounces and an indicated resource of 223,785 ounces at the Molejon Gold deposit (see table below). Additionally, an inferred resource of 342,111 ounces at an average grade of 0.872 g/t above a cutoff of 0.5 g/t was estimated. The 123,000 indicated resource ounces of gold delineated at the nearby Botija Abajo deposit through June 2007 increases the total gold resources at the global Molejon Project by 40% since the last resource estimate announced in April 2007.
| | | | |
Grade cutoff | Tonnes | Au | Au | Au |
in g/t | | grams/tonne | grams | ounces |
.5 | 7,683,176 | 1.013 | 7,784,218 | 250,272 |
2.5 | 1,170,618 | 3.469 | 4,060,956 | 130,565 |
5.0 | 591,315 | 7.993 | 4,726,538 | 151,964 |
Total | 9,445,109 | 1.75 | 16,571,712 | 532,801 |
| | | | |
Grade cutoff | Tonnes | Au | Au | Au |
in g/t | | grams/tonne | grams | ounces |
.5 | 5,873,534 | 0.924 | 5,426,666 | 174,474 |
2.5 | 345,516 | 3.236 | 1,117,982 | 35,944 |
5.0 | 62,508 | 6.651 | 415,769 | 13,367 |
Total | 6,281,558 | 1.11 | 6,960,417 | 223,785 |
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Grade Cutoff g/Tonne | Inferred Tonnes | Average Gold Grade g/Tonne | Inferred Gold Grams (contained) | Inferred Gold Troy Ounces (contained) |
0.5 | 12,190,533 | 0.869 | 10,589,925 | 340,479 |
2.5 | 18,471 | 2.747 | 50,747 | 1,632 |
Total | 12,209,004 | 0.872 | 10,640,672 | 342,111 |
Another 342,111 inferred ounces have been geostatistically shown in a new area northwest of the Molejon measured and indicated resources.
In2006, about 500,000 ounces of gold were in the inferred category of which over 50% have been converted to measured and indicated resources by infill drilling in 2007. Over 22,000 metres have been cored at Molejon in 2007 bringing the total drilling along the gold trend to about 40,000 metres since the beginning of the program in 2006. As at October 18, 2007, seven rigs were currently drilling in the area, three in Molejon and four elsewhere along the El Real trend.
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The recent modeling effort included a complete review of the drilling, geology, sampling methods and approach, sample preparation, analysis, security (chain of custody), and quality assurance/quality control procedures used during the exploration of the Molejon gold deposit. The on-site independent qualified person, Sean C. Muller, P. Geo., a Qualified Person under NI 43-101, oversaw the drilling program ensuring that the appropriate quality assurance protocols were being followed and that the data was being qualified under strict quality controls. He observed and verified that recent drilling, sample preparation and ALS Chemex laboratory procedures utilized for the Molejon project meet NI 43-101 standards. Strict quality assurance/quality control protocols have been defined and implemented under Mr. Muller’s supervision including the submission of blanks, standards an d duplicate core samples to the laboratory.
In March 2008, we announced drill hole results received for 132 holes added since the last resource model update of the Molejon gold deposit in October 2007.
The two objectives of the drill program were to provide infill information to complement data obtained from previous drilling and to advance towards delineating the mineral deposit. The program succeeded in meeting both its objectives. First, the results obtained from infill drilling would allow for the conversion of inferred and indicated resources to indicated and measured resources, respectively. Second, as the condemnation holes supported the model, the results obtained from delineation drilling have verified the geologic interpretation and have also provided for important increases in geologic understanding.
The holes that did not intercept mineralization were effectively around the perimeter of the known deposit. The holes that did intersect mineralization were drilled to define the suspected high grade and, while important for increasing the high grade envelope, also verified the model. Additionally, these results provided the basis to expand the previously modeled high grade ore shell to encompass a previously undrilled region.
The independent qualified person, Cathryn Stewart, P. Geo., verified that recent drilling, sample preparation and laboratory procedures utilized for the Molejon project met NI 43-101 standards. Strict quality assurance/quality control protocols have been defined and implemented for the submission of blanks, standards and duplicate core samples to the laboratory. Samples were analyzed at ALS Chemex Labs Ltd.
Outlook – 2010
Molejon
We are focusing on bringing our Molejon gold deposit to production and are currently in the process of commissioning the mill. In addition, with the establishment of base camp and logistics across our other concessions, we plan to expand our exploration efforts during the fiscal year ending May 31, 2010.
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Map of the project area:
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Regional and Local Geology
Panama is underlain by an island arc built upon late Cretaceous oceanic crust and is considered prospective for porphyry copper-gold-molybdenum deposits.
Andesitic tuffs and flows of presumed Early to Middle Tertiary age cover the majority of the Cerro Petaquilla Concession lying at the southern limit of a 400 square kilometre batholith, dated at 32.6+2 million years, which has intruded the older volcanic sequence. The core of the batholith is composed of quartz monzonite, grading outward to granodiorite and porphyritic granodiorite. The Petaquilla and Botija deposits are centered on porphyritic stocks and dykes lying peripheral to the southern margin of the batholith.
At the Botija deposit, the intrusive is a medium-grained, crowded porphyry composed of 25% plagioclase phenocrysts, 15% hornblende phenocrysts and 5-10% quartz grains in a feldspar rich matrix. At the Petaquilla deposit, the intrusive is more obviously porphyritic, with a generally lower percentage of phenocrysts. Contact phases and dykes at each deposit are finer-grained varieties of the main intrusive. In particular, feldspar, hornblende, quartz porphyry dykes appear to be late stage phases of the granodiorite. Most of these porphyry dykes post-date the mineralization, indicating that they were introduced during the waning stages of hydrothermal alteration and mineralization. The youngest units encountered on the property are the unmineralized basalt and andesite dykes.
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Copper-gold-molybdenum porphyry deposits have been identified and partially delineated at the Petaquilla and Botija deposits, which are centred four kilometres apart on an east-west trend within the Cerro Petaquilla Concession. Four types of well-developed alteration have been observed within the various intrusive units: potassic, phyllic, quartz-chloritic and propylitic. Potassic alteration is found near the core of the porphyry system and is not extensive. It is characterized by quartz, potassium feldspar, biotite, sericite, and lesser amounts of anhydrite and magnetite. The majority of copper mineralization is hosted in the phyllic altered rock, which is composed of quartz and sericite with minor kaolinite and K-spar. Propylitic alteration, marked by chlorite, pyrite, calcite and epidote, marks the outer extent of alteration in a porphyry system. & nbsp;The phyllic and quartz-chlonite alteration zones are usually found between the potassic core and the peripheral propylitic zone, although either may be missing. Alteration of the andesitic volcanic units, characterized by prograde biotite hornfels and fine grained sulphide mineralization occurs when they are found to be proximal to the intrusive contact or within zones of intrusive dyking.
The Petaquilla deposit is largely hosted by porphyritic granodiorite below its intrusive contact with andesite forming a flat-lying to gently dipping sheet, trending east-west and dipping to the north. It has been drilled for 1,600 metres along strike and remains open along strike to the south, east and west, and at depth.
The Valle Grande deposit is hosted dominantly by prophyritic granodiorite and similar to Petaquilla is a flat-lying sheet, trending northwest-southeast and dipping to the north. It has been drilled for 2,400 meters along strike and is considered to have limited expansion potential.
The Botija deposit trends east-west and dips 20-30 degrees to the north or northeast. It has been intersected by drilling along strike for 1,800 metres and up to 600 metres down dip. The Botija deposit remains open near surface to the south, along strike to the east and the west and in many places at depth both vertically and down dip to the north.
The general geology of the Molejon epithermal gold target is dominated by volcanic and subvolcanic intrusives including massive andesite flows, feldspar-porphyritic andesite flows, andesitic tuffs, and andesitic agglomerates. This volcanic package has been intruded by feldspar-quartz porphyry and feldspar porphyry units. A northeast trending fault is believed to be the major structural control for the emplacement of the hydrothermally altered quartz-carbonate breccia.
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Mineralization
![[petamin20fa2part3008.jpg]](https://capedge.com/proxy/CORRESP/0001176256-09-001023/petamin20fa2part3008.jpg)
Mineralization at the Petaquilla, Valle Grande and Botija deposits is largely concentrated within potassic or phyllic altered porphyritic intrusives of granodioritic composition. Volcanic-hosted copper mineralization, associated with strong biotite alteration, is widespread at the Petaquilla deposit and contributes significantly to its tonnage. Mineralization in each deposit consists of chalcopyrite and pyrite as disseminations, within quartz veinlets and filling brittle, irregular fractures. Pyrite content generally decreases with higher grade copper mineralization and increases towards the periphery of the deposits. Chalcopyrite occurs most commonly as very fine disseminations within an altered intrusive matrix or biotite hornfels. It is often associated with magnetite and/or chlorite or biotite altered mafic minerals, most notably in lower-grade sections of propylitic alteration. Stockwork quartz veinlets are best developed within potassic alteration, where they crosscut pervasive silicification. The irregular fracture-filling style of copper mineralization, which locally approaches a sulphide net, is largely confined to biotite-altered andesite at the Petaquilla deposit. This is cut in places by narrow quartz-chalcopyrite veins which have developed bleached selvages of biotite destruction. A fourth style of mineralization, consisting of chalcopyrite and pyrite coatings along steep, widely spaced, cooling joints, is confined to granodiorite along the eastern periphery of the Botija deposit.
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Molybdenite is present mainly in quartz, carbonate, chalcopyrite veinlets hosted by granodiorite within the most intensely altered and mineralized portion of each deposit. Bornite occurs locally with chalcopyrite and contributes significantly to the copper grade in some sections, mainly within hornfelsed andesites in the Petaquilla deposit. Although leaching is widespread throughout the upper 10 to 30 metres of the deposits, supergene copper mineralization is not present in significant amounts. Magnetite is an important accessory in both deposits, disseminated throughout both the porphyritic intrusives and the intruded andesite.
At the Molejon deposit, epithermal gold-silver mineralization occurs within structurally controlled zones of hydrothermal quartz-carbonate breccia and the fractured and altered rocks marginal to the quartz-carbonate breccia. Assay boundaries of gold-silver mineralization are not sharply constrained by geological contacts. Highest grade mineralization usually occurs in the quartz-carbonate breccia but economic mineralization also occurs in feldspar-quartz porphyry, and more rarely in feldspar-porphyritic andesite flows.
Molejon
Since our company’s Plan of Arrangement with Copper effective October 18, 2006, we have focused on our Molejon Gold Project. For a summary of the latest technical report announced in October 2007, please refer to “Item 4.D. Property, Plants and Equipment – Exploration - Results Obtained by Us or on Our Behalf”.
Doing Business in Panama
The following briefly summarizes our understanding of the economic and political climate in Panama based on research and information compiled by us from various sources we believe to be reliable:
Democracy was restored in Panama in December 1989 following the invasion of Panama by the U.S. military. In May 1994, Panama held its first democratic elections in almost 30 years, resulting in the election of Partido Revolucionario Democratico ("PRD") candidate, Dr. Ernesto Perez Balladares, as President of the Republic. The next election was held in May 1999 and resulted in Mireya Moscoso, leader of the Arnulfista Party, becoming President of the Republic.
In the elections held May 2, 2004, Martin Torrijos won a clear victory as President gaining 47% of the votes and outdistancing his closest rival with 31%. President Torrijos' party, PRD, also performed strongly in legislative and local races held the same day. Unlike the previous administration, President Torrijos' party holds a majority of Senate seats.
Martin Torrijos is the son of a famous Panamanian leader, General Omar Torrijos, who ruled from 1968 until he died in a plane crash in 1981. General Torrijos won Panama control over the Panama Canal from the United States and instituted land reform and populist social and economic developments. General Torrijos supported the development of a modern mining sector and had close links in the Province of Cocle in the area of the Petaquilla property. The General championed numerous social development initiatives in the area of Petaquilla including the founding of the village of Coclesito near the property.
President Martin Torrijos campaigned on a platform of zero corruption, social development and economic (and job) expansion. In his mid-forties and with the backing of Ruben Blades, a popular musician, he is generally expected to lead a youthful and vigorous administration. He stands on an agenda that includes strengthening democracy and free trade talks with the United States.
We note that the comparative overall country risk rating for Panama by The Economist Intelligence Unit is in the mid-range, both globally and regionally, as follows:
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Countries |
Month |
Score | Overall Country Risk Rating (AAA=least risky, D=most risky) |
Outlook |
Argentina | February 2009 | 64 | CCC | Stable |
Bolivia | February 2009 | 56 | B | Stable |
Brazil | February 2009 | 45 | BB | Stable |
Chile | February 2009 | 30 | A | Stable |
Columbia | February 2009 | 46 | BB | Stable |
Costa Rica | February 2009 | 55 | B | Stable |
Ecuador | February 2009 | 74 | CC | Stable |
Guatemala | February 2009 | 49 | BB | Stable |
Honduras | February 2009 | 58 | B | Negative |
Mexico | February 2009 | 42 | BBB | Stable |
Panama | February 2009 | 47 | BB | Stable |
Peru | February 2009 | 38 | BBB | Stable |
Venezuela | February 2009 | 60 | B | Negative |
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Rating Band Characteristics |
AAA | Capacity and commitment to honour obligations not in question under any foreseeable circumstances. |
AA | Capacity and commitment to honour obligations not in question. |
A | Capacity and commitment to honour obligations strong. |
BBB | Capacity and commitment to honour obligations currently, but somewhat susceptible to changes in economic climate. |
BB | Capacity and commitment to honour obligations currently, but susceptible to changes in economic climate. |
B | Capacity and commitment to honour obligations currently, but very susceptible to changes in economic climate |
CCC | Questionable capacity and commitment to honour obligations. Patchy payment record. |
CC | Somewhat weak capacity and commitment to honour obligations. Patchy payment record. Likely to be in default on some obligations. |
C | Weak capacity and commitment to honour obligations. Patchy payment record. Likely to be in default on significant amount of obligations. |
D | Very weak capacity and commitment to honour obligations. Poor payment record. Currently in default on significant amount of obligations. |
Mining has not historically been a significant factor in the Panamanian economy and, consequently, Panama does not have the infrastructure and trained personnel required for modern mining operations. The government of Panama has, however, included the development of mineral resources in its economic plan to diversify the Panamanian economy and has taken steps to put in place the legislative framework needed to foster development of these resources.
The Code of Mineral Resources of the Republic of Panama has been subject to substantial modifications, among which the most important are Law No. 3 of January 28, 1988, and Law No. 32 of February 9, 1996. The main purpose of such amendments was to simplify the procedure for filing the necessary petitions to obtain concessions, either for conducting mining exploration or mining extraction operations and property rights over the minerals extracted. These amendments grant total exemption for import taxes and customs duties for all equipment, spare parts and materials used in the development of any type of mining operations and there are no export taxes on mineral production.
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An exploration concession permits the holder to explore for the minerals specified in the concession. The rental rates payable by the holder to the Government of Panama are US$0.50 per hectare for the first 2 years, US$1.00 per hectare for the third and fourth years, and US$1.50 for the fifth year and thereon. A 2% gross overriding royalty on the value received for all minerals of higher commercial value, i.e. gold and silver, mined from the concession is payable to the Government of Panama.
The holder of an exploration concession has the exclusive right to obtain an exploitation concession for the subject area upon determining that the minerals covered by the concession may be produced in commercial quantities through a separate request to the Government of Panama. Rental rates for exploitation concessions fluctuate, depending on the mineral concerned and the extraction period, between US $0.75 and US $4.00 per hectare. Rental rates for metallic minerals like copper, iron, zinc, aluminum and precious metals like gold and silver, are US$1.00 per hectare for the first 5 years, US$2.00 from the sixth to the tenth year, and US $3.00 the eleventh year and thereon. A 2% gross overriding royalty on the value received for all minerals mined from the concession is payable to the Government of Panama. However, this overriding royalty will be 4% for minerals of higher commercial value like g old and silver.
Exploitation concessions generally permit the holder to carry out additional pre-development exploration, to construct all necessary production facilities and to extract, process, store, transport, market and export the minerals subject to the concession so long as production is ongoing.
In 1995, the Panamanian Tax Reform Law was enacted to simplify the corporate income tax rates applicable to income earned in Panama (Law No. 28 of June 20, 1995). Since June 1995, the corporate income tax rate is 30%. In addition to corporate income tax, Panamanian law provides for a dividend tax. With the exceptions provided for in the Fiscal Code of the Republic of Panama, all corporations must retain 10% of the amounts they may distribute among their shareholders as dividends or share quotas. In case dividends are not distributed, or the entire amount distributed as dividend or share quota is less than 40% of the net profit of that fiscal period, minus taxes paid by the corporation, the corporation must cover 10% of the remainder.
The Fiscal Code of the Republic of Panama indicates certain expenses, which may be deducted from the income tax, applicable to companies conducting mining activities. Additionally, the Code of Mineral Resources establishes certain expenses related to said activities that may be deducted from income tax as well.
There are currently no significant restrictions on repatriation from Panama of earnings to foreign entities other than the income tax and the dividends tax referred to above. There are currently no currency exchange or foreign investment restrictions of material significance.
Based on our understanding of current Panamanian environmental laws and regulations, we do not anticipate that such laws will have any adverse material impact on any operations we may conduct in the future. Based on Geochemical Analysis and Reporting, we anticipate that our company’s Molejon gold project will meet or exceed the effluent and leachate requirements of Panamanian environmental laws and regulations. We will be using a Carbon in Pulp floatation process, which allows in process cyanide destruction before effluent is discharged. This process is inherently safer and more controllable than traditional acid and cyanide open-air heap leach processing. Any acidity produced at the experimental pH is expected to be buffered by the receiving waters around the Molejon project, which have a pH between 7.4 and 7.8 and total alkalinity between 15 mg/L and 27 mg/L (as CaCO3). Resul ts for both tails and waste rock leachate indicate that the Molejon Project will have net acid neutralizing potential. The results of the continuous tests showed that the INCO SO2 cyanide destruction method is an efficient process for decreasing the total cyanide concentrations in the Petaquilla CIP leach pulp.
The foregoing laws of general application apply to our Panamanian mineral properties other than the Cerro Petaquilla Concession which is governed primarily by the Ley Petaquilla. See“Item 4 - Information on the Company - B. Business Overview”.
Panama's currency, the Balboa, is at parity with the U.S. dollar. Exchange transactions are allowed in U.S. dollars and, as a result, foreign currency fluctuations will only be material for us to the extent that fluctuations between the Canadian and U.S. dollar are material.
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Item 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
5.A. Operating Results
We are in the business of the acquisition and exploration of mineral properties, with the primary aim of developing them to a stage where they can be exploited at a profit. At that stage, our operations would, to a significant extent, be dependent on the prevailing market prices for any of the minerals produced by such operations. We do not currently have any producing properties and our operations on our various properties are currently limited to exploratory searches for mineable deposits of minerals. We are hopeful that our activities on the Molejon deposit will both expand the reserves and classify the reserves as proven mineral reserves. However, there is no guarantee such results will be obtained. During the 13-month period ended May 31, 2008, we were primarily engaged in the continued exploration of our Molejon property in Panama. As a result, our future mineral explora tion and mining activities may be affected in varying degrees by Panama's political stability and government regulation, all of which are beyond our control. See"Item 3 - Key Information – 3.D. Risk Factors”.
Historically our fiscal year end was January 31. During the period ended April 30, 2007, we changed our fiscal year end from January 31 to April 30 due to the complexities of the Plan of Arrangement with Copper. We changed our fiscal year end again in 2008 from April 30 to May 31. We made this change because the Company wanted to demonstrate to the Panamanian government it had sufficient funds to continue work on the mine.
Restatement of U.S. GAAP Financial Statements
Certain capital assets purchased in the twelve months ended January 31, 2007 were originally included in mineral properties and were incorrectly expensed for accounting purposes under U.S. GAAP. We have restated our U.S. GAAP financials, the effect of which is to decrease mineral properties expensed under U.S. GAAP by $3,901,761, increase total assets under U.S. GAAP by $3,901,761 and increase shareholders’ equity under U.S. GAAP by $3,901,761 at each of May 31, 2008 and April 30, 2007.
Debt issuance costs of $3,808,672 were written off during the month ended May 31, 2008 rather than being capitalized. The effect of the restatement is to increase deferred debt issuance costs under U.S. GAAP by $3,808,672, decrease debt issuance costs expensed under U.S. GAAP by $3,808,672 and increase shareholders’ equity under U.S. GAAP by $3,808,672.
As a result of a review of the accounting for the investment in Copper under U.S. GAAP, the presentation of the investment balance and the dilution gains and equity losses have been adjusted. The effect of these adjustments is to increase the investment in Copper at May 31, 2008 by $2,394,474, and increase shareholders’ equity by $2,394,474.
The effect of the restatement is summarized in the tables below.
| | | | | | | | | |
Consolidated Balance Sheet | | May 31, 2008 as | | | Adjustment | | | May 31, 2008 | |
| | previously reported | | | | | | restated | |
Mineral properties expensed under U.S. GAAP | $ | (67,149,615 | ) | $ | 3,901,761 | | $ | (63,247,854 | ) |
Equity investments | | - | | $ | 2,394,474 | | $ | 2,394,474 | |
Total assets – U.S. GAAP | $ | 30,880,450 | | $ | 10,104,907 | | $ | 40,985,357 | |
Shareholders’(deficit) equity - U.S. GAAP | $ | (15,565,640 | ) | $ | 10,104,907 | | $ | (5,460,733 | ) |
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|
|
Consolidated Statement of Operations and | | May 31, 2008 as | | | Adjustment | | | May 31, 2008 | |
Comprehensive Loss and Deficit | | previously | | | | | | restated | |
| | reported | | | | | | | |
Debt issuance costs | $ | 3,974,266 | | $ | ( 3,808,672 | ) | $ | 165,594 | |
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 40 |
| | | | | | | | |
Consolidated Balance Sheet | | April 30, 2007 as | | | Adjustment | | April 30, 2007 | |
| | previously reported | | | | | restated | |
Mineral properties expensed under U.S. GAAP | $ | (31,236,455 | ) | $ | 3,901,761 | $ | (27,334,694 | ) |
Total assets – U.S. GAAP | $ | 13,537,910 | | $ | 3,901,761 | $ | 17,439,671 | |
Shareholders’ equity – U.S. GAAP | $ | 1,794,164 | | $ | 3,901,761 | $ | 5,695,925 | |
Restatement of January 31, 2007 Interim Financial Statements and May 31, 2008 Balance Sheet
During the fourth quarter of fiscal 2009, we concluded that:
·
The accounting for the spin-out of Copper was not properly recorded in the financial statements for the period ended January 31, 2007;
·
Stock-based compensation relating to the options issued prior to the Plan of Arrangement was not properly recorded in the financial statements for the period ended January 31, 2007;
·
Certain capital assets were recorded as mineral properties in the financial statements as at January 31, 2007;
·
Dilution gains and equity losses for the equity investment in Copper which were applicable to the twelve months ended January 31, 2007 were not recorded in that period; and
·
The carrying value of the investment in Copper was not correctly recorded during the period ended May 31, 2008.
The Plan of Arrangement, whereby each of our shareholders as at 12:01 a.m. on October 18, 2006, was entitled to receive one common share of Copper for each common share of our company held, was accounted for in the twelve months ended January 31, 2007, based on a tentative plan. According to the terms of the initial plan, Copper was to receive $5,500,000. The plan was later finalized and this amount was no longer required to be transferred to Copper. The effect of this change to the January 31, 2007 financial statements was to decrease the amount payable to a related company by $2,856,227, increase the amount receivable from a related company by $2,143,773, decrease the amount distributed to Petaquilla Copper Ltd. by $5,500,000 and increase the investment in Petaquilla Copper Ltd. by $500,000. The receivable from a related company relates t o mineral property costs and general administrative expenses of Copper that were funded by the Company.
Incorrect accounting was applied to options issued prior to the Plan of Arrangement. The effect of the adjustment to the January 31, 2007 financial statements was to increase stock-based compensation by $7,000,840, increase contributed surplus by $4,244,807, increase share capital by $2,874,427 and increase mineral properties by $118,394.
Certain capital assets acquired during the twelve months ended January 31, 2007 were incorrectly recorded as mineral properties. As a result, equipment was understated by $4,015,000, accumulated amortization on production equipment was understated by $480,430 and mineral properties were overstated by $3,534,570. The effect of the adjustment to the January 31, 2007 financial statements is an increase in property and equipment by $3,534,570 and a decrease in mineral properties of $3,534,570.
The Company was required to record the investment in Copper using the equity method commencing October 18, 2006, the date of the Plan of Arrangement. Dilution gains resulting from the issue of additional shares by Copper as well as our proportionate share of losses incurred by Copper were required to be recorded by us in the period in which these transactions occurred. Due to the inability of Copper to provide information on a timely basis, the dilution gain and equity loss for the twelve months ended January 31, 2007 were not recorded until the period ending April 30, 2007. The result of the adjustment required to the January 31, 2007 financial statements was to increase the investment in Copper by $2,074,818 , increase the gain on dilution of equity investment by $2,268,465 and increase the loss from equity investment by $193,64 7.
The proceeds used in the calculation of dilution gains did not include transaction costs and the gain on sale of Copper shares did not exclude the gain attributable to our equity interest in Copper. As a result, the investment in Copper was overstated at May 31, 2008 by $1,200,000. The impact of these adjustments is reflected in the 12 month period ended April 30, 2008 which was previously presented as part of the 13 month period ended May 31, 2008.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 41 |
The effect of the adjustments on the financial statements is summarized in the tables below.
| | | | | | | | | |
Consolidated Balance Sheet | | January 31, 2007 as | | | Adjustment | | | January 31, 2007 | |
| | previously reported | | | | | | restated | |
Amount receivable from a related company | $ | - | | $ | 2,143,773 | | $ | 2,143,773 | |
Investment in Petaquilla Copper Ltd. | $ | - | | $ | 2,574,818 | | $ | 2,574,818 | |
Property and equipment | $ | 1,686,480 | | $ | 3,534,570 | | $ | 5,221,050 | |
Mineral properties | $ | 26,304,170 | | $ | (3,416,174 | ) | $ | 22,887,996 | |
Amount payable to a related company | $ | 2,856,227 | | $ | (2,856,227 | ) | $ | - | |
Contributed Surplus | $ | 5,201,477 | | $ | 4,244,807 | | $ | 9,446,284 | |
Share Capital | $ | 87,696,672 | | $ | 2,874,427 | | $ | 90,571,099 | |
Deficit | $ | (73,651,067 | ) | $ | 573,977 | | $ | (73,077,091 | ) |
| | | | | | | | | |
| | | | | | | | | |
Consolidated Statement of Operations | | January 31, 2007 as | | | Adjustment | | | January 31, 2007 | |
and Comprehensive Loss and Deficit | | previously reported | | | | | | restated | |
Stock-based compensation | $ | (10,007,962 | ) | $ | (7,000,840 | ) | $ | (17,008,802 | ) |
Gain on dilution of equity investment | $ | - | | $ | 2,268,465 | | $ | 2,268,465 | |
Loss from equity investment | $ | - | | $ | (193,647 | ) | $ | (193,647 | ) |
Amount distributed to Petaquilla Copper Ltd. | $ | (5,500,000 | ) | $ | 5,500,000 | | $ | - | |
Net loss and comprehensive loss | $ | (6,592,435 | ) | $ | (4,926,024 | ) | $ | (21,518,459 | ) |
Basic and diluted loss per share | $ | (0.21 | ) | $ | (0.07 | ) | $ | (0.28 | ) |
| | | | | | | | | |
| | | | | | | | | |
Consolidated Statement of Cash Flows | | January 31, 2007 as | | | Adjustment | | | January 31, 2007 | |
| | previously reported | | | | | | restated | |
Operating activities: | | | | | | | | | |
Stock-based compensation | $ | 10,007,962 | | $ | 7,000,840 | | $ | 17,008,802 | |
Gain on dilution of equity investment | $ | - | | $ | (2,268,465 | ) | $ | (2,268,465 | ) |
Loss from equity investment | $ | - | | $ | 193,647 | | $ | 193,647 | |
Total operating activities | $ | 10,007,962 | | $ | 4,926,022 | | $ | 14,933,984 | |
Investing activities: | | | | | | | | | |
Advances from (to) Petaquilla Copper Ltd. | $ | 2,856,227 | | $ | (5,000,000 | ) | $ | (2,143,773 | ) |
Acquisition of property and equipment | $ | (1,737,388 | ) | $ | (4,015,000 | ) | $ | (5,752,388 | ) |
Investment in mineral properties | $ | (23,914,401 | ) | $ | 4,526,557 | | $ | (19,387,844 | ) |
Distribution to Petaquilla Copper Ltd. | $ | (5,500,000 | ) | $ | 5,500,000 | | $ | - | |
Purchase of equity investment | $ | - | | $ | (500,000 | ) | $ | (500,000 | ) |
Total investing activities | $ | (28,295,562 | ) | $ | 511,557 | | $ | (27,784,005 | ) |
| | | | | | | | | |
| | | | | | | | | |
Consolidated Balance Sheet | | May 31, 2008 as | | | Adjustment | | | May 31, 2008 | |
| | previously reported | | | | | | restated | |
Investment in Petaquilla Copper Ltd. | $ | 9,452,421 | | $ | (1,200,000 | ) | $ | 8,252,421 | |
Deficit | $ | (83,865,382 | ) | $ | (1,200,000 | ) | $ | (85,065,382 | ) |
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 42 |
One Month Ended May 31, 2008 Compared to One Month Ended May 31, 2007
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Summarized Financial Information | | | | | | |
| | | | | | |
| | One Month Ended | | | One Month Ended | |
| | May 31, 2008 | | | May 31, 2007 | |
| | | | | (unaudited) | |
EXPENSES | | | | | | |
Consulting fees | $ | 21,174 | | $ | 98,973 | |
Amortization | | 35,517 | | | 145,711 | |
Stock-based compensation | | 77,902 | | | 703,001 | |
Debt issuance costs | | 3,974,266 | | | - | |
Other expenses | | 601,068 | | | 643,501 | |
Total expenses | | (4,709,927 | ) | | (1,591,186 | ) |
| | | | | | |
OTHER INCOME (EXPENSE) | | | | | | |
Foreign exchange gain (loss) | | 295,105 | | | (158,400 | ) |
Loss from equity investment | | (230,788 | ) | | (420,586 | ) |
Gain on dilution of equity investment | | - | | | 3,191,618 | |
Other | | 132,465 | | | 74,688 | |
| | 196,782 | | | 2,687,320 | |
Net earnings (loss) and comprehensive earnings (loss) for the period | $ | (4,513,145 | ) | $ | 1,096,134 | |
Basic and diluted earnings (loss) per share | $ | (0.05 | ) | $ | 0.01 | |
Basic weighted average number of common shares outstanding | | 93,131,030 | | | 90,893,766 | |
Diluted weighted average number of common shares outstanding | | 93,131,030 | | | 95,811,357 | |
We did not generate revenue from operations during the one month ended May 31, 2008 or the one month ended May 31, 2007.
Expenses for the one month ended May 31, 2008 were $4,709,927 compared to $1,591,186 for the one month ended May 31, 2007, an increase of $3,118,741. The increase was attributable to debt issuance costs of $3,974,266 related to the senior secured notes financing in May 2008. There were no debt issuance costs during the one month ended May 31, 2007. This increase was partially offset by a decrease of $625,099 in stock-based compensation expense. The decrease is related to a lower number of options vesting during the one month ended May 31, 2008.
Other income for the one month ended May 31, 2008 was $196,782 compared to $2,687,320 for the one month ended May 31, 2007. The decrease in other income is largely due to the gain on dilution of equity investment of $3,191,618 recorded in the one month ended May 31, 2007. There was no dilution gain recorded during the one month ended May 31, 2008 as there were no additional shares issued by Copper during that period. This decrease was partially offset by a foreign exchange gain of $295,105 for the one month ended May 31, 2008 compared to a foreign exchange loss of $158,400 for the one month ended May 31, 2007. The foreign exchange gain reflects the increase in value of the Canadian dollar relative to the United States dollar, affecting the valuation of the Company’s liabilities which are predominantly denominated in United States dollars.
The net loss for the one month ended May 31, 2008 was $4,513,145 or $(0.05) per share compared to net earnings of $1,096,134 or $0.01 per share for the one month ended May 31, 2007.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 43 |
12 Months Ended April 30, 2008, Compared to 12 Months Ended April 30, 2007
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Financial Results for the Twelve Months Ended April 30, 2008 | |
| |
| Twelve months ended April 30, 2008 |
EXPENSES | |
Accounting and legal (Note 18) | 1,333,876 |
Accretion of asset retirement obligation (Note 24) | 312,977 |
Consulting fees (Note 18) | 962,905 |
Amortization | 352,717 |
Filing fees | 88,784 |
Investor relations and shareholder information | 1,034,572 |
Office administration | 2,418,781 |
Rent (Note 18) | 125,025 |
Stock-based compensation (Notes 15 and 16) | 5,676,183 |
Travel | 877,859 |
Wages and benefits (Note 18) | 1,706,052 |
Total expenses | (14,889,731) |
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OTHER INCOME (EXPENSE) | |
Foreign exchange gain (loss) | 1,375,774 |
Interest income | 54,575 |
Interest on long-term debt | (70,176) |
Asset usage fees (Note 18) | 129,345 |
Gain on sale of equity investment (Note 18) | 4,037,182 |
Power and drilling services | 79,406 |
Loss from equity investment (Note 6) | (4,484,625) |
Gain on dilution of equity investment (Note 6) | 12,737,095 |
Total other income (expenses) | 13,858,576 |
Net (loss) and comprehensive (loss) for the period | (1,031,155) |
Deficit, beginning of period | (79,521,082) |
Deficit, end of period | (80,552,237) |
Basic and diluted (loss) per share | (0.01) |
Basic and diluted weighted average number of common shares outstanding | 93,131,030 |
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 44 |
| | | | | | | | | | | | |
| | 12 Months | | | 3 Months | | | 3 Months | | | 12 Months | |
| | Ended | | | Ended | | | Ended | | | Ended | |
| | January 31, | | | April 30, | | | April 30, | | | April 30, | |
| | 2007 | | | 2007 | | | 2006 | | | 2007 | |
| | | | | | | | (unaudited) | | | (unaudited) | |
EXPENSES | | | | | | | | | | | | |
Accounting and legal | $ | 490,351 | | $ | 236,578 | | $ | 94,313 | | $ | 632,616 | |
Consulting fees | | 756,453 | | | 320,908 | | | 155,874 | | | 921,487 | |
Amortization | | 335,912 | | | 135,397 | | | 33,423 | | | 437,886 | |
Filing fees | | 76,329 | | | 6,339 | | | 4,153 | | | 78,515 | |
Investor relations and shareholder information | | 1,114,102 | | | 153,403 | | | 149,527 | | | 1,117,978 | |
Office administration | | 795,840 | | | 176,097 | | | 114,512 | | | 857,425 | |
Rent | | 141,187 | | | 38,310 | | | 17,837 | | | 161,660 | |
Mineral property costs | | - | | | - | | | 5,937 | | | (5,937 | ) |
Stock-based compensation | | 17,008,802 | | | 3,377,468 | | | 58,059 | | | 20,328,211 | |
Travel | | 1,419,788 | | | 266,748 | | | 169,698 | | | 1,516,838 | |
Wages and benefits | | 1,812,453 | | | 179,317 | | | 165,611 | | | 1,826,159 | |
Total expenses | | (23,951,217 | ) | | (4,890,565 | ) | | (968,944 | ) | | (27,872,838 | ) |
| | | | | | | | | | | | |
OTHER INCOME (EXPENSE) | | | | | | | | | | | | |
Foreign exchange gain (loss) | | 40,718 | | | (877,565 | ) | | (35,152 | ) | | (801,695 | ) |
Gain on sale of marketable securities | | 21,191 | | | - | | | 21,191 | | | - | |
Interest income | | 296,031 | | | 56,849 | | | 82,817 | | | 270,063 | |
Interest on long-term debt | | - | | | (68,240 | ) | | - | | | (68,240 | ) |
Asset usage fees | | - | | | 103,348 | | | - | | | 103,348 | |
Loss from equity investment | | (193,647 | ) | | (1,579,353 | ) | | - | | | (1,773,000 | ) |
Gain on dilution of equity investment | | 2,268,465 | | | 811,535 | | | - | | | 3,080,000 | |
Total other income (expenses) | | 2,432,758 | | | (1,553,426 | ) | | 68,856 | | | 810,476 | |
Net loss and comprehensive loss for the period | $ | (21,518,459 | ) | $ | (6,443,991 | ) | $ | (900,088 | ) | $ | (27,062,362 | ) |
Basic and diluted loss per share | | | | | | | | | | $ | (0.34 | ) |
Basic and diluted weighted average number of commonshares outstanding | | | | | | | | | | | 79,992,262 | |
Expenses for the 12 months ended April 30,2008, decreased by $12,983,107 to $14,889,731 compared with $27,872,838 for the 12 months ended April 30, 2007, due to the following: (i) a decrease in stock-based compensation of $14,652,028, due to fewer options being granted and the decreasing fair market value of the Company’s common shares; (ii) a decrease in travel expense of $638,979 due to fewer employees and consultants traveling abroad; (iii) an increase in office administration costs of $1,561,357 due to an increase in insurance expense, additional employees, rent for new offices in Panama and donations to local social programs; (iv) an increase in accounting and legal of $701,260 expenses due to additional work performed as a result of the increase in activities of the Company; and (v) accretion of asset retirement obligation of $312,977.
In the 12 months ended April 30, 2008, other income increased by $13,048,100 to $13,858,576 compared with $810,476 for the 12 months ended April 30, 2007. The increase in other income is due to the following: (i) the Company recorded a foreign exchange gain of $1,375,774 compared with a foreign exchange loss of $801,695 for the 12 months ended April 30, 2007, which was primarily the result of a significant increase in the exchange rate from Canadian dollars to United States dollars; (ii) the Company recorded a gain of $4,037,182 on the transfer of 1,815,069 Copper shares back to Copper in settlement of the amount owing to Copper as at December 31, 2007, with no such gain recorded in the prior 12 months; (iii) the Company recorded $79,406 from power and drilling services provided to Copper compared to nil in the 12 months ended April 30, 2007, due to no such services being provided in that period; (iv) the Company earned i nterest income of $54,575 compared with $270,063 for the 12 months ended April 30, 2007, due to lower cash balances during the 12 months ended April 30, 2008; and (v) the Company recorded an equity loss of $4,484,625 compared with $1,773,000 in the 12 months ended April 30, 2007, and a dilution gain of $12,737,095 compared with $3,080,000 in the 12 months ended April 30, 2007, related to its investment in Copper. The equity loss reflects the Company’s portion of the losses that are attributed to its percentage ownership in Copper and the dilution gain resulted from the difference between the Company’s carrying cost of Copper and the amount paid up for each Copper share issued.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 45 |
The net loss for the 12 months ended April 30, 2008, was $1,031,155 or $(0.01) per basic and diluted share compared to a net loss for the 12 months ended April 30, 2007 of $27,062,362 or $(0.34) per basic and diluted share. The difference is largely accounted for by the decrease in stock-based compensation, the gain on dilution of the equity investment in Copper, the gain from the sale of Copper shares, and the foreign exchange gain.
Three Months Ended April 30, 2008 Compared to Three Months Ended April 30, 2007
| | | | | | |
Summarized Financial Information | | | | | | |
| | | | | | |
| | Three months | | | Three months | |
| | ended April 30, | | | ended April 30, | |
| | 2008 | | | 2007 | |
| | (unaudited) | | | | |
EXPENSES | | | | | | |
Accounting and legal | $ | 620,006 | | $ | 236,578 | |
Stock-based compensation | | 591,227 | | | 3,377,468 | |
Travel | | 66,937 | | | 266,748 | |
Other expenses | | 1,076,623 | | | 1,009,771 | |
Total expenses | | (2,354,793 | ) | | (4,890,565 | ) |
| | | | | | |
OTHER INCOME (EXPENSE) | | | | | | |
Foreign exchange gain (loss) | | (386,361 | ) | | (877,565 | ) |
Loss from equity investment (Note 6) | | (905,384 | ) | | (1,579,353 | ) |
Gain on dilution of equity investment (Note 6) | | 50,670 | | | 811,535 | |
Other | | 31,534 | | | 91,957 | |
Total other income (expenses) | | (1,209,541 | ) | | (1,553,426 | ) |
Net (loss) and comprehensive (loss) for the period | $ | (3,564,334 | ) | $ | (6,443,991 | ) |
| | | | | | |
Basic and diluted earnings (loss) per share | $ | (0.04 | ) | $ | (0.07 | ) |
Basic and diluted weighted average number of common shares outstanding | | 95,694,330 | | | 89,615,924 | |
We did not generate revenue from operations during the three months ended April 30, 2008 or the three months ended April 30, 2007.
Expenses for the three months ended April 30, 2008 were $2,354,793 compared to $4,890,565 for the three months ended April 30, 2007, a decrease of $2,535,772. This decrease was largely attributable to a decrease in stock-based compensation of $2,786,241 due to a fewer number of options vesting during the period and well as a decrease of $199,811 in travel. This decrease was partially offset by an increase in accounting and legal of $383,428 related to higher audit fees for the 2008 year end audit.
Other expenses for the three months ended April 30, 2008 were $1,209,541 compared to $1,553,426 for the three months ended April 30, 2007, a decrease of $343,885. This decrease was largely attributable to a lower foreign exchange loss of $491,204 as well as a lower loss from equity investment of $673,969. The foreign exchange loss relates to the value of the Canadian dollar compared to the United States dollar and the loss from equity investment reflects the Company’s portion of the losses that are attributed to its percentage ownership in Copper. The decreases were partially offset by a decrease in the gain on dilution of equity investment of $760,865. The dilution gain resulted from the difference between the Company’s carrying cost of Copper and the amount paid by other investors for additional Copper shares issued. The dilution gain is lower for the three months ended April 30, 2008 as fewer additional shares were issued by Copper during this period.
The net loss for the three months ended April 30, 2008 was $3,564,334 or $(0.04) per share compared to $6,443,991 or $(0.07) per share for the three months ended April 30, 2007.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 46 |
12 Months Ended January 31, 2007, Compared to Fiscal Year Ended January 31, 2006
We did not generate revenue from operations during the 12 months ended January 31, 2007, or during the fiscal year ended January 31, 2006. Expenses for the 12 months ended January 31, 2007 were $23,951,217, a substantial increase from $2,538,350 for the year ended January 31, 2006. The increase in expenses is primarily due to the escalation of our operations at the Molejon gold deposit. Increased levels of operations including drilling, equipment procurement, plant construction, and construction of roads, bridges and other infrastructure have also led to increased general and administrative costs. Our largest cash outflow in the 12 months ended January 31, 2007, was for capitalized expenditures relating to our mineral properties of $19,387,844, as compared to $2,197,611 in the prior year. Stock-based compensation, a non-cash expense, increased to $17,008,802 compared to $410,301 in the prior year, as a result of options granted and vested during the period, options previously valued at grant date and revalued at approval date, and options arising from the Plan of Arrangement that were revalued on the Plan of Arrangement date.
During the 12 months ended January 31, 2007, we recorded a foreign exchange gain of $40,718, a gain on the sale of marketable securities of $21,191, interest income of $296,031, a loss of $193,647 from equity investment and a gain of $2,268,465 on dilution of equity investment. During the fiscal year ended January 31, 2006, we recorded a foreign exchange loss of $77,647 and interest income of $48,239.
The net loss for the 12 months ended January 31, 2007, was $21,518,419 or $(0.28) per share compared to a net loss of $2,567,758 or $(0.05) per share for the fiscal year ended January 31, 2006.
5.B. Liquidity and Capital Resources
In our management's view, given the nature of our activities, which consist of the acquisition, exploration, exploration management, and sale of mineral properties, the most meaningful and material financial information concerning us relates to our current liquidity and capital resources. We do not currently own or have an interest in any mineral producing properties and have not derived any revenues from the sale of gold, copper or other materials in the last three financial years. Our principal property, the Molejon gold deposit, is located in the Cerro Petaquilla Concession in Panama and, as a result our operations on the property may be subject to additional risks as more fully described in“Item 3 - Key Information – 3.D. Risk Factors”.
Our mineral exploration activities have been funded through sales of common shares and through debt financing. We have not made use of any financial instruments for hedging purposes. During the 12 months ended April 30, 2008, we raised funds from two private placements and during the one month ended May 31, 2008, we issued a senior secured notes debt financing. On June 4, 2008 and July 9, 2008 we closed the remaining US$ 27,750,000 of our senior secured notes financing. Net proceeds received were US$ 20,612,480. On September 19, 2008 we sold 100% of our 20,418,565 Petaquilla Copper shares for proceeds of $44,920,843 and repaid $38,355,744 (US$ 36,032,376) of the face value of our senior secured notes. The total amount paid including the 20% premium on redemption was $44,920,843 (US$ 43,238,852). On October 2, 2008 we issued a supplemental US$ 20,000,000 of our senior secured notes. Net pro ceeds received were US$ 15,875,000. In March 2009, we closed a convertible senior secured notes financing for US$ 40,000,000.
As a result of operational issues, the Company has been unable to meet its current production targets and requires additional funding in order to continue operations. Management is currently in substantive negotiations with lenders to secure additional financing; however, there is no guarantee that management will be successful in its efforts. Accordingly, there is substantial doubt about our ability to continue as a going concern.
We had material commitments for capital expenditures in the amount of $5,047,133 at May 31, 2008. We have not generated any operating revenues to May 31, 2008 and have experienced recurring operating losses and accumulated a deficit of $85,065,382 as at May 31, 2008 (April 30, 2008 - $80,552,237, April 30, 2007 - $79,521,082, January 31, 2007 - $73,077,091 and January 31, 2006 - $51,558,632). Also the Company had a working capital deficiency of $3,692,913 at May 31, 2008 (April 30, 2008 - $27,844,532, April 30, 2007 - $269,631 net working capital, January 31, 2007 net working capital of $5,920,199 and January 31, 2006 net working capital of $8,689,060). Our continued operations, as intended, are dependent upon our ability to raise additional funding to meet our obligations and to attain profitable operations.
Mineral properties and marketable securities were written down in the years ended January 31, 2002, and January 31, 2001, when we decided there was little or no possibility of recovery from these properties. All expenses incurred during the fiscal year ended January 31, 2005, that were associated with our mineral properties were expensed during the period. Our management reviews annually the carrying value of our interest in each mineral property and where necessary, properties are written down to the estimated recoverable amount determined on a non-discounted basis after giving effect to any property option agreements and cost recovery agreements. Costs relating to properties abandoned are written off when the decision to abandon is made.
Other than as discussed herein, we are not aware of any trends, demands, commitments, events or uncertainties that may result in our liquidity either materially increasing or decreasing at present or in the foreseeable future. Material increases or decreases in our liquidity will be substantially determined by the timing of any production decision on the Cerro Petaquilla Concession.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 47 |
May 31, 2008, Compared with April 30, 2008
At May 31, 2008, our current assets totaled $13,532,332 and our working capital deficiency was $3,692,913 compared with current assets of $2,691,971 and a working capital deficiency of $27,844,532 at April 30, 2008 due to funds raised from our senior secured notes financing in May 2008.
At May 31, 2008, total liabilities were $56,273,751 compared to $40,311,556 at April 30, 2008 due to a senior secured notes balance at May 31, 2008 of $26,630,004 partially offset by a decrease of $8,722,589 in amount payable to a related party.
At May 31, 2008, we had total assets of $106,282,486 compared to $93,935,092 at April 30, 2008.
Share capital at May 31, 2008 was $105,858,083 (95,958,641 shares) compared to $106,487,564 (95,958,641 shares) at April 30, 2008.
The most significant contribution to working capital in the one month ended May 31, 2008, came from the issue of senior secured notes for net proceeds of $23,010,599 whereas, in the 12 months ended April 30, 2008, the most significant contribution to working capital came from advances from Copper of $18,043,254 and issuance of capital stock for net proceeds of $13,286,719.
In May 2008, we closed on a gross amount of $31,746,900 (US$32,250,000) comprising the first tranche of our US$60 million senior secured notes financing. The notes issued with respect to this debt financing bear interest at an annual rate of 15% and will mature five years from date of issuance at 120% of the principal and are guaranteed, on a joint and several basis, by all of our and our subsidiaries’ assets. We have the right to redeem the notes at any time at 120% of the principal amount plus any accrued or unpaid interest on the notes. If the notes are redeemed within one year of issuance, all prepaid interest totalling $4,762,035 (US$4,875,000) shall be forfeited. After 24 months from the date of issuance of the notes, holders of the notes shall have the right to cause us to purchase all of our notes then outstanding at a price equal to the sum of (a) 120% of the principa l amount of such notes to be purchased and (b) accrued and unpaid interest on the principal amount of the notes. On an annual basis, the note holders can cause us to redeem notes equal to 35% of free cash flow. Each of the 32,250 notes issued in this first tranche of the financing was issued with 382 share purchase warrants, thus, totalling 12,812,280 warrants inclusive of compensation warrants. Each warrant entitles the holder to purchase one common share at $2.30 for a period of five years from the date of purchase. The warrants are subject to a weighted average anti-dilution price protection with a floor equivalent to $2.15. As we incurred $3,974,266 (US$4,029,536) in financing costs, the net amount received by us for this first tranche equalled $27,772,187. For more information, please refer to"Item 8 - Financial Information – 8.B. Significant Changes – Section (v)”.
April 30, 2008, Compared to April 30, 2007
At April 30, 2008, current assets totaled $2,691,971 compared to $6,914,192 at April 30, 2007. The decrease is attributable to a decrease of $4,582,937 in amount receivable from related company.
At April 30, 2008, total liabilities were significantly higher at $40,311,556 compared to $11,743,746 as at April 30, 2007. The increase is due to an increase in amount payable to a related company of $9,880,377, an increase in the operating credit line facility of $8,249,356, an increase in deferred services and materials of $4,308,299, an increase in accounts payable and accrued liabilities of $3,713,984, an increase in obligation under capital leases of $2,111,032 and an increase in bank overdraft of $914,568.
Our working capital deficiency was $27,844,532 at April 30, 2008, compared with working capital of $269,631 at April 30, 2007. At April 30, 2008, we had long-term liabilities of $9,775,053 compared to $5,099,185 at April 30, 2007.
At April 30, 2008, we had total assets of $93,935,092 compared with $46,581,365 at April 30, 2007. This is primarily a result of increases in capitalized project development costs and property plant and equipment.
Share capital at April 30, 2008, and April 30, 2007, was $106,487,564 (95,958,641 shares) and $91,596,035 (89,876,951 shares), respectively.
Operating expenses for the 12 months ended April 30, 2008, and the 12 months endedApril 30, 2007, were$14,889,731, inclusive of general and administrative expenses, and $27,872,839, respectively.
The most significant contributions to working capital in the 12 months ended April 30, 2008, came from advances from Copper of $18,043,254 and issuance of capital stock, which provided net proceeds of $13,286,719. The most significant contribution to working capital in the 12 months ended April 30, 2007, came from the issuance of capital stock which provided net proceeds of $29,657,761.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 48 |
In May 2007, we completed a non-brokered private placement issuing 1,387,879 units at a price of $2.00 per unit and 24,033 units priced at $2.02 per unit, for gross proceeds of $2,824,305. Each unit consisted of one common share and one-half of one common share purchase warrant, with each whole warrant exercisable into a common share at a price of $3.50 per share until the warrants expired on May 8, 2009. No finders’ fees were paid resulting in net proceeds of $2,824,305.
In January 2008, we completed a non-brokered private placement issuing a total of 3,140,500 units at a price of $3.00 per unit and raising gross proceeds of $9,421,500. Each unit consisted of one common share and one-half of one common share purchase warrant aggregating 1,691,875 warrants with the inclusion of the issued compensation warrants. Each whole warrant is exercisable into a common share at a price of $3.50 per share until the warrants expire on October 31, 2009 (1,120,875), December 19, 2009 (182,000), and January 9, 2010 (389,000). We paid finders’ fees of $370,875 for net proceeds of $9,050,625.
April 30, 2007, Compared to January 31, 2007
At April 30, 2007, current assets totaled $6,914,192 compared to $9,871,033 at January 31, 2007. Total liabilities were $11,743,746 at April 30, 2007 compared with $4,820,824 at January 31, 2007. Working capital at April 30, 2007 was $269,631 compared to $5,920,199 at January 31, 2007.
At April 30, 2007, we had total assets of $46,581,365 compared with $42,300,633 at January 31, 2007. This is primarily a result of increases in capitalized project development costs partially offset by a decrease in cash.
Share capital at April 30, 2007, and January 31, 2007, was $91,596,035 (89,876,951 shares) and $90,571,099 (89,367,031 shares), respectively.
January 31, 2007, Compared to January 31, 2006
At January 31, 2007, current assets totaled $9,871,033 compared to $9,240,156 at January 31, 2006.
At January 31, 2007, total liabilities were significantly higher at $4,820,824 compared to $551,096 as at January 31, 2006.
Working capital was $5,920,199 at January 31, 2007, compared with working capital of $8,689,060 at January 31, 2006. Long-term debt at January 31, 2007 was $869,990 compared to nil at January 31, 2006.
Total assets were $42,300,633 at January 31, 2007 compared with $12,807,172 at January 31, 2006. This is primarily a result of increases in capitalized project development costs and property plant and equipment.
Share capital as at January 31, 2007 and January 31, 2006 was $90,571,099 (89,367,031 shares) and $61,684,216 (70,246,303 shares), respectively.
Operating expenses in the 12 months ended January 31, 2007, and fiscal year ended January 31, 2006, were $23,951,217, inclusive of general and administrative expenses, and $2,538,350, respectively.
The most significant contribution to working capital in the 12 months ended January 31, 2007, came from the issuance of capital stock which provided net proceeds of $29,689,685. The most significant contribution to working capital in the year ended January 31, 2006, was from the issuance of capital stock which provided net proceeds of $11,253,164.
In October 2006, we completed a non-brokered private placement issuing 9,400,000 units at a price of $2.40 per unit, for gross proceeds of $22,560,000. Each unit consisted of one common share and one transferable share purchase warrant aggregating 9,798,000 warrants with the inclusion of the issued compensation warrants. Each warrant entitles the holder to purchase one additional common share at a price of $3.00 per share until the warrants expire on October 17, 2011. We paid finders’ fees of $956,800 for net proceeds of $21,603,200.
Outlook
We are currently in the process of commissioning our mill at the Molejon property and are also proceeding with exploration of other properties.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 49 |
5.C. Research and Development, Patents and Licenses, etc.
As we are a mineral exploration company with no producing properties, the information required by this section is not applicable.
5.D. Trend Information
As we are a mineral exploration company with no producing properties, the information required by this section is not applicable.
5.E. Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements required to be disclosed in this Amendment No. 2.
5.F. Tabular Disclosure of Contractual Obligations
As at May 31, 2008, we had the following contractual obligations:
| | | | | |
| | Payments due by period |
| Total | <1 year | 1-3 years | 3-5 years | > 5 years |
| | | | | |
Long Term Debt | 595,246.00 | 433,621.00 | 161,625.00 | - | - |
Capital Lease Obligation | 6,130,880 | 2,162,289 | 3,968,591 | - | - |
Purchase Obligations | 5,047,133 | 5,047,133 | - | - | - |
Rent | 107,640 | 33,120 | 66,240 | 8,280 | - |
Asset Retirement Obligation | 4,308,083 | - | - | - | 4,308,083 |
Operating Credit Line Facility | 3,849,974 | 3,849,974 | - | - | - |
Senior Secured Notes | 38,475,540 | - | 38,475,540 | - | - |
| | | | | |
Total | 58,514,496 | 11,526,137 | 42,671,996 | 8,280 | 4,308,083 |
In the fiscal year 2009, we are committed to the following plant and equipment acquisitions related to the gold-processing plant currently under construction at the Molejon gold deposit:
| |
Gold Recovery Equipment | $1,841,191 |
Generators | $1,423,240 |
Other Support Items | $679,704 |
Other Construction in Progress | $1,102,998 |
In addition, we have one commitment relating to our leasehold obligation for our office premises. During the 12 months ended January 31, 2007, we entered into a five-year lease (commencement date: September 1, 2006) for office premises at an estimated annual cost of $66,240 (approximately $331,200 over five years) as of January 1, 2007. From October 18, 2006, the office leasing costs were split equally between our company and Copper, as a result of the Plan of Arrangement. Therefore, the estimated annual cost of the office premises lease is approximately $33,120 to the Company.
Capital Lease Obligation
We have a capital lease arrangement with Banco Bilbao Vizcaya Argentaria (Panama) S.A. (“BBVA”) for the purchase of equipment to advance the Molejon project into production. The equipment includes but is not restricted to: ball mills, Metso crushing plant, cranes and an aggregate crushing plant.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 50 |
As a condition of the lease, the equipment will serve as collateral throughout the amortization period and will be registered with the Public Registry of the Republic of Panama. Further, a related company has pledged a term deposit in the amount of $2,347,403 as additional security.
Future minimum lease payments on the capital lease obligation are as follows:
| | | | |
2009 | | $ | 2,648,121 | |
2010 | | | 2,648,121 | |
2011 | | | 1,674,278 | |
| | | 6,970,520 | |
Less: Imputed interest of 9% | | | (839,640 | ) |
Total | | | 6,130,880 | |
Current obligation | | | 2,162,289 | |
Long-term obligation | | $ | 3,968,591 | |
Operating Credit Facility
We have a capital lease operating credit facility with BBVA up to a maximum of $13,301,952. The facility is drawdown, reduced and converted to a capital lease upon completion of equipment purchase. The facility has a fixed rate of 9% on $10,954,549 and fixed rate of 6% on $2,347,403. The facility is secured by the assets purchased under the facility and is registered with the Public Registry of the Republic of Panama.
Long-term debt
The Company has long-term debt for various equipment and vehicles. The following table summarizes the loans outstanding as at May 31, 2008:
| | | | | | | | | | | | |
| | May 31, 2008 | | | April 30, 2008 | | | April 30, 2007 | | | January 31, 2007 | |
Long-term debt | | | | | | | | | | | | |
Equipment loan #1 | $ | 125,053 | | $ | 138,043 | | $ | 303,203 | | $ | 347,059 | |
| | 27,978 | | | 30,674 | | | 64,061 | | | 72,964 | |
Equipment loan #2 | | 110,984 | | | 119,181 | | | 218,115 | | | 245,989 | |
Equipment loan #3 | | 317,324 | | | 337,568 | | | 576,443 | | | 646,171 | |
Vehicle loan #2 | | 13,907 | | | 14,792 | | | 25,245 | | | 28,300 | |
| | 595,246 | | | 640,258 | | | 1,187,067 | | | 1,340,483 | |
Less: current portion | | (433,621 | ) | | (451,195 | ) | | (487,882 | ) | | (470,493 | ) |
| $ | 161,625 | | $ | 189,063 | | $ | 699,185 | | $ | 869,990 | |
Asset retirement obligation
The Company’s asset retirement obligation relates to site-restoration and clean-up costs related to its Molejon gold project located in Panama.
A reconciliation of the provision for asset retirement obligations is as follows:
| | | |
Beginning balance - January 31, 2007 | $ | - | |
Balance - April 30, 2007 | | 4,400,000 | |
Accretion | | 312,977 | |
Foreign exchange gain on re-measurement | | (375,974 | ) |
Balance - April 30, 2008 | | 4,337,003 | |
Accretion | | 52,106 | |
Foreign exchange gain on re-measurement | | (81,026 | ) |
Ending balance - May 31, 2008 | $ | 4,308,083 | |
The provision for asset retirement obligations is based upon the following assumptions:
a)
The total undiscounted cash flow required to settle the obligation is approximately $6,848,000 (US$ 6,225,000);
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 51 |
b)
Asset retirement obligation payments are expected to occur during fiscal years 2014 and 2015;
c)
A credit adjusted risk-free rate of 7.65% has been used to discount cash flows.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6.A. Directors and Senior Management
The following information regarding our directors and members of senior management, including names, business experience, offices held and outside principal business activities, is at November 6, 2009:
Raul Ferrer
Mr. Raul Ferrer (born January 8, 1973) was appointed to our board of directors (the “Board of Directors”) on November 6, 2009. Mr. Ferrer is a leading financial advisor to a number of businesses operating in Panama. He is a former financial investments director with the Panamanian equity investment firm, Wall Street Securities.
Richard Fifer
Mr. Richard Fifer (born January 23, 1957) is a Panamanian citizen and a U.S.-trained geologist. He has served on our Board of Directors from March 1993 to November 1998, July 2002 to July 2003, and from November 12, 2003, to the present. In addition, he served as our Chief Executive Officer from December 14, 2004, to March 23, 2005, and from April 14, 2007, to September 15, 2009. Since 1994, he has been President of Geoinfo, S.A., a Panamanian company that provides geographic mapping technology and solutions. He was Chairman and President of CODEMIN, Panama’s state mining company, from January 1997 to January 2000. Under the Ministry of Foreign Affairs Panama, he was the President's Plenipotentiary Ambassador-at-large from March 2002 to September 2003. He was also Governor of the Province of Cocle, Panama, from March 2002 to September 2003. Mr. Fifer holds a B.Sc. in both Geology and Geophysical Engineering and an M.A. in Finance.
David Kaplan
Mr. David Kaplan was appointed to our Board of Directors on November 6, 2009. He is a former key member of LIM Advisors LLC, a multi-strategy investment group, where he managed a portfolio of metal and energy futures and securities for a commodity hedge fund. He is a also a former Vice-President of Gerald Metals Inc., financial analyst with Glencore Ltd., and graduate of the Wharton School of the University of Pennsylvania .
David Levy
Mr. David Levy (born December 22, 1984) was appointed to our Board of Directors on November 6, 2009. He is a member of the private placement group at the investment advising firm of Platinum Management (NY) LLC, where he has participated in over 25 capital raising transactions for public and private corporations. He specializes in structuring and negotiating financings at all levels of the capital structure through extensive industry research, financial analysis and modeling. Mr. Levy graduated with honors from Sy Syms School of Business of Yeshiva University.
Joao Manuel
Mr. Joao Manuel (born November 6, 1952) was appointed our President and Chief Executive Officer on November 6, 2009, after having served as our Chief Operating Officer since December 1, 2008. Before joining us, Mr. Manuel held the position of Chief Financial Officer of Copper, which was also a reporting issuer listed on the Toronto Stock Exchange. Mr. Manuel has over 20 years of management experience in large, multinational corporations worldwide, including General Electric Company, ITT Europe Ltd. and Nokia Consumer Electronics. He is a former Managing Director of Inapa France S.A. and Chief Financial Officer and Deputy Chief Executive Officer of the Inapa Group, Europe’s fourth largest paper merchant with operations in eight countries.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 52 |
Bassam Moubarak
Mr. Bassam Moubarak (born February 6, 1977), a Chartered Accountant, was appointed our Chief Financial Officer on February 11, 2008. Before joining us, Mr. Moubarak held the position of Senior Manager with the public accounting firm of Deloitte & Touche LLP, where he led audits of public companies and oversaw implementations pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. Prior to joining Deloitte & Touche LLP, he was responsible for audits of companies in both the public and private sectors with Grant Thornton LLP. His expertise covers corporate financial reporting, designing financial processes and controls and risk management. He also holds an economics degree.
Daniel Small
Mr. Daniel Small (born April 16, 1969) was appointed to our Board of Directors on November 6, 2009. He is a Managing Director at the investment advising firm of Platinum Management (NY) LLC (“Platinum”), where he leads the firm’s private placement group. Prior to joining Platinum, Mr. Small was a Senior Analyst, who served on the investment committee at Glenview Capital Management, a $7 billion hedge fund. He is a former Director of the Strategic Risk Group at Merrill Lynch responsible for a $1 billion multi-strategy proprietary investing platform. As a former Director in the Mergers & Acquisitions Department at SG Cowen Securities, he advised corporations in the financing and restructuring of public and private corporations. Mr. Small is a graduate of the Wharton School of the University of Pennsylvania and earned a doctorate in law from the University of Pennsylvan ia Law School.
6.B. Compensation
During the one month ended May 31, 2008, and the 12 months ended April 30, 2008, we paid cash compensation to our directors and officers as provided for herein. No other funds were set aside or accrued by us during the one month period ended May 31, 2008, or 12 months ended April 30, 2008, to provide pension, retirement or similar benefits for our directors or officers pursuant to any existing plan provided or contributed to by us or our subsidiaries under applicable Canadian laws.
We are required, under applicable securities legislation in Canada to disclose to our shareholders details of compensation paid to our executive officers. The following fairly reflects all material information regarding compensation paid to our executive officers disclosed to our shareholders under applicable Canadian law.
Cash and Non-Cash Compensation - Executive Officers and Directors
Effective May 1, 2007, we had four directors namely Ralph Ansley, John Cook, Richard Fifer and Marco Tejeira and three executive officers being Richard Fifer as President and Chief Executive Officer, Tony M. Ricci as interim Chief Financial Officer, and Graham Scott as Corporate Secretary. On June 11, 2007, Robert Baxter joined the board of directors. Further, Tony M. Ricci served as interim Chief Financial Officer, while we undertook a search for a permanent Chief Financial Officer until Bassam Moubarak was appointed Chief Financial Officer on February 11, 2008.
Effective June 1, 2008, we had five directors including Ralph Ansley, Robert Baxter, John Cook, Richard Fifer and Marco Tejeira and three officers including Richard Fifer as President and Chief Executive Officer, Bassam Moubarak as Chief Financial Officer and Graham Scott as Corporate Secretary. During the course of our fiscal year ended May 31, 2009, Ralph Ansley resigned from his directorship on July 7, 2008, due to medical reasons and Marco Tejeira did not stand for re-election at our annual general meeting of shareholders held on November 18, 2008.
At our annual general meeting of shareholders, five directors namely Robert Baxter, John Cook, Richard Fifer, Gaston Araya and John Resing were elected to the board by our shareholders on November 18, 2008. Subsequently, Christopher Davie, joined our company on September 15, 2009, in the capacity of President and Chief Executive Officer. On November 5, 2009, Robert Baxter, John Cook, Gaston Araya and John Resing resigned from our board, Graham H. Scott resigned as Corporate Secretary and Christopher Davie resigned as President and Chief Executive Officer. On November 6, 2009, sole director, Richard Fifer, was joined on the board by Raul Ferrer, David Kaplan, David Levy and Daniel Small to re-establish the number of directors at five./P>
We currently have three officers namely Joao Manuel, appointed as President and Chief Executive Officer on November 6, 2009; Bassam Moubarak, appointed as Chief Financial Officer on February 11, 2008; and Richard Fifer, appointed as Non-Executive Chairman of our Board of Directors on November 6, 2009.
The following table sets forth all annual and long term compensation for services provided to us during the one month ended May 31, 2008, and the 12 months ended April 30, 2008, in respect of the individuals who were, at May 31, 2008, our directors and executive officers:
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 53 |
Summary Compensation Table
| | | | | | | |
Short Term Compensation | Long Term Compensation |
For One Month Ended May 31, 2008 |
| Awards | Payouts | |
Name and Principal Position
|
Salary ($)
|
Bonus ($)
| Other Annual Compen- sation ($)
| Securities Under Options granted (#)
| Restricted Shares or Restricted Share Units ($) |
LTIP Payouts ($)
|
All Other Compensation ($)
|
| | | | | | | |
Ralph Ansley | nil | nil | nil | nil | n/a | n/a | nil |
| | | | | | | |
Robert Baxter | nil | nil | nil | nil | n/a | n/a | nil |
| | | | | | | |
John Cook | $10,000 | nil | nil | nil | n/a | n/a | nil |
| | | | | | | |
Richard Fifer President & Chief Executive Officer | $15,141 | nil | nil | nil | n/a | n/a | nil |
| | | | | | | |
Bassam Moubarak Chief Financial Officer(1) | $17,083 | nil | nil | nil | n/a | n/a | nil |
| | | | | | | |
Graham Scott Corporate Secretary | nil | nil | nil | nil | n/a | n/a | nil |
| | | | | | | |
Marco Tejeira | $6,016 | nil | nil | nil | n/a | n/a | nil |
| | | | | | | |
For Twelve Months Ended April 30, 2008 | | |
| | | | | | | |
Ralph Ansley | $21,863 | nil | nil | nil | n/a | n/a | nil |
| | | | | | | |
Robert Baxter | $7,150 | nil | nil | 400,000(2) | n/a | n/a | nil |
| | | | | | | |
John Cook | $120,000 | nil | nil | nil | n/a | n/a | nil |
| | | | | | | |
Richard Fifer President & Chief Executive Officer | $184,954 | nil | nil | nil | n/a | n/a | nil |
| | | | | | | |
Bassam Moubarak Chief Financial Officer(1) | $46,296 | nil | nil | 100,000(2) | n/a | n/a | nil |
| | | | | | | |
Graham Scott Corporate Secretary | nil | nil | nil | nil | n/a | n/a | nil |
| | | | | | | |
Marco Tejeira | $61,277 | nil | nil | nil | n/a | n/a | nil |
(1)
Bassam Moubarak was appointed Chief Financial Officer of our company on February 11, 2008.
(2)
Stock options subsequently cancelled effective July 31, 2009.
Option Grants in Last Two Fiscal Periods (One Month Ended May 31, 2008, and Twelve Months Ended April 30, 2008)
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 54 |
The table below sets forth stock options granted by us during the 12 months ended April 30, 2008, to our then executive officers. We did not grant any options during the one month ended May 31, 2008.
| | | | | |
Name | Securities Under Options Granted (#) | % of Total Options Granted in 13-Months(1)
|
Exercise or Base Price ($/Security)(2) | Market Value of Securities Underlying Options on Date of Grant ($/Security) |
Expiration Date
|
Bassam Moubarak | 100,000 (3) | 5.97% | $2.80 | nil | February 11, 2013 |
(1)
Percentage of all options granted during the 12 months ended April 30, 2008.
(2)
The exercise price of stock options is set at not less than the Volume Weighted Average Trading Price (VWAP) for the five trading days immediately preceding the date of the stock option grant. Stock options granted as shown above vest over a period of 21 months.
(3)
Stock options subsequently cancelled effective July 31, 2009.
Aggregated Option Exercises in Last Two Fiscal Periods
None of our executive officers exercised any stock options during the 1 month ended May 31, 2008 or the 12 months ended April 30, 2008.
Defined Benefit or Actuarial Plan Disclosure
We do not provide retirement benefits for directors and executive officers.
Termination of Employment, Change in Responsibilities and Employment Contracts
We have entered into formal agreements with our President and Chief Executive Officer, our Chief Financial Officer, our Chief Operating Officer and with the head of our Exploration and Resources Development division establishing financial arrangements that would be in effect in the event of a change of control of our company. Each agreement provides for, in the event of the termination of the engagement of such persons following a change of control of our company, the payment of an amount equal to two times the annual compensation being paid to such person as at the time of the change of control.
Our Employment Agreement with our Chief Financial Officer, Bassam Moubarak, also contains a risk mitigation provision providing 12 months’ compensation in the event of termination of his employment without just cause. The 12 months’ compensation provision will also apply in the event of his dismissal due to any layoff based on group restructuring or a sale of assets.
Directors
With the exception of directors whom also serve as officers, we have arrangements in place in which directors are entitled to receive an attendance fee of US$1,000 per meeting of our Board of Directors and an attendance fee of US$800 per committee meeting attended during our most recently completed financial year and subsequently up to and including the date of this Amendment No. 2. In addition, directors are entitled to compensation of US$800 per day for technical or professional services performed on behalf of our company and directors are also reimbursed for actual expenses incurred in the performance of their duties as directors.
Further, with the exception of directors whom also serve as officers, directors are entitled to an annual retainer of US$24,000. The Non-Executive Chairman of the Board is entitled to annual base compensation in the amount of CAD$60,000.
The following table sets forth stock options granted by us during the 12 months ended April 30, 2008, to our directors who are not also our executive officers (no options were granted to our directors during the 1 month ended May 30, 2008):
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 55 |
| | | | | |
Name
| Securities Under Options Granted (#)
|
% of Total Options Granted in Fiscal Year(1)
|
Exercise or Base Price ($/Security)(2)
| Market Value of Securities Underlying Options on Date of Grant ($/Security)
|
Expiration Date
|
Robert Baxter | 400,000 (3) | 23.88% | $2.25 | nil | June 20, 2012 |
(1)
Percentage of all options granted during the 12 months ended April 30, 2008.
(2)
The exercise price of stock options is set at not less than the Volume Weighted Average Trading Price (VWAP) for the five trading days immediately preceding the date of the stock option grant. Stock options granted as shown above vest over a period of 21 months.
(3)
Stock options subsequently cancelled effective July 31, 2009.
The following table sets forth details of all exercises of stock options during the 12 months ended April 30, 2008, by our directors who are not also our executive officers (no options were exercised by our directors during the one month ended May 31, 2008), and the value as of May 31, 2008, of unexercised options on an aggregate basis:
| | | | |
Name | Securities Acquired on Exercise (#)(1) | Aggregate Value Realized ($)(2) | Unexercised Options at Fiscal Year-End (#)(3) (4) Exercisable/ Unexercisable | Value of Unexercised In-the-Money Options at Fiscal Year-End ($)(3), (4) Exercisable/ Unexercisable |
Ralph Ansley(5) | 23,100 | 70,224 | 251,320 / 83,772 | nil |
| | | | |
Robert Baxter | nil | nil | 200,000(6) / 200,000(6) | nil |
| | | | |
John Cook | 60,000 | $153,900 | 323,400(6) / 107,800(6) | nil |
| | | | |
Marco Tejeira | 150,000 | $424,500 | 60,000 / 0 90,000 / 0 438,000 / 146,000 | $99,600 / $0 $124,650 / $0 nil |
(1)
Number of our common shares acquired on the exercise of stock options.
(2)
Calculated using the closing price of our common shares on the date of exercise less the exercise price of the stock options.
(3)
The figures relate solely to stock options.
(4)
Value of unexercised in-the-money options calculated using the closing price of our common shares on the TSX on Friday, May 30, 2008, which was $1.91, less the exercise price of in-the-money stock options.
(5)
Dr. Ralph Ansley served on our Board of Directors for the period June 6, 2006 to July 7, 2008.
(6)
Stock options subsequently cancelled effective July 31, 2009.
6.C. Board Practices
The directors hold office for a term of one year or until our next annual general meeting, at which time all directors retire, and are eligible for re-election. We do not nor do any of our subsidiaries have any arrangement to provide benefits to our directors upon termination of employment.
As at November 6, 2009, our Audit Committee is composed of Raul Ferrer, David Kaplan and David Levy.
Each director is financially literate. The Audit Committee is appointed by the Board of Directors and its members hold office until removed by the Board of Directors or until our next annual general meeting, at which time their appointments expire and they are then eligible for re-appointment. The Audit Committee reviews our audited consolidated financial statements and liaises with our auditors and recommends to the Board of Directors whether or not to approve such statements. At the request of our auditor, the Audit Committee must convene a meeting to consider any matters the auditor believes should be brought to the attention of the Board of Directors or our shareholders.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 56 |
The Audit Committee operates pursuant to a charter adopted by the Board of Directors. The Audit Committee is responsible primarily for monitoring: (i) the integrity of our financial statements; (ii) compliance with legal and regulatory requirements; and (iii) the independence and performance of our internal and external auditors.
We are currently conducting an internal investigation under the oversight of the Audit Committee and with the assistance of outside independent counsel of certain of our international operations, focusing on the material weakness identified during our assessment of internal controls as at May 31, 2009.
As at November 6, 2009, our Compensation Committee is composed of Raul Ferrer, Richard Fifer and Daniel Small; and our Corporate Governance Committee is composed of Raul Ferrer, Richard Fifer and David Kaplan.
6.D. Employees
As at April 30, 2008, and May 31, 2008, our corporate head office had six permanent employees (two in Administration and four in Finance and Accounting) and three contract staff members working out of our location in Vancouver, Canada, and our administrative office in Panama City, Panama, had twenty five employees. Our locations in Santa Ana and La Pintada had 33 permanent employees, including administration and technical staff, as of May 31, 2008. In addition, our company had a pool of approximately 4 temporary or casual workers (labourers, drilling helpers, etc.) employed at the Molejon gold deposit site.
6.E. Share Ownership
As at November 6, 2009 , the following table sets forth the share ownership of those persons listed in subsection 6.B. above and includes the details of all options or warrants to purchase our shares held by such persons:
| | | | | |
Name | Number of Common Shares Held at November 6, 2009 | Number of Common Shares Subject to Options or Warrants at November 6, 2009 | Beneficial Percentage Ownership(1) | Exercise Price | Expiry Date |
| | | | | |
Ralph Ansley | nil | 100,000 options | * | $0.39 | March 1, 2014 |
| | | | | |
Robert Baxter | 87,500 | nil | * | n/a | n/a |
| | | | | |
John Cook | 95,000 | nil | * | n/a | n/a |
| | | | | |
Richard Fifer | 4,348,783 | 118,800 options 585,000 options | 5.22% | $0.26 $0.54 | July 11, 2010 February 1, 2011 |
| | | | | |
Bassam Moubarak | 10,000 | 200,000 options | * | $0.39 | January 5, 2014 |
| | | | | |
Tony M. Ricci | 24,033 | 200,000 options | * | $2.01 | January 15, 2012 |
| | | | | |
Graham Scott | 28,000 | 43,200 options | * | $0.54 | February 1, 2011 |
| | | | | |
Marco Tejeira | 23,000 | 60,000 options 90,000 options 584,000 options | * | $0.26 $0.54 $2.01 | July 11, 2010 February 1, 2011 January 15, 2012 |
*
Indicates less than 1%.
(1)
Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares owned by a person and the percentage ownership of that person, common shares subject to options and warrants held by that person that are currently exercisable or exercisable within 60 days of November 6, 2009 , are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. This table has been prepared based on 96,040,121 common shares outstanding as of November 6, 2009 .
On June 23, 1994, we adopted a stock option plan (the "Option Plan") which authorized our Board of Directors to grant incentive stock options to our directors, officers and employees or our associated, affiliated, controlled or subsidiary companies, in accordance with the terms of the Option Plan and the rules and policies of the Toronto Stock Exchange. Under the terms of the Option Plan, the aggregate number of our common shares reserved for issuance under the Option Plan at any time may not exceed 4,950,968 and the aggregate number of common shares reserved for issuance to any person may not exceed 5% of the number of outstanding common shares. On July 24, 2002, our Board of Directors amended the Option Plan to increase the number of shares reserved for issuance thereunder from 4,950,968 to 7,436,158.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 57 |
During the 12-month period ended January 31, 2007, we received approval for a new stock option plan (the “New Plan”). On December 8, 2006, our company adopted the New Plan authorizing our Board of Directors to grant incentive stock options to directors, executive officers, employees, or consultants of our company or of our subsidiaries in accordance with the terms of the Option Plan and as may be acceptable pursuant to the policies of the TSX. Under the terms of the New Plan, the aggregate number of our common shares reserved for issuance under the New Plan at any time may not exceed 10,000,000. The approval of the disinterested shareholders of our company must be obtained before (a) the number of common shares under option to insiders within any 12-month period; or (b) the number of common shares issuable to insiders at any time, when combined with all of our company’s security based compensation arrangements, may exceed 10% of our company’s issued and outstanding common shares. The approval of the disinterested shareholders of our company must also be obtained for the reduction in the exercise price, or extension of the term, of options previously granted to insiders.
As at May 31, 2008, the maximum number of common shares reserved for issuance under our company’s New Plan is 10,000,000 common shares of which 1,615,803 have been exercised, leaving 8,384,197 common shares available under the New Plan. The exercise price of the options will not be lower than the “market price” as defined in the TSX Company Manual, being the volume weighted average trading price on the TSX for the shares for the five trading days immediately preceding the date on which the option is granted. Options granted must be exercised no later than 10 years after the date of grant or such lesser period as may be determined by the Board. The Board may at its discretion in any granting of an option set a vesting period whereby the option may only be exercisable in pre-determined installments.
At our Annual General Meeting of Shareholders held on November 18, 2008, shareholders of our company approved an amended and restated stock option plan increasing the maximum number of shares that may be the subject of options at any given time from 10,000,000 to 10,700,000 shares.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A. Major Shareholders
The following table sets forth the name of the only shareholder who, to the knowledge of our management, as at November 6, 2009 , beneficially owns greater than 5% of any class of our voting securities:
| | |
Name | Number of Common Shares Held at November 6, 2009 | Percentage of Common Shares Outstanding at November 6, 2009 |
| | |
Walnut Street Absolute Return Fund, L.P. | 9,539,050 | 9.93% |
There has been no significant change in the percentage ownership held by our major shareholder during the past three years and our major shareholder does not have different voting rights.
As at November 6, 2009 , there were 96,040,121 of our common shares issued and outstanding. Based on the records of our registrar and transfer agent, Computershare Trust Company of 510 Burrard Street, Vancouver, British Columbia, Canada, as at such date there were a total of 205 holders of our common shares, of which 43 were resident in Canada holding an aggregate 82,868,260 common shares, 114 were resident in the United States holding an aggregate 11,166,447 common shares, and 48 holders holding an aggregate of 2,005,414 common shares were not resident in either Canada nor the United States. The shareholdings of United States holders represented approximately 11.6269% of our total issued and outstanding common shares as at November 6, 2009 .
To the extent known to our management, our company is not directly or indirectly owned or controlled by another corporation(s), by any foreign government or by any other natural or legal person(s) severally or jointly. Further, we do not know of any arrangements that may, at a subsequent date, result in a change of control of our company.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 58 |
7.B. Related Party Transactions
During the 12 months ended April 30, 2008, and the one month ended May 31, 2008, we had the following transactions with related parties:
a)
We paid consulting fees of $1,890 (12 months ended April 30, 2008 - $106,033, three months ended April 30, 2007 - $15,545, 12 months ended January 31, 2007 - $411,179 and 12 months ended January 31, 2006 - $114,559) to companies controlled by a director and a former officer.
b)
We paid consultant fees and wages of $9,052 (12 months ended April 30, 2008 - $143,583, three months ended April 30, 2007 – Nil, 12 months ended January 31, 2007 – Nil and 12 months ended January 31, 2006 - Nil) to companies controlled by directors and an officer.
c)
We paid legal fees of Nil (12 months ended April 30, 2008 - $109,517, three months ended April 30, 2007 - $44,523, 12 months ended January 31, 2007 - $230,061 and 12 months ended January 31, 2006 - Nil), share issue costs of Nil (12 months ended April 30, 2008 - $165,836, three months ended April 30, 2007 – Nil, 12 months ended January 31, 2007 - $113,097 and 12 months ended January 31, 2006 - Nil) and financing costs of $95,272 (12 months ended April 30, 2008 – Nil, three months ended April 30, 2007 – Nil, 12 months ended January 31, 2007 – Nil and 12 months ended January 31, 2006 - Nil) to a law firm controlled by an officer. We paid for services and goods of Nil (12 months ended April 30, 2008 - $129,921, three months ended April 30, 2007 - $26,768, 12 months ended January 31, 2007 - $107,359 and 12 months ended January 31, 2006 - $61,749) to a company cont rolled by an officer and a director.
d)
We received $3,425 (12 months ended April 30, 2008 - $34,875, three months ended April 30, 2007 - $8,549, 12 months ended January 31, 2007 - $7,573 and 12 months ended January 31, 2006 - Nil) from Copper as payment of office rent.
e)
We received or accrued Nil (12 months ended April 30, 2008 - $129,345, three months ended April 30, 2007 - $103,348, 12 months ended January 31, 2007 – Nil and 12 months ended January 31, 2006 - Nil) in asset usage fees from Copper for the use of certain office and mining equipment. Also during the period, the Company and Copper advanced negotiations with the lessor of the equipment to have the commercial terms of the leasing arrangement correspond with the terms of the Plan of Arrangement made effective on October 18, 2006, such that Copper will ultimately become the lessee of the equipment. The cost recovery arrangement will be subject to review and revision to reflect changes in operations.
f)
During the 12 months ended April 30, 2008, we had a cost sharing arrangement with Copper varying from 50% to 80% of the cost. This arrangement was terminated on September 30, 2007, when the terms of the agreement were fulfilled.
Certain employees of the Company with knowledge in mining, government, environmental and community relations were previously employed and trained by the Company. In January 2008, we charged Copper for technical know-how and other intellectual property transferred to Copper. The amount of these fees has been determined to be $4,587,320 (US$ 4,577,250). In April 2008, the Company and Copper agreed to rescind the agreement and the fees were refunded to Copper.
As at May 31, 2008, we have an amount payable to Copper of $1,157,788 (April 30, 2008 - $9,880,377 payable, April 30, 2007 - $4,582,937 receivable and January 31, 2007 - $2,143,774 receivable) resulting from mineral property costs and general and administrative expenses paid on Copper’s behalf. This account bears interest at a rate of US prime plus 1%. As at May 31, 2008, we have a balance of $113,832 payable to all other related parties (April 30, 2008 – $16,707, April 30, 2007 – $55,901 and January 31, 2007 – $81,305)
During the period of this annual report, we had posted 5,000,000 common shares of Copper as security for our account payable to Copper. Copper’s common shares posted as security were held in escrow pending payment of the account payable and could not be sold until the account payable was paid in full pursuant to a Warranty Agreement dated September 30, 2007. The common shares serving as security were based on a market value of $2.00 per common share. If the market value of the common shares changed, the number of shares required to be posted as security would be adjusted accordingly. Effective December 31, 2007, we transferred back to Copper 1,815,069 of our Copper shares held as repayment of advances payable to Copper as at December 31, 2007, of $5,608,564. These shares were transferred at a fair market value of $3.09 per share. The fair market value of Copper shares tra nsferred back to Copper was calculated in accordance with the Warranty Agreement dated September 30, 2007. As Copper did not publicly trade until December 31, 2007, the fair value was determined using the Black-Scholes options pricing model to determine the fair market value of a Copper common share and half warrant in each unit issued in Copper’s first tranche of a non-brokered private placement in December 2007.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 59 |
In September of 2007, we entered into an agreement with Copper to sell some of our surplus property and equipment and mineral properties that are no longer required for current operations. The net book value of these assets is $3,464,048 which approximates their fair market value. We did not recognize a gain or loss on this disposal.
On September 30,2007, Petaquilla Gold S.A. (“Gold”), a subsidiary of the Company entered into a Service Agreement with Copper to provide electric generation, aggregate for construction and the rental of a drill machine (collectively, the “services”) for a three-year period. In return for receiving certain benefits and assurances, payment for services has been assumed and prepaid by Copper in the amount of $4,387,705 (US$4,404,000).
Other than the above transactions, there were no material transactions in the 12 months ended April 30, 2008, or the one month ended May 31, 2008, or proposed material transactions between us or any of our subsidiaries and:
(a)
enterprises that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, our company;
(b)
associates;
(c)
individuals owning, directly or indirectly, an interest in the voting power of our company that gives them significant influence over us, and close members of any such individual's family;
(d)
key management personnel, that is, those persons having authority and responsibility for planning, directing and controlling our activities (or their wholly owned private companies), including directors and senior management of companies and close members of such individuals' families;
(e)
enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence including enterprises owned by our directors or major shareholders and enterprises that have a member of key management in common with our company.
None of our officers or directors, or any associate of such person, was indebted to the Company at any time during the one month ended May 31, 2008, the 12 months ended April 30, 2008, the three months ended April 30, 2007, nor during the 12 months ended January 31, 2007.
7.C. Interests of Experts and Counsel
This Amendment No. 2 is being filed as an Annual Report under the Exchange Act and, as such, there is no requirement to provide any information under this section.
ITEM 8. FINANCIAL INFORMATION
8.A. Consolidated Statements and Other Financial Information
This Annual Report contains our consolidated financial statements for the one month ended May 31, 2008, the 12 months ended April 30, 2008, the three months ended April 30, 2007, the 12 months ended January 31, 2007, and the twelve months ended January 31, 2006, which contains an Independent Auditor’s Report on Financial Statements dated June 16, 2009, comments by Auditors for U.S. Readers on Canada – U.S. Reporting Conflict, Consolidated Balance Sheets as at May 31, 2008, April 30, 2008, April 30, 2007, and January 31, 2007, Consolidated Statements of Operations and Comprehensive Loss and Deficit for the Fiscal Periods ended May 31, 2008, April 30, 2008, April 30, 2007, January 31, 2007, and January 31 2006 Consolidated Statements of Cash Flows for the Fiscal Periods Ended May 31, 2008, April 30, 2008 , April 30, 2007 January 31, 2007, and January 31, 2006 and Notes to the Consolidated Financial Statements.
8.B. Significant Changes
Subsequent to May 31, 2008:
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 60 |
(i)
The Company closed the remaining US$27,750,000 of its senior secured notes financing. Net proceeds received were US$20,612,480. 11,024,520 warrants were issued as part of the senior secured notes financing.
(ii)
The Company sold all 20,418,565 Copper shares for proceeds of $44,920,843.
(iii)
The Company repaid $38,355,744 (US$ 36,032,376) of the face value of its senior secured notes. Total amount paid including the 20% premium on redemption is $44,920,843 (US$ 43,238,852).
(iv)
The Company issued a supplemental US$20,000,000 of its senior secured notes. Net proceeds received were US$15,875,000.
(v)
On March 30, 2009, the Company closed a Convertible Senior Secured Notes (“Convertible Notes”) financing of up to US$40,000,000 (“Convertible Notes”). The Convertible Notes are convertible at a price of $2.25 per share. The Convertible Notes will bear interest at an annual rate of fifteen percent (15%), of which the first twelve months’ interest shall be prepaid in full at the time of issuance of the Convertible Notes. The Convertible Notes will mature two years from date of issuance at 110% of the principal amount. The Company is required to make semi-annual repayments on the previously issued senior secured notes commencing on September 15, 2009 and on the Convertible Notes commencing September 15, 2010 ranging from $nil to $8,000,000 depending upon the average price of gold. The Company has the right to redeem the Convertible Notes at any time at 110% of the principal amount plus a ny accrued or unpaid interest on the Convertible Notes. If the Convertible Notes are redeemed within one year of issuance, all prepaid interest is forfeited. Holders of the previously issued Series 1, Series B and Series C notes were offered to exchange amounts due upon maturity of their existing notes and participate pro-rata in the Convertible Notes offering up to a maximum of US$24,187,083. The remaining proceeds of the private placement will be used for the continued commissioning of the Molejon Gold Project located in Panama and for working capital purposes. Holders of the Series 1 notes representing 11,984 notes (US$11,983,812) have agreed not to exercise their put right until June 1, 2010. In addition, the Company has agreed to reduce the exercise price of 23,836,800 warrants from $2.30 per share to $0.65 per share. Under the revised terms of the warrants, if the common shares of the Company trade at a weighted average trading price of $1.00 or more per share for 30 consecutive tradi ng days, the holders of the warrants must exercise the warrants within 30 days.
(vi)
The Company’s management conducted an assessment of the Molejon Gold Mine resulting in the identification of several deficiencies in the plant construction and operation. These deficiencies have led to several areas of the plant not operating to design specifications resulting in additional future costs to mitigate construction deficiencies. A process for estimating costs of mitigation is in the identification stage thus no amounts can be quantified at this time.
(vii)
The Company entered into a forward sale agreement for 7,000 ounces of gold to be delivered in October and November 2009. Disruption of plant operations from any cause may result in delivery default and result in additional cost being incurred. The Company received $5,129,600 representing 80% of the ounces sold.
(viii)
In September 2009, the Company made a principal, premium and interest payment of $6,208,844 on its senior secured notes pursuant to the provisions of the debt agreement.
(ix)
As a result of operational issues, the Company has been unable to meet its current production targets and requires additional funding in order to continue operations. Management is currently in substantive negotiations with lenders to secure additional financing; however, there is no guarantee that management will be successful in its efforts.
(x)
On November 5, 2009, Gaston Araya, Robert Baxter, John Cook and John Resing resigned from the Company’s board of directors, Christopher Davie resigned as President and Chief Executive Officer and Graham H. Scott resigned as Corporate Secretary.
(ix)
As a result of operational issues, the Company has been unable to meet its current production targets and requires additional funding in order to continue operations. On November 6, 2009 Management negotiated with a related party a $5,000,000 bridge loan that matures in 120 days. The Company will pay $500,000 on maturity as a restructuring fee. In the event the amount is paid in 30 days, the fee is reduced to $150,000. The lender also agreed to forbear any amounts due under the indenture until the repayment of bridge loan.
(x)
On November 5, 2009, Gaston Araya, Robert Baxter, John Cook and John Resing resigned from the Company’s board of directors, Christopher Davie resigned as President and Chief Executive Officer and Graham H. Scott resigned as Corporate Secretary.
(xi)
On November 6, 2009, Raul Ferrer, David Kaplan, David Levy and Daniel Small joined the Company’s board of directors. In addition, Richard Fifer was appointed Non-Executive Chairman of the board of directors and Joao Manuel was appointed President and Chief Executive Officer.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 61 |
ITEM 9. THE OFFER AND LISTING
9.A. Offer and Listing Details
The high and low sale prices for our common shares on the Toronto Stock Exchange for each of the preceding six months, each fiscal quarter in each of the last two full financial years and subsequent period and each of the last five full financial years are as follows:
| | | | |
| | High (CAD) | | Low (CAD) |
October 2009 | $ | 0.39 | $ | 0.20 |
September 2009 | $ | 0.49 | $ | 0.31 |
August 2009 | $ | 0.65 | $ | 0.45 |
July 2009 | $ | 0.73 | $ | 0.55 |
June 2009 | $ | 0.79 | $ | 0.57 |
May 2009 | $ | 0.73 | $ | 0.53 |
| | | | |
June 1, 2009 – May 31, 2010 | | | | |
First Quarter (June 1, 2009 – August 31, 2009) | $ | 0.79 | $ | 0.45 |
| | | | |
June 1, 2008 – May 31, 2009 | $ | 1.98 | $ | 0.285 |
Fourth Quarter (March 1, 2009 – May 31, 2009) | $ | 0.73 | $ | 0.35 |
Third Quarter (December 1, 2008 – February 28, 2009) | $ | 0.61 | $ | 0.285 |
Second Quarter (September 1, 2008 – November 30, 2008) | $ | 1.30 | $ | 0.36 |
First Quarter (June 1, 2008 – August 31, 2008) | $ | 1.98 | $ | 0.93 |
| | | | |
May 1, 2008 – May 31, 2008 | $ | 2.32 | $ | 1.75 |
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 62 |
The closing price of our common shares on the Toronto Stock Exchange on November 6, 2009, was $0.32 CAD.
The high and low sale prices for our common shares on the Over The Counter Bulletin Board for each of the preceding six months, each fiscal quarter in each of the last two full financial years and subsequent period and each of the last five full financial years are as follows:
| | | | |
2009 | | High (USD) | | Low (USD) |
October 2009 | $ | 0.37 | $ | 0.20 |
September 2009 | $ | 0.458 | $ | 0.2923 |
August 2009 | $ | 0.68 | $ | 0.411 |
July 2009 | $ | 0.729 | $ | 0.4971 |
June 2009 | $ | 0.729 | $ | 0.4971 |
May 2009 | $ | 0.64 | $ | 0.4453 |
| | | | |
June 1, 2009 – May 31, 2010 | | | | |
First Quarter (June 1, 2009 – August 31, 2009) | $ | 0.729 | $ | 0.411 |
| | | | |
June 1, 2008 – May 31, 2009 | $ | 1.99 | $ | 0.26 |
| | | | |
Fourth Quarter (March 1, 2009 – May 31, 2009) | $ | 0.64 | $ | 0.26 |
Third Quarter (December 1, 2008 – February 28, 2009) | $ | 0.53 | $ | 0.26 |
Second Quarter | $ | 1.18 | $ | 0.28 |
(September 1, 2008 – November 30, 2008) | | | | |
First Quarter | $ | 1.99 | $ | 0.852 |
(June 1, 2008 – August 31, 2008) | | | | |
| | | | |
May 1, 2008 – May 31, 2008 | $ | 2.349 | $ | 1.75 |
| | | | |
May 2007 – April 2008 | $ | 3.40 | $ | 1.80 |
Fourth Quarter (February 1, 2008 – April 30, 2008) | $ | 3.06 | $ | 1.80 |
Third Quarter (November 1, 2007 – January 31, 2008) | $ | 3.40 | $ | 2.50 |
Second Quarter (August 1, 2007 – October 31, 2007) | $ | 3.331 | $ | 2.1824 |
First Quarter (May 1, 2007 – July 31, 2007) | $ | 3.08 | $ | 2.00 |
| | | | |
February 2007 – April 2007 | $ | 2.24 | $ | 1.6398 |
February 2006 – January 2007 | $ | 2.7059 | $ | 0.901 |
February 2005 – January 2006 | $ | 1.19 | $ | 0.30 |
The closing price of our common shares on the Over the Counter Bulletin Board on November 6, 2009, was US$0.3025.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 63 |
9.B. Plan of Distribution
This Amendment No. 2 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this section.
9.C. Markets
Our common shares traded on the Vancouver Stock Exchange from March 29, 1988, until August 21, 1998, when they were delisted from trading at our request. Our common shares have traded on the Toronto Stock Exchange since January 28, 1994. We trade our shares on the Toronto Stock Exchange under the trading symbol "PTQ". Our common shares traded on the NASDAQ Small Cap Market from February 5, 1996, until April 12, 1999, when they were delisted for failure to meet minimum bid requirements and began to trade on the Over the Counter Bulletin Board on April 13, 1999. We trade our shares on the Over the Counter Bulletin Board under the trading symbol "PTQMF". We commenced trading on the Frankfurt Stock Exchange under the trading symbol “P7Z” on October 24, 2005.
9.D. Selling Shareholders
This Amendment No. 2 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this section.
9.E. Dilution
This Amendment No. 2 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this section.
9.F. Expenses of the Issue
This Amendment No. 2 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this section.
ITEM 10. ADDITIONAL INFORMATION
10.A. Share Capital
This Amendment No. 2 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this section.
10.B. Memorandum and Articles of Association
We were incorporated on October 10, 1985, pursuant to theCompany Act,which has been replaced by theBusiness Corporations Act(British Columbia) (the "Act") and are registered with the Registrar of Companies for British Columbia under incorporation number 298967. We are not limited in our objects and purposes.
With respect to our directors, our Articles provide that a director who is, in any way, directly or indirectly interested in an existing or proposed contract or transaction with PTQ, or who holds any office or possesses any property whereby, directly or indirectly, a duty or interest might be created to conflict with his duty or interest as a director, shall declare the nature and extent of his interest in such contract or transaction or the conflict or potential conflict with his duty and interest as a director, as the case may be, in accordance with the provisions of the Act and shall abstain from voting in respect thereof. This prohibition does not apply to:
(i)
any such contract or transaction relating to a loan to our company, which a director or a specified corporation or a specific firm in which he has an interest has guaranteed or joined in guaranteeing the repayment of the loan or any part of the loan;
(ii)
any contract or transaction made or to be made with, or for the benefit of a holding corporation or a subsidiary corporation of which a director is a director;
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(iii)
any contract by a director to subscribe for or underwrite shares or debentures to be issued by us or our subsidiary, or any contract, arrangement or transaction in which a director is, directly or indirectly interested if all the other directors are also, directly or indirectly interested in the contract, arrangement or transaction;
(iv)
determining the remuneration of the directors;
(v)
purchasing and maintaining insurance to cover directors against liability incurred by them as directors; or
(vi)
the indemnification of any director by us.
Our Articles also provide that our directors may from time to time on our behalf borrow such money in such manner and amount, on such security, from such sources and upon such terms and conditions as they think fit; issue bonds, debentures and other debt obligations, either outright or as security for any liability or obligation of our company, or any other person; and mortgage, charge, whether by way of specific or floating charge, or give other security on the undertaking, or on the whole or any part of our property and assets (both present and future). Variation of these borrowing powers would require an amendment to our Articles which would, in turn, require the approval of our shareholders by way of a Special Resolution, as defined hereinafter. A “Special Resolution” means a resolution cast by a majority of not less than ¾ of the votes cast by our shareholders who, being entitled to do so, vote in person or by proxy at our general meeting of which notice as our Articles provide and not being less than 21 days notice specifying the intention to propose the resolution as a special resolution, has been duly given (or, if every shareholder entitled to attend and vote at the meeting agrees, at a meeting of which less than 21 days notice has been given), or a resolution consented to in writing by each of our shareholders who would have been entitled to vote in person or by proxy at our general meeting, and a resolution so consented to is deemed to be a special resolution passed at our general meeting.
There is no requirement in our Articles or in the Act requiring retirement or non-retirement of directors under an age limit requirement, nor is there any minimum shareholding required for a director's qualification.
Holders of our common shares are entitled to vote at meetings of shareholders, and a Special Resolution, as described above, is required to effect a change in the rights of shareholders. Holders of common shares are not entitled to pre-emptive rights. Holders of common shares are entitled, ratably, to the remaining property of our company upon our liquidation, dissolution or winding up, and such holders receive dividends if, as, and when, declared by our directors. There are no restrictions on the purchase or redemption of common shares by us while there is an arrearage in the payment of dividends or sinking fund installments. There is no liability on the part of any shareholder to further capital calls by us nor any provision discriminating against any existing or prospective holder of our securities as a result of such shareholder owning a substantial number of common shares. Ther e are no limitations on the rights to own securities, including the rights of non-resident or foreign shareholders to hold or exercise voting rights on the securities imposed by the Act or by our constating documents.
We are required to give our registered shareholders not less than 21 days notice of any general meeting held by us unless all such shareholders consent to reduce or waive the period. In addition, we are obliged to give notice to registrants and intermediaries who hold common shares on behalf of the ultimate beneficial owners no fewer than 35 or more than 60 days prior to the date of the meeting. We then deliver, in bulk, proxy-related materials in amounts specified by the intermediaries. None of our common shares owned by registrants or intermediaries may be voted at our general meeting unless all proxy-related materials are delivered to the ultimate beneficial owners of such common shares. Such ultimate beneficial owner must then deliver a proxy to us within the time limited by us for the deposit of proxies in order to vote the common shares in respect of which such person is the benefic ial owner.
There is no provision in our Articles that would have an effect of delaying, deferring or preventing our change in control and that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or any of our subsidiaries) other than a shareholder rights plan adopted by our Board of Directors effective March 7, 2006, and approved by our company’s shareholders at the Annual and Special Meeting held on June 6, 2006 (the “Shareholder Rights Plan”).
The Shareholder Rights Plan is designed to ensure that all shareholders receive equal treatment and to maximize shareholder values in the event of a take-over bid or other acquisition that could lead to a change in control of our company. It is not intended to deter take-over bids. Take-over bid contests for corporate control provide a singular opportunity for shareholders to obtain a one-time gain. After the acquisition of effective control, the opportunity for this one-time gain normally does not reoccur. As with most public companies, control of our company can probably be secured through the ownership of much less than 50% of the shares. Without a shareholder rights plan, it would be possible for a bidder to acquire effective control, over a relatively short period of time, through open market and private purchases, using various techniques permitted under the securities legislation in Canada, without making a bid ava ilable to all shareholders. Such acquisition of control would probably be an effective deterrent to other potential offerors. The person acquiring control would probably, over a period of time, be able to consolidate and increase its control without the price for control ever being tested through an open market auction. Shareholder rights plans are designed to prevent this occurrence by forcing all acquisitions of control into a public offer mode. A public offer will not necessarily achieve all of the objectives of ensuring the maximum value to shareholders. A take-over bid can be completed in a time period as short as 35 days. This is too short a time period to ensure that the directors can develop other competing alternatives. The Shareholder Rights Plan is intended to provide time to shareholders to properly assess any take-over bid and to provide the Board of Directors with sufficient time to explore and develop alternatives for maximizing shareholder value, including, if consider ed appropriate, identifying and locating other potential bidders.
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The following is a summary of the terms of the Shareholder Rights Plan:
General
The rights have been issued pursuant to a shareholder rights plan agreement dated and effective March 7, 2006, between our company and the rights agent. Each right will entitle the holder to purchase from our company one common share at the exercise price of Cdn$30 per share, subject to adjustments, at any time after the separation time (defined below). However, if a flip-in event (defined below) occurs, each right will entitle the holder to receive, upon payment of the exercise price, common shares having a market value equal to two-times the exercise price. The rights are non-exercisable until the separation time.
Trading of Rights
Until the separation time, the rights will be evidenced by the outstanding certificates for common shares and the rights will be transferred with, and only with, the common shares. As soon as practicable following the separation time, separate certificates evidencing the rights will be mailed to holders of record of common shares as of the close of business at the separation time and the separate rights certificates will thereafter evidence the rights.
Separation Time and Acquiring Person
The rights will separate and trade apart from the common shares and become exercisable at the separation time. "Separation time" generally means the close of business on the 10th trading day following the commencement or announcement of the intent of any person to commence a take-over bid, other than a permitted bid or a competing bid, but under certain circumstances can mean the eighth trading day after a person becomes an "acquiring person" by acquiring 20% or more of the voting shares of any class.
Flip-in Event
A "flip-in event" will, in general terms, occur when a person becomes an acquiring person. Upon the occurrence of a flip-in event, each right will entitle the holder to acquire, on payment of the exercise price, that number of common shares having a market value equal to two-times the exercise price. However, any rights beneficially owned by an acquiring person or by any direct or indirect transferees of such person, will be void. The term "beneficial ownership" is defined to include, under certain circumstances, common shares owned indirectly through affiliates, associates, trusts and partnerships, other situations of ownership deemed by operation of law, common shares subject to acquisition or voting agreements and common shares owned by persons acting jointly or in concert. There are several exceptions, including exceptions directed towards investment managers, trust companies, and independent managers of pension plans who are not participating in a take-over bid.
Permitted Bids
Permitted bids are exempted from the operation of the Shareholder Rights Plan. In summary, a permitted bid is a take-over bid made by way of take-over bid circular which complies with the following provisions:
(a) It is made to all holders of voting shares of our company of a particular class and for all those voting shares.
(b) No voting shares can be taken up and paid for before the close of business on the Permitted Bid Expiry Date, as defined below, and unless more than 50% of voting shares held by shareholders independent of the offeror are tendered and not withdrawn.
(c) Voting shares may be tendered at any time until the Permitted Bid Expiry Date and may be withdrawn until taken up and paid for.
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(d) If the condition described in (b) above is met, there will be a public announcement and the takeover bid will be open for a further period of 10 business days.
The Shareholder Rights Plan contains provisions designed to ensure that, if considered appropriate, the time for tendering to two or more competing permitted bids will occur on the same date.
Permitted Bid Expiry Date
The permitted bid provisions require that for a take-over to be a permitted bid it must be left open until the Permitted Bid Expiry Date. The “Permitted Bid Expiry Date” means 60 days following the date of the take-over bid.
Exchange Option
Under certain circumstances, the Board of Directors of our company can, on exercise of a right and payment of the exercise price, issue other of our company’s securities or assets in lieu of common shares. Our company’s Board of Directors can also determine to issue in exchange for the rights, but without payment of the exercise price, common shares having a value equal to the exercise price or other securities or assets of our company having the same value.
Adjustments
The exercise price, the number and kind of shares subject to purchase upon exercise of each right and the number of rights outstanding are subject to adjustment from time to time to prevent dilution in the event that our company takes certain actions involving our company’s share capital which would otherwise have a dilutive effect.
Redemption
At any time before the occurrence of a flip-in event, our Board of Directors may elect to redeem the rights in whole at a redemption price of $0.0001 per right.
Waiver
Our Board of Directors may waive the application of the Shareholder Rights Plan to any flip-in event if it determines that a person became an acquiring person by inadvertence, conditional upon such person having, within 10 days after the determination by our Board of Directors, reduced its beneficial ownership of common shares such that it is no longer an acquiring person. The Board of Directors may also, until a flip-in event has occurred, waive the application of the Shareholder Rights Plan to any particular flip-in event, but in that event, our Board of Directors shall be deemed to have waived the application of the Shareholder Rights Plan to any other flip-in event which may arise under any take-over bid then in effect.
Amendments
Our Board of Directors may amend the Shareholder Rights Plan to correct clerical or typographical errors, to maintain the validity of the plan as a result of any changes in any applicable legislation or to increase or decrease the exercise price. Any amendments required to maintain the validity of the Shareholder Rights Plan must be submitted to our company’s shareholders or, after the separation time, to the holders of the rights for confirmation.
Other amendments can only be made with the approval of our company’s shareholders or, after the separation time, the holders of the rights. Any supplements or amendments to the Shareholder Rights Plan require the prior written consent of the Toronto Stock Exchange.
Term
The Shareholder Rights Plan has a term of 10 years and is subject to ratification at each of the shareholder meetings following the third and sixth anniversaries of the effective date of the Shareholder Rights Plan. If the Shareholder Rights Plan is not so ratified at any meeting, the Shareholder Rights Plan shall terminate forthwith.
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Securities legislation in our home jurisdiction of British Columbia requires that shareholder ownership must be disclosed once a person owns beneficially or has control or direction over greater than 10% of our issued shares. This threshold is higher than the 5% threshold under U.S. securities legislation at which shareholders must report their share ownership.
10.C. Material Contracts
We have entered into formal agreements with our President and Chief Executive Officer, our Chief Financial Officer, our Chief Operating Officer and with the head of our Exploration and Resources Development division establishing financial arrangements that would be in effect in the event of a change of control of our company. Each agreement provides for, in the event of the termination of the engagement of such persons following a change of control of our company, the payment of an amount equal to two times the annual compensation being paid to such person as at the time of the change of control. A copy of each of these agreements has been previously filed with the SEC, except for the agreement with the Company’s Chief Financial Officer, which is attached to this Amendment No. 2 as Exhibit 4.U.
Our Employment Agreement with our Chief Financial Officer, Bassam Moubarak, also contains a risk mitigation provision providing 12 months’ compensation in the event of termination of his employment without just cause. The 12 months’ compensation provision will also apply in the event of his dismissal due to any layoff based on group restructuring or a sale of assets. A copy of the Employment Agreement dated February 11, 2008, between Petaquilla Minerals Ltd. and Bassam Moubarak is attached to this Amendment No. 2 as Exhibit 4.U.
10.D. Exchange Controls
There are no governmental laws, decrees or regulations in Canada relating to restrictions on the export or import of capital, or affecting the remittance of interest, dividends or other payments to non-resident holders of our common shares. Any remittances of dividends to United States residents are, however, subject to a 15% withholding tax (5% if the shareholder is a corporation owning at least 10% of our outstanding common shares) pursuant to Article X of the reciprocal tax treaty between Canada and the United States. See“Item 10 – Additional Information – E. Taxation” below.
Except as provided in the Investment Canada Act (the "Act"), which has provisions which govern the acquisition of a control block of voting shares by non-Canadians of a corporation carrying on a Canadian business, there are no limitations specific to the rights of non-Canadians to hold or vote our common shares under the laws of Canada or the Province of British Columbia or in our charter documents.
Our management considers that the following general summary fairly describes those provisions of the Act pertinent to an investment in our company by a person who is not a Canadian resident (a "non-Canadian").
The Act requires a non-Canadian making an investment which would result in the acquisition of control of the Canadian business to notify the Investment Review Division of Industry Canada, the federal agency created by the Act; or in the case of an acquisition of a Canadian business, the gross value of the assets of which exceeds certain threshold levels or the business activity of which is related to Canada's cultural heritage or national identity, to file an application for review with the Investment Review Division.
The notification procedure involves a brief statement of information about the investment on a prescribed form which is required to be filed with Investment Canada by the investor at any time up to 30 days following implementation of the investment. Once the completed notice has been filed, a receipt bearing the certificate date will be issued to the non-Canadian investor. The receipt must advise the investor either that the investment proposal is unconditionally non-reviewable or that the proposal will not be reviewed as long as notice of review is not issued within 21 days of the date certified under the receipt. It is intended that investments requiring only notification will proceed without government intervention unless the investment is in a specific type of business activity related to Canada's cultural heritage and national identity.
If an investment is reviewable under the Act, an order for review must be issued within 21 days after the certified date on which notice of investment was received. An application for review in the form prescribed is required to be filed with Investment Canada prior to the investment taking place. Once the application has been filed, a receipt will be issued to the applicant, certifying the date on which the application was received. For incomplete applications, a deficiency notice will be sent to the applicant, and if not done within 15 days of receipt of application, the application will be deemed to be complete as of the date it was received. Within 45 days after the complete application has been received, the Minister responsible for theInvestment Canada Act must notify the potential investor that the Minister is satisfied that the investment is likely to be of net benefit to Canada. If within such 45-day period the Minister is unable to complete the review, the Minister has an additional 30 days to complete the review, unless the applicant agrees to a longer period. Within such additional period, the Minister must advise either that he is satisfied or not satisfied that the investment is likely to be of net benefit to Canada. If the time limits have elapsed, the Minister will be deemed to be satisfied that the investment is likely to be of net benefit to Canada. The investment may not be implemented until the review has been completed and the Minister is satisfied that the investment is likely to be of net benefit to Canada.
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If the Minister is not satisfied that the investment is likely to be of net benefit to Canada, the non-Canadian must not implement the investment or, if the investment has been implemented, could be penalized by being required to divest himself of control of the business that is the subject of the investment. To date, the only types of business activities which have been prescribed by regulation as related to Canada's cultural heritage or national identity deal largely with publication, film and music industries. Because our total assets are less than the $5 million notification threshold, and because our business activities would likely not be deemed related to Canada's cultural heritage or national identity, acquisition of a controlling interest in our company by a non-Canadian investor would not be subject to even the notification requirements under the Investment Cana da Act.
The following investments by non-Canadians are subject to notification under the Act:
1.
an investment to establish a new Canadian business; and
2.
an investment to acquire control of a Canadian business that is not reviewable pursuant to the Act.
The following investments by a non-Canadian are subject to review under the Act:
1.
direct acquisition of control of Canadian businesses with assets of $5 million or more, unless the acquisition is being made by a World Trade Organization ("WTO") member country investor (the United States being a member of the WTO);
2.
direct acquisition of control of Canadian businesses with assets of $250,000,000 or more by a WTO investor;
3.
indirect acquisition of control of Canadian business with assets of $5 million or more if such assets represent more than 50% of the total value of the assets of the entities, the control of which is being acquired, unless the acquisition is being made by a WTO investor, in which case there is no review;
4.
indirect acquisition of control of Canadian businesses with assets of $50 million or more even if such assets represent less than 50% of the total value of the assets of the entities, the control of which is being acquired, unless the acquisition is being made by a WTO investor, in which case there is no review; and
5.
an investment subject to notification that would not otherwise be reviewable if the Canadian business engages in the activity of publication, distribution or sale of books, magazines, periodicals, newspapers, film or video recordings, audio or video music recordings, or music in print or machine-readable form.
Generally speaking, an acquisition is direct if it involves the acquisition of control of the Canadian business or of its Canadian parent or grandparent and an acquisition is indirect if it involves the acquisition of control of a non-Canadian parent or grandparent of an entity carrying on the Canadian business. Control may be acquired through the acquisition of actual voting control by the acquisition of voting shares of a Canadian corporation or through the acquisition of substantially all of the assets of the Canadian business. No change of voting control will be deemed to have occurred if less than one-third of the voting control of a Canadian corporation is acquired by an investor.
A WTO investor, as defined in the Act, includes an individual who is a national of a member country of the World Trade Organization or who has the right of permanent residence in relation to that WTO member, a government or government agency of a WTO investor-controlled corporation, limited partnership, trust or joint venture and a corporation, limited partnership, trust or joint venture that is neither WTO-investor controlled or Canadian controlled of which two-thirds of its board of directors, general partners or trustees, as the case may be, or any combination of Canadians and WTO investors.
The higher thresholds for WTO investors do not apply if the Canadian business engages in activities in certain sectors such as uranium, financial services, transportation services or communications.
The Act specifically exempts certain transactions from either notification or review. Included among this category of transactions is the acquisition of voting shares or other voting interests by any person in the ordinary course of that person's business as a trader or dealer in securities.
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10.E. Taxation
Material Canadian Federal Income Tax Consequences
Through consultation with counsel, our management believes that the following general summary accurately describes all material Canadian federal income tax consequences applicable to a holder of our common shares who is a resident of the United States, that qualifies for benefits under the Canada-U.S. Income Tax convention (“1980”) (the “Treaty”) and who is not a resident of Canada and who does not use or hold, and is not deemed to use or hold, his common shares of our company in connection with carrying on a business in Canada (a "non-resident holder").
This summary is based upon the current provisions of the Income Tax Act (Canada) (the "ITA"), the regulations thereunder (the "Regulations"), the current publicly announced administrative and assessing policies of Canada, Customs and Revenue Agency, and all specific proposals (the "Tax Proposals") to amend the ITA and Regulations announced by the Minister of Finance (Canada) prior to the date hereof. This summary assumes that the Tax Proposals will be enacted in their form as of the date of this Annual Report. This description, except for the Tax Proposals, does not take into account or anticipate any changes in law, whether by legislative, government or judicial action, nor does it take into account provincial, territorial, or foreign tax considerations which may differ significantly from those discussed herein.
Dividends
Dividends paid on our common shares to a non-resident holder will be subject to withholding tax. The Treaty provides that the normal 25% withholding tax rate under the ITA is reduced to 15% on dividends paid on shares of a corporation resident in Canada (such as our company) to beneficial owners of the dividends who are residents of the United States, and may also provide for a further reduction of this rate to 5% where the beneficial owner of the dividends is a corporation that is a resident of the United States which owns at least 10% of the voting shares of the corporation paying the dividend.
No dividends have ever been paid by us.
Capital Gains
Under the ITA, a taxpayer's capital gain or capital loss from a disposition of a share of our company is the amount, if any, by which his proceeds of disposition exceed (or are exceeded by) the aggregate of his adjusted cost base of the share and reasonable expenses of disposition. One half of a capital gain (the "taxable capital gain") is included in income, and one half of a capital loss in a year (the "allowable capital loss") is deductible from taxable capital gains realized in the same year. The amount by which a shareholder's allowable capital loss exceeds his taxable capital gains in a year may be deducted from a taxable capital gain realized by the shareholder in the three previous or any subsequent year, subject to certain restrictions in the case of a corporate shareholder.
A non-resident holder is not subject to tax under the ITA in respect of a capital gain realized upon the disposition of a share of a public corporation unless the share represents "taxable Canadian property" to the holder thereof. We are a public corporation for purposes of the ITA and a common share of our company will be taxable Canadian property to a non-resident holder if, at any time during the 60 months period immediately preceding the disposition, the non-resident holder, persons with whom the non-resident holder did not deal at arm's length, or the non-resident holder and persons with whom he did not deal at arm's length together owned not less than 25% of the issued shares of any class of shares of our company. Our shares may also be taxable Canadian property to a holder if the holder acquired them pursuant to certain tax-deferred "rollover" transactions whereby the holde r exchanged property that was taxable Canadian property for our shares.
Where a non-resident holder who is an individual ceased to be resident in Canada, he will be subject to Canadian tax on any capital gain realized on disposition of our shares at that time.
Where a non-resident holder realizes a capital gain on a disposition of our shares that constitute taxable Canadian property, the Treaty relieves the non-resident shareholder from liability for Canadian tax on such capital gains unless:
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(a)
the non-resident holder is an individual who was resident in Canada for not less than 120 months during any period of 20 consecutive years preceding, and at any time during the 10 years immediately preceding, the disposition and the shares were owned by him when he ceased to be resident in Canada or are property substituted for property that was owned at that time, or
(b)
the shares formed part of the business property of a "permanent establishment" or pertained to a fixed base used for the purpose of performing independent personal services that the shareholder has or had in Canada within the 12 months preceding the disposition.
Material United States Federal Income Tax Consequences
The following is a discussion of material U.S. federal income tax consequences that may be relevant with respect to the acquisition, ownership and disposition of our common shares by a U.S. Holder (as hereinafter defined). This discussion does not address all potentially relevant federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion does not cover any state, local or foreign tax consequences. Accordingly, holders and prospective holders of our common shares are urged to consult their own tax advisors about the specific federal, state, local, and foreign tax consequences to them of acquiring, holding and disposing of our common shares, based upon their individual circumstances.
The following discussion is based upon the sections of the Code, Treasury Regulations, published Internal Revenue Service (“IRS”) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time and which are subject to differing interpretations. This discussion does not consider the potential effects, both adverse and beneficial, of any proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.
U.S. Holders
As used in this annual report, a “U.S. Holder” means a holder of our common shares who is (i) a citizen or individual resident of the United States, (ii) corporation, or other entity treated as a corporation for U.S. tax purposes, created or organized in or under the laws of the United States or any state thereof (including the District of Columbia), (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if such trust was in existence on August 20, 1996 and validly elected to be treated as a United States person for U.S. federal income tax purposes or if (1) a court within the U.S. is able to exercise primary supervision over its administration and (2) one or more U.S. persons have the authority to control all of the substantial decisions of such trust. This summary does not address the tax consequences to, and the term U.S. Holder does not inclu de, persons subject to specific provisions of federal income tax law, such as tax-exempt organizations, qualified retirement plans, individual retirement accounts and other tax-deferred accounts, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals, persons or entities that have a “functional currency” other than the U.S. dollar, shareholders subject to the alternative minimum tax, shareholders who hold common shares as part of a straddle, hedging or conversion transaction, and shareholders who acquired their common shares through the exercise of employee stock options or otherwise as compensation for services. This summary is limited to U.S. Holders who own common shares as capital assets, within the meaning of Section 1221 of the Code, and who own (directly and indirectly, pursuant to applicable rules of constructive ownership) no more than 10% of the value of our total outstanding s tock. This summary does not address the consequences to a person of the ownership, exercise or disposition of any options, warrants or other rights to acquire common shares.
If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds our common shares, the tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner should consult its own tax advisors as to the U.S. tax consequences of being a partner in a partnership that acquires, holds, or disposes of our common shares.
Distributions on Our Common Shares
Subject to the discussion below under “Passive Foreign Investment Company,” U.S. Holders receiving dividend distributions (including constructive dividends) with respect to our common shares generally are required to include in gross income for U.S. federal income tax purposes the gross amount of such distributions (without reduction of any Canadian income or other tax withheld from such distributions), equal to the U.S. dollar value of such distributions on the date of receipt (based on the exchange rate on such date), to the extent that we have current or accumulated earnings and profits. Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holder’s federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder’s federal taxable income by those who itemize deductions (See more detailed discussion at “Foreign Tax Credit” below). Dividends paid on our common shares will not generally be eligible for the dividends received deduction provided to corporations receiving dividends from certain U.S. corporations.
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For taxable years beginning before January 1, 2011, dividends received by U.S. Holders that are individuals, estates or trusts from “qualified foreign corporations,” as defined in Section 1(h)(11) of the Code, generally are taxed at the same preferential tax rates applicable to long-term capital gains. Although not free from doubt, it appears that we are a “qualified foreign corporation,” as defined in Section 1(h)(11) of the Code if we are not, and have not been, a PFIC, as described below under “Passive Foreign Investment Company.” We have not determined whether or not we meet the definition of a PFIC for the current tax year and any prior tax years. A corporation that is a PFIC, along with other foreign corporations given special status under the Code, for its taxable year during which it pays a dividend, or for its immediately preceding taxable year, will not be treated as a “qualifying foreign corporation” and dividends received by U.S. Holders that are individuals, estates or trusts generally will be subject to U.S. federal income tax at ordinary income tax rates (and not at the preferential tax rates applicable to long-term capital gains).
In the case of foreign currency received as a dividend that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Generally any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for U.S. dollars, will be ordinary income or loss.
Disposition of Our Common Shares
Subject to the discussion below under “Passive Foreign Investment Company,” U.S. Holders will recognize gain or loss upon the sale of our common shares equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received, and (ii) the shareholder’s tax basis in our common shares. Preferential tax rates apply to long-term capital gains of U.S. Holders that are individuals, estates or trusts. In general, gain or loss on the sale of our common shares will be long-term capital gain or loss if our common shares are a capital asset in the hands of the U.S. Holder and are held for more than one year. Deductions for net capital losses are subject to significant limitations.
Passive Foreign Investment Company
We have not determined whether or not we meet the definition of PFIC, within the meaning of Sections 1291 through 1298 of the Code for the current tax year and any prior tax years. We may or may not qualify as a PFIC in subsequent years due to changes in our assets and business operations. A U.S. Holder who holds stock in a foreign corporation during any year in which such corporation qualifies as a PFIC is subject to numerous special U.S. federal income taxation rules. The following is a discussion of these special rules as they apply to U.S. Holders of our common shares.
Section 1297 of the Code defines a PFIC as a corporation that is not formed in the U.S. if, for any taxable year, either (i) 75% or more of its gross income is “passive income,” which includes interest, dividends and certain rents and royalties or (ii) the average percentage, by fair market value (or, if the corporation is not publicly traded and either is a controlled foreign corporation or makes an election, by adjusted tax basis), of its assets that produce or are held for the production of passive income is 50% or more.
U.S. Holders owning shares of a PFIC are subject to a special tax and to an interest charge based on the value of deferral of U.S. tax attributable to undistributed earnings of a PFIC for the period during which the shares of the PFIC are owned. This special tax would apply to any gain realized on the disposition of shares of a PFIC. In addition, the gain is subject to U.S. federal income tax as ordinary income, taxed at top marginal rates, rather than as capital gain income. The special tax would also be payable on receipt of excess distributions (any distributions received in the current year that are in excess of 125% of the average distributions received during the 3 preceding years or, if shorter, the shareholder’s holding period). However, if the U.S. Holder makes for any tax year a timely election to treat a PFIC as a qualified electing fund (“QEF”) with respect to such shareholder’ s interest therein, the above-described rules generally will not apply. Instead, the electing U.S. Holder would include annually in his gross income his pro rata share of the PFIC’s ordinary earnings and any net capital gain regardless of whether such income or gain was actually distributed. Special rules apply to U.S. Holders who own their interests in a PFIC through intermediate entities or persons. Generally, shareholders do not make a QEF election unless they have sufficient information to determine their proportionate share of a corporation’s net capital gain and ordinary earnings. We have not calculated these amounts for any shareholder, and do not anticipate making these calculations in the foreseeable future.Therefore, U.S. Holders of our common shares should consult their own financial advisor, legal counsel or accountant regarding the QEF election before making this election.
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U.S. Holders who hold, actually or constructively, marketable stock of a foreign corporation that qualifies as a PFIC may elect to mark such stock to the market (a “mark-to-market election”). If such an election is made, such U.S. Holder will not be subject to the special taxation rules of PFIC described above for the taxable years for which the mark-to-market election is made. A U.S. Holder who makes such an election will include in income for the taxable year an amount equal to the excess, if any, of the fair market value of our common shares as of the close of such tax year over such U.S. Holder’s adjusted basis in such shares. In addition, the U.S. Holder is allowed a deduction for the lesser of (i) the excess, if any, of such U.S. Holder’s adjusted tax basis in the shares over the fair market value of such shares as of the close of the tax year, or (ii) the excess, if any of (A) the mark-to-market gains for our common shares included by such U.S. Holder for prior tax years, including any amount which would have been included for any prior year but for Section 1291 interest on tax deferral rules discussed above with respect to a U.S. Holder, who has not made a timely QEF election during the year in which he holds (or is deemed to have held) our common shares and the Company is a PFIC (“Non-Electing U.S. Holder”), over (B) the mark-to-market losses for shares that were allowed as deductions for prior tax years. A U.S. Holder’s adjusted tax basis in our common shares will be increased or decreased to reflect the amount included or deducted as a result of mark-to-market election. A mark-to-market election will apply to the tax year for which the election is made and to all later tax years, unless the PFIC stock ceases to be marketable or the IRS consents to the revocation of the election.
The IRS has issued proposed regulations that, subject to certain exceptions, would treat as taxable certain transfers of PFIC stock by a Non-Electing U.S. Holder that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. Generally, in such cases, the basis of our common shares in the hands of the transferee and the basis of any property received in the exchange for those shares would be increased by the amount of gain recognized. A U.S. Holder who has made a timely QEF election (as discussed above) would not be taxed on certain transfers of PFIC stock, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. The transferee’s basis in this case will depend on the manner of the transfer. The specific tax effect to the U.S. Holder and the transferee may vary based on the manner in which the common shares are transferred. Each U.S. Holder should consult a tax advisor with respect to how the PFIC rules affect their tax situation.
The PFIC and QEF election rules are complex. U.S. Holders should consult a tax advisor regarding the availability and procedure for making the QEF election as well as the applicable method for recognizing gains or earnings and profits under the foregoing rules.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian or other foreign income tax with respect to the ownership of our common shares may be entitled, at the option of the U.S. Holder, to either receive a deduction or a tax credit for U.S. federal income tax purposes with respect to such foreign tax paid or withheld. Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” In addition, this limitation is calculated separately with respe ct to specific categories of income including “passive category income” and “general category income.” Gain or loss recognized by a U.S. Holder on the sale or other taxable disposition of our common shares generally will be treated as “U.S. source” for purposes of applying the foreign tax credit rules. Dividends received by U.S. Holders on our common shares generally will be treated as “foreign source” and generally will be categorized as “passive income” for purposes of applying the foreign tax credit rules. The availability of the foreign tax credit and the application of the limitations with respect to the foreign tax credit are fact specific, and each U.S. Holder of our common shares should consult their own financial advisor, legal counsel or accountant regarding the foreign tax credit rules.
Controlled Foreign Corporation
If more than 50% of the total voting power or the total value of our outstanding shares is owned, directly or indirectly, by citizens or residents of the U.S., U.S. partnerships or corporations, or U.S. estates or trusts (as defined by Section 7701(a)(30) of the Code), each of which own, directly or indirectly, 10% or more of the total voting power of the our outstanding shares (each a “10% Shareholder”), we could be treated as a “Controlled Foreign Corporation” (“CFC”) under Section 957 of the Code.
Our classification as a CFC would effect many complex results, including that 10% Shareholders would generally (i) be treated as having received a current distribution of our “Subpart F income” and (ii) would also be subject to current U.S. federal income tax on their pro rata share of our earnings invested in “U.S. property.” The foreign tax credit may reduce the U.S. federal income tax on these amounts for such 10% Shareholders (See more detailed discussion at “Foreign Tax Credit” above). In addition, under Section 1248 of the Code, gain from the sale or other taxable disposition of our common shares by a U.S. Holder that is or was a 10% Shareholder at any time during the five-year period ending with the sale is treated as a dividend to the extent of our earnings and profits attributable to the common shares sold or exchanged.
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If we are classified as both a PFIC and a CFC, we generally will not be treated as a PFIC with respect to 10% Shareholders. This rule generally will be effective for taxable years of 10% Shareholders beginning after 1997 and for its taxable years ending with or within such taxable years of 10% Shareholders.
We have not determined whether we meet the definition of a CFC, and there can be no assurance that we will not be considered a CFC for the current or any future taxable year.
The CFC rules are very complicated, and U.S. Holders should consult their own financial advisor, legal counsel or accountant regarding the CFC rules and how these rules may impact their U.S. federal income tax situation.
Information Reporting; Backup Withholding
Certain information reporting and backup withholding rules may apply with respect to certain payments related to our common shares. In particular, a payor or middleman within the U.S., or in certain cases outside the U.S., will be required to withhold at a current rate of 28% (which rate is scheduled for periodic adjustment) of any payments to a U.S. Holder regarding dividends paid by the Company, or proceeds from the sale of, such common shares within the U.S., if a U.S. Holder fails to furnish its correct taxpayer identification number (generally on Form W-9) or otherwise fails to comply with, or establish an exemption from, the backup withholding tax requirements. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a refund or a credit against the U.S. Holder’s U.S. federal income tax liability, provided the required information is furnished to the IRS.U.S. Holders sho uld consult their own financial advisor, legal counsel or accountant regarding the information reporting and backup withholding rules applicable to our common shares.
10.F. Dividends and Paying Agents
This Amendment No. 2 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this section.
10.G. Statements by Experts
This Amendment No. 2 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this section.
10.H. Documents on Display
Any documents referred to in this Amendment No. 2 may be inspected at our head office, Suite 410, 475 West Georgia Street, Vancouver, British Columbia, V6B 4M9 Canada, during normal business hours.
10.I. Subsidiary Information
There is no additional information relating to our subsidiaries, which must be provided in Canada and which is not otherwise called for by the body of Canadian Generally Accepted Accounting Principles used in preparing the consolidated financial statements.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We anticipate our primary market risk, if any, to be related to fluctuations in exchange rates. Exchange rate risk may arise if we are required to use different currencies for various aspects of our operations. At present, our functional currency is the Canadian dollar. Based on our overall exchange rate risk as at May 31, 2008, we believe that a ten percent change in exchange rates would not have a material adverse effect on our financial position, results of operations, or changes in financial position. We intend to monitor our exchange rate risk and take reasonable steps to reduce our exposure. We do not intend to purchase or sell derivative instruments for speculative purposes.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 74 |
This Amendment No. 2 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this item.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
There has not been a material default in the payment of principal, interest, a sinking or purchase fund installment, or any other material default not cured within thirty days, relating to our indebtedness or any of our significant subsidiaries. There are no payments of dividends by us in arrears, nor has there been any other material delinquency relating to any class of our preference shares.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Effective March 7, 2006, our Board of Directors adopted a shareholder rights plan, which was subsequently approved by our company’s shareholders at our Annual and Special Meeting held on June 6, 2006.
The Shareholder Rights Plan is designed to ensure that all shareholders receive equal treatment and to maximize shareholder values in the event of a take-over bid or other acquisition that could lead to a change in control of our company. It is not intended to deter take-over bids. Take-over bid contests for corporate control provide a singular opportunity for shareholders to obtain a one-time gain. After the acquisition of effective control, the opportunity for this one-time gain normally does not reoccur. As with most public companies, control of our company can probably be secured through the ownership of much less than 50% of our shares. Without a shareholder rights plan, it would be possible for a bidder to acquire effective control, over a relatively short period of time, through open market and private purchases, using various techniques permitted under the securities legislation in Canada, without making a bid ava ilable to all shareholders. Such acquisition of control would probably be an effective deterrent to other potential offerors. The person acquiring control would probably, over a period of time, be able to consolidate and increase its control without the price for control ever being tested through an open market auction. Shareholder rights plans are designed to prevent this occurrence by forcing all acquisitions of control into a public offer mode. A public offer will not necessarily achieve all of the objectives of ensuring the maximum value to shareholders. A take-over bid can be completed in a time period as short as 35 days. This is too short a time period to ensure that the directors can develop other competing alternatives. The Shareholder Rights Plan is intended to provide time to shareholders to properly assess any take-over bid and to provide our Board of Directors with sufficient time to explore and develop alternatives for maximizing shareholder value, including, if consider ed appropriate, identifying and locating other potential bidders.
The following is a summary of the terms of the Shareholder Rights Plan:
General
The rights have been issued pursuant to a shareholder rights plan agreement dated and effective March 7, 2006, between us and the Rights Agent. Each right will entitle the holder to purchase from us one common share at the exercise price of C$30 per share, subject to adjustments, at any time after the separation time (defined below). However, if a flip-in event (defined below) occurs, each right will entitle the holder to receive, upon payment of the exercise price, common shares having a market value equal to two-times the exercise price. The rights are non-exercisable until the separation time.
Trading of Rights
Until the separation time, the rights will be evidenced by the outstanding certificates for common shares and the rights will be transferred with, and only with, the common shares. As soon as practicable following the separation time, separate certificates evidencing the rights will be mailed to holders of record of common shares as of the close of business at the separation time and the separate rights certificates will thereafter evidence the rights.
Separation Time and Acquiring Person
The rights will separate and trade apart from the common shares and become exercisable at the separation time. “Separation time” generally means the close of business on the 10th trading day following the commencement or announcement of the intent of any person to commence a take-over bid, other than a permitted bid or a competing bid, but under certain circumstances can mean the eighth trading day after a person becomes an "acquiring person" by acquiring 20% or more of the voting shares of any class.
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Flip-in Event
A “flip-in event” will, in general terms, occur when a person becomes an acquiring person. Upon the occurrence of a flip-in event, each right will entitle the holder to acquire, on payment of the exercise price, that number of common shares having a market value equal to two-times the exercise price. However, any rights beneficially owned by an acquiring person or by any direct or indirect transferees of such person, will be void. The term “beneficial ownership” is defined to include, under certain circumstances, shares owned indirectly through affiliates, associates, trusts and partnerships, other situations of ownership deemed by operation of law, shares subject to acquisition or voting agreements and shares owned by persons acting jointly or in concert. There are several exceptions, including exceptions directed towards investment managers, trust companies, and independent managers of pension plans who are not participating in a take-over bid.
Permitted Bids
Permitted bids are exempted from the operation of the Shareholder Rights Plan. In summary, a permitted bid is a take-over bid made by way of take-over bid circular which complies with the following provisions:
(a) It is made to all holders of voting shares of our company of a particular class and for all those voting shares.
(b) No voting shares can be taken up and paid for before the close of business on the “Permitted Bid Expiry Date”, as described below, and unless more than 50% of voting shares held by shareholders independent of the offeror are tendered and not withdrawn.
(c) Voting shares may be tendered at any time until the Permitted Bid Expiry Date and may be withdrawn until taken up and paid for.
(d) If the condition described in (b) above is met, there will be a public announcement and the takeover bid will be open for a further period of 10 business days.
The Shareholder Rights Plan contains provisions designed to ensure that, if considered appropriate, the time for tendering to two or more competing permitted bids will occur on the same date.
Permitted Bid Expiry Date
The permitted bid provisions require that for a take-over to be a permitted bid it must be left open until the “Permitted Bid Expiry Date”, which means 60 days following the date of the take-over Bid.
Exchange Option
Under certain circumstances, the Board of Directors of our company can, on exercise of a right and payment of the exercise price, issue other company securities or assets in lieu of common shares. The Board of Directors can also determine to issue in exchange for the rights, but without payment of the exercise price, common shares having a value equal to the exercise price or other securities or assets of our company having the same value.
Adjustments
The exercise price, the number and kind of shares subject to purchase upon exercise of each right and the number of rights outstanding are subject to adjustment from time to time to prevent dilution in the event that we take certain actions involving our share capital which would otherwise have a dilutive effect.
Redemption
At any time before the occurrence of a flip-in event, the Board of Directors may elect to redeem the rights in whole at a redemption price of $0.0001 per right.
Waiver
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 76 |
The Board of Directors may waive the application of the Shareholder Rights Plan to any flip-in event if it determines that a person became an acquiring person by inadvertence, conditional upon such person having, within 10 days after the determination by the Board of Directors, reduced its beneficial ownership of shares such that it is no longer an acquiring person. The Board of Directors may also, until a flip-in event has occurred, waive the application of the Shareholder Rights Plan to any particular flip-in event, but in that event, the board of directors shall be deemed to have waived the application of the Shareholder Rights Plan to any other flip-in event which may arise under any take-over bid then in effect.
Amendments
The Board of Directors may amend the Shareholder Rights Plan to correct clerical or typographical errors, to maintain the validity of the plan as a result of any changes in any applicable legislation or to increase or decrease the exercise price. Any amendments required to maintain the validity of the Shareholder Rights Plan must be submitted to our company’s shareholders or, after the separation time, to the holders of the rights for confirmation.
Other amendments can only be made with the approval of our shareholders or, after the separation time, the holders of the rights. Any supplements or amendments to the Shareholder Rights Plan require the prior written consent of the Toronto Stock Exchange.
Term
The Shareholder Rights Plan has a term of 10 years and is subject to ratification at each of the shareholder meetings following the third and sixth anniversaries of the effective date of the Shareholder Rights Plan. If the Shareholder Rights Plan is not so ratified at any meeting, the Shareholder Rights Plan shall terminate forthwith.
ITEM 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. Under the supervision and with the participation of our President (serving as our principal executive officer) and Chief Financial Officer (serving as our principal financial officer), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report (the “Evaluation Date”). Based upon that evaluation, the President and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the SEC’s rules and forms, and accumulated and communicated to our management, including the President and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting: Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
An internal control material weakness is a deficiency, or aggregation of deficiencies, such that the risk that material misstatements in financial statements will not be prevented or detected on a timely basis by employees in the normal course of their work. An internal control significant deficiency, or aggregation of deficiencies, is one that could result in a misstatement of the financial statements that is more than inconsequential.
Our management assessed the effectiveness of our internal control over financial reporting as of May 31, 2008, and this assessment identified the following material weaknesses in our company’s internal control over financial reporting.
We do not have sufficient accounting resources at one of our subsidiaries in order to account for and apply internal control to transactions origination at the subsidiary. There is a lack of detective and preventative controls with regard to oversight of recorded transactions at one of our operating subsidiaries. We intend to hire additional accounting staff with the requisite skills in order to ensure that appropriate controls are applied to transactions origination and recording. Further, we intend to have our head office staff perform detailed review of key balances to ensure amounts are recorded appropriately. The expected cost to hire the additional staff is expected to be $150,000 to $200,000.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 77 |
The information technology configuration at one of our subsidiaries does not have the appropriate system privileges set up for each job function. We intend to convert our accounting system to SAP Business One Solution on September 1, 2008. This will ensure that the appropriate privileges are reflective of the job function of each user. Cost related to the conversion has been substantially incurred in the 13 months ended May 31, 2008. The estimated remaining cost to complete during fiscal 2009 will be $15,000 to $25,000.
In making our assessment of internal control over financial reporting management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Because of the material weaknesses described in the preceding paragraph, management believes that, as of May 31, 2008, our company’s internal control over financial reporting was not effective as of the Evaluation Date based on those criteria.
The Audit Committee has been provided information on the deficiencies. Together, the Audit Committee, Board of Directors, and management continue to work to mitigate the risk of a material misstatement in our financial statements. Management has identified certain areas where it can improve process controls and intends to incorporate these changes into the control over the financial reporting over the next twelve months.
Other than the foregoing, during the period covered by this report, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Our independent registered public accounting firm has issued an opinion on the effectiveness of our internal control over financial reporting as of May 31, 2008. The report can be found in the “Independent Auditor’s Report on Internal Controls under Standards of the Public Company Accounting Oversight Board (United States of America).”
ITEM 16. [RESERVED]
16.A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of directors has determined that it does not have a member that qualifies as an “audit committee financial expert” as defined in Form 20-F of the SEC.
We have been unable to retain the services of a person who qualifies as an “audit committee financial expert”. Until we appoint such a person, we believe that the members of our Board of Directors are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting.
16.B. CODE OF ETHICS
Effective May 31, 2008, our Board of Directors adopted an updated Code of Business Ethics and Conduct that applies to, among other persons, our company's President and Chief Executive Officer (being our principal executive officer) and our Company's Chief Financial Officer (being our principal financial and accounting officer and controller), as well as persons performing similar functions. As adopted, our Code of Business Ethics and Conduct sets forth written standards that are designed to deter wrongdoing and to promote:
(1)
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
(2)
full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in other public communications made by us;
(3)
compliance with applicable governmental laws, rules and regulations;
(4)
the prompt internal reporting of violations of the Code of Business Ethics and Conduct to an appropriate person or persons identified in the Code of Business Ethics and Conduct; and
(5)
accountability for adherence to the Code of Business Ethics and Conduct.
Our Code of Business Ethics and Conduct requires, among other things, that all of our company's personnel shall be accorded full access to our President and Chief Executive Officer and Chief Financial Officer with respect to any matter which may arise relating to the Code of Business Ethics and Conduct. Further, all of our company's personnel are to accorded full access to our company's Board of Directors if any such matter involves an alleged breach of the Code of Business Ethics and Conduct by our President and Chief Executive Officer or Chief Financial Officer.
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In addition, our Code of Business Ethics and Conduct emphasizes that all employees, and particularly managers and/or supervisors, have a responsibility for maintaining financial integrity within our company, consistent with generally accepted accounting principles, and federal, provincial and state securities laws. Any employee who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to his or her immediate supervisor or to our Company's Chairman of the Audit Committee or Chief Financial Officer or, if anonymity is preferred, to an independent whistle-blower hotline operated and controlled by a third party. It is against our company policy to retaliate against any individual who reports in good faith the violation or potential violation of our Company's Co de of Business Ethics and Conduct by another.
Our Code of Business Ethics and Conduct and our Whistle-Blower Policy are filed herewith with the SEC as Exhibits 11.A and 11.B to this Amendment No. 2. We will provide a copy of the Code of Business Ethics and Conduct and Whistle-Blower Policy to any person without charge, upon request. Requests can be sent to: Petaquilla Minerals Ltd., Suite 410 - 475 West Georgia Street, Vancouver, BC, Canada V6B 4M9.
16.C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate amounts billed by our auditors to us for (i) the period covered by the one month ended May 31, 2008 and the 12 months ended April 30, 2008 ; (ii) the period covered by the three months ended April 30, 2007 and the 12 months ended January 31, 2007 ; and (iii) the period covered by the 12 months ended January 31, 2006, for audit fees, audit-related fees, tax fees and all other fees are set forth below:
| | | |
| One Month Ended May 31, 2008 and 12 Months Ended April 30, 2008 | Three Months Ended April 30, 2007 and 12 Months Ended January 31, 2007 | 12 Months Ended January 31, 2006 |
Audit Fees(1) | $571,675 | $424,155 | $42,672 |
Audit-Related Fees(2) | $35,110 | Nil | Nil |
Tax Fees(3) | $17,616 | Nil | Nil |
All Other Fees | $130,000 | Nil | Nil |
Totals | $754,401 | $424,155 | $42,672 |
(1) "Audit Fees" represent fees for the audit of our annual financial statements.
(2) "Audit-Related Fees" represent fees for assurance and related services that are related to the performance of the audit.
(3) "Tax Fees" represent fees for tax compliance, tax advice and tax planning.
The Audit Committee has adopted procedures requiring Audit Committee review and approval in advance of all particular engagements for services provided by our independent auditors. Consistent with applicable laws, the procedures permit limited amounts of services, other than audit, review or attest services, to be approved by one or more members of the Audit Committee pursuant to authority delegated by the Audit Committee, provided the Audit Committee is informed of each particular service. All of the engagements and fees for the one month ended May 31, 2008, the 12 months ended April 30, 2008, the three months ended April 30, 2007, the 12 months ended January 31, 2007, and the 12 months ended January 31, 2006 were approved by the Audit Committee. The Audit Committee reviews with our auditors whether the non-audit services to be provided are compatible with maintai ning the auditors' independence. The Board has determined that, starting in the fiscal year ended January 31, 2005, fees paid to the independent auditors for non-audit services in any year would not exceed the fees paid for audit services during the year. Permissible non-audit services will be limited to fees for tax services, accounting assistance or audits in connection with acquisitions, and other services specifically related to accounting or audit matters such as audits of employee benefit plans
16.D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not Applicable.
16.E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not Applicable.
16.F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 79 |
Not Applicable.
16.G. CORPORATE GOVERNANCE
Not Applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS
See the Financial Statements and Exhibits listed in Item 19 hereof and filed as part of this Amendment No. 2. These consolidated financial statements were prepared in accordance with Canadian GAAP and are expressed in Canadian dollars. Such consolidated financial statements have been reconciled to U.S. GAAP (see Note 28 therein). For a history of exchange rates in effect for Canadian dollars as against U.S. dollars, see page 13 of Amendment No. 1 to the Company’s Annual Report on Form 20-F for the 13-month period ended May 31, 2008.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 80 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008,
Three Months Ended April 30, 2007 , Twelve Months Ended January 31, 2007,
and Twelve Months Ended January 31, 2006
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 81 |
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Management Report on Internal Controls over Financial Reporting
The management of Petaquilla Minerals Ltd. (“Petaquilla”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Petaquilla’s internal control system was designed to provide reasonable assurance to the company’s management and board of directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
An internal control material weakness is a deficiency, or aggregation of deficiencies, such that the risk that material misstatements in financial statements will not be prevented or detected on a timely basis by employees in the normal course of their work. An internal control significant deficiency, or aggregation of deficiencies, is one that could result in a misstatement of the financial statements that is more than inconsequential.
The management of Petaquilla assessed the effectiveness of the Company’s internal control over financial reporting as of May 31, 2008, and this assessment identified the following material weaknesses in our company’s internal control over financial reporting.
§
We do not have sufficient accounting resources at one of our subsidiaries in order to account for and apply internal control to transaction origination at the subsidiary.
§
The IT configuration at one of our subsidiaries does not have the appropriate system privileges set up for each job function
§
We have a lack of detective and preventative controls with regard to oversight of recorded transactions at one of our operating subsidiaries
In making our assessment of internal control over financial reporting management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Because of the material weaknesses described in the preceding paragraph, management believes that, as of May 31, 2008, our company’s internal control over financial reporting was not effective as of the Evaluation Date based on those criteria.
The Audit Committee has been provided information on the deficiencies. Together, the Audit Committee, Board of Directors, and management continue to work to mitigate the risk of a material misstatement in our financial statements. Management has identified certain areas where it can improve process controls and intends to incorporate these changes into the control over the financial reporting over the next twelve months.
Other than the foregoing, during the period covered by this report, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Our independent registered public accounting firm has issued an opinion on the effectiveness of our internal control over financial reporting as of May 31, 2008. The report can be found in the "Independent Auditor's Report on Internal Controls under Standards of the Public Company Accounting Oversight Board (United States of America)".
PETAQUILLA MINERALS LTD.
| | | | |
By: | /s/ Richard Fifer | | By: | /s/ Bassam Moubarak |
| Richard Fifer, President and Chief Executive Officer (principal executive officer) | | | Bassam Moubarak, Chief Financial Officer (principal financial and accounting officer) |
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 82 |
INDEPENDENT AUDITORS’ REPORT ON FINANCIAL STATEMENTS
To the Shareholders of
Petaquilla Minerals Ltd.
We have audited the consolidated balance sheets of Petaquilla Minerals Ltd. (an exploration stage company) (the “Company”) as at May 31, 2008, April 30, 2008, April 30, 2007, and January 31, 2007 and the consolidated statements of operations and comprehensive loss and deficit and cash flows for each of the one month period ended May 31, 2008, the year ended April 30, 2008, the three month period ended April 30, 2007 and the year ended January 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the 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 that 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 May 31, 2008, April 30, 2008, April 30, 2007 and January 31, 2007 and the results of its operations and its cash flows for each of the one month period ended May 31, 2008, the year ended April 30, 2008, the three month period ended April 30, 2007 and the year ended January 31, 2007 in conformity with Canadian generally accepted accounting principles.
The consolidated financial statements as at January 31, 2006 and for the year then ended were audited by other auditors who expressed an opinion without reservation on those statements in their report dated April 5, 2006.
Our previous audit report dated August 20, 2008 has been withdrawn and the consolidated financial statements have been revised as described in notes 27 and 28 to the consolidated financial statements.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of May 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 20, 2008 contained an adverse opinion thereon.
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Vancouver, Canada | |
July 8, 2009 (except for note 26 which is as of November 6, 2009) | Chartered Accountants |
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA – U.S. REPORTING CONFLICT
In the United States, reporting standards for auditors require the addition of an explanatory paragraph, following the opinion paragraph, when the financial statements are affected by conditions and events that cast substantial doubt on the Company’s ability to continue as a going concern, such as those described in note 1 to the consolidated financial statements. Our report to the shareholders dated July 8, 2009 is expressed in accordance with Canadian reporting standards which do not permit a reference to such events and conditions in the auditors’ report when these are adequately disclosed in the financial statements.
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Vancouver, Canada | |
July 8, 2009 (except for note 26 which is as of November 6, 2009) | Chartered Accountants |
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 83 |
INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROLS UNDER STANDARDS OF THE PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD (UNITED STATES)
To the Shareholders of
Petaquilla Minerals Ltd.
We have audited Petaquilla Minerals Ltd.’s (an exploration stage company)(the “Company”) internal control over financial reporting as at May 31, 2008 and April 30, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“the COSO criteria”). The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audits included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) 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 (3) provide reasonable assu rance 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.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, 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.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment.
·
The Company does not have sufficient accounting resources at one of its subsidiaries in order to account for and apply internal controls to transactions originating at the subsidiary.
·
The Information Technology configuration at one of the Company’s subsidiaries does not have the appropriate system privileges set up for each job function.
·
The Company lacks detective and preventative controls with regard to oversight of recorded transactions at one of its operating subsidiaries.
These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audits of the one month period ended May 31, 2008 consolidated financial statements and the year ended April 30, 2008 consolidated financial statements and this report does not affect our report dated July 8, 2009 on those financial statements.
In our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, Petaquilla Minerals Ltd. has not maintained effective internal control over financial reporting as of May 31, 2008 and April 30, 2008, based on the COSO criteria.
We also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as at May 31, 2008, April 30, 2008, April 30, 2007 and January 31, 2007 and the consolidated statements of operations and comprehensive loss and deficit and cash flows for each of the one month period ended May 31, 2008, the year ended April 30, 2008, the three month period ended April 30, 2007 and the year ended January 31, 2007 of the Company and our report dated July 8, 2009 expressed an unqualified opinion thereon.
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Vancouver, Canada | |
August 20, 2008 | Chartered Accountants |
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 84 |
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DAVIDSON&COMPANY LLP | | | Chartered Accountants | | A Partnership of Incorporated Professionals |
| | | | | |
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of
Petaquilla Minerals Ltd.
We have audited the consolidated statements of operations and comprehensive loss and deficit and cash flows of Petaquilla Minerals Ltd. for the twelve months ended January 31, 2006. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing standards and with the standards of the 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.
In our opinion, these consolidated financial statements present fairly, in all material respects, the results of the Company’s operations and cash flows for the twelve months ended January 31, 2006 in accordance with Canadian generally accepted accounting principles.
"DAVIDSON & COMPANY LLP"
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Vancouver, Canada | Chartered Accountants |
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April 5, 2006 | |
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA –
U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by conditions and events that cast substantial doubt on the Company's ability to continue as a going concern, such as those described in Note 1 to the financial statements. Our report to the shareholders dated April 5, 2006 is expressed in accordance with Canadian reporting standards which do not permit a reference to such events and conditions in the auditors' report when these are adequately disclosed in the financial statements.
"DAVIDSON & COMPANY LLP"
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Vancouver, Canada | Chartered Accountants |
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April 5, 2006 | |
Telephone (604) 687-0947 Fax (604) 687-6172
![[petamin20fa2part3013.jpg]](https://capedge.com/proxy/CORRESP/0001176256-09-001023/picsx9x1.jpg)
1200 - 609 Granville Street, P.O. Box 10372, Pacific Centre, Vancouver, BC, Canada, V7Y 1G6
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 85 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in Canadian Dollars) (See Note 1 Nature of Operations and Going Concern Uncertainty)
| | | | | | | | | | | | |
| | May 31, 2008 | | | May 31, 2008 | | | April 30, 2007 | | | January 31, 2007 | |
| | (Restated – Note 27) | | | | | | | | | (Restated – Note 27) | |
ASSETS (Note 12) | | | | | | | | | | | | |
Current | | | | | | | | | | | | |
Cash and cash equivalents (Note 13) | $ | 12,775,606 | | $ | 1,778,973 | | $ | 1,778,127 | | $ | 6,929,824 | |
Receivables | | 448,270 | | | 260,627 | | | 100,410 | | | 108,318 | |
Prepaid expenses | | 308,456 | | | 652,371 | | | 452,718 | | | 689,118 | |
Amount receivable from related company (Notes 6 and 18) | | - | | | - | | | 4,582,937 | | | 2,143,773 | |
Total current assets | | 13,532,332 | | | 2,691,971 | | | 6,914,192 | | | 9,871,033 | |
Restricted cash(Note 7) | | 666,288 | | | 676,080 | | | 1,280,571 | | | 1,745,736 | |
Investment in Petaquilla Copper Ltd.(Notes 6 and 18) | | 8,252,421 | | | 8,483,209 | | | 1,807,000 | | | 2,574,818 | |
Property and equipment(Notes 4 and 10) | | 16,681,830 | | | 16,984,201 | | | 5,343,147 | | | 5,221,050 | |
Mineral properties(Note 5) | | 67,149,615 | | | 65,099,631 | | | 31,236,455 | 22,887,996 | |
Total assets | $ | 106,282,486 | | $ | 93,935,092 | | $ | 46,581,365 | | $ | 42,300,633 | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | | | | |
Current | | | | | | | | | | | | |
Bank overdraft (Note 13) | $ | 2,087,820 | | $ | 2,119,950 | | $ | 1,205,382 | | $ | - | |
Operating credit line facility (Note 11) | | 3,849,974 | | | 8,249,356 | | | - | | | - | |
Accounts payable and accrued liabilities | | 7,286,410 | | | 8,665,281 | | | 4,951,297 | | | 3,480,341 | |
Amount payable to a related party (Notes 6 and 18) | | 1,157,788 | | | 9,880,377 | | | - | | | - | |
Current portion of deferred services and materials (Note 9) | | 247,343 | | | 247,343 | | | - | | | - | |
Current portion of obligation under capital leases (Note 10) | | 2,162,289 | | | 923,001 | | | - | | | - | |
Current portion of long-term debt (Note 8) | | 433,621 | | | 451,195 | | | 487,882 | | | 470,493 | |
Total current liabilities | | 17,225,245 | | | 30,536,503 | | | 6,644,561 | | | 3,950,834 | |
Deferred services and materials(Note 9) | | 3,980,203 | | | 4,060,956 | | | - | | | - | |
Asset retirement obligations(Note 24) | | 4,308,083 | | | 4,337,003 | | | 4,400,000 | | | - | |
Senior secured notes(Note 12) | | 26,630,004 | | | - | | | - | | | - | |
Long-term debt(Note 8) | | 161,625 | | | 189,063 | | | 699,185 | | | 869,990 | |
Obligations under capital leases(Note 10) | | 3,968,591 | | | 1,188,031 | | | - | | | - | |
Total liabilities | | 56,273,751 | | | 40,311,556 | | | 11,743,746 | | | 4,820,824 | |
Commitments and contingencies(Notes 21 and 25) | | | | | | | | | | | | |
Shareholders' equity | | | | | | | | | | | | |
Share capital (Notes 14 and 15) | | | | | | | | | | | | |
Authorized | | | | | | | | | | | | |
Unlimited common shares and preferred shares withoutpar value (Note 14) | | | | | | | | | | | | |
Issued and outstanding | | | | | | | | | | | | |
95,958,641 (April 30, 2008 – 95,958,641, April 30, 2007 – 89,876,951 and January 31, 2007 – 89,367,031) commonshares | | 105,858,083 | | | 106,487,564 | | | 91,596,035 | | | 90,571,099 | |
Shares subscribed | | - | | | - | | | 150,000 | | | - | |
Warrants (Notes 14 and 16 | | 12,976,997 | | | 11,539,189 | | | 10,706,498 | | | 10,706,498 | |
Treasury shares, at cost (Note 17) | | | | | | | | | | | | |
44,200 (April 30, 2008, April 30, 2007, and January 31,2007 – 44,200) common shares | | (166,981 | ) | | (166,981 | ) | | (166,981 | ) | | (166,981 | ) |
Contributed surplus (Note 14) | | 16,406,018 | | | 16,316,001 | | | 12,073,149 | | | 9,446,284 | |
Deficit | | (85,065,382 | ) | | (80,552,237 | ) | | (79,521,082 | ) | | (73,077,091 | ) |
Total shareholders’ equity | | 50,008,735 | | | 53,623,536 | | | 34,837,619 | | | 37,479,809 | |
Total liabilities and shareholders’ equity | $ | 106,282,486 | | $ | 93,935,092 | | $ | 46,581,365 | | $ | 42,300,633 | |
On behalf of the Board: | | | | | | | | | | | | |
“ ”
Director “ ”
Director
The accompanying notes are an integral part of these consolidated financial statements.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 86 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS AND DEFICIT
(Expressed in Canadian Dollars)
| | | | | | | | | | | | | | | |
| | One month | | | Twelve months | | | Three months | | | Twelve months | | | Twelve months | |
| | ended May 31, | | | ended April 30, | | | ended April 30, | | | ended January 31, | | | ended January 31, | |
| | 2008 | | | 2008 | | | 2007 | | | 2007 | | | 2006 | |
| | | | | | | | | | | (Restated – Note 27) | | | | |
EXPENSES | | | | | | | | | | | | | | | |
Accounting and legal (Note 18) | $ | 15,538 | | $ | 1,333,876 | | $ | 236,578 | | $ | 490,351 | | $ | 266,967 | |
Accretion of asset retirement obligation (Note 24) | | 52,106 | | | 312,977 | | | - | | | - | | | - | |
Consulting fees (Note 18) | | 21,174 | | | 962,905 | | | 320,908 | | | 756,453 | | | 291,034 | |
Amortization | | 35,517 | | | 352,717 | | | 135,397 | | | 335,912 | | | 56,697 | |
Filing fees | | 280 | | | 88,784 | | | 6,339 | | | 76,329 | | | 30,637 | |
Investor relations and shareholder information | | 54,604 | | | 1,034,572 | | | 153,403 | | | 1,114,102 | | | 388,991 | |
Office administration | | 177,685 | | | 2,418,781 | | | 176,097 | | | 795,840 | | | 257,859 | |
Rent (Note 18) | | 1,630 | | | 125,025 | | | 38,310 | | | 141,187 | | | 80,520 | |
Mineral property costs | | - | | | - | | | - | | | - | | | 11,105 | |
Stock-based compensation (Notes 15 and 16) | | 77,902 | | | 5,676,183 | | | 3,377,468 | | | 17,008,802 | | | 410,301 | |
Travel | | 121,868 | | | 877,859 | | | 266,748 | | | 1,419,788 | | | 346,332 | |
Debt issuance costs | | 3,974,266 | | | - | | | - | | | - | | | - | |
Wages and benefits (Note 18) | | 177,357 | | | 1,706,052 | | | 179,317 | | | 1,812,453 | | | 397,907 | |
Total expenses | | (4,709,927 | ) | | (14,889,731 | ) | | (4,890,565 | ) | | (23,951,217 | ) | | (2,538,350 | ) |
|
|
OTHER INCOME (EXPENSE) | | | | | | | | | | | | | | | |
Foreign exchange gain (loss) | | 295,105 | | | 1,375,774 | | | (877,565 | ) | | 40,718 | | | (77,647 | ) |
|
Gain on sale of marketable securities | | - | | | - | | | - | | | 21,191 | | | - | |
Interest income | | 78,670 | | | 54,575 | | | 56,849 | | | 296,031 | | | 48,238 | |
Interest on long-term debt | | (15,615 | ) | | (70,176 | ) | | (68,240 | ) | | - | | | - | |
Asset usage fees (Note 18) | | (695 | ) | | 129,345 | | | 103,348 | | | - | | | - | |
Gain on sale of equity investment (Note 18) | | - | | | 4,037,182 | | | - | | | - | | | - | |
Power and drilling services | | 70,105 | | | 79,406 | | | - | | | - | | | - | |
Loss from equity investment (Note 6) | | (230,788 | ) | | (4,484,625 | ) | | (1,579,353 | ) | | (193,647 | ) | | - | |
Gain on dilution of equity investment (Note 6) | | - | | | 12,737,095 | | | 811,535 | | | 2,268,465 | | | - | |
Total other income (expenses) | | 196,782 | | | 13,858,576 | | | (1,553,426 | ) | | 2,432,758 | | | (29,408 | ) |
Net (loss) income and comprehensive (loss) income for the period | | (4,513,145 | ) | | (1,031,155 | ) | | (6,443,991 | ) | | (21,518,459 | ) | | (2,567,758 | ) |
Deficit, beginning of period | | (80,552,237 | ) | | (79,521,082 | ) | | (73,077,091 | ) | | (51,558,632 | ) | | (44,143,412 | ) |
|
| | (85,065,382 | ) | | (80,552,237 | ) | | (79,521,082 | ) | | (73,077,091 | ) | | (46,711,170 | ) |
Loss on sale of treasury shares(Note 17) | | - | | | - | | | - | | | - | | | (4,847,462 | ) |
|
Deficit, end of period | $ | (85,065,382 | ) | $ | (80,552,237 | ) | $ | (79,521,082 | ) | $ | (73,077,091 | ) | | (51,558,632 | ) |
|
Basic and diluted (loss) per share | $ | (0.05 | ) | $ | (0.01 | ) | $ | (0.07 | ) | $ | (0.28 | ) | $ | (0.05 | ) |
|
Basic weighted average number of common shares outstanding | | | | | | | | | | | | | | | |
| | 93,131,030 | | | 93,131,030 | | | 89,615,924 | | | 77,695,782 | | | 56,115,596 | |
| | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 87 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian Dollars)
| | | | | | | | | | | | | | | |
| | One month | | | Twelve months | | | Three months | | | Twelve months | | | Twelve months | |
| | ended May 31, | | | ended April 30, | | | ended April 30, | | | ended January 31, | | | ended January | |
| | 2008 | | | 2008 | | | 2007 | | | 2007 | | | 31, 2006 | |
| | | | | | | | | | | (Restated – Note | | | | |
| | | | | | | | | | | 27 | ) | | | |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | | | | | | | |
Net (loss) for the period | $ | (4,513,145 | ) | $ | (1,031,155 | ) | $ | (6,443,991 | ) | $ | (21,518,459 | ) | $ | (2,567,758 | ) |
Items not affecting cash: | | | | | | | | | | | | | | | |
Accretion of asset retirement obligation | | 52,106 | | | 312,977 | | | - | | | - | | | - | |
Amortization | | 35,517 | | | 352,717 | | | 135,397 | | | 335,911 | | | 56,697 | |
Gain on dilution of equity investment | | - | | | (12,737,095 | ) | | (811,535 | ) | | (2,268,465 | ) | | - | |
Gain on sale of equity investment | | - | | | (4,037,182 | ) | | - | | | - | | | - | |
Loss from equity investment | | 230,788 | | | 4,484,625 | | | 1,579,353 | | | 193,647 | | | - | |
Stock-based compensation | | 77,902 | | | 5,676,183 | | | 3,377,468 | | | 17,008,802 | | | 410,301 | |
Debt issuance costs | | 3,974,266 | | | - | | | - | | | - | | | - | |
Gain on sale of marketable securities | | - | | | - | | | - | | | (21,191 | ) | | 73,813 | |
Foreign exchange loss (gain) on restricted cash | | - | | | - | | | 56,550 | | | (27,534 | ) | | - | |
Unrealized foreign exchange (gain) on asset retirement obligation | | (81,027 | ) | | (375,974 | ) | | - | | | - | | | - | |
Unrealized foreign exchange (gain) loss on capital leases and lease credit facility | | (155,724 | ) | | 97,497 | | | - | | | - | | | - | |
Unrealized foreign exchange (gain) on senior secured notes | | (155,356 | ) | | - | | | - | | | - | | | - | |
Unrealized foreign exchange (gain) loss on long-term debt | | (5,708 | ) | | (61,648 | ) | | 77,765 | | | (42,198 | ) | | - | |
Changes in non-cash working capital items: | | | | | | | | | | | | | | | |
(Increase) decrease in receivables | | (187,643 | ) | | (160,217 | ) | | 7,908 | | | (76,130 | ) | | 39,075 | |
(Increase) decrease in prepaid expenses | | 343,915 | | | (199,653 | ) | | 236,400 | | | (652,468 | ) | | (25,867 | ) |
Prepaid services and materials | | (70,105 | ) | | (79,406 | ) | | - | | | - | | | - | |
(Decrease) increase in accounts payable to arelated party | | (8,722,589 | ) | | 9,880,377 | | | - | | | - | | | - | |
(Decrease) increase in accounts payable andaccrued liabilities | | (777,760 | ) | | (860,384 | ) | | (2,600,539 | ) | | 2,417,1071 | | | 255,887 | |
Net cash used in operating activities | | (9,954,563 | ) | | 1,261,662 | | | (4,385,224 | ) | | (4,650,934 | ) | | (1,757,852 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | | | | |
Net proceeds from exercise of warrants and options | | - | | | 1,658,655 | | | 199,642 | | | 8,680,028 | | | 11,826,329 | |
Proceeds from shares subscribed | | - | | | 12,095,805 | | | 150,000 | | | 22,560,000 | | | - | |
Share issuance costs | | - | | | (467,741 | ) | | - | | | (1,550,343 | ) | | (573,165 | ) |
Advances from (to) Petaquilla Copper Ltd. | | - | | | 18,043,254 | | | (2,439,163 | ) | | (2,143,773 | ) | | - | |
Net proceeds from sale of treasury stock | | - | | | - | | | - | | | - | | | 1,273,946 | |
(Repayment of) proceeds from bank overdraft | | (32,130 | ) | | 914,568 | | | 1,205,382 | | | - | | | - | |
Proceeds from senior secured notes | | 26,984,865 | | | - | | | - | | | - | | | - | |
Proceeds from long term debt | | - | | | - | | | - | | | 1,413,510 | | | - | |
Payment of capital leases | | (60,399 | ) | | (715,510 | ) | | - | | | - | | | - | |
Debt issuance costs | | (3,974,266 | ) | | - | | | - | | | - | | | - | |
Repayment of long-term debt | | (45,012 | ) | | (546,809 | ) | | (106,798 | ) | | (119,645 | ) | | - | |
Net cash provided by financing activities | | 22,873,058 | | | 30,982,222 | | | (990,937 | ) | | 28,839,777 | | | 12,527,110 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | | | | |
Acquisition of property and equipment | | - | | | (6,713,118 | ) | | (127,369 | ) | | (5,752,388 | ) | | (291,877 | ) |
Investment in mineral properties | | (1,852,430 | ) | | (26,159,388 | ) | | - | | | (19,387,844 | ) | | (2,197,611 | ) |
Redemption (purchase) of performance bond and restricted cash | | - | | | 614,283 | | | 387,400 | | | (811,296 | ) | | - | |
Proceeds from sale of marketable securities | | - | | | - | | | - | | | 21,191 | | | - | |
Purchase of equity investment | | - | | | - | | | - | | | (500,000 | ) | | - | |
Net cash (used in) provided by investing activities | | (1,852,430 | ) | | (32,258,223 | ) | | 260,031 | | | (26,430,337 | ) | | (2,489,488 | ) |
Impact of exchange rate changes on cash and cashequivalents | | (69,432 | ) | | 15,185 | | | (35,567 | ) | | - | | | - | |
Change in cash and cash equivalents | | 10,996,633 | | | 846 | | | (5,151,697 | ) | | (2,241,494 | ) | | 8,279,770 | |
Cash and cash equivalents, beginning of period | | 1,778,973 | | | 1,778,127 | | | 6,929,824 | | | 9,171,318 | | | 891,548 | |
Cash and cash equivalents, end of period | $ | 12,775,606 | | $ | 1,778,973 | | $ | 1,778,127 | | $ | 6,929,824 | | | 9,171,318 | |
|
Supplemental disclosure with respect to cash flows(Note 23) | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 88 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
1.
NATURE OF OPERATIONS AND GOING CONCERN UNCERTAINTY
Petaquilla Minerals Ltd. (“the Company”) was incorporated in the Province of British Columbia and is in process of exploring its mineral properties. The Company has not yet determined whether these properties contain reserves that are economically recoverable. The recoverability of amounts shown for mineral properties and related deferred exploration costs is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain necessary financing and permits to complete the development, and future profitable productions or proceeds from the disposition thereof.
These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has not generated any operating revenues to date and has experienced recurring operating losses and accumulated a deficit of $85,065,382 as at May 31, 2008 (April 30, 2008 - $80,552,237, April 30, 2007 - $79,521,082 and January 31, 2007 - $73,077,091). Also the Company had a working capital deficiency of $3,692,913 at May 31, 2008 (April 30, 2008 - $27,844,532, April 30, 2007 - $269,631 net working capital and January 31, 2007 net working capital of $5,920,199). These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s continued operations, as intended , are dependent upon its ability to raise additional funding to meet its obligations and to attain profitable operations. Management’s plan in this regard is to raise equity and debt financing as required. There are no assurances that the Company will be successful in achieving these goals. These consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
Change in fiscal year ends
In 2007, the Company changed its fiscal year end to April 30. This arose from the fact that the Company wanted to change its audit firm to an international company due to the increased complexity of its organization. Because the operations of Petaquilla Copper Ltd. were intertwined with that of the Company, due to the fact that their properties were contiguous with those of the Company, the sharing of resources and the fact that development costs would likely be shared in the future, it was decided that the two companies should have the same audit firm. It was not possible to obtain acceptance of the audit engagement for both companies by an international firm in time to meet the filing deadline of the January 31 year end and, therefore, the fiscal year end was changed to April 30.
In 2008, the Company changed its fiscal year end to May 31. This arose because the Company was in the midst of obtaining financing to complete mine construction and did not want to show a cash shortfall in its April 30 financial balance sheet for fear of jeopardizing the mine development agreement with the Government of Panama. Financing was obtained May 22 and the decision was therefore made to change the fiscal year end to May 31.
SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements and accompanying notes have been prepared in conformity with Canadian Generally Accepted Accounting Principles (“GAAP”). For a description of the differences between Canadian GAAP and United States GAAP for the Company, see note 28.
Basis of consolidation
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Petaquilla Minerals, S.A. (a Panama corporation), Adrian Resources (BVI) Ltd. (a British Virgin Island corporation), Petaquilla Gold, S.A. (a Panama corporation), Aqua Azure S.A (a Panama corporation) and its 51% interest in Petaquilla Infraestructura Ltd. (“PQI”) formerly Petaquilla Power and Water, S.A. (“PPW”) (a Panama corporation). The Company proportionately consolidates its 69% interest in a joint venture investment, Compania Minera Belencillo, S.A. (“Belencillo”) (a Panama corporation).
All inter-company transactions and balances have been eliminated upon consolidation.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 89 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
2.
SIGNIFICANT ACCOUNTING POLICIES(continued)
Use of estimates
The preparation of consolidated financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the amount of revenues and expenses reported during the period. Actual results could differ from these estimates.
Significant estimates used in the preparation of the consolidated financial statements include, but are not limited to, recoverability of accounts receivable, investments, estimates of useful life of properties and equipment, the future cost of asset retirement obligations, amount and the likelihood of contingencies, valuation allowance for future income tax assets, accounting for stock-based compensation and warrants.
Accounting Policy for Petaquilla Copper Ltd.
The Company owns 12.82%in Petaquilla Copper Ltd. (“Copper”), a Company listed on the Toronto Stock Exchange, and uses the equity method to account for the investment. The two companies share common directors and management. The Company’s proportionate share of income and expenses is recorded with a corresponding entry made to the investment account. The Company periodically assesses whether there have been any indications of impairment and if there are and the carrying amount would not be expected to be recovered, there would be a write down to fair value.
Cash and cash equivalents
Cash and cash equivalents are classified as held for trading and include short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. The Company places its deposits with financial institutions with high credit standing. The Company regularly maintains cash balances in financial institutions in excess of insured limits.
Property and equipment
Equipment is recorded at cost less accumulated amortization, which is provided on the declining balance basis at rates as follows:
| | |
| Furniture and fixtures | 20% |
| Office equipment | 20% |
| Computer equipment | 30% |
| Equipment under capital lease | 30% |
| Equipment | 30% |
| Vehicles | 30% |
| Computer software | 50% |
| Leasehold improvements | 5 year straight-line |
| Buildings | 4% |
Mineral properties
Acquisition costs of mineral properties, together with direct exploration and development expenditures incurred thereon, are deferred until the property to which they relate is placed into production, sold or abandoned. The carrying values of mineral properties are, where necessary, written down to the fair value if the carrying value is not recoverable. Costs relating to properties abandoned are written off when the decision to abandon is made.
The Company follows the cost reduction method of accounting for the receipt of property option and similar payments.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 90 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
2.
SIGNIFICANT ACCOUNTING POLICIES(continued)
Cash and other property payments received from the Company’s exploration partners are credited to the respective property until all capitalized costs are recovered; thereafter, such payments are included in income. Option payments are exercisable at the discretion of the optionee and are only recognized when received. Management fees earned for the management of properties are included in income.
On an annual basis, the Company reviews the carrying values of deferred mineral property acquisition and exploration expenditures with a view to assessing whether there has been impairment in value. In the event that management determines potential reserves to be insufficient to recover the carrying value of any property, the carrying value will be written down or written off, as appropriate.
Restricted cash
The Company has elected to classify restricted cash as held for trading.
Receivables
Receivables are classified as loans and receivables and are measured at amortized costs. Receivables are comprised of refundable government value added taxes and amounts due from third parties for overpayments.
Asset retirement obligations
An asset retirement obligation is a legal obligation associated with the retirement of tangible long-lived assets that the Company is required to settle. The Company recognizes the fair value of a liability for an asset retirement obligation in the period in which it is incurred when a reasonable estimate of fair value can be made. The carrying amount of the related long-lived asset is increased by the same amount as the liability. Subsequently, these capitalized asset retirement costs will be amortized to expense over the life of the related assets using the unit-of-production method. At the end of each period, the liability is increased to reflect the passage of time (accretion expense) and adjusted for changes in the estimated future cash flows underlying any initial fair value measurements (additional asset retirement costs).
Impairment of long-lived assets
A long-lived asset which included property and related costs and equipment is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. An impairment loss is recognized when the carrying amount of a long-lived asset exceeds its fair value. For purposes of recognition and measurement of an impairment loss, a long-lived asset is grouped with other assets and liabilities to form an asset group, at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Estimates of future cash flows used to test recoverability of a long-lived asset include only the future cash flows that are directly associated with, and that are expected to arise as a direct result of, its use and eventual disposition.
Foreign currency translation
Integrated foreign operations are translated using the temporal method. Under this method, monetary assets and liabilities are translated at the period-end exchange rate, non-monetary assets and liabilities are translated at rates prevailing at the respective transaction dates, and revenue and expenses are translated at rates approximating those in effect at the time of the transactions. Translation gains and losses are reflected in operations for the period.
The Company considers all of its subsidiaries and joint venture investments to be integrated operations. All foreign currency-denominated monetary accounts of the Company are translated at the period-end exchange rate. All other income statement transactions are translated using the exchange rate at the date of the transaction.
Exchange gains and losses on translation are recognized as a gain or loss in operations in the period they arise.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 91 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
2.
SIGNIFICANT ACCOUNTING POLICIES(continued)
Debt issuance costs
Debt issuance costs are expensed in the year that they are incurred.
Interest expense
Interest expense relating to project development, construction and mill equipment is capitalized to mineral properties and to be amortized over the recoverable reserves. Interest on operating long-term debt is expensed to operations as it is incurred.
Operating leases
Operating leases are charged to operations as the expense is incurred.
Loss per share
The Company uses the treasury stock method to compute the dilutive effect of options, warrants and similar instruments. Under this method, the dilutive effect on loss per share is recognized as a result of the use of the proceeds that could be obtained upon exercise of options, warrants and similar instruments. It assumes that the proceeds would be used to purchase common shares at the average market price during the period. For all periods presented, all outstanding options were anti-dilutive.
Stock-based compensation
The Company accounts for all stock-based payments and awards using the fair value-based method.
Under the fair value-based method, stock-based payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable. The fair value of stock-based payments to non-employees is periodically remeasured until counterparty performance is complete, and any change therein is recognized over the vesting period of the award and in the same manner as if the Company had paid cash instead of paying with or using equity instruments. The cost of stock-based payments to non-employees that are fully vested and non-forfeitable at the grant date is measured and recognized at that date. Compensation cost attributable to awards to employees is measured at fair value at the grant date and recognized over the vesting period.
Income taxes
Future income taxes are recorded using the liability method under which future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing 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 or loss 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.
Comparative figures
Certain comparative figures have been reclassified to conform to the current period’s presentation. The accounts affected were cash, warrants, share capital and contributed surplus.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 92 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
2.
SIGNIFICANT ACCOUNTING POLICIES(continued)
Adoption of new accounting policies
Effective February 1, 2007, the Company has adopted the provisions of the following Canadian Institute of Chartered Accountants (CICA) Handbook Sections:
(a)
Section 3855 Financial Instruments – Recognition and Measurement
This section describes the standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. Under the new standard, financial assets will be classified as one of the following: Held-to-maturity; Loans and receivables; Held-for-trading; or Available-for-sale. Financial liabilities will be classified as held-for-trading or other liabilities. Financial assets and liabilities held-for-trading will be measured at fair value with gains and losses recognized in net income.
Financial assets held-to-maturity, loans and receivables and financial liabilities other than those held-for-trading, will be measured at amortized cost. Available-for-sale financial instruments will be measured at fair value with unrealized gains and losses recognized in other comprehensive income. The standard also permits designation of any financial instrument as held-for-trading on initial recognition. In addition, the Company adopted a policy to expense debt financing costs when they are incurred.
The Company's financial instruments include cash and cash equivalents, receivables, bank overdraft, operating credit line facility and accounts payable and accrued liabilities. Upon adoption of these new standards, the Company designates its cash and cash equivalents as held-for-trading, its receivables, as receivables, and its bank overdraft, operating credit line facility, and accounts payable and accrued liabilities as other financial liabilities. The fair values of these financial instruments approximate their carrying values because of their short-term nature. The fair value of senior secured notes approximate the carrying value as the Company closed notes of the same series for the same consideration. The Company had no held-to-maturity financial assets for any of the periods presented in these financial statements. In management's opinion the Company is not exposed to significant interest rate, currency exchange rate or credit risk arising from these financial instruments except for the senior secured notes. The Company is exposed to embedded derivative financial instruments. The Company is unable to fair value the embedded derivative component separately in its senior secured notes and thus has classified the combined contract as financial liability that is held for trading, measured at fair value.
(b)
The Company has adopted the policies in CICA Handbook Sections 3861, 3251, 1651, and 3051.
CICA Handbook Section 3861 establishes standards for presentation of financial instruments and non-financial derivatives, and identifies the information that should be disclosed about them. The presentation paragraphs deal with the classification of financial instruments, from the perspective of the issuer, between liabilities and equity, the classification of related interest, dividends, losses and gains, and the circumstances in which financial assets and financial liabilities are offset. The disclosure paragraphs deal with information about factors that affect the amount, timing and certainty of an entity's future cash flows relating to financial instruments. This Section also deals with disclosure of information about the nature and extent of an entity's use of financial instruments, the business purposes they serve, the risks associated with them and management's policies for controlling those risks. This Section applies to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2006. An entity adopting this Section for a fiscal year beginning before October 1, 2006 also adopts Financial Instruments – Recognition and Measurement, Section 3855, Hedges, Section 3865, and Comprehensive Income, Section 1530.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 93 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
2.
SIGNIFICANT ACCOUNTING POLICIES(continued)
CICA Handbook Section 3250, Surplus, was revised and reissued as CICA Handbook Section 3251, Equity. This section is effective for years beginning on or after October 1, 2006. The changes in how to report and disclose equity and changes in equity are consistent with the new requirements of Section 1530, Comprehensive Income.
Comprehensive income represents the change in shareholders’ equity from transactions and other events from non-owner sources. Other comprehensive income refers to items that are recognized in comprehensive income but excluded from net income calculated in accordance with Canadian generally accepted accounting principles until such time as it is considered appropriate to recognize them in net income. The Company had no “other comprehensive income or loss” for any of the periods presented in these financial statements.
CICA Handbook Section 1650 was revised and reissued as CICA Handbook Section 1651. The revision deleted the paragraphs relating to hedging of foreign currency items. These paragraphs have been included in the new Section 3865, Hedges. The adoption of Section 1651 did not have a material impact on the Company’s consolidated financial position and results of operations. This Section applies to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2006. An entity adopting this Section for a fiscal year beginning before October 1, 2006 also adopts Financial Instruments – Recognition and Measurement, Section 3855, Hedges, Section 3865, and Comprehensive Income, Section 1530.
CICA Handbook Section 3051 was issued to replace Section 3050 and to establish standards for accounting for investments subject to significant influence and for measuring and disclosing certain other non-financial instrument investments. This section applies to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2006. The adoption of Section 3051 did not have a material impact on the Company’s consolidated financial position and results of operations.
Future Accounting Pronouncements
(a)
Section 1535 – Capital Disclosures
This Section establishes standards for disclosing information about a company’s capital and how it is managed. Under this standard the Company will be required to disclose the following, based on the information provided internally to the Company’s key management personnel:
(i)
qualitative information about its objectives, policies and processes for managing capital;
(ii)
summary quantitative data about what it manages as capital;
(iii)
whether during the period it complied with externally imposed capital requirements to which it is subject; and
(iv)
when the Company has not complied with such externally imposed capital requirements, the consequences of
such non-compliance.
This standard will require additional disclosure in the financial statements.
(b)
Section 3031 - Inventories
This Section prescribes the accounting treatment for inventories and provides guidance on the determination of costs and its subsequent recognition as an expense, including any write-down to net realizable value. It also provides guidance on the cost formulas that are used to assign costs to inventories. Management has reviewed the requirements of the standard and does not believe that the Company’s financial statements will be materially affected by the new recommendations.
(c)
Section 3862 & 3863 - Financial Instruments – Disclosure and Presentation
These new standards replace Section 3861, Financial Instruments – Disclosure and Presentation, revising and enhancing disclosure requirements, and carrying forward unchanged the presentation requirements. Section 3862 requires entities to provide disclosure of quantitative and qualitative information in their financial statements that enable users to evaluate (a) the significance of financial instruments for the entity’s financial position and performance; and (b) the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the balance sheet date, and management’s objectives, policies and procedures for managing such risks. Entities will be required to disclose the measurement basis or bases used, and the criteria used to determine classification for different types of instruments.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 94 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
2.
SIGNIFICANT ACCOUNTING POLICIES(continued)
The Section requires specific disclosures to be made, including the criteria for:
(i)
designating financial assets and liabilities as held for trading;
(ii)
designating financial assets as available-for-sale; and
(iii)
determining when impairment is recorded against the related financial asset or when an allowance account is used.
Management has reviewed the requirements of the standard and does not believe that the Company’s financial statements will be materially affected by the new recommendations.
(d)
Section 1400 - General Standards of Financial Statement Presentation
CICA Handbook Section 1400 has been amended to require management to make an assessment of an entity’s ability to continue as a going concern. Financial statements shall be prepared on a going concern basis unless management either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so. When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, those uncertainties shall be disclosed. When financial statements are not prepared on a going concern basis, that fact shall be disclosed, together with the basis on which the financial statements are prepared and the reason why the entity is not regarded as a going concern. The amendments apply to interim and annual financial statements relating to fiscal years beginning on or after June 1, 2008. Management has reviewed the requirements and concluded that they do not affect the Company’s financial statements. This standard will require additional disclosure in the financial statements.
Accounting Policies to be Implemented Effective January 1, 2011
In January 2009, the CICA issued Handbook Sections 1582 – Business Combinations (“Section 1582”), 1601 – Consolidated Financial Statements (“Section 1601”) and 1602 – Non-controlling Interests (“Section 1602”) which replaces CICA Handbook Sections 1581 – Business Combinations and 1600 – Consolidated Financial Statements. Section 1582 establishes standards for the accounting for business combinations that is equivalent to the business combination accounting standard under International Financial Reporting Standards (“IFRS”). Section 1582 is applicable for the Company’s business combinations with acquisition dates on or after January 1, 2011. Early adoption of this Section is permitted. Section 1601, together with Section 1602, establishes standards for the preparation of consolidated financial statements. Section 1601 is applicable for the Company’ ;s interim and annual consolidated financial statements for its fiscal year beginning June 1, 2010. Early adoption of this Section is permitted. If the Company chooses to early adopt any one of these Sections, the other two sections must also be adopted at the same time.
Convergence with International Financial Reporting Standards (IFRS)
In February 2008, Canada’s Accounting Standards Board ratified a strategic plan that will result in Canadian GAAP, as used by public companies, being evolved and converged with International Financial Reporting Standards (IFRS) over a transitional period to be complete by 2011. The Company will be required to report using the converged standards effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011.
Canadian GAAP will be converged with IFRS through a combination of two methods: as current joint-convergence projects of the United States’ Financial Accounting Standards Board and the International Accounting Standards Board are agreed upon, they will be adopted by Canada’s Accounting Standards Board and may be introduced in Canada before the complete changeover to IFRS; and standards not subject to a joint-convergence project will be exposed in an omnibus manner for introduction at the time of the complete changeover to IFRS. Also the United States’ Financial Accounting Standards Board and the International Accounting Standards Board have completed a joint-project on business combinations and non-controlling interests. As the International Accounting Standards Board currently, and expectedly, has projects underway that should result in new pronouncements that continue to evolve IFRS, and as this Canadian convergence initiative is i n an early stage as of the date of these consolidated financial statements, it is premature to currently assess the impact of the Canadian initiative on the Company.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 95 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
3.
INVESTMENT IN JOINT VENTURES
Investment in Compania Minera Bellencillo, S.A.
The Company owns a 69% joint venture interest in Minera Bellencillo S.A., which is proportionately consolidated in the financial statements. The Company’s interest is summarized as follows:
| | | | | | | | |
| | May 31, 2008 | | April 30, 2008 | April 30, 2007 | | January 31, 2007 | |
| | $ | | $ | $ | | $ | |
| ASSETS | | | | | | | |
| Mineral properties | 48,872 | | 26,006 | 26,006 | | 2,259 | |
|
| LIABILITIES AND SHAREHOLDERS’EQUITY | | | | | | | |
| Other liabilities | 47,809 | | 25,519 | 25,802 | | 2,259 | |
| Shareholders’ equity | 1,063 | | 486 | 204 | | - | |
| | 48,872 | | 26,006 | 26,006 | | 2,259 | |
| |
| Cash flows provided by (used in) | | | | | | - | |
| Financing activities | 22,007 | | - | 25,802 | | 2,259 | |
| Investing activities | (22,866 | ) | - | (26,006 | ) | (2,259 | ) |
4.
PROPERTY AND EQUIPMENT
| | | | | | | | | | | | | |
| | | | | May 31, | | | | | | April 30, | | |
| | | | | 2008 | | | | | | 2008 | | |
|
| | | | | Accumulated | | Net | | | | Accumulated | | Net |
| | | Cost | | Amortization | | Book Value | | Cost | | Amortization | | Book Value |
|
| Computer equipment | $ | 59,429 | $ | 40,613 | $ | 18,816 | $ | 59,429 | $ | 39,756 | $ | 19,673 |
| Computer software | | 167,847 | | 111,829 | | 56,018 | | 163,870 | | 109,466 | | 54,404 |
| Equipment under capitalleases | | 10,925,172 | | 1,638,776 | | 9,286,396 | | 10,925,172 | | 1,512,716 | | 9,412,456 |
| Equipment | | 9,395,507 | | 2,586,114 | | 6,809,393 | | 9,293,748 | | 2,312,647 | | 6,981,101 |
| Furniture and fixtures | | 21,000 | | 7,185 | | 13,815 | | 21,000 | | 6,978 | | 14,022 |
| Land | | 125,440 | | - | | 125,440 | | 125,440 | | - | | 125,440 |
| Buildings | | 380,667 | | 8,715 | | 371,952 | | 384,391 | | 7,286 | | 377,105 |
|
| | $ | 21,075,062 | $ | 4,393,232 | $ | 16,681,830 | $ | 20,973,050 | $ | 3,988,849 | $ | 16,984,201 |
|
| |
| | | | | April 30, | | | | | | January 31, | | |
| | | | | 2007 | | | | | | 2007 | | |
| | | | | Accumulated | | Net | | | | Accumulated | | Net |
| | | Cost | | Amortization | | Book Value | | Cost | | Amortization | | Book Value |
|
| Computer equipment | $ | 395,852 | $ | 118,321 | $ | 277,531 | $ | 364,189 | $ | 87,418 | $ | 276,771 |
| Computer software | | 526,252 | | 187,329 | | 338,923 | | 526,252 | | 138,976 | | 387,276 |
| Equipment | | 4,393,729 | | 681,008 | | 3,712,721 | | 4,334,336 | | 529,797 | | 3,804,539 |
| Furniture and fixtures | | 30,523 | | 9,905 | | 20,618 | | 30,523 | | 8,836 | | 21,687 |
| Leasehold improvements | | 8,951 | | 8,951 | | - | | 8,951 | | 8,951 | | - |
| Office equipment | | 36,101 | | 8,553 | | 27,548 | | 30,657 | | 7,280 | | 23,377 |
| Vehicles | | 600,671 | | 107,909 | | 492,762 | | 381,477 | | 77,999 | | 303,478 |
| Land | | 34,130 | | - | | 34,130 | | 34,130 | | - | | 34,130 |
| Buildings | | 445,169 | | 6,255 | | 438,914 | | 375,588 | | 5,796 | | 369,792 |
| | $ | 6,471,378 | $ | 1,128,231 | $ | 5,343,147 | $ | 6,086,103 | $ | 865,053 | $ | 5,221,050 |
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 96 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
4.
PROPERTY AND EQUIPMENT (continued)
In September of 2007, the Company entered into an agreement with Copper to sell some of its surplus property and equipment that are no longer required for its current operations. The net book value of these assets was $2,730,404. The Company did not recognize a gain or loss on this disposal.
5.
MINERAL PROPERTIES
| | | | | | | | | |
| | | May 31, 2008 | | April 30, 2008 | | April 30, 2007 | | January 31, 2007 |
| Molejon property | $ | 67,100,743 | $ | 65,073,625 | $ | 31,210,449 | $ | 22,885,737 |
| Rio Belencillo concession | | 48,872 | | 26,006 | | 26,006 | | 2,259 |
| | $ | 67,149,615 | $ | 65,099,631 | $ | 31,236,455 | $ | 22,887,996 |
The Company has capitalized $67,149,615 in mineral property costs as at May 31, 2008:
| | | | | | | |
| | | Molejon | | Rio Belencillo | | Total |
| Drilling costs | $ | 11,046,825 | $ | - | $ | 11,046,825 |
| Trenching | | 4,308,854 | | 48,872 | | 4,357,726 |
| Plant equipment | | 3,927,704 | | - | | 3,927,704 |
| Plant-site | | 22,272,755 | | - | | 22,272,755 |
| Engineering and consulting | | 2,807,641 | | - | | 2,807,641 |
| Camp costs | | 6,158,386 | | - | | 6,158,386 |
| Roads | | 1,634,057 | | - | | 1,634,057 |
| Geologist | | 1,128,193 | | - | | 1,128,193 |
| Property permits | | 408,381 | | - | | 408,381 |
| Environment | | 488,040 | | - | | 488,040 |
| Logistics | | 395,581 | | - | | 395,581 |
| Indirect drilling costs | | 1,106,528 | | - | | 1,106,528 |
| Engineering and design | | 517,156 | | - | | 517,156 |
| Transportation | | 250,126 | | - | | 250,126 |
| Communications | | 192,370 | | - | | 192,370 |
| Topography | | 153,571 | | - | | 153,571 |
| Technical support | | 120,272 | | - | | 120,272 |
| Bridges | | 50,261 | | - | | 50,261 |
| Communications - plant | | 6,179 | | - | | 6,179 |
| Road agreements | | 105,939 | | - | | 105,939 |
| Water samples | | 3,857 | | - | | 3,857 |
| Total | | 57,082,676 | | 48,872 | | 57,131,548 |
| Deferred amortization on mining equipment | | 3,938,717 | | - | | 3,938,717 |
| Asset retirement obligation (Note 24) | | 4,400,000 | | - | | 4,400,000 |
| Stock-based compensation (Note 15) | | 723,668 | | - | | 723,668 |
| Deferred interest expense | | 955,682 | | - | | 955,682 |
| | $ | 67,100,743 | $ | 48,872 | $ | 67,149,615 |
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 97 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
5.
MINERAL PROPERTIES(continued)
The Company has capitalized $65,099,631 in mineral property costs as at April 30, 2008:
| | | | | | | |
| | | Molejon | | Rio Belencillo | | Total |
| Drilling costs | $ | 11,042,964 | $ | - | $ | 11,042,964 |
| Trenching | | 4,308,854 | | 26,006 | | 4,334,860 |
| Plant equipment | | 4,092,802 | | - | | 4,092,802 |
| Plant-site | | 20,986,149 | | - | | 20,986,149 |
| Engineering and consulting | | 2,806,455 | | - | | 2,806,455 |
| Camp costs | | 6,019,342 | | - | | 6,019,342 |
| Roads | | 1,632,364 | | - | | 1,632,364 |
| Geologist | | 1,090,266 | | - | | 1,090,266 |
| Property permits | | 374,558 | | - | | 374,558 |
| Environment | | 479,886 | | - | | 479,886 |
| Logistics | | 387,659 | | - | | 387,659 |
| Indirect drilling costs | | 1,069,783 | | - | | 1,069,783 |
| Engineering and design | | 491,928 | | - | | 491,928 |
| Transportation | | 250,098 | | - | | 250,098 |
| Communications | | 192,391 | | - | | 192,391 |
| Topography | | 151,615 | | - | | 151,615 |
| Technical support | | 120,272 | | - | | 120,272 |
| Bridges | | 50,253 | | - | | 50,253 |
| Communications - plant | | 6,179 | | - | | 6,179 |
| Road agreements | | 105,972 | | - | | 105,972 |
| Water samples | | 3,857 | | - | | 3,857 |
| Total | | 55,663,647 | | 26,006 | | 55,689,653 |
| Deferred amortization on mining equipment | | 3,569,850 | | - | | 3,569,850 |
| Asset retirement obligation (Note 24) | | 4,400,000 | | - | | 4,400,000 |
| Stock-based compensation (Note 15) | | 711,553 | | - | | 711,553 |
| Deferred interest expense | | 728,575 | | - | | 728,575 |
| | $ | 65,073,625 | $ | 26,006 | $ | 65,099,631 |
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 98 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
5.
MINERAL PROPERTIES(continued)
The Company has capitalized $31,236,455 as at April 30, 2007:
| | | | | | | |
| | | Molejon | | Rio Belencillo | | Total |
| Drilling costs | $ | 5,947,874 | $ | - | $ | 5,947,874 |
| Trenching | | 3,929,987 | | 26,006 | | 3,955,993 |
| Plant equipment | | 3,901,761 | | - | | 3,901,761 |
| Plant-site | | 3,703,891 | | - | | 3,703,891 |
| Engineering and consulting | | 2,152,648 | | - | | 2,152,648 |
| Camp costs | | 2,103,628 | | - | | 2,103,628 |
| Roads | | 1,729,614 | | - | | 1,729,614 |
| Geologist | | 663,641 | | - | | 663,641 |
| Property permits | | 374,558 | | - | | 374,558 |
| Environment | | 359,780 | | - | | 359,780 |
| Logistics | | 299,939 | | - | | 299,939 |
| Indirect drilling costs | | 199,218 | | - | | 199,218 |
| Engineering and design | | 149,392 | | - | | 149,392 |
| Transportation | | 145,347 | | - | | 145,347 |
| Communications | | 128,729 | | - | | 128,729 |
| Topography | | 113,008 | | - | | 113,008 |
| Technical support | | 110,248 | | - | | 110,248 |
| Bridges | | 63,332 | | - | | 63,332 |
| Communications - plant | | 6,179 | | - | | 6,179 |
| Road agreements | | 4,127 | | - | | 4,127 |
| Water samples | | 3,857 | | - | | 3,857 |
| Total | | 26,090,758 | | 26,006 | | 26,116,764 |
| Deferred amortization on mining equipment | | 601,295 | | - | | 601,295 |
| Asset retirement obligation (Note 24) | | 4,400,000 | | - | | 4,400,000 |
| Stock-based compensation (Note 15) | | 118,396 | | - | | 118,396 |
| | $ | 31,210,449 | $ | 26,006 | $ | 31,236,455 |
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 99 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
5.
MINERAL PROPERTIES(continued)
The Company has capitalized $22,887,996 as at January 31, 2007:
| | | | | | | |
| | | Molejon | | Rio Belencillo | | Total |
| Drilling costs | $ | 5,062,542 | $ | - | $ | 5,062,542 |
| Trenching | | 2,607,526 | | 2,259 | | 2,609,785 |
| Plant equipment | | 3,901,556 | | - | | 3,901,556 |
| Plant-site | | 2,394,927 | | - | | 2,394,927 |
| Engineering and consulting | | 2,035,109 | | - | | 2,035,109 |
| Camp costs | | 1,974,785 | | - | | 1,974,785 |
| Roads | | 2,684,800 | | - | | 2,684,800 |
| Geologist | | 162,964 | | - | | 162,964 |
| Property permits | | 373,395 | | - | | 373,395 |
| Environment | | 343,612 | | - | | 343,612 |
| Logistics | | 170,083 | | - | | 170,083 |
| Indirect drilling costs | | 18,061 | | - | | 18,061 |
| Engineering and design | | 87,955 | | - | | 87,955 |
| Transportation | | 105,845 | | - | | 105,845 |
| Communications | | 115,988 | | - | | 115,988 |
| Topography | | 96,877 | | - | | 96,877 |
| Technical support | | 89,387 | | - | | 89,387 |
| Bridges | | 51,463 | | - | | 51,463 |
| Communications - plant | | 6,179 | | - | | 6,179 |
| Water samples | | 3,856 | | - | | 3,856 |
| Total | | 22,286,910 | | 2,259 | | 22,289,169 |
| Deferred amortization on mining equipment | | 480,431 | | - | | 480,431 |
| Stock-based compensation (Note 15) | | 118,396 | | - | | 118,396 |
| | $ | 22,885,737 | $ | 2,259 | $ | 22,887,996 |
Molejon Property – Panama
The Molejon Property is located in the District of Donos, Province of Colon, Panama. The project is located in the Ley Petaquilla Property. In June 2005, the shareholders of Minera Petaquilla S.A. (“Minera Petaquilla”) (formerly a joint venture investment) agreed to separate the gold deposit and other precious metal mineral deposits that might be developed within the Ley Petaquilla mineral concession from the copper mineral deposits within the Ley Petaquilla mineral concession. The agreement provides for the Company, through Petaquilla Gold, S.A., to own a 100% interest in the Molejon gold deposit, as well as all other gold and precious metal mineral deposits that might be developed within the Ley Petaquilla mineral concession, subject to a graduated 1% - 5% Net Smelter Return, based on the future gold price at the time of production, payable to the former joint venture partners as to 35.135% and 64.865% respectively. (See Note 6).
Approval of the phased Mine Development Plan was obtained in September 2005. The Company proceeded with the development of the property and construction of the processing mill commenced in July of 2007. (See Note 26(vii)).
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 100 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
5.
MINERAL PROPERTIES(continued)
Rio Bellencillo Concession - Panama
The Company holds various interests in other land concession areas adjacent to the Ley Petaquilla Property in Panama, including the Rio Belencillo and Rio Petaquilla concessions.
By an Agreement dated May 7, 2005 and amended on June 10, 2005, Gold Dragon Capital Management Ltd. (“Gold Dragon”), a company having a common director, had an option to purchase all of the Company’s interest in the Rio Belencillo and Rio Petaquilla concessions by the expenditure of $100,000 in approved exploration costs by May 7, 2007, an additional $400,000 in approved exploration costs by February 7, 2008 and by then paying the Company $1,152,400. This sum is payable in shares of Gold Dragon.
The payment of $100,000 on account of exploration expenditures has not been made in accordance with the terms and conditions of the May 7, 2005 agreement. The Company is in the process of amending the agreement with Gold Dragon.
The Company’s proportionate share of exploration costs totalling $48,872 (April 30, 2008 - $26,006, April 30, 2007 - $26,006 and January 31, 2007 - $2,259) has been capitalized on the Company’s balance sheet (Note 3).
San Juan Concessions - Panama
During the period ended April 30, 2007, the Company entered into an agreement with Geneva Gold, formerly Eurogold Mining Inc. (“Eurogold”), for the exploration and development of the San Juan Concessions. The San Juan Property is adjacent to the Company’s Molejon gold project and the Petaquilla porphyry copper project in west central Panama. Under the agreement, Geneva Gold may earn a 60% interest in the San Juan Property by incurring exploration expenditures of at least US$6,000,000, by paying Petaquilla Minerals Ltd. US$600,000 in cash and by causing to be issued to Petaquilla Minerals Ltd. 9,000,000 shares of Geneva Gold, over a period of three years. If Geneva Gold acquired a 60% interest in the property, it may increase its interest to 70% by incurring US$3,000,000 in additional exploration expenditures in the fourth year. The Company was to be the operator of the project. The Company received the initial c ash option payment of $111,120 (US$100,000). All capitalized costs relating to this concession have been previously written off.
During the period ended January 31, 2007, the Company rescinded the above agreement and returned the initial cash option payment of $111,120 (US$100,000) to Geneva Gold.
Geneva Gold has claimed a loss in the share value said to be caused by the Company’s news release announcing that the agreement with the Company has been rescinded. The legal claim was settled by issuing 100,000 shares in Petaquilla Minerals Ltd., valued at the market value of $2.61 per share. No legal fees were incurred during the one month ended May 31, 2008 ($41,692 – twelve months ended April 30, 2008, $14,251 – three months ended April 30, 2007 and Nil – twelve months ended January 31, 2007).
6.
PLAN OF ARRANGEMENT AND ADVANCES TO PETAQUILLA COPPER LTD.
During the period ended January 31, 2007, the shareholders of the Company voted in favour of the April 21, 2006 proposed Plan of Arrangement. During the same period, Supreme Court approval in the Province of British Columbia was obtained for the Plan of Arrangement.
The result of the Plan of Arrangement was that each shareholder of the Company received one share of Petaquilla Copper Ltd. (“Copper”), a private company. Each shareholder continued to hold one share of the Company and one share of Copper, for each one share of the Company held on the effective date of the Plan of Arrangement.
The Effective Date of the Plan of Arrangement was October 18, 2006 whereby each holder of the common shares of the Company on October 17, 2006 was entitled to receive one common share of Copper for each common share of the Company held.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 101 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
6.
PLAN OF ARRANGEMENT AND ADVANCES TO PETAQUILLA COPPER LTD.(continued)
According to the terms of the Plan of Arrangement, the Company transferred title to Copper of its wholly-owned subsidiary, Georecursos International S.A., the holder of the 52% interest in the Ley Petaquilla concession lands. The Company would retain 100% ownership of the gold and precious metal deposits within the Ley Petaquilla concession as well as all the other concession lands adjacent to the Ley Petaquilla concession.
The Company initially owned 22,233,634 of the issued shares of Copper at a cost of $500,000. This initial 20% equity stake has been and may be further diluted upon future share capital financings that are anticipated to be necessary for the ongoing funding of the Copper deposit project. Subsequent to the Plan of Arrangement, the Company has accounted for Copper on an equity basis reporting an equity loss of $230,788 (twelve months ended April 30, 2008 - $4,484,625, three months ended April 30, 2007 - $1,579,353 and twelve months ended January 31, 2007 - $193,647) and a gain on dilution of nil (twelve months ended April 30, 2008 - $12,737,095, three months ended April 30, 2007 - $811,535 and twelve months ended January 31, 2007 - $2,268,465) for the one month period ended May 31, 2008. Under the equity method, the Company records the percentage of net income (loss) that would be attributed to the investment by adjusting the car rying value of the investment. If the percentage of loss from the investee is greater than carrying cost, the amount is not reduced beyond the full carrying value. Dilution gains arise whenever Copper issues equity at a price greater than the carrying value of the equity investment.
As at May 31, 2008, the amount payable to Copper is $1,157,788 (April 30, 2008, payable of $9,880,377, April 30, 2007, receivable of $4,582,937 and January 31, 2007, receivable of $2,143,773) related to advances to pay for mineral property costs and administrative expenses.
7.
RESTRICTED CASH
The Company has a deposit of $30,000 (April 30, 2008 - $30,000, April 30, 2007 - $30,000 and January 31, 2007 - $30,000) with HSBC Bank as collateral for the credit card used by the Company to pay ongoing travel and related costs.
The Company has pledged a term deposit in the amount of $397,680 (US$ 400,000) (April 30, 2008 - $403,800 (US$ 400,000), April 30, 2007 - $276,675 (US$ 250,000) and January 31, 2007 - $294,800 (US$ 250,000)) as security for financings (Note 8).
The Company has posted a term deposit in the amount of $198,840 (US$ 200,000) (April 30, 2008 - $201,900 (US$ 200,000), April 30, 2007 - $110,670 (US$ 100,000) and January 31, 2007 - $117,920 (US$ 100,000)) as a guarantee for a performance bond to comply with Environmental law, article 112 in Panama.
The Company has also posted a term deposit in the amount of $39,768 (US$ 40,000) (April 30, 2008 - $40,380 (US$ 40,000), April 30, 2007 – Nil and January 31, 2007 – Nil) to satisfy the requirement for a performance bond with the Ministry of Commerce and Trade in Panama.
During the period ended January 31, 2007, the Company was required to post a performance bond of US$780,000 to maintain its interest in the Petaquilla property. To satisfy this requirement, at January 31, 2007, the Company pledged a guaranteed investment certificate for $919,776 (US$ 780,000) (May 31, 2008 – Nil, April 30, 2008 – Nil, and April 30, 2007 - $863,226 (US$ 780,000)) as security.
During the period ended January 31, 2007, the Company pledged $383,240 (US$ 325,000) (May 31, 2008 – Nil, April 30, 2008 – Nil and April 30, 2007 – Nil) by way of a term deposit to the bank as a reserve to meet statutory employer payroll obligations.
Interest rates on these deposits ranges from 2.60% to 4.875%.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 102 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
8.
LONG-TERM DEBT
During the twelve months ended January 31, 2007, the Company arranged a bank loan of $407,524 (US$ 382,400) to acquire road and mine site equipment. The loan is repayable in 36 equal monthly instalments of $12,513 (US$ 11,742) commencing in May 2006 and bears interest at an annual rate of 5.625%. Collateral for this loan is comprised of a pledge of a fixed first charge on the purchased equipment and a $248,550 (US$ 250,000) renewable term deposit.
During the twelve months ended January 31, 2007, the Company arranged a bank loan of $83,988 (US$ 78,810) to acquire vehicles to be used for the mine site. The loan is repayable in 36 equal monthly instalments of $2,671 (US$ 2,506) commencing in May 2006 and bears interest at an annual rate of 9.25%. Collateral for this loan is comprised of a fixed first charge on the purchased equipment.
During the twelve months ended January 31, 2007, the Company arranged a bank loan of $245,878 (US$ 230,720) to acquire additional road and mine site equipment. The loan is repayable in 36 monthly instalments of $7,934 (US $7,445) commencing in October 2006 and bears interest at an annual rate of 9.00%. Collateral for this loan is comprised of a first charge on the purchased equipment.
During the twelve months ended January 31, 2007, the Company arranged a bank loan of $597,645 (US $560,800) to acquire additional road and mine site equipment. The loan is repayable in 36 monthly instalments of $19,284 (US $18,095) commencing in January 2007 and bears interest at an annual rate of 9.25%. Collateral for this loan is comprised of a pledge of a first charge on the purchased equipment and a $149,130 (US $150,000) renewable term deposit.
During the twelve months ended January 31, 2007, the Company arranged a bank loan of $26,110 (US $24,500) to acquire a vehicle to be used for the mine site. The loan is repayable in 36 monthly instalments of $845 (US $793) commencing in January 2007 and bears interest at an annual rate of 9.25%. Collateral for this loan is comprised of a first charge on the purchased vehicle.
The following table summarizes the loans outstanding as at May 31, 2008, April 30, 2008, April 30, 2007 and January 31, 2007:
| | | | | | | | | | | | | |
| | | May 31, 2008 | | | April 30, 2008 | | | April 30, 2007 | | | January 31, 2007 | |
| Long-term debt | | | | | | | | | | | | |
| Equipment loan #1 | $ | 125,053 | | $ | 138,043 | | $ | 303,203 | | $ | 347,059 | |
| Vehicle loan #1 | | 27,978 | | | 30,674 | | | 64,061 | | | 72,964 | |
| Equipment loan #2 | | 110,984 | | | 119,181 | | | 218,115 | | | 245,989 | |
| Equipment loan #3 | | 317,324 | | | 337,568 | | | 576,443 | | | 646,171 | |
| Vehicle loan #2 | | 13,907 | | | 14,792 | | | 25,245 | | | 28,300 | |
| | | 595,246 | | | 640,258 | | | 1,187,067 | | | 1,340,483 | |
| Less: current portion | | (433,621 | ) | | (451,195 | ) | | (487,882 | ) | | (470,493 | ) |
| | $ | 161,625 | | $ | 189,063 | | $ | 699,185 | | $ | 869,990 | |
Anticipated long-term debt principal repayments are as follows:
| | | |
| 2009 | $ | 433,621 |
| 2010 | | 161,625 |
| | $ | 595,246 |
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 103 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
9.
DEFERRED SERVICES AND MATERIALS TO BE PROVIDED TO PETAQUILLA COPPER LTD.
On September 30, 2007, Petaquilla Gold S.A. (“Gold”), a subsidiary of the Company entered into a Service Agreement with Copper to provide electric generation, aggregate for construction and the rental of a drill machine (collectively, the “services”) for a 3-year period. In return for receiving certain benefits and assurances, payment for services has been assumed and prepaid by Petaquilla Copper Ltd. in the amount of $4,387,705 (US $ 4,400,000) as per the following table, which details Copper’s minimum needs:
| | | | | | | |
| Service/Supply | Minimum | Estimated Cost | | Estimated Cost per | | Estimated cost for 3- |
| | Requirement | per Unit | | Month | | year contract |
| Electric Generation | 350,000kw.hr/month | 0.19USD /kw.hr | $ | 66,254 | $ | 2,385,142 |
| Aggregate for construction, including transportation to site | 100,000yd3 | 16.4/yd3 | | - | | 1,643,895 |
| Rental of LF 70 Drill Machine | - | - | | 99,630 | | 358,668 |
| Total prepaid services | | | | | $ | 4,387,705 |
| | | | | | | | | |
| | | May 31, 2008 | | April 30, 2008 | | April 30, 2007 | | January 31, 2007 |
| Current portion | $ | 247,343 | $ | 247,343 | $ | - | $ | - |
| Non-current portion | | 3,980,203 | | 4,060,956 | | - | | - |
| | $ | 4,227,546 | $ | 4,308,299 | $ | - | $ | - |
The first two years of the Service Agreement, Copper shall have the option to purchase the equipment from Gold at the market price of the equipment less the unamortized amount of rental costs prepaid. See Note 18.
During the period ended May 31, 2008 the Company provided $70,105 (US$ 65,263) (twelve months ended April 30, 2008 - $ 79,406 (US$ 73,852), three months ended April 30, 2007 – Nil and twelve months ended January 31, 2007 – Nil) in services under this agreement.
10.
CAPITAL LEASE OBLIGATIONS
During the current period and the twelve months ended April 30, 2008, the Company entered into two capital lease arrangements with Banco Bilbao Vizcaya Argentaria (Panama) S.A. (“BBVA”) for the purchase of equipment to advance the Molejon project into production.
The equipment includes but is not restricted to: ball mills, a Metso crushing plant, cranes and an aggregate crushing plant.
As a condition of the lease, the equipment will serve as collateral throughout the amortization period and will be registered with the Public Registry of the Republic of Panama. Further, a related company subject to significant influence, has pledged a term deposit in the amount of $2,347,403 (US$ 2,361,098) (April 30, 2008 - $2,383,528 (US$ 2,361,098) April 30, 2007 – Nil, January 31, 2007 - Nil) as additional security.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 104 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
10.
CAPITAL LEASE OBLIGATIONS(continued)
Future minimum lease payments on the capital lease obligation are as follows:
| | | | | |
| 2009 | $ | 2,648,121 | | |
| 2010 | | 2,648,121 | | |
| 2011 | | 1,674,278 | | |
| | | 6,970,520 | | |
| Less: Imputed interest of 9% | | (839,640 | ) | |
| Total | | 6,130,880 | | |
| Current obligation | | 2,162,289 | | |
| Long-term obligation | $ | 3,968,591 | | |
11.
OPERATING CREDIT LINE FACILITY
The Company has an operating credit line facility with BBVA up to a maximum of $13,301,952 (US$ 13,379,554) (April 30, 2008 - $13,506,660 (US$ 13,379,554), April 30, 2007 – Nil, January 31, 2007 - Nil). The facility is drawdown, reduced and converted to a capital lease when the purchase of assets has been completed. The facility has a fixed rate of 9% on $10,954,549 (US$ 11,018,456) (April 30, 2008 - $11,123,131 (US$ 11,018,456), April 30, 2007 – Nil, January 31, 2007 - Nil) and fixed rate of 6% on $2,347,403 (US$ 2,361,098) (April 30, 2008 - $2,383,528 (US$ 2,361,098), April 30, 2007 – Nil, January 31, 2007 - Nil) The facility is secured by the assets purchased under the facility and is registered with the Public Registry of the Republic of Panama.
12.
SENIOR SECURED NOTES
| | |
| | May 31, 2008 |
| | |
| US$ 60 Million Senior Secured Notes | $26,630,004 |
On May 21, 2008, the Company closed $31,746,900 (US$ 32,250,000), the first tranche of its US$60 Million senior secured notes (“Notes”). The Notes bear interest at an annual rate of 15%. The Notes will mature five years from date of issuance at 120% of the principal. The Company has the right to redeem the notes at any time at 120% of the principal amount plus any accrued or unpaid interest on the notes. If the Notes are redeemed within one year of issuance, all prepaid interest is forfeited. After 24 months from the date of issuance of the Notes, holders of the Notes shall have the right to cause the Company to purchase all of its notes then outstanding at a price equal to the sum of (a) 120% of the principal amount of such Notes to be purchased and (b) accrued and unpaid interest on the principal amount of the Notes. On an annual basis, the Note holders can cause the Company to redeem Notes equal to 35% of free cash flow. Free cash flow is to be define d mutually between the Company and the Note holders. As of May 31, 2008, no definition of free cash flow has been defined.
Each Note was issued with 382 share purchase warrants. Each warrant entitles the holder to purchase one common share at CDN $2.30 for a period of five years from the date of purchase. The warrants are subject to a weighted average anti-dilution price protection with a floor equivalent to CDN $ 2.15.
The Notes have been accounted for in accordance with HB 3855 “Financial Instruments – Recognition and Measurement” and HB 3861 “Financial Instruments – Disclosure and Presentation”. Under this guidance, the Company valued the liability component of the Notes and assigned the difference to the warrants. On the valuation date, the value of the Notes was calculated to be $30,993,398 (US$ 31,430,279) and the amount allocated to the warrants $808,327 (US$ 819,721). Prepaid interest of $4,762,035 (US$ 4,875,000) was applied as a reduction of the Notes. The Company will capitalize interest and accretion based on expenditures on qualifying assets. The liability component was calculated using a discount rate of 26.65% and a maturity date of two years from issue. The senior secured notes contain embedded derivatives as a result of the call and put options. The Company is unable to fair value the embedded derivatives component separately and thus has classified the combined contract as a financial liability that is held for trading.
The Company incurred $3,974,266(US$ 4,029,536) in financing costs. These costs have been expensed in the period they are incurred
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 105 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
12.
SENIOR SECURED NOTES(continued)
in accordance with the Company’s accounting policy. Accreted interest of $189,904 had been capitalized to mineral properties in accordance with the Company’s accounting policy.
The Notes are collateralized, on a joint and several basis, by all the assets of the Company and of the Company’s subsidiaries.
13.
BANK OVERDRAFT
The Company has a bank overdraft facility with one of its financial institutions for $2,087,820 (US$ 2,100,000). (April 30, 2008 - $2,119,950 (US$ 2,100,000), April 30, 2007 - $1,205,382 (US$ 1,089,168), January 31, 2007 - Nil). The overdraft bears a fixed interest of 7.5% per annum and is secured by one of the Company’s savings account up to $1,168,282 (US$ 1,175,098). A related company subject to significant influence, has posted a $919,538 (US$ 924,902) term deposit as guarantee for this facility.
14.
SHARE CAPITAL, WARRANTS AND CONTRIBUTED SURPLUS
Authorized Capital
Unlimited common shares without par value
Unlimited preference shares without par value – rights and privileges conferred on issuance
| | | | | | | | | | | |
| | Number | | Amount | | | Contributed | | | Warrants | |
| | of Common | | | | | Surplus | | | | |
| | Shares | | | | | | | | | |
| Issued | | | | | | | | | | |
| Balance as at January 31, 2006 | 70,246,303 | | 61,684,216 | | | 1,004,480 | | | 1,292,993 | |
|
| Non-brokered private placement, net of finders’ fees (b) | 9,400,000 | | 11,717,220 | | | - | | | 9,885,980 | |
| Exercise of stock options | 4,737,893 | | 11,311,328 | | | (8,685,394 | ) | | - | |
| Exercise of warrants | 4,982,835 | | 7,272,396 | | | - | | | (1,292,993 | ) |
| Stock-based compensation | - | | - | | | 17,127,198 | | | - | |
| Share issuance costs | - | | (1,414,061 | ) | | - | | | 820,518 | |
| Balance as at January 31, 2007 | 89,367,031 | | 90,571,099 | | | 9,446,284 | | | 10,706,498 | |
| |
| Exercise of stock options | 509,920 | | 1,024,936 | | | (750,603 | ) | | - | |
| Stock-based compensation | - | | - | | | 3,377,468 | | | - | |
| Balance as at April 30, 2007 | 89,876,951 | | 91,596,035 | | | 12,073,149 | | | 10,706,498 | |
| |
| Non-brokered private placement, net of finders’ fees (c) | 4,552,412 | | 10,918,342 | | | - | | | 1,327,463 | |
| Exercise of stock options | 1,055,883 | | 3,110,114 | | | (2,026,487 | ) | | - | |
| Exercise of warrants | 373,395 | | 1,153,659 | | | - | | | (578,617 | ) |
| Share issue relating to legal settlement | 100,000 | | 261,000 | | | - | | | - | |
| Stock-based compensation | - | | - | | | 6,269,339 | | | - | |
| Share issuance costs | - | | (551,586 | ) | | - | | | 83,845 | |
| Balance as at April 30, 2008 | 95,958,641 | | 106,487,564 | | | 16,316,001 | | | 11,539,189 | |
| |
| Stock-based compensation | - | | - | | | 90,017 | | | - | |
| Share issuance costs | - | | (629,481 | ) | | - | | | 629,481 | |
| Senior secured notes warrants | - | | - | | | - | | | 808,327 | |
| Balance as at May 31, 2008 | 95,958,641 | $ | 105,858,083 | | $ | 16,406,018 | | $ | 12,976,997 | |
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 106 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
14.
SHARE CAPITAL, WARRANTS AND CONTRIBUTED SURPLUS(continued)
(a)
In January 2006, the Company completed a non-brokered private placement and issued 9,965,670 units at a price of $0.95 per unit, for gross proceeds of $9,467,387. Each unit consists of one common share and one-half of one non-transferable share purchase warrant aggregating 4,982,835 warrants. Each whole warrant entitles the holder to purchase one common share of the Company at a price of $1.20 per share if exercised in the first year following the closing, and at a price of $1.44 per share if exercised in the second year following the closing. The warrant will terminate within 20 days unless exercised in the event the Company’s closing stock price meets or exceeds $2.00 for 10 consecutive trading days and the Company issues a press release of such an event. The Company paid finders’ fees of $534,053 for net proceeds of $8,933,334. The warrants were exercised during fiscal 2007.
(b)
In October 2006, the Company completed a non-brokered private placement and issued 9,400,000 units at a price of $2.40 per unit, for gross proceeds of $22,560,000. Each unit consists of one common share and one share purchase warrant (see Note 16). The Company agreed to issue 398,000 share purchase warrants as finders’ fees in connection with part of the private placement (see Note 16). The fair value of the finders’ warrants is $820,518 that was approved and recorded during the fiscal year. In addition, the Company paid finders’ fees of $956,800 for net cash proceeds of $21,603,200.
(c)
In May 2007, the Company closed a non-brokered private placement comprising of 1,387,879 units at $2.00 per unit, and 24,033 units at $2.02 per unit for gross proceeds of $2,824,305. Each unit consists of one common share and one-half of one common share purchase warrant, with each whole warrant exercisable into a common share at a price of $3.50 per share for a period of two years following closing of the private placement. The share purchase warrants are subject to an accelerated expiry provision that, if the volume weighted average trading price of the common shares of the Company as traded on the Toronto Stock Exchange exceeds $7.00 per share for at least 30 consecutive trading days, the Company shall have the right, exercisable within 30 days thereafter, to give notice to each warrant holder requiring the exercising of the warrants within a 30 day period. If the Company exercises such right, the warrant will, if not exercised by the warrant hold er in accordance with their terms and conditions, expire at the end of such 30 day period. The securities issued under this private placement were subject to a four-month and a day resale restriction that expired on September 10, 2007. The fair value of the warrants issued on this private placement is $291,274.
In October 2007, the Company closed the first tranche of the non-brokered private placement announced in October 2007 comprising 2,093,500 units at $3.00 per unit for gross proceeds of $6,280,500. Each unit consists of one common share and one-half of one common share purchase warrant, with each whole warrant exercisable into a common share at a price of $3.50 per share for a period of two years following closing of the private placement. The Company paid $222,375 and agreed to issue 74,125 share purchase warrants as finders’ fees in connection with part of the private placement. The fair value of the finders’ warrants is $52,584.
In December 2007, the Company closed the second tranche of the non-brokered private placement announced in October 2007 comprising of 339,000 units at $3.00 per unit for gross proceeds of $1,017,000. Each unit consists of one common share and one-half of one common share purchase warrant, with each whole warrant exercisable into a common share at a price of $3.50 per share for a period of two years following closing of the private placement. The Company paid $43,500 and agreed to issue 12,500 share purchase warrants as finders’ fees in connection with part of the private placement. The fair value of the finders’ warrants is $8,304.
In January 2008, the Company closed the third tranche of the non-brokered private placement announced in October 2007 comprising of 708,000 units at $3.00 per unit for gross proceeds of $2,124,000. Each unit consists of one common share and one-half of one common share purchase warrant, with each whole warrant exercisable into a common share at a price of $3.50 per share for a period of two years following closing of the private placement. The Company paid $105,000 and agreed to issue 35,000 share purchase warrants as finders’ fees in connection with part of the private placement. The fair value of the finders’ warrants is $22,957.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 107 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
14.
CAPITAL STOCK, WARRANTS AND CONTRIBUTED SURPLUS(continued)
In May 2008, the Company closed the first tranche of its Senior Secured Notes issuing 32,250 units with gross proceeds of US$ 32,250,000. Each unit of US$ 1,000 consists of one Secured Senior Note and a warrant to purchase 382 Common shares. Each warrant entitles the holder to purchase one common share at CDN $2.30 for a period of five years from the date of purchase. The warrant is subject to a weighted average anti-dilution price protection with a floor equivalent to $2.15. The notes will mature at 120% of the principal amount. The notes also carry a 15% interest of which the first year’s interest is prepaid at the date the funds were received. The Company paid $1,612,500 and agreed to issue 492,780 share purchase warrants as finders’ fees in connection with this tranche of the private placement. The fair value of the finders’ warrants is $629,481.
The Company adopted a new shareholder rights plan, which was approved by the shareholders and by the Toronto Stock Exchange on June 6, 2006. Under the Plan, the Company issued one Right for no consideration for each outstanding common share of the Company to all holders of record of common shares as at 5:00 p.m., Pacific Time, March 7, 2006. Thereafter, each common share issued by the Company during the term of the Plan will have one Right attached to it. The term of the Plan is five years unless the rights are earlier redeemed or exchanged. The Plan will be subject to review after the third year of its term.
The Rights are attached to the common shares and cannot be exercised until eight trading days after a triggering event has taken place. A triggering event is one of the following: (i) an Acquiring Person, as defined in the Plan, acquires 20% or more of the common shares of the Company; or (ii) an Acquiring Person announces his intention to make a take-over bid that would result in the person owning 20% or more of the outstanding common shares of the Company. Upon such a triggering event occurring, each Right would separate from the common share and thereafter entitle the holder to purchase common shares at a discount of 50% to the market price, up to the amount of the $30 exercise price of the Right.
The Rights will not be separated from the shares if the Acquiring Person makes a Permitted Bid, defined in the Plan to mean a bid made pursuant to a take-over bid circular to all shareholders of the Company, which has a minimum deposit period of at least 60 days and pursuant to which not less than 50% of the common shares, other than those held by the Acquiring Person, are deposited and not withdrawn.
15.
STOCK OPTIONS
During the twelve months ended January 31, 2007, the Company received approval for its stock option plan (the “New Plan”) which authorizes the board of directors to grant incentive stock options to directors, officers and employees. The maximum number of shares reserved for issuance under the Company’s Plan is 10,000,000.
On December 8, 2006, no shares remained in reserve under the Company’s former incentive stock option plan (the “Former Plan”). The 2,556,144 options that remained outstanding as of December 8, 2006 under the Former Plan were carried forward to the New Plan. In January 2007, the Company granted a total of 5,989,543 incentive stock options under the New Plan. During the period ended May 31, 2008, 1,375,000 incentive stock options were granted. As at May 31, 2008, the total number of outstanding incentive stock options under the Plan is 8,115,134 (April 30, 2008 -8,015,134, April 30, 2007 - 8,115,767 and January 31, 2007 – 8,495,687).
Prior to the Plan of Arrangement taking effect, and in order to create unallocated options to be granted in the future to new employees, officers and directors, the existing optionees were asked to voluntarily reduce the number of shares under option to each of them to 60% of the number of shares held under the option on the day before the Effective Date (“October 18, 2006”) of the Plan of Arrangement. All of the optionees agreed to this arrangement except for an option holder holding 675,000 options who elected to retain the number of options held under the existing grants. Each revised option outstanding would enable the option holder to receive one share of the Company and one share of Copper upon exercising. For example, when an optionee prior to the Effective Date held an option to purchase 100,000 shares of the Company, that optionee after the Effective Date would hold an option to purchase 60,000 shares of the Com pany and 60,000 shares of Copper. Both options must be exercised together. The modification of stock options as a result of the Plan of Arrangement resulted in no incremental stock-based compensation expense to recognize.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 108 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
15.
STOCK OPTIONS(continued)
The aggregate number of common shares reserved for issuance to any person may not exceed 5% of the number of outstanding common shares. The exercise price of the options will be determined by the five day volume weighted average price of the Company’s shares prior to the date of the grant. Options granted must be exercised no later than 10 years after the date of grant or such lesser period as may be determined by the Board. The Board may at its discretion in any granting of an option set a vesting period whereby the option may only be exercisable in pre-determined instalments. Stock option transactions are summarized as follows:
| | | | | |
| | | | Weighted | |
| | | | Average | |
| | Number | | Exercise | |
| | of Shares | | Price | |
|
|
| Balance at January 31, 2006 | 6,031,200 | | 0.53 | (1) |
|
| Granted (re: Plan of Arrangement) | 3,730,000 | | 1.14 | (1) |
| Granted | 5,989,543 | | 2.01 | |
| Exercised | (4,737,893) | | 0.54 | (1) |
| Expired | (400,000) | | 1.24 | (1) |
| Forfeited | (493,400) | | 0.98 | (1) |
| Voluntary reduction | (1,623,763) | | 0.91 | (1) |
| Balance at January 31, 2007 | 8,495,687 | | 1.55 | (1) |
|
| Granted | 150,000 | | 2.25 | |
| Exercised | (509,920) | | 0.39 | |
| Forfeited | (20,000) | | 2.01 | |
| Balance at April 30, 2007 | 8,115,767 | | 1.76 | (1) |
| |
| Granted | 1,245,000 | | 2.45 | |
| Exercised | (1,055,883) | | 1.03 | (1) |
| Cancelled | (179,750) | | 2.01 | |
| Forfeited | (110,000) | | 3.04 | |
| Balance at April 30, 2008 | 8,015,134 | | 1.82 | |
| |
| Granted | 130,000 | | 1.96 | |
| Forfeited | (30,000) | | 2.58 | |
| Balance at May 31, 2008 | 8,115,134 | | 1.82 | |
| Number of stock options exercisable | 6,003,944 | $ | 1.71 | |
(1)
Exercise price is the aggregate exercise price required to exercise one option of Petaquilla Copper Ltd. and one option of the Company with half of the proceeds to be allocated to the Company and half to Petaquilla Copper Ltd.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 109 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
15.
STOCK OPTIONS(continued)
As at May 31, 2008, the following stock options were outstanding as follows:
| | | | |
| Number of Shares | | | |
| Outstanding | Exercise Price | | Expiry Date |
| 150,000 | 2.25 | | October 19, 2008 |
| 36,480 | 0.25 | (1) | April 21, 2010 |
| 193,800 | 0.25 | (1) | July 11, 2010 |
| 994,200 | 0.525 | (1) | February 1, 2011 |
| 96,000 | 0.865 | (1) | April 27, 2011 |
| 5,409,654 | 2.01 | | January 15, 2012 |
| 200,000 | 2.22 | | June 12, 2012 |
| 500,000 | 2.25 | | June 20, 2012 |
| 50,000 | 2.48 | | July 11, 2012 |
| 75,000 | 2.49 | | July 12, 2012 |
| 50,000 | 2.54 | | July 23, 2012 |
| 50,000 | 2.76 | | September 10, 2012 |
| 5,000 | 3.04 | | November 15, 2012 |
| 75,000 | 2.70 | | February 14, 2013 |
| 100,000 | 2.80 | | February 11, 2013 |
| 30,000 | 1.96 | | May 5, 2013 |
| 100,000 | 1.96 | | May 5, 2013 |
|
| 8,115,134 | | | |
(1)
Exercise price is the aggregate exercise price required to exercise one option of Petaquilla Copper Ltd. and one option of the Company with half of the proceeds to be allocated to the Company and half to Petaquilla Copper Ltd.
Total stock options granted during the one month ended May 31, 2008 are 130,000 (twelve months ended April 30, 2008 - 1,245,000, three months ended April 30, 2007 - 150,000, twelve months ended January 31, 2007 - 9,719,543 and twelve months ended January 31, 2006 – 5,573,000), of which Nil (twelve months ended April 30, 2008 - Nil, three months ended April 30, 2007 – Nil,twelve months ended January 31, 2007 – 400,000 and twelve months ended January 31, 2006 - Nil ) are expired and Nil (twelve months ended April 30, 2008 - Nil, three months ended April 30, 2007 – Nil,twelve months ended January 31, 2007 - 155,200 and twelve months ended January 31, 2006 - 450,000) were forfeited during the period. Stock options granted that are not vested have been excluded from the calculation of stock-based compensation. Total stock-based compensation recognized for the fair value of stock options granted, vested and approved by the shareholders during the one month period ended May 31, 2008 was $77,902 (twelve months ended April 30, 2008 - $5,676,183, three months ended April 30, 2007 - $3,377,468, twelve months ended January 31, 2007 - $17,008,802 and twelve months ended January 31, 2006 - $410,301). Stock-based compensation charged to mineral property costs amounted to $12,115 for the one month ended May 31, 2008 (twelve months ended April 30, 2008 - $593,157, three months ended April 30, 2007 – Nil, twelve months ended January 31, 2007 - $118,396 and twelve months ended January 31, 2006 - Nil).
These financial statements include the stock-based compensation costs associated with the exchange of options and warrants in connection with the Plan of Arrangement, and the options and warrants issued to Copper in respect thereof.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 110 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
15.
STOCK OPTIONS(continued)
Options
The weighted average fair value of stock options granted is estimated to be approximately $1.18 for the one month ended May 31, 2008 (twelve months ended April 30, 2008 - $1.65, three months ended April 30, 2007 - $0.32 and twelve months ended January 31, 2007 - $1.21 ) by using the Black-Scholes options pricing model with the following weighted average assumptions:
| | | | | | | | | | | |
| | One month | | Twelve | | | | | | | |
| | ended | | months ended | | Three months | | Twelve months | | Twelve months | |
| | May 31, | | April 30, | | ended | | ended January | | ended January | |
| | 2008 | | 2008 | | April 30, 2007 | | 31, 2007 | | 31, 2006 | |
|
| Risk-free interest | 3.05 | % | 4.44 | % | 4.16 | % | 4.04 | % | 3.34 to 4.20 | % |
| Expected dividend yield | - | | - | | - | | - | | - | |
| Expected stock price volatility | 74 | % | 87 | % | 39 | % | 106 | % | 47 to 65 | % |
| Expected option life in years | 5.00 | | 5.00 | | 1.00 | | 5.00 | | 2.00 - 5.00 | |
16.
SHARE PURCHASE WARRANTS
Share purchase warrant transactions are summarized as follows:
| | | | | | |
| | | | | | Weighted |
| | | | | | Average |
| | Number | | | | Exercise |
| | of Shares | | | | Price |
| Balance at January 31, 2006 | 4,982,835 | | | | 1.20/1.44 |
| Issued | 9,798,000 | | | | 1.54 |
| Exercised | (4,982,835 | ) | | | 1.20 |
| Balance at January 31, 2007 and April 30, 2007 | 9,798,000 | | | | 1.54 |
| Issued | 2,397,830 | | | | 3.50 |
| Exercised | (373,395 | ) | | | 1.54 |
| Balance at April 30, 2008 | 11,822,435 | | | | 1.94 |
| Issued | 12,812,280 | | | | 2.30 |
| Balance at May 31, 2008 | 24,634,715 | | | $ | 2.13 |
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 111 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
16.
SHARE PURCHASE WARRANTS(continued)
On October 17, 2006, the Company issued share purchase warrants in connection with the non-brokered private placement which closed during the period. Each warrant entitles the holder to purchase an additional common share of the Company for a period of five years at a price of $3.00 per share. In addition, the Company agreed to issue 398,000 finders’ warrants, each finder’s warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.00 per share for a period of five years.
On the Effective Date of the Plan of Arrangement, the warrant holders received:
a.
one share purchase warrant (a “PTQ Warrant”), where each PTQ Warrant entitles the holder to purchase one common share of the Company for a period of five years; and
b.
one share purchase warrant (a “Copper Warrant”), where each Copper Warrant entitles the holder to purchase one common share of Copper for a period of five years.
Until such time as Copper has been listed on a recognized Canadian stock exchange (the “Copper Listing Date”), the Copper Warrant and the PTQ Warrant must be exercised together. From and after the first five trading days after the Copper Listing Date, the Warrants can be exercised separately, and in that event, the respective exercise prices of the PTQ Warrants and the Copper Warrants will be based on $3.00 multiplied by the ratio of the five day volume weighted average price of each of the PTQ and Copper shares during the first five trading days for Copper.
The PTQ Warrants were subject to a hold period that expired on February 18, 2007. The Copper shares and Copper Warrants are subject to resale restrictions until such time that Copper becomes a reporting issuer or another exemption from resale restrictions is available. The PTQ common shares will be freely tradable following the Effective Date.
On December 31, 2007, Copper commenced trading on the Toronto Stock Exchange. The respective exercise prices of the PTQ Warrants and the Copper Warrants have been determined to be $1.54 and $1.46 based on $3.00 multiplied by the ratio of the five day weighted average price of each of the PTQ and Copper shares during the first five trading days of Copper.
On May 10, 2007, the Company closed a non-brokered private placement comprising of 1,387,879 units at $2.00 per unit, and 24,033 units at $2.02 per unit for gross proceeds of $2,824,305. Each unit consists of one common share and one-half of one common share purchase warrant, with each whole warrant exercisable into a common share at a price of $3.50 per share for a period of two years following closing of the private placement (See Note 14). The fair value of the warrants issued on this private placement is $291,274.
In October 2007, the Company closed a non-brokered private placement comprising of 2,093,500 units at $3.00 per unit for gross proceeds of $6,280,500. Each unit consists of one common share and one-half of one common share purchase warrants, with each whole warrant exercisable into a common share at a price of $3.50 per share for a period of two years following closing of the private placement. The Company paid $222,375 and agreed to issue 74,125 share purchase warrants as finders’ fees in connection with part of the private placement. The fair value of the warrants issued on this tranche of the private placement is $720,134. The fair value of the finders’ warrants is $52,584.
In December 2007, the Company closed the second tranche of the non-brokered private placement announced in October 2007 comprising of 339,000 units at $3.00 per unit for gross proceeds of $1,017,000. Each unit consists of one common share and one-half of one common share purchase warrants, with each whole warrant exercisable into a common share at a price of $3.50 per share for a period of two years following closing of the private placement. The Company paid $43,500 and agreed to issue 12,500 share purchase warrants as finders’ fees in connection with part of the private placement. The fair value of the warrants issued on this tranche of the private placement is $103,549. The fair value of the finders’ warrants is $8,304.
In January 2008, the Company closed the third tranche of the non-brokered private placement announced in October 2007 comprising of 708,000 units at $3.00 per unit for gross proceeds of $2,124,000. Each unit consists of one common share and one-half of one common share purchase warrants, with each whole warrant exercisable into a common share at a price of $3.50 per share for a period of two years following closing of the private placement. The Company paid $105,000 and agreed to issue 35,000 share purchase warrants as finders’ fees in connection with part of the private placement. The fair value of the warrants issued on this tranche of the private placement is $212,504. The fair value of the finders’ warrants is $22,957.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 112 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
16.
SHARE PURCHASE WARRANTS(continued)
In May 2008, the Company closed the first tranche of its Senior Secured Notes issuing 32,250 units with gross proceeds of US$ 32,250,000 (Note 12). Each unit of US$ 1,000 consists of one Secured Senior Note and a warrant to purchase 382 Common shares. Each warrant entitles the holder to purchase one common share at CDN $2.30 for a period of five years from the date of purchase. The warrant is subject to a weighted average anti-dilution price protection with a floor equivalent to $2.15. The notes will mature at 120% of the principal amount. The notes also carry a 15% interest of which the first year’s interest is prepaid at the date the funds were received. The Company paid $1,612,500 and agreed to issue 492,780 share purchase warrants as finders’ fees in connection with part of the private placement. The fair value of the finders’ warrants is $629,481.
The weighted average fair value of the finders’ warrants issued is estimated to be approximately $1.28 for the one month ended May 31, 2008 (twelve months ended April 30, 2008 - $0.69, three months ended April 30, 2007 - Nil, and twelve months ended January 31, 2007 - $2.06) by using the Black-Scholes options pricing model with the following assumptions:
| | | | | |
| | One month ended May 31, 2008 | Twelve months ended April 30, 2008 | Three months ended April 30, 2007 | Twelve months ended January 31, 2007 |
| Risk-free interest Expected dividend yield Expected stock price volatility Expected option life in years | 3.18% - 74% 5.00 | 4.00% - 47% 2.00 | - - - - | 4.04% - 108% 5.00 years |
17.
TREASURY SHARES
During the period ended January 31, 2006, the Company sold 1,616,000 of its shares held in treasury at an average price of $0.79 per share for net proceeds of $1,273,946. These shares were previously issued and reacquired at a cost of $3.79 per share by the Company pursuant to an issuer bid. The loss of $4,847,462 resulting from the sale of these shares and related broker fees has been charged to deficit during the period ended January 31, 2006. As at May 31, 2008, 44,200 common shares were held in treasury.
18.
RELATED PARTY TRANSACTIONS
During the one month ended May 31, 2008:
a)
The Company paid consulting fees of $1,890 (twelve months ended April 30, 2008 - $106,033, three months ended April 30, 2007 - $15,545, twelve months ended January 31, 2007 - $411,179 and twelve months ended January 31, 2006 - $114,559) to related companies controlled by a director and a former officer.
b)
The Company paid legal fees of Nil (twelve months ended April 30, 2008 - $109,517, three months ended April 30, 2007 - $44,523, twelve months ended January 31, 2007 - $230,061 and twelve months ended January 31, 2006 - Nil), share issue costs of Nil (twelve months ended April 30, 2008 - $165,836, three months ended April 30, 2007 – Nil, twelve months ended January 31, 2007 – $113,097 and twelve months ended January 31, 2006 - Nil) and financing costs of $95,272 (twelve months ended April 30, 2008 – Nil, three months ended April 30, 2007 – Nil, twelve months ended January 31, 2007 – Nil and twelve months ended January 31, 2006 - Nil) to a law firm controlled by an officer. The Company paid for services and goods of Nil (twelve months ended April 30, 2008 - $129,921, three months ended April 30, 2007 - $26,768, twelve months ended January 31, 2007 - $107,359 and twelve months ended Ja nuary 31, 2006 - $61,749) to a company controlled by an officer and a director.
c)
The Company paid consultant fees and wages of $9,052 (twelve months ended April 30, 2008 - $143,583, three months ended April 30, 2007 - Nil, twelve months ended January 31, 2007 - Nil and twelve months ended January 31, 2006 - Nil) to companies controlled by directors and an officer.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 113 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
18.
RELATED PARTY TRANSACTIONS (continued)
d)
The Company received $3,425 (twelve months ended April 30, 2008 - $34,875, three months ended April 30, 2007 - $8,549, twelve months ended January 31, 2007 - $7,573 and twelve months ended January 31, 2006 - Nil) from Copper as payment of office rent.
e)
The Company received or accrued Nil (12 months ended April 30, 2008 - $129,345, 3 months ended April 30, 2007 - $103,348, twelve months ended January 31, 2007 - Nil and twelve months ended January 31, 2006 - Nil) in asset usage fees from Copper for the use of certain office and mining equipment. Also during the period, the Company and Copper advanced negotiations with the lessor of the equipment to have the commercial terms of the leasing arrangement correspond with the terms of the Plan of Arrangement made effective on October 18, 2006, such that Copper will ultimately become the lessee of the equipment. The cost recovery arrangement will be subject to review and revision to reflect changes in operations.
f)
During the period ended April 30, 2008 the Company had a cost sharing arrangement with Copper varying from 50% to 80% of the cost. This arrangement was terminated on September 30, 2007 when the terms of the agreement were fulfilled.
Certain employees of the Company with knowledge in mining, government, environmental and community relations were previously employed and trained by the Company. In January 2008, the Company charged Copper for technical know-how and other intellectual property transferred to Copper. The amount of these fees has been determined to be $4,587,320 (US$ 4,577,250). In April 2008, the Company and Copper agreed to rescind the agreement and the fees were refunded to Copper.
As at May 31, 2008, the Company has an amount payable to Copper of $1,157,788 (April 30, 2008 - $9,880,377 payable, April 30, 2007 - $4,582,937 receivable and January 31, 2007 - $2,143,774 receivable) resulting from mineral property costs and general and administrative expenses paid by the Company on Copper’s behalf. This account bears interest at a rate of US prime plus 1%. As at May 31, 2008, the Company has $113,832 payable to all other related parties (April 30, 2008 – $16,707, April 30, 2007 – $55,901 and January 31, 2007 – $81,305).
The Company has posted 5,000,000 common shares of PTC as security of its account payable to PTC. PTC’s common shares posted as security were held in escrow pending payment of the account payable and cannot be sold until the account payable has been paid in full pursuant to a Warranty Agreement dated September 30, 2007.
The common shares serving as security are based on a market value of $2.00 per common share. If the market value of the common shares changes, the number of shares required to be posted as security shall be adjusted accordingly.
Effective December 31, 2007, the Company transferred back to Copper 1,815,069 of its Copper shares held as repayment of advances payable to Copper as at December 31, 2007 of $5,608,564. These shares were transferred at a fair market value of $3.09 per share.
The fair market value of Copper shares transferred back to Copper was calculated in accordance with the Warranty Agreement dated September 30, 2007. As Copper did not publicly trade until December 31, 2007, the fair value was determined using the Black-Scholes options pricing model to determine the fair market value of a Copper common share and half warrant in each unit issued in Copper’s first tranche of a non-brokered private placement in December 2007.
The following assumptions were used:
| | |
Risk-free interest | | 3.22 |
Expected dividend yield | | - |
Expected stock price volatility | | 58.49% |
Subsequent to the transfer of shares, Copper released to the Company the remaining shares it held in escrow.
These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 114 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
18.
RELATED PARTY TRANSACTIONS (continued)
In September of 2007, the Company entered into an agreement with Copper to sell some of its surplus property and equipment and mineral properties that are no longer required for its current operations. The net book value of these assets is $3,464,048 which approximates their fair market value. The Company did not recognize a gain or loss on this disposal.
On September 30,2007, Petaquilla Gold S.A. (“Gold”), a subsidiary of the Company entered into a Service Agreement with Petaquilla Copper, S.A. (“Copper”) to provide electric generation, aggregate for construction and the rental of a drill machine (collectively, the “services”) for a 3-year period. In return for receiving certain benefits and assurances, payment for services has been assumed and prepaid by Petaquilla Copper Ltd. in the amount of $4,387,705 (US $4,404,000).
19.
INCOME TAXES
A reconciliation of income taxes of statutory rates with the reported taxes is as follows:
| | | | | | | | | | | | | | | | |
| | | One month | | | Twelve months | | | Three months | | | Twelve months | | | Twelve months | |
| | | ended May 31, | | | ended | | | ended | | | ended | | | ended | |
| | | 2008 | | | April 30, 2008 | | | April 30, 2007 | | | January 31, 2007 | | | January 31, 2006 | |
| Statutory tax rate | | 30.67 | % | | 33.08 | % | | 34.12 | % | | 34.12 | % | | 34.70 | % |
| (Loss) for the period | $ | (4,513,145 | ) | $ | (1,031,155 | ) | $ | (6,443,991 | ) | $ | (21,518,419 | ) | $ | (2,567,758 | ) |
| Income tax recovery | $ | (1,384,182 | ) | $ | (341,106 | ) | $ | (2,191,815 | ) | $ | (7,342,085 | ) | $ | (892,168 | ) |
| Permanent differences | | (61,546 | ) | | (53,318 | ) | | 1,273,166 | | | 5,467,798 | | | 117,045 | |
| Income tax rate change and differential | | 895,534 | | | 1,347,730 | | | (266,240 | ) | | 758,00 | | | 14,107 | |
| Change in valuation allowance | | 550,194 | | | (953,306 | ) | | 1,184,889 | | | 1,116,287 | | | 761,016 | |
| Income tax recovery | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | |
The significant components of the Company’s future income tax assets (liabilities) are as follows:
| | | | | | | | | | | | | |
| | | May 31, 2008 | | | April 30, 2008 | | | April 30, 2007 | | | January 31, 2007 | |
| Future income tax assets (liabilities) | | | | | | | | | | | | |
| Non-capital and other loss carry-forwards | $ | 3,249,789 | | $ | 3,278,893 | | $ | 4,264,620 | | $ | 3,090,661 | |
| Equipment and mineral properties | | 54,878 | | | 54,878 | | | 235,412 | | | 232,851 | |
| Deferred financing costs | | 1,623,839 | | | 547,524 | | | - | | | 405,876 | |
| Future income tax on investment | | (1,347,586 | ) | | (1,202,204 | ) | | - | | | (320,021 | ) |
| Other | | 13,060 | | | 13,947 | | | 386,036 | | | 16,873 | |
| Total future income tax assets | | 3,593,980 | | | 2,693,038 | | | 4,886,068 | | | 3,426,240 | |
| Valuation allowance | | (3,593,980 | ) | | (2,693,038 | ) | | (4,886,068 | ) | | (3,426,240 | ) |
| Net future income tax assets | $ | - | | $ | - | | $ | - | | $ | - | |
The Company has non-capital losses of approximately $12,934,532 available for deduction against future years’ taxable income in Canada. These losses, if unutilized, will expire beginning in 2009 as follows:
| | | |
| 2009 | $ | 184,526 |
| 2010 | | 133,088 |
| 2011 | | 420,267 |
| 2015 | | 882,063 |
| 2026 | | 1,932,414 |
| 2027 | | 5,173,260 |
| 2028 | | 4,208,913 |
| | $ | 12,934,531 |
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 115 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
19.
INCOME TAXES(continued)
The Company will not be subject to any income taxes in Panama until such time that all of the debts incurred by all the affiliated / subsidiary companies have been repaid in full. At that time the Company will be able to claim accelerated write-offs for all Panamanian subsidiaries.
20.
SEGMENT INFORMATION
The Company has one operating segment being the exploration of resource properties. Details of geographic information are as follows:
| | | | | | | |
| May 31, 2008 | | Canada | | Panama | | Total |
| Interest income | $ | - | $ | 78,670 | $ | 78,670 |
| Property and equipment | | - | $ | 16,681,830 | $ | 16,681,830 |
| Mineral properties | | - | $ | 67,149,615 | $ | 67,149,615 |
| | | | | | | |
| April 30, 2008 | | Canada | | Panama | | Total |
| Interest income | $ | 39,593 | $ | 14,982 | $ | 54,575 |
| Property and equipment | | - | $ | 16,984,201 | $ | 16,984,201 |
| Mineral properties | | - | $ | 65,099,631 | $ | 65,099,631 |
| |
| April 30, 2007 | | Canada | | Panama | | Total |
| Interest income | $ | 47,623 | $ | 9,226 | $ | 56,849 |
| Property and equipment | $ | 63,284 | $ | 5,279,863 | $ | 5,343,147 |
| Mineral properties | | - | $ | 31,236,455 | $ | 31,236,455 |
| | | | | | | |
| January 31, 2007 | | Canada | | Panama | | Total |
| Interest income | $ | 264,210 | $ | 31,821 | $ | 296,031 |
| Property and equipment | $ | 86,106 | $ | 5,134,944 | $ | 5,221,050 |
| Mineral properties | | - | $ | 22,887,996 | $ | 22,887,996 |
| | | | | | | |
| January 31, 2006 | | Canada | | Panama | | Total |
| Interest income | $ | 48,239 | $ | - | $ | 48,239 |
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 116 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
21.
COMMITMENTS
(a)
During the period ended April 30, 2007, the Company entered into a five-year lease for office premises at an estimated annual cost of $66,240 commencing September 1, 2006. Cancellation of two previous lease obligations was obtained effective May 15, 2006.
From October 18, 2006, the office leasing costs have been split equally between the Company and Petaquilla Copper Ltd., consequent to the Plan of Arrangement. Therefore the estimated annual cost is $33,120 to the Company.
(b)
As of May 31, 2008, the Company had a commitment to purchase plant of $1,102,998 (US$1,109,433), generators of $1,423,240 (US$1,431,543), equipment of $1,841,191(US$1,851,932) and other support equipment of $679,704 (US$683,669).
22.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company’s financial instruments consist of cash and cash equivalents, receivables, accounts payable, long-term debt, restricted cash, and the amount payable from Petaquilla Copper Ltd. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments other than the senior secured notes. The fair value of these financial instruments approximates their carrying values, unless otherwise noted.
The Company is exposed to interest rate risk on its senior secured notes. These notes bear a fixed interest rate. The Company monitors its exposure to interest rates and is currently comfortable with its exposure.
The Company is subject to financial risk arising from fluctuations in foreign currency exchange rates. The Company does not use any derivative instruments or hedging activities to reduce its exposure to fluctuations in foreign currency exchange rates.
23.
SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
| | | | | | | | | | | | | | |
| | | One month | | | Twelve months | | | Three months | | Twelve months | | | Twelve months |
| | | ended May | | | ended April 30, | | | ended April | | ended January | | | ended January |
| | | 31, 2008 | | | 2008 | | | 30, 2007 | | 31, 2007 | | | 31, 2006 |
| Non-cash financing activities | | | | | | | | | | | | | |
| Finder’s fee | $ | 629,481 | | $ | 83,845 | | $ | - | $ | 820,518 | | $ | - |
| Share issue costs | | (629,481 | ) | | (83,845 | ) | | - | | (820,518 | ) | | - |
| Settlement of advances for deferred services | | - | | | (4,387,705 | ) | | - | | - | | | - |
| Settlement of advances for property andequipment and mineral properties | | - | | | (3,464,048 | ) | | - | | - | | | - |
| Shares issued re legal settlement | | - | | | 261,000 | | | - | | - | | | - |
| Non-cash investing activities | | | | | | | | | | | | | |
| Property and equipment incurred throughpayables | | - | | | - | | | 188,383 | | - | | | - |
| Property and equipment acquired throughcapital leases | | - | | | 6,906,789 | | | - | | - | | | - |
| Property and equipment acquired throughcredit line facility | | - | | | 3,849,974 | | | - | | - | | | - |
| Mineral property costs incurred throughpayables | | 1,441,895 | | | 2,516,178 | | | 3,827,595 | | 511,556 | | | 192,158 |
| Stock-based compensation capitalized tomineral properties | | 12,115 | | | 593,157 | | | - | | 118,396 | | | - |
| Asset retirement obligation capitalized tomineral properties | | - | | | - | | | 4 ,400,000 | | - | | | - |
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 117 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
23.
SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS(continued)
| | | | | | | | | |
| | | One month | | Twelve months | | Three months | | Twelve months |
| | | ended May 31, | | ended April 30, | | ended April | | ended January |
| | | 2008 | | 2008 | | 30, 2007 | | 31, 2007 |
| Cash and cash equivalents consist of: | | | | | | | | |
| Cash | $ | 6,357,871 | $ | 1,642,691 | $ | 1,076,253 | $ | 575,881 |
| Term deposits | | 6,417,735 | | 136,282 | | 701,874 | | 6,353,943 |
| | $ | 12,775,606 | $ | 1,778,973 | $ | 1,778,127 | $ | 6,929,824 |
| | | | | | | | | |
| | | One month | | Twelve months | | Three months | | Twelve months |
| | | ended May 31, | | ended April 30, | | ended April | | ended January |
| | | 2008 | | 2008 | | 30, 2007 | | 31, 2007 |
| Interest paid in cash | $ | 5,868,253 | $ | 70,176 | $ | 68,329 | | - |
| Income taxes paid in cash | | - | | - | | - | | - |
24.
ASSET RETIREMENT OBLIGATIONS
The Company’s asset retirement obligation relates to site-restoration and clean-up costs related to its Molejon gold project located in Panama.
A reconciliation of the provision for asset retirement obligations is as follows:
| | | | |
| Initial recognition – April 30, 2007 | $ | 4,400,000 | |
| Accretion | | 312,977 | |
| Foreign exchange gain on re-measurement in Canadian dollars | | (375,974 | ) |
| | | | |
| Balance - April 30, 2008 | | 4,337,003 | |
| Accretion | | 52,106 | |
| Foreign exchange gain on re-measurement | | (81,026 | ) |
| Ending balance - May 31, 2008 | $ | 4,308,083 | |
| | | | |
The provision for asset retirement obligations is based upon the following assumptions:
d)
The total undiscounted cash flow required to settle the obligation is approximately $6,848,000 (US$ 6,225,000);
e)
Asset retirement obligation payments are expected to occur during fiscal years 2014 and 2015;
f)
A credit adjusted risk-free rate of 7.65% has been used to discount cash flows.
Prior to April 30, 2007, the Company could not reasonably estimate the fair value of the asset retirement obligation.
25.
CONTINGENCIES
The Company is engaged in certain legal actions in the ordinary course of business and believe that the ultimate outcome of these actions will not have a material adverse effect on our operating results, liquidity or financial position.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 118 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
26.
SUBSEQUENT EVENTS
Subsequent to May 31, 2008 the following events took place:
(i)
On various dates, 967,801 stock options were forfeited and 81,480 stock options were exercised for $40,995. The Company granted 1,370,000 options at an exercise price ranging from $0.60 to $1.25.
(ii)
On June 4, 2008 and July 9, 2008 the Company closed the remaining US$ 27,750,000 of its senior secured notes financing. Net proceeds received US$ 20,612,480. 11,024,520 warrants were issued as part of the senior secured notes financing.
(iii)
On September 19, 2008 the Company sold 100% of its 20,418,565 Petaquilla Copper Shares for proceeds of $44,920,843.
(iv)
On September 30, 2008 the Company repaid $38,355,744 (US$ 36,032,376) of the face value of its senior secured notes. Total amount paid including the 20% premium on redemption is $44,920,843 (US$ 43,238,852).
(v)
On October 2, 2008 the Company issued a supplemental US$ 20,000,000 of its senior secured notes. Net proceeds received US$ 15,875,000.
(vi)
As a result of the Inmet Mining Corporation’s offer for Petaquilla Copper Ltd. the proceeds allocated to the pre-plan of arrangement options are based on the option price multiplied by the ratio of the five day weighted average price of each of the PTQ and Copper shares during the first five trading days of Copper.
(vii)
On November 13, 2008 the Autoridad Nacional del Ambiente (“ANAM”), the environmental agency of the Government of the Republic of Panama, issued a Resolution purporting to fine the Company and its present and former affiliates US$ 1,000,000 for alleged violations of environmental laws that took place on the main Petaquilla Copper Concession in 2005 and an additional US$ 934,695 for damages. On November 26, 2008, ANAM by Resolution approved the Company’s Environmental Impact Study (“EIS”) Category III submitted in July 2007 for the Molejon Gold Project. The Resolution sets out a number of conditions to be satisfied before the Company can attain full commercial production. Based on the approval of the EIS, the Company filed for reconsideration by ANAM to have the fines reduced to nil. In January 2009, the Company was advised that ANAM has not accepted the Company’s request for reconsideration that the amount of the financial sanctions purportedly levied against the Company and its present and former affiliates be reduced to nil. On March 10, 2009, the Supreme Court of the Republic of Panama issued a statement regarding a fine that ANAM had sought to enforce upon the Company. In its decision, the Supreme Court suspended the imposition of ANAM’s fine until the matter of the Company’s appeal is resolved. Consequently, the amount, if any, that may ultimately be payable by the Company cannot be determined.
(viii)
On March 30, 2009, the Company closed a Convertible Senior Secured Notes financing of up to US$ 40,000,000 (“Convertible Notes”). The Convertible Notes are convertible at a price of $2.25 per share. The Convertible Notes will bear interest at an annual rate of fifteen percent (15%), of which the first twelve months shall be prepaid in full at the time of issuance of the Convertible Notes. The Convertible Notes will mature two years from date of issuance at 110% of the principal amount. The Company is required to make semi-annual repayments on the previously issued senior secured notes commencing on September 15, 2009 and on the Convertible Notes commencing September 15, 2010 ranging from $nil to $8,000,000 depending upon the average price of gold. The Company has the right to redeem the Convertible Notes at any time at 110% of the principal amount plus any accrued or unpaid interest on the Convertible Notes. If the Convertible Notes are redeemed within one year of issuance, all prepaid interest is forfeited. Holders of the previously issued Series 1, Series B and Series C notes were offered to exchange amounts due upon maturity of their existing notes and participate pro-rata in the Convertible Notes offering up to a maximum of US$ 24,187,083. The remaining proceeds of the private placement will be used for the continued commissioning of the Molejon Gold Project located in Panama and for working capital purposes. Holders of the Series 1 notes representing 11,984 notes (US$ 11,983,812) have agreed not to exercise their put right until June 1, 2010. In addition, the Company has agreed to reduce the exercise price of 23,836,800 warrants from $2.30 per share to $0.65 per share. Under the revised terms of the warrants, if the common shares of the Company trade at a weighted average trading price of CAD $1.00 or more per share for 30 consecutive trading days, the holders of the warrants must exercise the warrants within 30 days.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 119 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
26.
SUBSEQUENT EVENTS(continued)
(ix)
On January 28, 2009, Pro-Con Industries, Inc. filed a claim in the Central District of California against Petaquilla Minerals Ltd. and Petaquilla Minerals, S.A. for breach of written contract, breach of oral contract, fraud, intentional interference with economic relationship and negligent interference with economic relationship. The claim seeks damages in excess of US$ 3,250,000 in addition to punitive damages and attorney fees. On April 28, 2009, the United States District Court Central District
of California dismissed the claim.
(x)
705,955 share purchase warrants expired unexercised.
(xi)
On June 29, 2009, the Company’s wholly-owned subsidiary, Panama Central Electrica, S.A. entered into a Memorandum of Understanding with Generadora Hidroelectrica Santa Maria, S.A. for the development of a 25MW hydroelectric plant in the Province of Veraguas, Panama.
(xii)
The Company granted 150,000 stock options, 60,000 options expired and 3,245,080 options were cancelled. The Company is currently reviewing the accounting impact of the option cancellations.
(xiii)
The Company is currently conducting an internal investigation under the oversight of the Audit Committee and with the assistance of independent counsel of certain of our international operations, focusing on the material weakness identified during the Company’s assessment of internal controls as at May 31, 2009.
(xiv)
The Company’s management conducted an assessment of the Molejon Gold Mine resulting in the identification of several deficiencies in the plant construction and operation. These deficiencies have led to several areas of the plant not operating to design specifications resulting in additional future costs to mitigate construction deficiencies. A process for estimating costs of mitigation is in the identification stage thus no amounts can be quantified at this time.
(xv)
The Company entered into a forward sale agreement for 7,000 ounces of gold to be delivered in October and November 2009. Disruption of plant operations from any cause may result in delivery default and result in additional cost being incurred. The Company received $5,129,600 representing 80% of the ounces sold.
(xvi)
In September 2009, the Company made a principal, premium and interest payment of $6,208,844 on its senior secured notes pursuant to the provisions of the debt agreement (Note 12).
(xvii)
As a result of operational issues, the Company has been unable to meet its current production targets and requires additional funding in order to continue operations. On November 6, 2009, the Company negotiated with a related party a $5,000,000 bridge loan that matures in 120 days. The Company will pay $500,000 on maturity as a restructuring fee. In the event the amount is paid in 30 days, the fee is reduced to $150,000. The lender also agreed to forbear any amounts due under the indenture until the repayment of bridge loan.
(xviii)
On November 5, 2009, Gaston Araya, Robert Baxter, John Cook and John Resing resigned from the Company’s board of directors, Christopher Davie resigned as President and Chief Executive Officer and Graham H. Scott resigned as Corporate Secretary.
(xix)
On November 6, 2009, Raul Ferrer, David Kaplan, David Levy and Daniel Small joined the Company’s board of directors. In addition, Richard Fifer was appointed Non-Executive Chairman of the board of directors and Joao Manuel was appointed President and Chief Executive Officer.
27.
RESTATEMENT OF JANUARY 31, 2007 INTERIM FINANCIAL STATEMENTS AND MAY 31, 2008 BALANCE SHEET
During the fourth quarter of fiscal 2009, the Company concluded that:
·
The accounting for the spin-out of Petaquilla Copper Ltd. was not properly recorded in the interim financial statements.
·
Stock-based compensation relating to the options issued prior to the Plan of Arrangement was not properly recorded in the interim financial statements.
·
Certain capital assets were recorded as mineral properties.
·
Dilution gains and equity losses for the equity investment in Petaquilla Copper Ltd. which were applicable to the twelve months ended January 31, 2007 were not recorded in that period.
·
The carrying value of the Investment in Petaquilla Copper Ltd. was not correctly recorded during the period ended May 31, 2008.
The Plan of Arrangement, whereby each holder of the common shares of the Company on October 17, 2006 was entitled to receive one common share of Copper for each common share of the Company held, was accounted for in the twelve months ended January 31, 2007 based on a tentative plan. According to the terms of the initial plan, Copper was to receive $5,500,000. The plan was later revised and this amount was no longer required to be transferred to Copper. The effect of this change to the January 31, 2007 financial statements was to decrease the amount payable to a related company by $2,856,227, increase the amount receivable from a related company by $2,143,773, and decrease the amount distributed to Petaquilla Copper Ltd. by $5,500,000 and increase the investment in Petaquilla Copper Ltd. by $500,000 .
Incorrect accounting was applied to options issued prior to the Plan of Arrangement. The effect of the adjustment to the January 31, 2007 financial statements was to increase stock-based compensation by $7,000,840, increase contributed surplus by $4,244,807, increase share capital by $2,874,427 and increase mineral properties by $118,394.
Certain capital assets acquired during the twelve months ending January 31, 2007 were incorrectly recorded as mineral properties. As a result, equipment was understated by $4,015,000, accumulated amortization on production equipment was understated by $480,430 and mineral properties was overstated by $3,534,570. The effect of the adjustment to the January 31, 2007 financial statements is an increase in property and equipment by $3,534,570 and a decrease to mineral properties of $3,534,570.
The Company was required to record the investment in Copper using the equity method commencing October 18, 2006, the date of the Plan of Arrangement. Dilution gains resulting from the issue of additional shares by Copper as well as the Company’s proportionate
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 120 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
27.
RESTATEMENT OF JANUARY 31, 2007 INTERIM FINANCIAL STATEMENTS AND MAY 31, 2008 BALANCE SHEET(continued)
share of losses incurred by Copper were required to be recorded by the Company in the period in which these transactions occurred. Due to the inability of Copper to provide information on a timely basis, the dilution gain and equity loss for the twelve months ended January 31, 2007 were not recorded until the period ending April 30, 2007. The result of the adjustment required to the January 31, 2007 financial statements was to increase the investment in Petaquilla Copper Ltd. by $2,074,818 , increase the gain on dilution of equity investment by $2,268,465 and increase the loss from equity investment by $193,647.
The proceeds used in the calculation of dilution gains did not include transaction costs and the gain on sale of Petaquilla Copper Ltd. shares did not exclude the gain attributable to Petaquilla Minerals Ltd.’s equity interest in Petaquilla Copper Ltd. As a result, the investment in Petaquilla Copper Ltd. was overstated at May 31, 2008 by $1,200,000. The impact of these adjustment is reflected in the 12 month period ended April 30, 2008 which was previously presented as part of the 13 month period ended May 31, 2008.
The effect of the adjustments on the January 31, 2007 financial statements is summarized in the tables below.
| | | | | | | | | | |
| Consolidated Balance Sheet | | January 31, 2007 | | | Adjustment | | | January 31, 2007 | |
| | | as previously | | | | | | restated | |
| | | reported | | | | | | | |
| Amount receivable from a related company | $ | - | | $ | 2,143,773 | | $ | 2,143,773 | |
| Investment in Petaquilla Copper Ltd. | $ | - | | $ | 2,574,818 | | $ | 2,574,818 | |
| Property and equipment | $ | 1,686,480 | | $ | 3,534,570 | | $ | 5,221,050 | |
| Mineral properties | $ | 26,304,170 | | $ | (3,416,174 | ) | $ | 22,887,996 | |
| Amount payable to a related company | $ | 2,856,227 | | $ | (2,856,227 | ) | $ | - | |
| Contributed Surplus | $ | 5,201,477 | | $ | 4,244,807 | | $ | 9,446,284 | |
| Share Capital | $ | 87,696,672 | | $ | 2,874,427 | | $ | 90,571,099 | |
| Deficit | $ | (73,651,067 | ) | $ | 573,977 | | $ | (73,077,091 | ) |
| | | | | | | | | | |
| | | | | | | | | | |
| Consolidated Statement of Operations and | | January 31, 2007 | | | Adjustment | | | January 31, 2007 | |
| Comprehensive Loss and Deficit | | as previously | | | | | | restated | |
| | | reported | | | | | | | |
| Stock-based compensation | $ | (10,007,962 | ) | $ | (7,000,840 | ) | $ | (17,008,802 | ) |
| Gain on dilution of equity investment | $ | - | | $ | 2,268,465 | | $ | 2,268,465 | |
| Loss from equity investment | $ | - | | $ | (193,647 | ) | $ | (193,647 | ) |
| Amount distributed to Petaquilla Copper Ltd. | $ | (5,500,000 | ) | $ | 5,500,000 | | $ | - | |
| Net loss and comprehensive loss | $ | (16,592,435 | ) | $ | (4,926,024 | ) | $ | (21,518,459 | ) |
| Basic and diluted loss per share | $ | (0.21 | ) | $ | (0.07 | ) | $ | (0.28 | ) |
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 121 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
27.
RESTATEMENT OF JANUARY 31, 2007 INTERIM FINANCIAL STATEMENTS AND MAY 31, 2008 BALANCE SHEET(continued)
| | | | | | | | | | |
| Consolidated Statement of Cash Flows | | January 31, 2007 as | | | Adjustment | | | January 31, 2007 | |
| | | previously reported | | | | | | restated | |
| Operating activities: | | | | | | | | | |
| Stock-based compensation | $ | 10,007,962 | | $ | 7,000,840 | | $ | 17,008,802 | |
| Gain on dilution of equity investment | $ | - | | $ | (2,268,465 | ) | $ | (2,268,465 | ) |
| Loss from equity investment | $ | - | | $ | 193,647 | | $ | 193,647 | |
| Total operating activities | $ | 10,007,962 | | $ | 4,926,022 | | $ | 14,933,984 | |
| Investing activities: | | | | | | | | | |
| Advances from (to) Petaquilla Copper Ltd. | $ | 2,856,227 | | $ | (5,000,000 | ) | $ | (2,143,773 | ) |
| Acquisition of property and equipment | $ | (1,737,388 | ) | $ | (4,015,000 | ) | $ | (5,752,388 | ) |
| Investment in mineral properties | $ | (23,914,401 | ) | $ | 4,526,557 | | $ | (19,387,844 | ) |
| Distribution to Petaquilla Copper Ltd. | $ | (5,500,000 | ) | $ | 5,500,000 | | $ | - | |
| Purchase of equity investment | $ | - | | $ | (500,000 | ) | $ | (500,000 | ) |
| Total investing activities | $ | (28,295,562 | ) | $ | 511,557 | | $ | (27,784,005 | ) |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Consolidated Balance Sheet | | May 31, 2008 as | | | Adjustment | | | May 31, 2008 | |
| | | previously | | | | | | restated | |
| | | reported | | | | | | | |
| Investment in Petaquilla Copper Ltd. | $ | 9,452,421 | | $ | (1,200,000 | ) | $ | 8,252,421 | |
| Deficit | $ | (83,865,382 | ) | $ | (1,200,000 | ) | $ | (85,065,382 | ) |
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 122 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
28.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). Material variations in the accounting principles, practices and methods used in preparing these financial statements from United States Generally Accepted Accounting Principles (“U.S. GAAP”) are described and quantified below.
Loss for the periods
| | | | | | | | | | | | | | | | |
| | | One month | | | Three months | | | Three months | | | Twelve months | | | Twelve months | |
| | | ended May 31, | | | ended April 30, | | | ended April 30, | | | ended January31, | | | ended January31, | |
| | | 2008 | | | 2008 | | | 2007 | | | 2007 | | | 2006 | |
| | | | | | | | | Restated - | | | Restated - | | | | |
| | | | | | | | | Note 28 (a) | | | Note 27 | | | | |
| (Loss) income for the period – Canadian GAAP | $ | (4,513,145 | ) | $ | (1,031,155 | ) | $ | (6,443,991 | ) | $ | (21,518,459 | ) | $ | (2,567,758 | ) |
| Gain on dilution of equity investment (b) | | - | | | (12,737,095 | ) | | (811,535 | ) | | (2,268,465 | ) | | - | |
| Gain on sale of equity investment under U.S. GAAP (b) | | - | | | 405,683 | | | - | | | - | | | - | |
| Mineral properties expensed under U.S. GAAP (c) | | (2,049,984 | ) | | (33,863,176 | ) | | (8,348,459 | ) | | (16,596,466 | ) | | (2,389,769 | ) |
| Accreted interest on senior notes under U.S. GAAP (i) | | (56,811 | ) | | - | | | - | | | - | | | - | |
| Foreign exchange on senior notes under U.S. GAAP (i) | | 80,070 | | | - | | | - | | | - | | | - | |
| Debt issuance costs capitalized under U.S. GAAP (h) | | 3,974,266 | | | - | | | - | | | - | | | - | |
| Debt issuance costs amortized under U.S. GAAP (h) | | (165,594 | ) | | - | | | - | | | - | | | - | |
| Equity pickup under U.S. GAAP (b) | | (549,181 | ) | | (4,001,735 | ) | | (804,109 | ) | | (584,239 | ) | | - | |
| Loss for the year - U.S. GAAP | | (3,280,379 | ) | | (51,227,478 | ) | | (16,408,094 | ) | | (40,967,629 | ) | | (4,957,527 | ) |
| Holding losses on marketable securities (d) | | - | | | - | | | - | | | - | | | 22,044 | |
| Net loss and comprehensive loss – U.S. GAAP | $ | (3,280,379 | ) | $ | (51,227,478 | ) | $ | (16,408,094 | ) | $ | (40,967,629 | ) | $ | (4,979,571 | ) |
| Basic and diluted loss per share – U.S. GAAP | $ | (0.04 | ) | $ | (0.55 | ) | $ | (0.18 | ) | $ | (0.53 | ) | $ | (0.09 | ) |
| | | | | | | | | | | | | |
| Balance Sheets | | May 31, | | | April 30, | | | April 30, | | | January 31, | |
| | | 2008 | | | 2008 | | | 2007 | | | 2007 | |
| | | Restated - | | | | | | Restated - | | | Restated - | |
| | | Notes 27 and 28(a) | | | | | | Note 28 (a) | | | Note 27 | |
| Total assets – Canadian GAAP | $ | 106,282,486 | | $ | 93,935,092 | | $ | 46,581,365 | | $ | 42,300,633 | |
| Mineral properties expensed under U.S. GAAP (c) | | (63,247,854 | ) | | (61,197,870 | ) | | (27,334,694 | ) | | (18,986,235 | ) |
| Investment in Petaquilla Copper Ltd. (b) | | (5,857,947 | ) | | (5,308,766 | ) | | (1,807,000 | ) | | (923,860 | ) |
| Debt issuance costs capitalized under U.S. GAAP (h) | | 3,808,672 | | | - | | | - | | | - | |
| Total assets – U.S. GAAP | $ | 40,985,357 | | $ | 27,428,456 | | $ | 17,439,671 | | $ | 22,390,538 | |
| Liabilities – Canadian GAAP | $ | 56,273,751 | | $ | 40,311,556 | | $ | 11,743,746 | | $ | 4,820,824 | |
| Allocation of fair value of senior notes under U.S. GAAP (i) | | (9,827,661 | ) | | - | | | - | | | - | |
| Liabilities – U.S. GAAP | $ | 46,446,090 | | $ | 40,311,556 | | $ | 11,743,746 | | $ | 4,820,824 | |
| | | | | | | | | | | | | |
| Shareholder’ s equity – Canadian GAAP | $ | 50,008,735 | | $ | 53,623,536 | | $ | 34,837,619 | | $ | 37,479,809 | |
| Mineral properties expensed under U.S. GAAP (b) | | (63,247,854 | ) | | (61,197,870 | ) | | (27,334,694 | ) | | (18,986,235 | ) |
| Debt issuance costs capitalized under U.S. GAAP (h) | | 3,808,672 | | | - | | | - | | | - | |
| Additional loss from equity investment (b) | | (5,857,947 | ) | | (5,308,766 | ) | | (1,807,000 | ) | | (923,860 | ) |
| Allocation of fair value of senior notes under U.S. GAAP (i) | | 9,804,402 | | | - | | | - | | | - | |
| Accreted interest on senior notes and related foreign exchange impact under U.S. GAAP (i) | | 23,259 | | | - | | | - | | | - | |
| Shareholders’ equity – U.S. GAAP | $ | ( 5,460,733 | ) | $ | (12,883,100 | ) | $ | 5,695,925 | | $ | 17,569,714 | |
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 123 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
28.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued)
| | | | | | | | | | | | | |
| Mineral properties | | May 31 , 2008 | | | April 30, 2008 | | | April 30, 2007 | | | January 31, 2007 | |
| | | Restated - | | | | | | Restated - | | | | |
| | | Note 28 (a) | | | | | | Note 28 (a) | | | | |
| Mineral properties – Canadian GAAP | $ | 67,149,615 | | $ | 65,099,631 | | $ | 31,236,455 | | $ | 22,887,996 | |
| Mineral properties expensed under U.S. GAAP (c) | | (63,247,854 | ) | | (61,197,870 | ) | | (27,334,694 | ) | (18,986,235 | ) |
| Mineral properties – U.S. GAAP | $ | 3,901,761 | | $ | 3,901,761 | | $ | 3,901,761 | | $ | 3,901,761 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Equity investments | | May 31 , 2008 | | | April 30, 2008 | | | April 30, 2007 | | | January 31, 2007 | |
| | | Restated – Notes | | | | | | | | | | |
| | | 27 and 28 (a) | | | | | | | | | | |
| Equity investments – Canadian GAAP | $ | 8,252,421 | | $ | 8,483,209 | | $ | 1,807,000 | | $ | 2,574,818 | |
| Equity investments expensed under U.S. GAAP (b) | | (5,857,947 | ) | | (5,308,766 | ) | | (1,807,000 | ) | | (923,860 | ) |
| Equity investments – U.S. GAAP | $ | 2,394,474 | | $ | 3,174,443 | | $ | - | | $ | 1,650,958 | |
| | | | | | | | | | | | | | | | |
| | | One month ended | | | Twelve months | | | Three months | | | Twelve months | | | Twelve months | |
| Statement of Cash Flows | | May 31, | | | ended April 30, | | | ended April 30, | | | ended January31, | | | ended January31, | |
| | | 2008 | | | 2008 | | | 2007 | | | 2007 | | | 2006 | |
| | | | | | | | | Restated - | | | Restated – Notes | | | | |
| | | | | | | | | Note 28 (a) | | | 27 and 28 (a) | | | | |
| Cash (used in) provided by operatingactivities – Canadian GAAP | $ | (9,954,563 | ) | $ | 1,261,662 | | $ | (4,385,224 | ) | $ | (4,650,934 | ) | $ | (1,757,852 | ) |
| Expenditures on mineral properties | | (2,049,984 | ) | | (33,863,176 | ) | | (8,348,459 | ) | | (16,596,466 | ) | | (2,197,611 | ) |
| Cash used in operating activities – U.S.GAAP | $ | (12,004,547 | ) | $ | (32,601,514 | ) | $ | 12,733,683 | ) | $ | (21,247,400 | ) | $ | (3,955,463 | ) |
| Cash from (used in) financing activities –Canadian GAAP | $ | 22,873,058 | | $ | 30,982,222 | | $ | (990,937 | ) | $ | 28,839,777 | | $ | 12,527,110 | |
| Cash from (used in) financing activities –U.S. GAAP | $ | 22,873,058 | | $ | 30,982,222 | | $ | (990,937 | ) | $ | 28,839,777 | | $ | 12,527,110 | |
| Cash from (used in) investing activities –Canadian GAAP | $ | (1,852,430 | ) | $ | (32,258,223 | ) | $ | 260,031 | | $ | (26,430,337 | ) | $ | (2,489,488 | ) |
| Expenditures on mineral properties | | 2,049,984 | | | 33,863,176 | | | 8,348,459 | | | 16,596,466 | | | 2,197,611 | |
| Cash from investing activities – U.S.GAAP | $ | 197,554 | | $ | 1,604,953 | | $ | 8,608,490 | | $ | (9,833,871 | ) | $ | (291,877 | ) |
| Cash and cash equivalents, end of period –Canadian GAAP | $ | 12,775,606 | | $ | 1,778,973 | | $ | 1,778,127 | | $ | 6,929,824 | | $ | 9,171,318 | |
| Cash and cash equivalents, end of period –U.S. GAAP | $ | 12,775,606 | | $ | 1,778,973 | | $ | 1,778,127 | | $ | 6,929,824 | | $ | 9,171,318 | |
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 124 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
28.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued)
a)
Restatement
Certain capital assets purchased in the twelve months ending January 31, 2007 were included in mineral properties and were incorrectly expensed for accounting purposes under U.S. GAAP. The effect of the restatement is to decrease mineral properties expensed under U.S. GAAP by $3,901,761, increase total assets under U.S. GAAP by $3,901,761 and increase shareholders’ equity under U.S. GAAP by $3,901,761 at May 31, 2008 and April 30, 2007 as well as decrease mineral properties – exploration expenditures by $3,901,761 for the twelve months ended January 31, 2007.
Debt issuance costs of $3,808,672 were written off during the month ending May 31, 2008 rather than being capitalized. The effect of this restatement is to increase deferred debt issuance costs under U.S. GAAP by $3,808,672, decrease debt issuance costs expensed under U.S. GAAP by $3,808,672 and increase shareholders’ equity under U.S. GAAP by $3,808,672.
As a result of a review of the accounting for the investment in Petaquilla Copper Ltd. under U.S. GAAP, the presentation of the investment balance and the dilution gains and equity losses have been adjusted. The effect of these adjustments is to increase the investment in Petaquilla Copper Ltd. at May 31, 2008 by $2,394,474 , and increase shareholders’ equity by $2,394,474 .
The effect of the restatement is summarized in the tables below.
| | | | | | | | | | |
| Consolidated Balance Sheet | | May 31, 2008 as | | | Adjustment | | | May 31, 2008 | |
| | | previously | | | | | | restated | |
| | | reported | | | | | | | |
| Mineral properties expensed under U.S. GAAP | $ | (67,149,615 | ) | $ | 3,901,761 | | $ | (63,247,854 | ) |
| Equity investments | | - | | $ | 2,394,474 | | $ | 2,394,474 | |
| Total assets – U.S. GAAP | $ | 30,880,450 | | $ | 10,104,907 | | $ | 40,985,357 | |
| Shareholders’(deficit) equity - U.S. GAAP | $ | (15,565,640 | ) | $ | 10,104,907 | | $ | (5,460,733 | ) |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Consolidated Statement of Operations | | May 31, 2008 as | | | Adjustment | | | May 31, 2008 | |
| and Comprehensive Loss and Deficit | | previously | | | | | | restated | |
| | | reported | | | | | | | |
| Debt issuance costs | $ | 3,974,266 | | $ | ( 3,808,672 | ) | $ | 165,594 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Consolidated Balance Sheet | | April 30, 2007 as | | | Adjustment | | | April 30, 2007 | |
| | | previously | | | | | | restated | |
| | | reported | | | | | | | |
| Mineral properties expensed under U.S. GAAP | $ | (31,236,455 | ) | $ | 3,901,761 | | $ | (27,334,694 | ) |
| Total assets – U.S. GAAP | $ | 13,537,910 | | $ | 3,901,761 | | $ | 17,439,671 | |
| Shareholders’ equity – U.S. GAAP | $ | 1,794,164 | | $ | 3,901,761 | | $ | 5,695,925 | |
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 125 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
28.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued)
b)
Equity investment in Petaquilla Copper Ltd.
Under U.S. GAAP, increases in the parent company’s proportionate share of equity resulting from the additional equity raised by an entity subject to significant influence in the development stage are accounted for as increases to additional paid in capital. Under Canadian GAAP, these gains have been credited to income. The market value of this investment based on the closing price of the shares on the TSX as at May 31, 2008 is $26,544,135
c)
Mineral properties and deferred costs
Mineral property costs and related exploration expenditures are accounted for in accordance with Canadian GAAP as disclosed in Note 2. For U.S. GAAP purposes, the Company expenses, as incurred, the exploration costs relating to unproven mineral properties. This also applies to the Company’s proportionate share of costs incurred by entities in which the Company has significant influence. When proven and probable reserves are determined for a property and a feasibility study is prepared, then subsequent exploration and development costs of the property would be capitalized. The capitalized costs of such properties are measured periodically for recoverability of carrying values.
d)
Marketable securities
Under Canadian GAAP, the marketable securities held by the Company were recorded at the lower of cost and net realizable value. Under U.S. GAAP, these investments are classified as “available-for-sale” securities and recorded at market value. The accumulated difference between cost and market value is recorded as part of comprehensive income. Effective May 1, 2007 Canadian and U.S. GAAP relating to accounting for investments has converged and no differences exist for the period ended May 31, 2008.
e)
Development stage company
Pursuant to U.S. GAAP, the Company would be subject to the disclosure requirements applicable to a development stage enterprise as the Company is devoting its efforts to establishing commercially viable mineral properties. However, the identification of the Company as such for accounting purposes does not impact the measurement principles applied to these consolidated financial statements.
f)
Income taxes
Under Canadian GAAP, future tax assets and liabilities are recorded at substantively enacted tax rates. Under U.S. GAAP, deferred tax assets and liabilities are recorded at enacted rates. There were no significant differences between enacted and substantively enacted rates for the periods presented.
| |
Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 126 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
28.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued)
g)
Accounting for Uncertainty in Income Taxes
In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 ("FIN 48"). This interpretation provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 prescribes a recognition threshold and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
Effective May 1, 2007 the Company adopted FIN 48. The adoption did not result in any adjustment to opening retained earnings under U.S. GAAP. As a result of the implementation of FIN 48, the Company did not recognize any liabilities for unrecognized tax benefits. In the event that the Company recognizes interest accrued related to unrecognized tax benefits, it will be recorded in interest expense. Any penalties will be recorded in general and administrative expense.
The Company is subject to taxation in Canada and various other foreign jurisdictions. The Company is currently open to audit under the statute of limitations by the Canada Revenue Agency for years ended January 31, 2003 through April 30, 2007.
h)
Debt issuance costs
Under Canadian GAAP, debt issuance costs is expensed in the period incurred. Under U.S. GAAP, debt issue costs are reported in the balance sheet as deferred charges and amortized over the term of the debt. In accordance with the accounting for the senior secured notes (Note 12) the term of the debt is estimated to be two years.
i)
Senior secured notes
Under Canadian GAAP, compound financial instruments can be accounted for using the residual method when allocating between the liability and equity component. Under U.S. GAAP, compound financial instruments are accounted for using the fair value method when allocating between the liability and equity component. This difference resulted in senior secured notes being reduced by $9,827,661, warrants increased by $9,804,402, accreted interest increased by $56,811 and foreign exchange gain increasing $80,070.
j)
Reclassification
Certain comparative numbers have been reclassified to take into consideration the current period’s financial statement presentation. The accounts affected were cash, warrants and share capital.
k)
Recent accounting pronouncements:
i.
Statement of Financial Accounting Standards No. 157, Fair Value Measurements, defines fair value, establishes a framework for measuring value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, SFAS 157 does not require any new fair value measurements. The adoption of SFAS 157 is not expected to have an impact on the Company’s consolidated financial statements. SFAS 157-2 defers the Statement’s effective date for certain nonfinancial assets and liabilities to fiscal years beginning after November 15, 2008, and interim periods within those years. The adoption of SFAS 157-2 is not expected to have an impact on the Company’s consolidated financial statements.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 127 |
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
May 31, 2008, April 30, 2008, April 30, 2007 , January 31, 2007, and January 31, 2006
28.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued)
ii.
Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Liabilities, provides companies with an option to report selected assets and liabilities (principally financial assets and liabilities) at fair value. The objective of SFAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 requires entities to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. SFAS 15 9 does not eliminate disclosure requirements included in other accounting standards. The adoption of SFAS 159 is not expected to have an impact on the Company’s consolidated financial statements.
iii.
SFAS No. 141(R), Business Combinations, is to replace SFAS No. 141, Business Combinations. The new statement retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting be used for all business combinations. The new standard defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. The new statement improves the comparability of the information about business combinations provided in financial reports. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Management is reviewing the requirements of the new statement and its impact on the Company’s financial statements.
iv.
SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51, is to amend ARB 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. A non-controlling interest is sometimes called a minority interest. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Management is reviewing the requirements of the new statement and its impact on the Company’s financial statements.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 128 |
ITEM 18. FINANCIAL STATEMENTS
Not applicable
ITEM 19. EXHIBITS
(a) Financial Statements
|
Description of Document |
|
Cover Sheet |
Management Report on Internal Controls over Financial Reporting |
Report of Independent Auditors dated July 8, 2009 |
Report of Independent Auditors on Internal Controls over Financial Reporting |
Balance Sheets as at May 31, 2008, April 30, 2008, April 30, 2007 and January 31, 2007. |
Consolidated Statements of Operations and Deficit for One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 , Fiscal Year Ended January 31, 2007, and Fiscal Year Ended January 31, 2006 |
Consolidated Statements of Cash Flows for One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 , Fiscal Year Ended January 31, 2007, and Fiscal Year Ended January 31, 2006 |
Notes to the Consolidated Financial Statements |
(b) Exhibits
| |
Exhibit Number | Description of Document |
| |
*1.A. | Memorandum of Incorporation and Articles of Petaquilla Minerals Ltd. |
*2.A. | Shareholder Rights Plan Agreement dated April 28, 1995, between Petaquilla Minerals Ltd. and Montreal Trust Company of Canada |
*3.A. | Share Purchase and Voting Trust Agreement dated December 29, 1994, between Petaquilla Minerals Ltd., Teck Corporation and Montreal Trust Company of Canada |
*3.B. | Special Resolution dated June 8, 1995, increasing the authorized share capital of Petaquilla Minerals Ltd. |
*4.A. | Agreement dated April 7, 1992, between Petaquilla Minerals Ltd. and Minnova (Panama) Inc. to acquire a 40% interest in Petaquilla Property |
*4.B. | Letter of Intent dated October 4, 1994, between Petaquilla Minerals Ltd., Inmet Mining Corporation, Minnova (Panama) Inc. and Georecursos Internacional, S.A. with respect to the Petaquilla Property |
*4.D. | Financing Agreement dated April 29, 1991, between Petaquilla Minerals Ltd. and Teck Corporation |
*4.F. | Option Agreement dated August 10, 1993, between Petaquilla Minerals, S.A., Madison Enterprises Corp. and Madison Enterprises (Latin America), S.A. with respect to the Belencillo Property. |
*4.G. | Association Agreement dated September 23, 1994, as amended, between Petaquilla Minerals, S.A. and Madison Enterprises (Latin America), S.A., with respect to the Belencillo Property |
*4.H. | Heads of Agreement dated November 7, 1994, between Petaquilla Minerals Ltd., Georecursos Internacional, S.A. and Teck Corporation |
*4.I. | Option Agreement dated February 17, 1994, between Petaquilla Minerals, S.A. and Arlo Resources Ltd. with respect to the Oro del Norte Property |
*4.J. | Option Agreement dated February 17, 1994, between Petaquilla Minerals, S.A. and Arlo Resources Ltd. with respect to the Santa Lucia Property |
*4.K. | Option Agreement dated January 27, 1994, between Petaquilla Minerals, S.A. and Silverstone Resources Ltd. with respect to the La Esperanza Property |
*4.L. | Option Agreement dated November 7, 1994, between Petaquilla Minerals, S.A., Arlo Resources Ltd. and Arlo Resources (Panama) S.A. with respect to the Iglesias Property |
*4.N. | Employment Agreements dated July 1, 1995, between Petaquilla Minerals Ltd. and Messrs. Idziszek, Stewart, Fifer and Mallo |
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 129 |
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*4.O. | Petaquilla Shareholders Agreement dated February 21, 1997, between Petaquilla Minerals Ltd., Teck Corporation, Inmet Mining Corporation, Georecursos Internacional, S.A. and Minera Petaquilla, S.A. |
*4.S. | Assignment dated May 23, 2000, between Adrian Resources (Colorado) Ltd. And Hyperion Resources (Colorado) Ltd. respecting the Baca Ranch Property |
4.T. | Molejon Gold Project Agreement dated June 2, 2005, among Petaquilla Minerals Ltd., Teck Cominco Limited, Inmet Mining Corporation and Minera Petaquilla, S.A. |
4.U. | Employment agreement dated February 11, 2008, between Petaquilla Minerals Ltd. and Bassam Moubarak |
4.V. | Law No. 9, dated February 26, 1997, of the Legislative Assembly of Panama (original Spanish version) |
4.W. | Law No. 9, dated February 26, 1997, of the Legislative Assembly of Panama (Englishtranslation of original Spanish version) |
*8 | Subsidiaries of Petaquilla Minerals Ltd. |
11.A | Code of Business Ethics and Conduct dated May 31, 2008 |
11.B | Whistle-Blower Policy dated May 31, 2008 |
12.A | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act 2002 |
12.B | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-OxleyAct 2002 |
13.A | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002 |
13.B | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002 |
* | These exhibits were previously filed with Petaquilla Minerals Ltd.'s RegistrationStatement or a previous Annual Report on Form 20-F (file no. 000-26296). |
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 130 |
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all of the requirements for filing on amended Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, hereunto duly authorized.
Dated at Vancouver, British Columbia, this 6th day of November, 2009 .
PETAQUILLA MINERALS LTD.
| | | | |
By: | /s/ Joao Manuel | | By: | /s/ Bassam Moubarak |
| Joao Manuel , President and Chief Executive Officer (principal executive officer) | | | Bassam Moubarak, Chief Financial Officer (principal financial and accounting officer) |
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 131 |
EXHIBIT 4.T.
MOLEJON GOLD PROJECT AGREEMENT
THIS AGREEMENT made the 1st day of June, 2005.
BETWEEN:
Teck ComincoLimited (formerly Teck Corporation), a body corporate under the laws of Canada and having an office at 600 - 200 Burrard Street, Vancouver, BC V6C 3L9, together with its wholly-owned subsidiary,Minera TeckPanama, S.A., with a registered office at Torre Swiss Bank Building, 18th floor, P.O. Box 1824, Panama 1, Republic of Panama.
(collectively referred to as “Teck Cominco”)
OF THE FIRST PART
AND:
Petaquilla Minerals Ltd. (formerly Adrian Resources Ltd.), a body corporate under the laws of British Columbia and having an office at 1820 - 701 West Georgia Street, Vancouver, BC V7Y 1C6, together with its wholly-owned subsidiary,Georecursos Internacional S.A, a corporation incorporated under the laws of the Republic of Panama, with an office at Torre Banco General, 25th Floor, Panama 7, Republic of Panama
(collectively referred to as "PTQ")
OF THE SECOND PART
AND:
Inmet Mining Corporation, a body corporate under the laws of Canada and having an office at Suite 1000, 330 Bay Street, Toronto, ON M5H 2S8 together with its wholly-owned subsidiary,Minnova (Panama) Inc., a corporation incorporated under the laws of the Republic of Panama, with an office at P.H. Plaza 2000 Building, 50th Street, 16th Floor, Panama, Republic of Panama.
(collectively referred to as "Inmet")
OF THE THIRD PART
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AND:
Minera Petaquilla, S.A., a body corporate under the laws of the Republic of Panama and having a head office at Torre Swiss Bank Building, 18th Floor, P.O. Box 1824, Panama 1, Republic of Panama
(herein referred to as the "Corporation")
OF THE FOURTH PART
RECITALS:
A.
The Corporation is the holder of an exploration mining Concession granted by the Government of the Republic of Panama pursuant to that Contract Law No. 9 of February 26, 1997, known as the "Ley Petaquilla" which covers certain land and mineral interests;
B.
The Parties or their assigns entered into a shareholders' agreement dated February 21, 1997 (the “Shareholders’ Agreement”) whereby Teck Cominco, PTQ and Inmet (through their respective wholly-owned subsidiaries) agreed to establish the Corporation for the purposes of the ownership of the Concession and the exploration, development and operation of one or more mines on the Concession;
C.
To date, the Parties have not proceeded with mine development on the Concession;
D.
The Parties have agreed to enter into this Agreement as a way to attempt to realize value from their respective interests in the Corporation,
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants and agreements and other good and valuable consideration, the Parties agree as follows:
ARTICLE 1
INTERPRETATION
1.1
Defined terms
In this Agreement, unless otherwise expressly defined, capitalized terms have the same meanings ascribed to them in the Shareholders' Agreement. Other defined terms have the meanings ascribed to them in this Agreement.
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1.2
Sections
The term "Sections" followed by a number refers to the specified Section in this Agreement unless otherwise expressly stated to refer to a section in the Shareholders' Agreement. Article, section or other headings contained in this Agreement are inserted for convenience only and will not affect the meaning or construction of any of the provisions of this Agreement.
1.3
Number and Gender
Words importing the singular number only will include the plural and vice versa where the context requires, and words importing gender include the male, female and neuter genders.
0.4
Governing Law
The Parties acknowledge that this Agreement regulates the relationship with respect to the Corporation which is a Panamanian corporation, and its assets, and therefore all matters that deal with corporate proceedings of a corporation under Panamanian corporate law shall be governed by that law. In all other respects, including as to matters of contract law and the application of conflict of laws principles to assets located outside of Canada, this Agreement shall be governed by the laws of the Province of British Columbia and the laws of Canada applicable therein.
1.5
Currency
All statements of or references to dollar amounts in this Agreement are references to United States dollars.
16
Schedules
The following are the schedules attached to and forming part of this Agreement:
Schedule A - Description of Molejon Deposit
Schedule B - Net Smelter Returns
Schedule C - Review of Strategic Alternatives
1.7
Entire Agreement
This Agreement, together with the Schedules attached, constitute the entire agreement among the Parties with respect to the subject matter of this Agreement, and replace and supersede all prior agreements with respect thereto, whether oral or written, including without limitation, the Letter of Intent dated December 13, 2004 between Teck Cominco, PTQ and Inmet, provided that, except to the extent expressly set forth herein, nothing in this Agreement shall affect the 1991 Financing Agreement or the Shareholders Agreement, which shall continue in full force and effect, unamended.
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1.8
Paramountcy of this Agreement
In the event the terms of this Agreement conflict with the Articles or by-laws of the Corporation, the provisions of this Agreement shall prevail, and the Parties shall cause the Articles or by-laws, as the case may be, to be amended to the extent necessary to accord with this Agreement.
ARTICLE 2
SCOPE OF AGREEMENT
2.1
Purpose of Agreement
The Parties wish to have a mine development plan for the Concession approved pursuant to the Ley Petaquilla prior to December 31, 2005 on a basis that will facilitate the development of the Molejon deposit on a stand-alone basis. The Parties agree that the Corporation shall seek Government approval of a phased mine development plan to be prepared by PTQ and approved by Teck Cominco and Inmet. In addition, the Parties agree to cooperate in respect of the sale of their respective share interests in the Corporation on the basis set out herein.
2.2
Definition of the Concession Rights to be Transferred to PTQ
Subject to the terms and conditions set out in this Agreement, on receipt of the Government Approval (as defined below), the following property and mineral rights are to be transferred to PTQ in accordance with this Agreement:
(a)
that portion of the Concession on which is situated the Molejon gold deposit, whose boundaries and legal description is set out in Schedule A attached to this Agreement (the "Molejon Deposit"); and
(b)
the right to explore and mine Gold Deposits on the Concession Remainder (both as defined in Section 5.3), subject to the restrictions set out in Section 5.3 (the "Ancillary Rights").
2.3
Shareholders' Agreement
From and after the date of the transfer of the Molejon Deposit to PTQ, the Shareholders' Agreement shall continue in full force and affect,mutatis mutandis, taking into account that the Concession, as defined therein, shall be the Concession as the same shall exist following the assignment of concession rights in connection with the Molejon Deposit to PTQ as contemplated hereby and provided that Section 5.7 of the Shareholders Agreement is suspended during the conduct of the marketing process contemplated by Article 6 hereof.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1
Representation and Warranties
Each of the Parties severally represents and warrants to the other Parties that:
(a)
it is a company duly incorporated and validly subsisting under the laws of the jurisdiction of its incorporation, and is qualified to carry on its business in each jurisdiction where its business would require such a qualification;
(b)
it has full power and authority to carry on its business and to enter into this Agreement and any agreement or instrument referred to in or contemplated by this Agreement and to carry out and perform all of its obligations and duties hereunder; and
(c)
it has obtained all authorizations for the execution, delivery and performance of this Agreement.
0.2
Guarantee of Subsidiaries' Representations and Warranties
In making the representations and warranties set out in Section 3.1, the Parties acknowledge that notwithstanding their several liability, each Party which is a parent company of a subsidiary which is itself making such representations and warranties, hereby guarantees the accuracy of such representations and warranties of its subsidiary to each of the other Parties.
ARTICLE 4
MULTI-PHASE MINE DEVELOPMENT PLAN
4.1
Timing
PTQ will develop a multi-phase mine development plan (the "Plan") for the Concession, which will be provided to Teck Cominco and Inmet for comment and approval prior to its submission to the Government of Panama and will be submitted for approval by the Government of Panama on or before December 31, 2005.
4.2
Government Relations
PTQ agrees that Morgan & Morgan, the Corporation's legal counsel, will participate in all discussions with the Government of Panama with respect to the approval of the Plan. PTQ will develop and plan the approach and content of such discussions in conjunction with Morgan & Morgan.
The Parties acknowledge that so long as the Corporation is the holder of the Concession pursuant to the Ley Petaquilla, any proposals to the Government of Panama with respect to the Plan shall be made in the name of the Corporation.
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Each of the Parties will be entitled, but not obligated in the case of Teck Cominco and Inmet, to participate in any such meetings and discussions with the Government of Panama and PTQ will provide reasonable advance notice of such meetings. None of PTQ , Teck Cominco or Inmet will separately approach the Government of Panama with respect to the Plan without the written permission of each of the others nor will any of PTQ, Teck Cominco or Inmet hold out to the Government of Panama that it has the ability to bind the other Parties in relation to the Plan or any proposal in respect thereof.
4.3
Cost Sham
PTQ will bear all costs associated with the development of the Plan. The Corporation will bear the costs of Morgan & Morgan in connection with the presentation of the Plan to the Government of Panama and the securing of the Government Approval.
4.4
Plan Conditions and Characteristics
The Parties agree that the Plan will be subject to the approval of Teck Cominco and Inmet, and will include the following conditions and characteristics:
(a)
the Molejon Deposit will be developed in the first phase starting in 2006;
(b)
the Molejon Deposit will be designated as a separate development zone which will be developed independently by a corporate entity other than the Corporation and without implying any obligation or commitment of the Panics or the Corporation to proceed with a subsequent phase or phases on the Concession Remainder;
(c)
the decision to proceed and the timing of the development of any or all of the phases of the Plan will be subject to unfavourable economic conditions, and technical constraints; and
(d)
the Plan will be consistent with, and not require any legislative amendments to the Ley Petaquilla.
4.5
Government Approval
The Corporation will seek the approval of the Plan by the Government of Panama, and each of the Parties agree that such approval shall only constitute the "Government Approval" for the purposes of this Agreement to the extent that it provides as follows:
(a)
the Government Approval will be on terms such that the obligations of the Corporation in respect of the Concession Remainder (as defined below) will not be more onerous to the Corporation or any other Party than the obligations currently contained in Ley Petaquilla and, without limiting the generality of the foregoing, the Government Approval will not:
(i)
detract in any manner from the tax and other incentives provided to the Corporation under the Ley Petaquilla; or
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 137 |
(ii)
impose on the Corporation any liability, including in respect of environmental protection or environmental reclamation, in respect of activities conducted by PTQ in relation to the Molejon Deposit;
(b)
the Government Approval will provide that the commencement of construction of a mine on the Molejon Deposit will constitute the commencement of a development of a copper mine for the purposes of clause 6(2) of the Ley Petaquilla such that the Ley Petaquilla shall not terminate and the Concession shall not expire pursuant to such clause 6(2) and, in any event, the Government of Panama shall not have the right to terminate or otherwise affect the interests of the Corporation in the Concession and in Ley Petaquilla at any time prior to December 31, 2007 at the earliest, failing commencement of development of a copper mine on the Concession Remainder by that time;
(c)
the Government Approval will constitute a consent of the Government of Panama under clause 9 of the Ley Petaquilla to the partial assignment of the contract law and the Concession to PTQ or an affiliate of it pursuant to clause 9 of the Ley Petaquilla; and
(d)
the Government Approval will not impose on the Corporation the obligation to proceed with any subsequent phase or phases of development on the Concession.
ARTICLE 5
PTQ'S EXPLOITATION OF GOLD DEPOSITS IN THE CONCESSION
5.1
Transfer of Molejon Deposit
Upon receipt of the Government Approval in form satisfactory to each of Teck Cominco, Inmet and PTQ, acting reasonably, the Corporation will transfer all right, title and interest to the Molejon Deposit to PTQ or an Affiliate, on the condition that such transfer shall not expose the Corporation, Teck Cominco or Inmet to any liability in respect of tax.
5.2
Rights to Develop Copper on the Molejon Deposit
Notwithstanding Section 5.1, the Corporation will retain its right to develop any Copper Deposits on the Molejon Deposit provided that such development does not impair or impede PTQ's ability to develop or otherwise exploit Gold Deposits (as defined below) on the Molejon Deposit. For this purpose, a deposit will be a "Copper Deposit" if more than 50% of its net present value as a developed mine would derive from its copper content (allocating capital and operating costs as between copper and other commodities on the basis of their contribution to revenue using reasonable and consistent price assumptions as may be agreed between the Parties or, failing agreement, as determined in accordance with the arbitration procedures set forth in Section 8.9 of this Agreement.
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5.3
Transfer of Ancillary Rights
Upon receipt of the Government Approval and transfer of the Molejon Deposit in accordance with Section 5.1 of this Agreement, the Parties also agree that PTQ will have the exclusive right to develop any Gold Deposits in the remainder of the Concession (the "Concession Remainder") provided that such rights granted to PTQ herein does not impair or impede the Corporation's interest or ability to exploit Copper Deposit or the Concession Remainder.
For this purpose, a deposit will be a "Gold Deposit" if more than 50% of its net present value as a developed mine would derive from its gold or other precious metals content (allocating capital and operating costs as between gold, other precious metals and other commodities on the basis of their contribution to revenue using reasonable and consistent price assumptions for gold and other commodities as may be agreed between the Parties or, failing agreement, as determined in accordance with the arbitration procedures set forth in Section 8.9 of this Agreement).
In the event that a resource relating to a Gold Deposit is identified on the Concession Remainder, the Parties will co-operate to effect a transfer of such deposit to PTQ, on a basis similar to the transfer of the Molejon Deposit contemplated by this Agreement.
5.4
Amendment to Section 7.6 of Shareholders' Agreement
The Parties agree that Section 7.6(b) of the Shareholders' Agreement is amended to further provide that Teck Cominco will not vote any of PTQ's Shares without PTQ's consent on any matter relating to the Plan, the Government Approval or the execution of any transaction effected pursuant to Schedule C provided that such amendment shall not affect the right of the Corporation pursuant to Section 5.5 hereof or any decision in respect of the exercise of that right.
0.5
Right of Corporation to Implement Plan
If any rights in respect of the Concession Remainder under the Ley Petaquilla arise out of the Government Approval that are contingent on the performance by PTQ of any obligations with respect to the Molejon Deposit, the Corporation, Teck Cominco and Inmet will have the right, but not the obligation, to step in and perform such obligations and shall have a lien on the Molejon Deposit to the extent of expenditures made in connection with such performance.
5.6
PTQ Activities Prior to Plan Approval
From the date of this Agreement until the date of the transfer of the Molejon Deposit pursuant to Section 5.1, PTQ may conduct field work or other feasibility work, with respect to the Molejon Deposit provided that:
(a)
such work is conducted in compliance with all applicable laws and regulations, including environmental regulations, at PTQ's own risk and expense; and
(b)
regular reports of such work are provided to the other Parties.
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PTQ acknowledges that until receipt of the Government Approval, the Corporation remains the holder of the Concession in its entirety.
5.7
Indemnity
PTQ hereby indemnifies the Corporation, Teck Cominco and Inmet and their respective directors, officers, employees and agents from and against any liabilities, losses, costs, damages and expenses which any of them may suffer, directly or indirectly, as a consequence of work conducted by PTQ with respect to the Molejon Deposit or the Ancillary Rights pursuant to this Agreement, including with respect to reclamation, or any breach by PTQ of its obligations hereunder.
5.8
Net Smelter Return
In consideration of the rights and obligations transferred to PTQ pursuant to this Agreement, PTQ or its affiliate which holds the Molejon Deposit or the Ancillary Rights (the "Royalty Payor") will pay a Net Smelter Return royalty in respect of production from the Molejon Deposit or the Ancillary Rights. The royalty percentage will be determined quarterly using the average of the daily p.m. gold fix established by the London Metal Exchange for each day in a calendar quarter, as follows:
Quarterly average p.m.
gold fix
Net Smelter Return
(US Dollars per ounce)
$350 to $399
1%
$400 to $449
2%
$450 to $499
3%
$500 to $549
4%
$550 and above
5%
The Net Smelter Return royalty will be paid in accordance with Schedule B to Teck Cominco as to 35.135% and to Inmet as to 64.865%, as consideration for their consent to the transactions contemplated by this Agreement. Net Smelter Return will have the meaning ascribed to that term in Schedule. B. The Parties will take such actions as may be necessary to register the royalty granted hereunder against title to the Molejon Deposit and the Concession Remainder.
ARTICLE 6
REVIEW OF STRATEGIC ALTERNATIVES
6.1
Review of Strategic Alternatives
Upon receipt of the Government Approval, PTQ, Teck Cominco and Inmet will jointly conduct a review of strategic alternatives in connection with the Corporation and the Petaquilla Project on the terms set out in Schedule C.
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ARTICLE 7
CONFIDENTIALITY
7.1
Information Relating to Development of Molejon Deposit
Notwithstanding Section 13.1 of the Shareholders' Agreement, all work, plans, feasibility reports, data and other information prepared by or at the request of PTQ with respect to the Molejon Deposit, will be the exclusive property of PTQ and will be treated as confidential by the other Parties and not disclosed to any third parties or to the public without the prior written consent of PTQ, provided that such documents may be disclosed to Panamanian Government authorities to the extent necessary in connection with the process agreed for seeking the Government Approval.
7.2
Information Relating to this Agreement
Except as required by applicable securities laws, each of the Parties will keep the terms of this Agreement and the status of the process contemplated by Schedule C, and will not disclose such matters to any third parties. No public announcement, press release or other information will be issued or released by any of the Parties on any matter relating to this Agreement or the transactions contemplated herein, except with the prior approval of the other Parties, which approval will not be unreasonably withheld.
A Party shall be permitted to make disclosure with respect to this Agreement as may be required by law or by the rules and regulations of any Securities Commission, stock exchange or other regulatory authority having jurisdiction over a Party, provided that such Party required to make any disclosure concerning such matters shall provide the other Parties a reasonable opportunity to review and comment on the content of the proposed disclosure. Teck Cominco and Inmet acknowledge that the nature of transactions contemplated by this Agreement are material to PTQ and accordingly that PTQ will be required to make disclosure.
7.3
Permitted Disclosure
The restrictions set out in Section 7.2 above on disclosure of information will not apply to disclosure by a Party or its representatives:
(a)
to an affiliate, employee, contractor, sub-contractor, consultant or professional that has a bona fide need to be informed:
(b)
to a third party:
(i)
as is reasonably necessary in connection with the issuance of securities of the disclosing Party to the public, or
(ii)
for the purposes of arranging financing in connection with its obligations under this Agreement or other financing with a recognized and reputable financial institution,
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provided that such third party gives its undertaking to the Parties in a form satisfactory to the other Parties, acting reasonably, that such information will be kept confidential and not disclosed to other; or
(c)
of information which is or becomes part of the public domain, other than through a breach of the provisions of this Agreement by another Party.
ARTICLE 8
GENERAL PROVISIONS
8.1
Notice
Any notice, invoice or communication to be given under this Agreement may be effectively given by delivering the same at the following addresses or by sending the same by facsimile to the following numbers. Any communication so delivered will be deemed to have been received on the date delivered and any facsimile thereof will be deemed to have been received on transmission, if in either case the date is a BUSINESS DAY and it is prior to 3:00 p.m. at the place of receipt and, if not, on the next BUSINESS DAY following delivery or transmission. The addresses for delivery and numbers for facsimile of the Parties (including their respective subsidiaries) for the purposes of this Agreement are:
(a)
If to Teck Cominco:
Teck Cominco Limited
600 - 200 Burrard Street
Vancouver, BC V6C 3L9
Attention: Corporate Secretary
Facsimile: (604) 640-5395
and
Minera Teck Panama, S.A.
c/o Morgan & Morgan
Torre Swiss Bank Building, 18th Floor
P.O. Box 1824
Panama 1, Republic of Panama
Attention: Romulo Roux
Facsimile: (507) 265-7700
(b)
If to PTQ:
Petaquilla Minerals Ltd.
1820 - 701 West Georgia Street
Vancouver, BC V7Y I C6
Attention: President
Facsimile: (604) 694-0063
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 142 |
and
Georecursos Internacional S.A.
P.O. Box 87-1666
Zona 7, Republic of Panama
Attention: Marco Tejeira
Facsimile: (507) 269-5595
(c)
If to Inmet:
Inmet Mining Corporation
Suite 1000, 330 Bay Street
Toronto, ON M5H 2S8
Attention: Vice-President, Corporate Development
Facsimile: (416) 368-4692
and
Minnova (Panama) Inc.
P.H_ Plaza 2000 Building
50th Street, 16" Floor
Panama, Republic of Panama
Attention: Secretary
(d)
If to the Corporation:
Minera Petaquilla, S.A.
Torre Swiss Bank Building, 18th Floor
P.O. Box 1824
Panama 1, Republic of Panama
Attention: Romulo Roux
Facsimile: (507) 265-7700
8.2
Successors and Assigns
This Agreement will be binding upon and enure to the benefit of the Parties and their respective successors and permitted assigns.
0.3
Further Assurances
The Parties will from time to time do, make and execute all such documents, acts, matters and things as may be reasonably required in order to give effect to this Agreement.
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0.4
Unenforceable Provisions
Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction will not invalidate the remaining provisions and any such prohibitions or unenforceability in any jurisdiction will not invalidate or render unenforceable such provision in any other jurisdiction.
8.5
Amendments
No supplement, modification, amendment, waiver or termination of this Agreement will be binding unless executed in writing by the Parties.
8.6
Time of the Essence
Time will be of the essence of this Agreement.
8.7
Counterparts and Facsimiles
This Agreement may be executed in any number of counterparts and by facsimile, each of which will be considered to be an original and together will constitute one and the same document.
8.8
Manner of Payment
All payments to be made by or to any Party may be made by cheque, bank draft, delivered to such Party at its address for notice or deposited by wire transfer to an account of such Party if so approved by the payee Party.
8.9
Arbitration
(a)
All disputes arising in connection with this Agreement and which are not resolved by agreement between the Parties shall be finally settled by arbitration under the Rules of Procedure of the British Columbia International Commercial Arbitration Centre (hereinafter referred to as the "Commission") by three arbitrators. Judgment upon any award so rendered may be entered in any jurisdiction, or application may be made to any court for confirmation of such award or a judicial acceptance of such award and for an order of enforcement or other legal remedy, as the case may be. Consent is hereby given by each Parry, which is a party to any such arbitration, to the jurisdiction of any such court regarding any matter arising out of such arbitration or the enforcement of any award rendered in such arbitration.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 144 |
(b)
The Party initiating arbitration and the Party named as respondent shall each nominate an arbitrator in its request or answer, as the case may be, provided that any such individual so nominated shall be knowledgeable in the mining industry and independent of each of the Parties. If more than one Party initiates an arbitration or if more than one Party is named as a respondent and the initiating Parties or the respondents are unable to agree on the identity of their arbitrator they shall apply to the Commission to select an arbitrator on their behalves.
(c)
If any Party or Parties entitled to nominate an arbitrator should abstain from nominating its arbitrator, the Commission shall itself appoint him.
(d)
The two arbitrators so chosen shall select a third arbitrator, provided, however, that if such two arbitrators shall fail to choose a third arbitrator within 30 days after the later of such two arbitrators has been appointed, the Commission, upon the request of any Party involved in the dispute, shall appoint a third arbitrator. The third arbitrator shall be chairman of the arbitral tribunal.
(e)
The arbitration shall be conducted in the English language in Vancouver, British Columbia, and matters of procedure not governed by the Commission's own rules shall be governed by the laws of the Province of British Columbia and the laws of Canada applicable therein.
8.10
Termination
(a)
If the Government Approval is not obtained by 'February 28, 2006, then this Agreement shall automatically terminate at 11:59 p.m. (Pacific Standard Time) on such date.
(b)
In the event of termination of this Agreement as provided tinder Section 8.10(a), this Agreement shall forthwith become null and void, except for Sections 4.3, 5.7, 8.9 and 8.10.
IN WITNESS WHEREOF the Parties hereto have executed this Agreement as of the day and year first above written.
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TECK COMINCO LIMITED |
Per: | /signed/ |
| Authorized Signatory |
Per: | /signed/ |
| Authorized Signatory |
MINERA TECK PANAMA, S.A. |
Per: | /signed/ |
| Authorized Signatory |
Per: | /signed/ |
| Authorized Signatory |
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 145 |
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PETAQUILLA MINERALS LTD. |
Per: | /signed/ |
| Authorized Signatory |
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GEORECURSOS INTERNACIONAL S.A. |
Per: | /signed/ |
| Authorized Signatory |
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INMET MINING CORPORATION |
Per: | |
| Authorized Signatory |
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MINNOVA (PANAMA) INC. |
Per: | |
| Authorized Signatory |
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MINERA PETAQUILLA S.A. |
Per: | |
| Authorized Signatory |
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 146 |
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PETAQUILLA MINERALS LTD. |
Per: | |
| Authorized Signatory |
| |
GEORECURSOS INTERNACIONAL S.A. |
Per: | |
| Authorized Signatory |
| |
INMET MINING CORPORATION |
Per: | /signed/ |
| Authorized Signatory |
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MINNOVA (PANAMA) INC. |
Per: | |
| Authorized Signatory |
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MINERA PETAQUILLA S.A. |
Per: | |
| Authorized Signatory |
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 147 |
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PETAQUILLA MINERALS LTD. |
Per: | |
| Authorized Signatory |
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GEORECURSOS INTERNACIONAL S.A. |
Per: | |
| Authorized Signatory |
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INMET MINING CORPORATION |
Per: | |
| Authorized Signatory |
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MINNOVA (PANAMA) INC. |
Per: | /signed/ |
| Authorized Signatory |
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MINERA PETAQUILLA S.A. |
Per: | |
| Authorized Signatory |
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 148 |
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PETAQUILLA MINERALS LTD. |
Per: | |
| Authorized Signatory |
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GEORECURSOS INTERNACIONAL S.A. |
Per: | |
| Authorized Signatory |
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INMET MINING CORPORATION |
Per: | |
| Authorized Signatory |
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MINNOVA (PANAMA) INC. |
Per: | |
| Authorized Signatory |
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MINERA PETAQUILLA S.A. |
Per: | /signed/ |
| Authorized Signatory |
| |
Per: | /signed/ |
| Authorized Signatory |
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 149 |
![](https://capedge.com/proxy/CORRESP/0001176256-09-001023/exhibit4t001.jpg)
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 150 |
Schedule B - Page I
SCHEDULE B
NET SMELTER RETURNS
In this Schedule, "Payor" refers to PTQ or the holder from time to time of the Molejon Deposit or the Ancillary Rights, as the case may be, and "Royalty Holder" refers to Teck Cominco or Inmet or their respective successors or assigns.
I.
DEFINITION
1.01
"Net Smelter Returns" for purposes of the Agreement are defined as follows:
(a)
where all or a portion of the ores or metals derived from the Molejon Deposit or the Ancillary Rights (in this Schedule, the "Property") are sold as ores, solutions, concentrates or doré, the Net Smelter Returns shall be the gross amount received from the purchaser following sale thereof after deduction, (i) if applicable under the sale contract, of all smelter or refining charges, penalties and other deductions; (ii) all costs of transporting and insuring the ores or concentrates or doré from the mine to the smelter, refinery or other place of final delivery; and (iii) sales, use, severance, excise, net proceeds of mine, and ad valorem taxes and any tax on or measured by mineral production, but excluding income taxes of the Payor; and
(b)
where all or a portion of the said ores, -solutions, concentrates or doré derived from the Property are treated in a smelter or refinery and a portion of the metals recovered therefrom are delivered to, and sold by Payor, the Net Smelter Returns shall be the gross amount received from the purchaser following sale of the metals so delivered, after deduction of (i) all smelter charges, penalties and other deductions; (ii) all costs of transporting and insuring the ores or concentrates or doré from the mine to the smelter, (iii) if applicable under the smelter or refinery contract, all costs of transporting and insuring the metals from the smelter to the place of final delivery by the purchaser; and (iv)) sales, use, severance, excise, net proceeds of mine, and ad valorem taxes and any tax on or measured by mineral production, but excluding income taxes of the Payor.
Where any ores, solutions, concentrates or dore are sold to, or treated in, a smelter or refinery owned or controlled by Payor, the pricing for that sale or treatment will be established by Payor on an arms-length basis so as to be fairly competitive with pricing, net of transportation, insurance, treatment charges and other related costs, then available on world markets for product of like quantity and quality.
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Schedule B Page 2
2.
PAYMENT OF NET SMELTER RETURNS
2.01
Payor shall calculate the Net Smelter Returns and the sums to be disbursed to each Royalty Holder as at the end of each calendar quarter.
2.02
Payor shall, within 60 days of the end of each calendar quarter, as and when any Net Smelter Returns are available for distribution:
(a)
pay or cause to be paid to each Royalty Holder that percentage of the Net Smelter Returns to which the Royalty Holder is entitled under the Agreement;
(b)
deliver to the Royalty Holder a statement indicating:
(i)
the gross amounts received from the purchaser contemplated in
subsection 1.01 of this Schedule B;
(ii)
the deductions therefrom in accordance with subsection 1.01 of
this Schedule B;
(iii)
the amount of Net Smelter Returns remaining; and
(iv)
the amount of those Net Smelter Returns to which the Royalty Holder is entitled;
supported by such reasonable information as to the tonnage and grade of ores or concentrates shipped as will enable the Royalty Holder to verify the gross amount payable by the smelter or other purchaser.
3.
ADJUSTMENTS AND VERIFICATION
3.01
Payment of any Net Smelter Returns by Payor shall not prejudice the right of Payor to adjust any statement supporting the payment; provided, however, that all statements presented to a Royalty Holder by Payor for any quarter shall conclusively be presumed to be true and correct upon the expiration of 12 months following the end of the quarter to which the statement relates, unless within that 12-month period Payor gives notice to the Royalty Holder claiming an adjustment to the statement which will be reflected in subsequent payment of Net Smelter Returns,
3.02
Payor shall not adjust any statement in favour of itself more than 12 months following the end of the quarter to which the statement relates.
3.03
Each Royalty Holder shall, upon 30 days' notice in advance to Payor, have the right to request that Payor have its independent external auditors provide their audit certificate for the statement or adjusted statement, as it may relate to the Agreement and the calculation of Net Smelter Returns.
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Schedule B - Page 3
3.04
The cost of the audit certificate shall be solely for the account of the Royalty Holder requiring same unless the audit certificate discloses material error in the calculation of Net Smelter Returns, in which case Payor shall reimburse the Royalty Holder the cost of the audit certificate. Without limiting the generality of the foregoing, a discrepancy of one percent in the calculation of Net Smelter Returns shall be deemed to be material.
4.
PAYOR TO DETERMINE OPERATIONS
4.01
Subject to any express provision of the Agreement to the contrary:
(a)
the Payor will have complete discretion concerning the nature, timing and extent of all exploration, development, mining and other operations conducted on or for the benefit of the Property and may suspend operations and production on the Property at any time it considers prudent or appropriate to do so;
(b)
the Payor will owe the Royalty Holders no duty to explore, develop or mine the Property, or to do so at any rate or in any manner other than that which the Payor may determine in its sole and unfettered discretion; and
(c)
the Payor may, but will not be obligated to treat, mill, heap leach, sort, concentrate, refine, smelt, or otherwise process, beneficiate or upgrade the ores, concentrates, and other products at sites located on or off the Property, prior to sale, transfer, or conveyance to a purchaser, user, or consumer.
The Payor will not be liable for mineral values lost in processing under sound practices and procedures, and no royalty will be due on any such lost mineral values.
5.
COMMINGLING
5.01
Ores, concentrates, doré and derivatives mined or retrieved from the Property shay be commingled with ores, solutions, concentrates, dore or derivatives mined or retrieved from other properties. All determinations required for calculation of Net Smelter Returns, including without limitation the amount of the metals contained in or recovered from ores, solutions, concentrates, doré or derivatives mined or retrieved from the Property, the amount of the metals contained in or recovered from commingled ores, solutions, concentrates, doré or derivatives shall be made in accordance with prudent engineering, metallurgical and cost accounting practices.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 153 |
Schedule B - Page 4
6.
TRADING ACTIVITIES
6.01
The Payor may, but need not, engage in forward sales, futures trading or commodity options trading, and other price hedging, price protection, and speculative arrangements ("Trading Activities") which may involve the possible delivery of base or precious metals produced from the Property. The Parties' acknowledge and agree that the Royalty Holders shall not be entitled to participate in the proceeds or be obligated to share in any losses generated by the Trading Activities.
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Schedule C - Page 1
SCHEDULE C
REVIEW OF STRATEGIC ALTERNATIVES
1.
Retention of Investment Banker
Upon receipt of the Government Approval, PTQ, Teck Cominco and Inmet will jointly retain an investment banking firm (the "Investment Banker") to act as their financial advisor in connection with the potential sale of all of the shares of the Corporation, or of a 100% interest in the Concession Remainder, or the admission of a new shareholder in the Corporation, or some other form of joint development agreement with respect to the Concession Remainder (any such transaction being hereinafter referred to as a "Monetization").
2.
Marketing Post-Plan Approval
The "Marketing Period" will commence as soon as possible after the Plan has been approved by the Government of Panama and transfer of title to the Molejon Deposit and the Ancillary Rights to PTQ or its affiliate has occurred. The investment banker retained by the Parties will be authorized to represent to potential purchasers that the Parties have agreed to participate in a Monetization on receipt of an acceptable offer.
3.
PTQ's Right to Acquire,
Teck Cominco and Inmet agree that prior to the public solicitation of third party offers for a Monetization, PTQ will be given a reasonable opportunity to make an offer to Teck Cominco and Inmet to acquire their interests in the Corporation.
4.
Waiver of Rights of First Refusal
Subject to paragraph 3, Teck Cominco, PTQ and Inmet agree that for the purposes of effecting any Monetization as contemplated by this Agreement, they waive all rights of first refusal and rights of second refusal as set out in Section 11.5 of the Shareholders' Agreement and the Investment Banker will be authorized to so represent to third parties.
5.
Offer
Teck Cominco, PTQ and Inmet agree that they will in good faith evaluate all bona fide third party offers for the Corporation's assets or shares provided any such offer includes consideration in cash or its equivalent in shares of reasonable liquidity, and otherwise contains terms and conditions customary for a transaction of this nature and acceptable to the Parties, acting reasonably (the "Offer").
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Schedule C - Page 2
6.
Proceeds of Sale of Shares or Corporation's Assets
In the event Teck Cominco, PTQ and Inmet accept an Offer for the sale of all of the shares of the Corporation or all of the Corporation's assets, the proceeds after payment of fees and related expenses incurred by the investment banker and payment of the Corporation's costs to effect such transfer (including, in the case of a sale of assets, any applicable taxes) will be distributed to Teck Cominco, PTQ and Inmet in the following proportions:
Teck Cominco 23%
PTQ 29%
Inmet
48%
Teck Cominco, PTQ and Inmet agree that they will do all such acts and things as may be reasonably necessary and within their control or direction to facilitate the completion of such a transactions which form part of an accepted Offer.
7.
PTQ Shareholder Approval
Teck Cominco and Inmet acknowledge that PTQ may require that its Board of Directors-and shareholders approve any Monetization, and that any determination as to whether or not shareholder approval is required will be the sole decision of the board of PTQ.
8.
Rejection of Offer
In the event any of Teck Cominco or PTQ Or Inmet rejects an Offer or is unable to obtain the requisite corporate approval for such Offer, and provided that the other two of these three parties wish to accept the Offer, then the Party rejecting such Offer will, within 10 business days of such rejection, pay a "Break Fee" calculated at 2% of the value of the Offer (which value will be determined by the investment banker retained by the Parties pursuant to this Agreement if the Offer includes non-cash consideration) to the other Parties. The Break Fee will be divided between the other two Parties in proportion to the Equity Ratio.
9.
PTQ's Right to Issue Shares in Lieu of a cash Break Fey
In the event that PTQ is required to pay a break fee pursuant to Section 8 above, PTQ may issue shares to the other two Parties in lieu of paying the fee. Such shares will be issued at the market price (as defined by the rules/policies of the stock exchange on which PTQ shares are listed for trading) of the shares as of the date on which PTQ informs the other two Parties of its intention not to accept the Offer. Teck Cominco and Inmet agree to execute subscription agreements and such other documents required for share issuance as provided by PTQ, acting reasonably.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 156 |
Schedule C - Page 3
10.
Restrictions on Transfer During Marketing Period
Teck Cominco, PTQ and Inmet agree that during the Marketing Period they will not sell nor grant any option with respect to their respective interests in the Corporation, other than among themselves, and will not, directly nor indirectly, solicit, initiate, assist, facilitate, promote or knowingly encourage proposals from third parties other than in accordance with the process contemplated in this Agreement.
11.
Termination of Marketing Period
The Marketing Period will terminate six months after the Government Approval. The Parties agree that the termination of the Marketing Period may be extended by up to 30 days in the event there are delays in the Monetization beyond the reasonable control of the Parties.
12.
1991 Financing Agreement
Teck Cominco and PTQ agree that Teck Cominco shall not have any back-in rights under the 1991 Financing Agreement in respect of the Molejon Deposit or the Ancillary Rights. On the completion of any Monetization pursuant to which Teck Cominco sells its entire interest in the Corporation, the 1991 Financing Agreement will terminate.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 157 |
EXHIBIT 4.U.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made as of and to have effect from the 11th day of February, 2008.
BETWEEN:
PETAQUILLA MINERALS LTD., a company duly incorporated under the laws of the Province of British Columbia, and having its head office at Suite 410, 475 West Georgia Street, Vancouver, British Columbia, V6B 4M9
(hereinafter called the“Company”)
OF THE FIRST PART
AND:
BASSAM MOUBARAK,Chartered Accountant, of ________________________________________________________________
(hereinafter called "Mr.Moubarak")
OF THE SECOND PART
WHEREAS:
A.
The Company is a mining and exploration company with offices in Vancouver, B.C. and the Republic of Panama, and with mineral resource properties in the Republic of Panama;
B.
The Company is a reporting company whose shares are posted and listed for trading on the Toronto Stock Exchange;
C.
Mr. Moubarak has certain skills, expertise and experience which the Company wishes to employ;
D.
the Company agrees to retain and Mr Moubarak agrees to serve in the capacity more particularly set out in Article 2 of this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the representations, warranties, covenants and agreements hereinafter set forth and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged by each of the parties), the parties represent, warrant, covenant and agree as follows:
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 158 |
ARTICLE 1
ENGAGEMENT AND DURATION
1.1
Subject to the terms and conditions hereof, Mr. Moubarak shall be employed by the Company as Chief Financial Officer (“CFO”), with the duties set out in paragraph 2.1, as amended from time to time, and such other duties as may from time to time be assigned to or vested in Mr. Moubarak by the Board of Directors of the Company, and Mr. Moubarak agrees to provide his services to the best of its ability and in accordance with the terms and conditions of this agreement.
1.2
The employment of Mr. Moubarak under this Agreement shall commence on February 11, 2008 and shall continue until terminated in accordance with this Agreement(the“Termination Date”).
ARTICLE 2
DUTIES
2.1
Mr. Moubarak shall perform all duties customarily performed by a CFO of a publicly-traded company engaged in a business similar to the Company’s business including, without limiting the generality of the foregoing, the financial, compliance and regulatory requirements of the business and affairs of the Company.
2.2
Mr. Moubarak shall devote not less than 80% of the business days during the year of this Agreement to the business and affairs of the Company, use his best efforts to promote the interests of the Company and, to the extent necessary to discharge the responsibilities assigned to Mr. Moubarak, perform faithfully and efficiently such responsibilities. The Company acknowledges that Mr. Moubarak’s duties as CFO will usually be performed on business days, but may also be performed on weekends and holidays.
2.3
Mr. Moubarak shall report directly to the Audit Committee and the Board of Directors.
2.4
In the event of a change of control of the Company, Mr. Moubarak shall continue to serve the Company in the same capacity and have the same authority, responsibilities and status as he had as of the date immediately prior to the change of control. For the purposes of this Agreement, a“change of control” shall be deemed to have occurred when:
(a)
a person becomes a “control person” (as that term is defined in theSecurities Act, (British Columbia)) of the Company; or
(b)
a majority of the directors elected at any annual or special general meeting of shareholders of the Company are not individuals nominated by the Company’s then-incumbent board of directors; or
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 159 |
(c)
any person or group of persons acquires the ability, directly or indirectly through one or more intermediaries, to direct or cause the direction of the management and policies of the Company through:
(i)
the legal or beneficial ownership of voting securities;
(ii)
the right to appoint managers, directors or corporate management;
(iii)
contract;
(iv)
operating agreement;
(iv)
voting trust;
or otherwise.
ARTICLE 3
REMUNERATION AND BENEFITS
Remuneration
3.1
Mr. Moubarak shall be paid $ 205,000 annually in Canadian funds payable semi-monthly in arrears. Such salary shall be reviewed by the parties at the end of each calendar year and any changes in such salary (which may be based upon, among other things, Mr. Moubarak’s performance) shall be as agreed upon in writing between the parties from time to time. In addition, the aforesaid remuneration shall be increased annually by the annual percentage increase in the Consumer Price Index published by Statistics Canada for Vancouver. The remuneration paid to Mr. Moubarak hereunder may be increased during the term of this agreement by mutual consent in the event of a change in the circumstances of either Mr. Moubarak or the Company. For example, such remuneration shall be increased in the event of an increase in the scope of the services provided and responsibilities borne by Mr. Moubarak.
Bonus
3.2
Mr. Moubarak shall be eligible for an annual cash bonus equal to 30% of annual salary, pursuant to policies established by the Board of Directors of the Company.
Options
3.3
Mr. Moubarak shall be eligible for share options as may be approved by the Board of Directors of the Company.
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Reimbursement of Expenses
3.4
The Company shall reimburse Mr. Moubarak for all reasonable expenses incurred by Mr. Moubarak in the performance of duties pursuant to this Agreement, provided that Mr. Moubarak provides the Company with a reasonably-detailed written expense account on a monthly basis.
Benefits
3.5
Mr. Moubarak will be entitled to participate in all of the Company’s benefit plans available to its employees in accordance with the terms thereof, augmented, if necessary, to provide a reasonable overall package of benefits for a position of the nature held by Mr. Moubarak hereunder, including the benefits set out in Schedule “A” hereto as amended from time to time.
Professional Dues / Club Memberships
3.6
During the term of this Agreement, the Company shall pay to or on behalf of Mr. Moubarak and at his request from time to time, professional dues to the professional institutes that he belongs to and membership fees in such clubs and associations as are approved by the Board's Compensation Committee and as are desirable for Mr. Moubarak to join in connection with his employment and activities on behalf of the Company.
Vacation
3.7
The Company agrees that Mr. Moubarak shall be entitled to 4 weeks annual paid vacation.
ARTICLE 4
RESTRICTIVE COVENANTS
Non-Competition
4.1
Subject to the provisions of paragraph 4.11 hereof, during the term of this Agreement and for 12 months following the termination or expiration of this Agreement, Mr. Moubarak shall not:
(a)
own or have any interest directly in; nor
(b)
act as an officer, director, agent, employee or consultant of;
any person, firm, association, partnership, corporation or other entity (the“Competitive Entity”) engaged in mineral exploration within two kilometres of mineral claims owned by the Company during the term of this Agreement, but excluding any claims abandoned by the Company.
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4.2
The restriction set out in Section 4.1 above shall not apply to ownership by Mr. Moubarak of less than ten percent (10%) of the publicly traded securities of any Competitive Entity. Except as provided in Section 4.1, Mr. Moubarak shall be free to engage in, and receive the full benefit of, any activity that he sees fit, whether or not competitive with the business of the Company.
4.3
Mr. Moubarak acknowledges that the restrictions contained in Section 4.1 are reasonable; however, in the event that any court should determine that any of the restrictive covenants contained in Section 4.1 or 4.2 of this Agreement, or any part thereof, are unenforceable because of the duration of such provision or the area covered thereby, such court shall have the power to reduce the duration or area of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced.
Confidentiality
4.4
The term“Confidential Information” means any and all information concerning any aspect of the Company not generally known to persons other than those associated with the Company. The Company may disclose, in writing or orally, certain Confidential Information to Mr. Moubarak.
4.5
Mr. Moubarak acknowledges and agrees that, subject to the provisions of paragraph 4.11 hereof, any Confidential Information disclosed to Mr. Moubarak is in the strictest confidence. Any Confidential Information disclosed to Mr. Moubarak in any form whatsoever is and shall be considered confidential and proprietary information of the Company.
4.6
Except as authorized by the Company, Mr. Moubarak will not, except in the course of his duties to the Company:
(a)
duplicate, transfer or disclose nor allow any other person to duplicate, transfer or disclose any of the Company’s Confidential Information; or
(b)
use the Company’s Confidential Information without the prior written consent of the Company.
4.7
Mr. Moubarak will safeguard all Confidential Information at all times so that it is not exposed to or used by unauthorized persons, and will exercise at least the same degree of care that would be used to protect Mr. Moubarak’s own confidential information.
4.8
Any and all maps, drill logs, core tests, reports, surveys, assays, analyses, production reports, technical, accounting and financial records and like information and materials received from the Company and any copies or excerpts thereof containing proprietary or Confidential Information will remain the property of the Company and will, upon the request of the Company, be promptly returned to the Company by Mr. Moubarak.
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4.9
The restrictive obligations set forth above shall not apply to the disclosure or use of any information which:
(a)
is or later becomes publicly known under circumstances involving no breach of this Agreement by Mr. Moubarak;
(b)
is already known to Mr. Moubarak at the time of receipt of the Confidential Information;
(c)
is lawfully made available to Mr. Moubarak by a third party; or
(d)
is authorized by the Board of Directors of the Company.
4.10
Subject to the provisions of paragraph 4.11 hereof, the provisions of Article 4 shall survive the termination of this Agreement for a period of one year after termination.
4.11
Mr. Moubarak shall be absolutely released from the provisions of paragraphs 4.1 to 4.10 inclusive hereof in the event that this Agreement is terminated pursuant to paragraph 5.3 of this Agreement. For more certainty, in the event of such termination, Mr. Moubarak shall be free to use all and any Confidential Information received by him hereunder for any purpose whatsoever, including uses in connection with activities which are competitive with those of the Company.
ARTICLE 5
TERMINATION
5.1
The Company may terminate Mr. Moubarak’s engagement under this Agreement only upon the occurrence of any of the following events:
(a)
Mr. Moubarak committing an act of gross negligence of wilful misconduct;
(b)
the conviction of Mr. Moubarak under theCriminal Code of Canada or the Securities Acts of any of the Provinces of Canada;
(c)
the breach or default of any material term of this Agreement by Mr. Moubarak if such breach or default has not been remedied to the satisfaction of the Company within 14 days after written notice of the breach of default has been delivered by the Company to Mr. Moubarak;
(d)
without Cause, upon giving Mr. Moubarak at least 60 days written notice of termination; or
(e)
for Cause, with immediate effect;
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PROVIDED THAT the Company may not terminate this Agreement nor commence proceedings to terminate this Agreement pursuant to sub-paragraph 5.1(c) within 180 days of a “change of control”, as defined in paragraph 2.4 of this Agreement.
5.2
In this agreement,“Cause” means:
(a)
the inability of Mr. Moubarak to perform his duties due to a legal impediment such as an injunction, restraining order or other judicial judgment, decree or order entered against Mr. Moubarak;
(b)
a breach by Mr. Moubarak of a material provision of this Agreement;
(c)
the failure of Mr. Moubarak to follow the Corporation's reasonable instructions with respect to the performance of his duties;
(d)
any material breach by Mr. Moubarak of his obligations under any code of ethics, any other code of business conduct or any lawful policies or procedures of the Corporation;
(e)
excessive absenteeism, flagrant neglect of duties or serious misconduct; or
(f)
any act or omission of Mr. Moubarak that would in law permit an employer to, without notice or payment in lieu of notice, terminate the employment of an employee.
5.3
In the event of the termination of Mr. Moubarak’s engagement under this Agreement pursuant to Subsections 5.1(a), (b), (c) or (e) of this Agreement, the Company shall pay to Mr. Moubarak, within 10 days of the effective date of termination the full amount of compensation accrued pursuant to Section 3.1 of this Agreement as of the date of termination. In the event of the termination of Mr. Moubarak’s engagement under Subsection 5.1(d) of this Agreement, the Company shall pay to Mr. Moubarak, within 10 days of the effective date of termination, an amount equal to 1 times the annual compensation to be paid to Mr. Moubarak under Section 3.1.
5.4
Mr. Moubarak may terminate his obligations under this Agreement only as follows:
(a)
at any time after the expiry of 90 days of the date on which there is a change of control, as described in subsection 2.4 of this Agreement; or
(b)
upon the breach or default of any material term of this Agreement by the Company if such breach or default has not been remedied to the satisfaction of Mr. Moubarak, within 14 days after written notice of the breach of default has been delivered by Mr. Moubarak to the Company.
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5.5
In the event of the termination of Mr. Moubarak’s engagement under this Agreement pursuant to Section 5.4 of this Agreement, the Company shall pay to Mr. Moubarak, within 10 days of termination 100% of all compensation to be paid to Mr. Moubarak under Section 3.1.
5.6
The rights of the Company and Mr. Moubarak under this Article 5.0 are in addition to and not in derogation of any other remedies which may be available to the Company or Mr. Moubarak at law or in equity.
5.7
The amounts payable to Mr. Moubarak hereunder in the event of the termination of this Agreement shall not be reduced if Mr. Moubarak shall secure, or shall not reasonably pursue, alternative employment following the termination of his employment with the Company.
ARTICLE 6
PERSONAL NATURE
6.1
This Agreement is personal and is entered into based upon the singular skill, qualifications and experience of Mr. Moubarak.
ARTICLE 7
INDEMNITY
7.1
To the extent that it is lawfully able to do so, the Company agrees to indemnify and hold harmless Mr. Moubarak from and against any losses, costs, claims and liabilities which Mr. Moubarak may suffer or incur by reason of any matter or thing which Mr. Moubarak may properly do or have done or cause to be done as an employee, officer or director of the Company.
7.2
To the extent that it is lawfully able to do so, the Company shall indemnify Mr. Moubarak and his heirs and legal representatives against all costs, charges and expenses (including any amounts paid to settle any actions or satisfy any judgment) reasonably incurred by Mr. Moubarak in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been an employee, director or officer of the Company if:
(a)
Mr. Moubarak acted honestly and in good faith with a view to the best interests of the Company; and
(b)
in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, Mr. Moubarak had reasonable grounds for believing that his conduct was lawful.
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ARTICLE 8
GENERAL PROVISIONS
Waiver
8.1
No consent or waiver, express or implied, by any party to this Agreement of any breach or default by any other party in the performance of its obligations under this Agreement or of any of the terms, covenants or conditions of this Agreement shall be deemed or construed to be a consent or waiver of any subsequent or continuing breach or default in such party's performance or in the terms, covenants and conditions of this Agreement. The failure of any party to this Agreement to assert any claim in a timely fashion for any of its rights or remedies under this Agreement shall not be construed as a waiver of any such claim and shall not serve to modify, alter or restrict any such party's right to assert such claim at any time thereafter.
Notices
8.2
Any notice relating to this Agreement or required or permitted to be given in accordance with this Agreement shall be in writing and shall be personally delivered, telefaxed or mailed by registered mail, postage prepaid to the address of the parties set out on the first page of this Agreement. Any notice shall be deemed to have been received if delivered or telefaxed, when delivered or telefaxed, and if mailed, on the fifth day (excluding Saturdays, Sundays and holidays) after the mailing thereof. If normal mail service is interrupted by strike, slowdown, force majeure or other cause, a notice sent by registered mail will not be deemed to be received until actually received and the party sending the notice shall utilise any other services which have not been so interrupted or shall deliver such notice in order to ensure prompt receipt thereof. A party may change its address for service by notice in writ ing to the other parties.
8.3
Each party to this Agreement may change its address for the purpose of this section 8.0 by giving written notice of such change in the manner provided for in section 8.1.
Applicable Law
8.4
This Agreement shall be governed by and construed in accordance with the laws of the province of British Columbia and the federal laws of Canada applicable therein, which shall be deemed to be the proper law hereof. The parties hereto hereby submit to the jurisdiction of the courts of British Columbia.
Severability
8.5
If any provision of this Agreement for any reason is declared invalid, such declaration shall not affect the validity of any remaining portion of the Agreement, which remaining portion shall remain in full force and effect as if this Agreement had been executed with the invalid portion thereof eliminated and it is hereby declared the intention of the parties that they would have executed the remaining portions of this Agreement without including therein any such part, parts or portion which may, for any reason, be hereafter declared invalid.
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Entire Agreement
8.6
This Agreement constitutes the entire Agreement between the parties hereto and there are no representations or warranties, express or implied, statutory or otherwise other than set forth in this Agreement and there are no Agreements collateral hereto other than as are expressly set forth or referred to herein. This Agreement cannot be amended or supplemented except by a written Agreement executed by all parties hereto.
Non-Assignability
8.7
This Agreement shall not be assigned by any party to this Agreement without the prior written consent of all other parties to this Agreement.
Burden and Benefit
8.8
This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns.
Time
8.9
Time is of the essence of this Agreement.
Independent Advice
8.10
Mr. Moubarak hereby acknowledges that he has had an opportunity to seek and obtain independent legal advice in respect of this Agreement, and confirms that he has either sought and obtained such advice or waives any right of action he may have against the Company as a result of failing to obtain such advice.
Counterpart
8.11
This Agreement may be executed in counterpart and such counterparts together shall constitute one and the same instrument and notwithstanding the date of execution shall be deemed to bear the date as set out on the first page of this Agreement.
IN WITNESS WHEREOF the parties have duly executed this Agreement as of the date set out on the first page of this Agreement.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 167 |
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PETAQUILLA MINERALS LTD.
/s/ John Cook John Cook Chairman of the Board of Directors
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|
Bassam Moubarak
/s/ Bassam Moubarak
This is page 11 to that certain Employment Agreement dated as of February 11, 2008, between PETAQUILLA MINERALS LTD. and Mr. Moubarak
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 168 |
SCHEDULE “A”
Benefits
·
Pension contribution of 5% of base gross salary.
·
The company will cover the cost of courses and seminars up to a maximum of $10,000 per annum.
·
Parking at 475 West Georgia Street, Vancouver, BC.
·
Business Class travel on all flight arrangement
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 169 |
EXHIBIT 4.V.
![[exhibit4v001.jpg]](https://capedge.com/proxy/CORRESP/0001176256-09-001023/exhibit4v001.jpg)
ASAMBLEA LEGISLATIVA
LEY Nª 9
(De 26 de febrero de 1997)
Por la cual se aprueba el Contrato celebrado entre EL ETADO
Y la sociedad MINERA PETAQUILLA, S.A.
LA ASAMBLEA LEGISLATIVA
DECRETA:
Artículo 1.
Apruébase el Contrato celebrado entre EL ESTADO y la
sociedad denominada MINER PETAQUILLA, S.A., que lee así:
Entre los suscritos a saber, por una parte, NITZIA RODRIGUEZ DE VILLARREAL, mujer, panameña, mayor de edad, con cédula de identidad personla nicmero 8-207-2450 en su calidad de Ministra de Comercio e Industrias, en represnentación de EL ESTADO, debidamente autorizada por el Consejo de Gabinete celebrado el día 13 de febrero de 1996, en ejercicio de la facultad que le confiere el numera tercero del Artículo 195 de la Constutución Política de la Repicblica de Panamá, en adelante denominado EL ESTADO, "y por o tra parte, Ingeniero Richard Fifer, varón, panameño, mayor de e dad, portador de la cédula de identidad personal nicmero 8-433-163, en su condición de Presidente y Representante Legal de la MINERA PETAQUILLA, S.A., sociedad org anizada y existente de conformidad a las leyes de la Repicblica de Panamá y debidamente inscrita en la Sección de Micropelículas Mercantil del Registro Picblico a la Ficha 303869, Rollo 46505, Imagen 0096, debidamente autorizado para celebrar este acto mediante resolución de la Junta Directiva de fecha de 1 de diciembre de 1995, quien en adelante se denominará LA EMPRESA, se celebra este Contrato de concesión mineral
Comparecen también a este acto y se adhieren al presente Contrato las siguientes personals para los siguientes fines: (a) GEORECURSOS INTERNACIONAL, S.A., sociedad organizada y existente de conformidad a las leyes de la Repicblica de Panamá debidamente
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 170 |
![[exhibit4v002.jpg]](https://capedge.com/proxy/CORRESP/0001176256-09-001023/exhibit4v002.jpg)
Inscrita en el Sección de Micropelículas Mercantil del Registro Público a al Ficaha 239116, Rollo 30512, Imagen 181, representada en este acto por el Ingeniero Richard Fifer, cuyas generales han sido descritas en anterioridad, en su condición de Presidente y Representante Legal, debidamente autorizado para este acto mediante resolución de la Junta Directiva de fecha de 1 de diciembre de 1995, quien en adelante se denominará GEORECURSOS, con el fin de dar por terminada y subrogada la concesión existenteconforme al Contrato No. 27-A de 7 de agosto de 1991, tal como se contempla en la Cláusula Vigésima Octava de este Contrato, y (b) ADRIAN RESOURSES, S.A., sociedad organizada y existente de conformidad a leyes de la República de Panamá y debidamente inscrita en la sección de Micropelículas Mercantil del Registro Público a la Ficha 259118, Rollo 35173, Imagen 002. debidamente representada en este acto por el Ingeniero Richard Fifer, cuyas generales han sido descritas con anterioridad, en su condición de Presidente y Representante Legal, debidamente autorizado para celebrar este acto mediante resolución de la Junta Directiva de fecha de 1 de diciembre de 1995, quien en adelante se denominará ADRIAN, con el fin de reconocer ciertos derechos y obligaciones recíprocos conjuntamente con LA EMPRESA respecto a ciertas concesiones minera colindantes al AREA DE LA CONCESIÓN, según lo previsto en el Anexo IV de este Contrato.
EN CONSECUENCIA , las prtes han convenido la celebración de este Contrato sujeto a las siguientes Cláusulas:
CLÁUSULA PRIMERA:
Objeto
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El objeto principal de l presente Contrato es el de otorgar a LA EMPRESA, com en efecto se le otorga con la celebreación y aprobación del presente Contrato, la concesión de los derechos posteriormente estipulados sobre los yacimientos mineros de oro, cobre y otros minerales ubicados en el área conocida como Cerro Petaquilla”, descrita n el Anexo de ste Contrato omo Área de a Concesion", con los fines de explorar, extraer, explotar, beneficiar, procesar, refinar, transportar, vender y comercializar todos los minerales, bases o preciosos, ubicados en el Área de la Concesi6n y, tales fines, LA EMPRESA podrá diseñar, construir y operar toda clase de obras de infraestructura, incluyendo unidades de vivienda, centros de salud, educaci6n y recreaci6n, todo tipo de instalaciones aéreas y terrestres, instalaciones de ge neraci6n de energía eléctrica para satisfacer las necesidades de esta Concesi6n así como para otros usos expresamente permitidos por el presente Contrato, plantas de procesamiento de aguas; almacenar y utilizar agua, naturales: y, en general, diseñar, construir y operar todas, aquellas instalaciones y prestar todos aquellos servicios que sean necesarios o pertinentes para el desarrollo de esta Concesi6n, todo lo cual en lo sucesivo se denomina "EL PROYECTO".
EL ESTADO reconoce que el desarrollo de EL PROYECTO amparado bajo el presente Contrato representa un gran beneficio para el impulso de la industria minera en la República de Panamá y por lo tanto EL ESTADO lo considerará como prioritario y le prestará su asistencia a LA EMPRESA para lograr el cumplimiento y perfecciona- miento del objeto y los fines del presente Contrato.
CLÁUSULA SEGUNDA
Definiciones
Para los efectos del Contrato, los siguientes términos tendrán el significado que a continuaci6n se indica:
AFILIADA
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Para los efectos del Contrato, se entenderá como AFILIADA con relaci6n a cualquier otra persona natural o jurídica, aquella persona natural o jurídica que directa o indirectamente, contro laes controlada por, o está bajo control común con dicha otra persona natural o jurídica mediante la tenencia del cincuenta por ciento (50%) o más de las acciones emitidas y en circulación con derecho ordinario a voto para la elección de los directores de dicha otra personal natural o jurídica, o mediante cualquier otro método o forma que represente control de hecho sobre dicha personal natural o jurídica. Para efectos de este Contrato se entiende además que TECK CORPORATION, INMET MINING CORPORATION y ADRIAN RESOURSES LTD., y las afiliadas a subsidiarias de éstas, serán consideradas como Afiliadas de LA EMPRESA mientras sean accionistas de ésta.
AREA DE PROYECTO
Será el área que LA EMPRESA designe dentreo del Area de la Concesión para desarrollar la explotación de minerales y comprende todas las instalaciones, facilidades y estructuras que sobre dicha áreaestablezcan LA EMPRESA, sus Afiliadas, contratistas o subcontratistas.
CERRO PETAQUILLA
Es la concesión amparada bajo el Contrato celebrado por y entre el Ministerio de Comercio e Industrias y Geo -Recursos Internacional, S.A., identificado como el Contrato No. 27-A de 7 de agosto de 1991, con sus prórrogas y extensiones, y descrito en el Anexo I del presente Contrato.
CONCESION
Es el conjunto de derechos otorgados por EL ESTADO en virtud de este Contrato, los cuales incluyen, entre otros, el derecho de explorar, explotar y usufructuar los yacimientos minerales ubicados en el área de Cerro Petaquilla que se describe en el Anexo I de este Contrato, la cual se denomina como Area de la Concesión
CONCESIONES COLINDANTES
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Se refiere a las concesiones o solicitudes de concessions, segun sea el caso, a favor de ADRIAN identificadas como: Contrato No. 41 del 12 de julio de 1994, Contrato No. 39-A del 7 de julio de 1994, Contrato No. 39-B de 7 de julio de 1994, Contrato No. 59 de 29 dde diciembre de 1994 todos celebrados por y entre el Ministerio de Comercio e Industrias y AADRIAN; y las solicitudes de concesiones Nos. 93-92, 93-93 y 94-39 según los registros que reposan en la Direcci6n General de Recursos Minerales del Ministerio de Comercio e Industrias de la República de Panamá.
CONTRATISTA
Serán. Aquellas personas naturales o jurídicas que LA EMPRESA, sus Afiliadas o cesionarias designen como Contratistas para efectos del presente Contrato, y bastará que LA EMPRESA notifique al Ministerio de Comercio e Industrias dicha designaci6n para que la misma tenga efecto.
EMPRESA
Se refiere, a través del contenido del presente Contrato, a MINERA PETAQUILLA, S.A., al igual que a sus Afiliadas, y a las entidades cesionarias de estas y aquella.
ESTUDIO DE FACTIBILIDAD
Tendrá el significado que se le da en el Anexo II del presente Contrato, el cual forma parte integral del mismo.
FACILIDAD
Es toda excavaci6n, fosa, agujero, pozo, zanja, canal, desagüe, equipo, ferrocarril, calles, carreteras, caminos, albergues o habitaciones para los trabajadores, tuberías, líneas de transmisi6n eléctrica, instalaciones y equipo para la generaci6n de cualquier tipo de energía, acumulaci6n o almacenamiento de materiales y materia prima, escombrera o acumulaci6n de desechos y desperdicios de cualquier tipo, muelles, dársenas, flotadores o plataformas flotantes, estanque de residuos, estanque de sedimentaci6n o asentamiento, y otros mejoramientos a al propiedad, accesorios fijos molinos, trituradoras instalaciones de lixiviaci6n o flotaci6n, instalaciones para mejoramiento o reclamaci6n de
Aguas, rutas de acarreo o transporte, además de cualquier otras mejoras, accesorios, instalaciones o construcciones que sean, según LA EMPRESA, necesarias o recomendables para la exploraci6n, desarrillo, extracci6n, beneficio o transporte de minerales o productos relacionados con el Area de la Concesi6n, las cuales se realizarán en cumplimiento con las reglamentaciones ambientales pertinentes.
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PRODUCCION BRUTA NEGOCIABLE
Para los prop6sitos del presente Contrato:
(a)
cuando la mena o el concentrado derivado de ésta sean vendidos como mena o como concentrado, la suma bruta recibida del comprador por raz6n de la venta luego de deducirse, de haberlos, todos los costos de fundici6n, penalidades y otras deducciones, y luego de deducidos todos los costos del transporte y el seguro de la mena o del concentrado, incurridos en su traslado desde la mina hasta la fundici6n o fábrica u otro lugar donde se lleve a cabo su entrega definitiva al comprador; o
(b)
cuando la mena o el concentrado sean procesados en una fundici6n y los metales recuperados en dicho proceso sean vendidos y entregados por LA EMPRESA, la suma bruta recibida del comprador por raz6n de la venta de los metales así entregados, luego de deducidos todos llos costos de fundici6n, penalidades y otras deducciones, y luego de deducidos todos los costos del transporte y el seguro de la mena o del concentrado incurridos en su traslado desde la mina hasta la fundici6n, y todos los costos del transporte y el seguro de los metales, incurridos en su traslado desde la fundici6n hasta el lugar donde se lleve a cabo su entrega definitiva al comprador; o
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(c)
cuando la mena o el concentrado sean procesados en una fundici6n de propiedad de LA ASAMBLEA o bajo el control de la misma bruta que se estime devengada por razón de la venta de la mena o del concentrado no será inferior a aquella suma que se hubiera podido obtener de una fundición que no fuera de propiedad de LA EMPRESA o que no estuviera controlada por ella con relación al procesamiento de mena o de concentrado de calidad y cantidad iguales.
PRODUCCION COMERCIAL
Se refiere a la extracción y procesamiento del mineral con el propósit:o de vender un producto final. Le extracción y procesamiento del mineral para hacer pruebas y determinar el proceso metalúrgico que se utilizará, no se considerará Producción Comercial. Cuando se haya alcanzado el setenta por ciento (70a) de la capacidad de producción diseñada, conforme se defina en el Estudio de Factibilidad, y ésta se mantenga durante noventa días consecutivos, se considerará que se ha alcanzado Producción Comercial.
SUBCONTRATISTA
Serán aquellas personas naturales o jurídicas que LA EMPRESA, sus Afiliadas o cesionarias designen como Subcontratistas para efectos del presente Contrato, y bastará que LA EMPRESA notifique al Ministerio de Comercio e Industrias dicha designación para que la misma tenga efecto.
TERMINO INICIAL
Es el período de veinte (20) años siguiente a la fecha de promulgación de la ley por medio de la cual se apruebe este Contrato.
CLAUSULA TERCERA
Derechos y Obligaciones
A. DERECHOS DE LA EMPRESA
Durante la vigencia del presente Contrato EL ESTADO otorga a LA EMPRESA, lo cual hace extensivo, para los efectos del desarrollo de EL PROYECTO, a sus Afiliados, y a los contratistas y subcontra-tistas que ellas designen, las siguientes facultades y derechos:
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1.
Dentro del Área de la concesión, según se describe en el Anexo I, realizar investigaciones geológicas relacionadas con los minerales que se encuentren en dicha Área de la Concesión antes y durante la extracción de los mismos.
2.
Realizar todo tipo de operaciones de minería, incluyendo pero sin limitarse a exploración, extracción, explotación, procesamiento, refinamiento, transporte, beneficio, venta y comercialización, dentro del Área de la Concesión, y llevar a cabo todas las demás operaciones y actividades necesarias y adecuadas para dichas operaciones de minería dentro y fuera del Área de la Concesión, siempre en cumplimiento con las reglamentaciones ambientales pertinentes.
3.
Llevar a cabo las actividades necesarias para beneficiar los minerales extraídos en las denominadas Áreas del Proyecto de conformidad a las estipulaciones del presente Contrato.
4.
Transportar la mena, concentrado y los minerales extraídos, al igual que cualquier artículo, provisión, material o bien que LA EMPRESA estime necesario para su operación, empleando cualquier medio de transporte y método de seguridad reconocido dentro de la industria de la minería.
5.
Almacenar dentro y fuera del Área de la Concesión y exportar y comercializar la mena, concentrado y los minerales que haya extraído dentro del Área de la Concesión, de conformidad con las disposiciones legales y reglamentarias vigentes.
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6.
El derecho de servidumbre de paso, cuando LA EMPRESA lo considere necesario para el desarrollo de EL PROYECTO, a través de la superficie y subsuelo de todas las tierras y aguas que sean propiedad de EL ESTADO a la fecha en que el Contrato entre en vigencia, sujeto a lo dispuesto en el Anexo IV de este Contrato, en la medida en que el mismo no vulnere los derechos adquiridos de terceros a este Contrato; y el derecho de instruir, instalar, mantener y usar en la superficie o subsuelo de dichas tierras y aguas aquellas facilidades e instalaciones que LA EMPRESA necesite para el desarrollo de EL PROYECTO. En caso tal de que hiciera uso de una servidumbre de paso por el subsuelo, LA EMPRESA coordinará con la entidad estatal correspondiente todo lo relacionado con la protecci6n de la capa freática en las reservas de agua dulce que pudiesen existir en el si tio de dicha servidumbre. LA EMPRESA gozará de este derecho de servidumbre y podrá ejercerlo sin estar sujeta a pagos por ningún concepto. Cuando las tierras propiedad de EL ESTADO sean enajenadas a terceros particulares luego de la entrada en vigencia del presente Contrato, prevalecerá el derecho de servidumbre de LA EMFRESA, sin perjuicio de la indemnizaci6n cine corresponda por daños físicos a cultivos y mejoras permanentes construidas sobre las mismas.
En lo que respecta a lo dispuesto en el Anexo IV de este Contrato, LA EMPRESA y ADRIAN declaran que cualquier conflicto o controversia que se suscite entre las mismas con motivo de la ejecuci6n o cumplimiento de lo convenido en dicho Anexo IV no afectará en modo alguno las respectivas obligaciones y compromisos que vinculan a LA EMPRESA conforme al presente Contrato y a ADRIAN respecto a las Concesiones Colindantes frente a EL ESTADO, a menos que el respectivo conflicto o controversia sea motivado o causado por algún acto u omisi6n de EL ESTADO.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 178 |
7.
El derecho de servirse de y desviar las aguas de fuentes naturales cuando así lo requieran las actividades de EL PROYECTO, sin carga alguno, entendiéndose que si estos usos perjudican interfieren con los derechos o las propiedades de personas o entidades privadas o estatales que utilicen dichas aguas a la fecha en que entre en vigencia el presente Contra-estas personas o entidades recibirán de LA EMPRESA justa compensación por el perjuicio sufrido de conformidad con las normas vigentes. De igual forma, LA EMPRESA garantizará el suministro de, agua potable suficiente para la subsistencia de aquellas personas naturales que legalmente ocupen áreas afectadas al momento en que entre en vigencia el presente Contrato.
8.
El derecho a diseñar- y construir puentes de acceso, tuberías,
canales, rieles, ferrocarriles y demás facilidades de acceso o medios de transporte, y cualesquiera otras instalaciones y facilidades útiles o necesarias para la realización de EL PROYECTO, y usufructuar dichas instalaciones y facilidades sin estar sujeta al pago de ningún tipo de gravamen, canon, regalía, impuesto, ni ningún otro tipo de cargo por parte de EL ESTADO, .3 excepción del pago de cánones superficiales, regalías e impuestos municipales de conformidad con lo establecido en el presente Contrato. Se entiende que LA EMPRESA esta facultada para extraer y utilizar los materiales o minerales que sean necesarios para llevar a cabo las obras de infraestructura, incluyendo pero sin limitarse a piedra, arena y cascajo, y que tendrá derecho a explotar canteras con el mismo fin sujeto a lo dispuesto por este C ontrato y la legislación vigente que regule o reglamente la explotación de minerales no metálicos utilizados como materiales de construcción.
9.
Generar electricidad para uso de EL PROYECTO y vender o comercializar cualquier excedente de electricidad generada de acuerdo a la legislación vigente, así como establecer, construir y operar cualesquiera instalaciones de comunicación que LA EMP, "1ESA considere necesaria para EL PROYECTO y las operaciones relacionadas con éste.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 179 |
10.
El derecho a obtener, sin mayor demora, las licencias,permisos, aprobaciones y otras autorizaciones que sean generalmente requeridas por EL ESTADO o cualquiera de sus dependencia, o instituciones aut6nomas o semiaut6nomas y que se necesiten para el desarrollo de EL PROYECTO Sujeto a las demás disposiciones del presente Contrato, se entiende que todas estar licencias, aprobaciones o autorizaciones se otorgarán a los cargos usuales de aplicaci6n general.
11.
Poseer, operar y estructurar, libre del pago de cualquier tasa, gravamen o cargo por parte de EL ESTADO, vehículos, helic6pteros, aviones, barcazas, equipo pesado de uso en tierra o en agua o anfibio, remolcadores, barcos de gran calado, embarcaciones de transporte de trabajadores, y cualquier otra maquinaria o equipo que sea necesario para el desarrollo efectivo de EL PROYECTO, y prestar los servicios aéreos, marítimos y terrestres dentro del territorio Panameño en la medida en que dichos servicios sean necesarios para el desarrollo de EL PROYECTO.
12.
LA EMPRESA tendrá el derecho de adquirir, arrendar o usufructuar aquellas tiernas de EL ESTADO dentro o fuera del Área de la Concesi6n obre sean necesarias o útiles para el desarrollo de EL PRCYE, ": C. LA EP4PRSSA podrá adquirir estas tierras en propiedad, en arrendamiento e en usufructo por conducto del Ministerio de Hacienda y Tesoro, el cual dará curso a tales solicitudes y accederá a concederlas directamente a LA EMPRESA sin necesidad de someter dicha concesi6n a los mecanismos de licitaci6n pública, concurso o solicitud de precios establecidas en el C6digo Fiscal siempre que dichas tierras estén disponibles y en la medida en que no se vulneren derechos adquiridos de terceros a este Contrato por raz6n de otras concesiones mineras, sujeto a lo dispuesto en el Anexo IV de este Contrato. Cuando se trate de tierras adq uiridas en usufructo o en arrendamiento, las s umas a pagar po r parte de LA EMPRESA no serán superiores a los cánones superficiales por hectárea cure se establecen en la presente Cláusula. Cuando se trate de tierras que LA EMPRESA desee adquirir en propiedad, el precio a pagar por dichas tierras será determinado por los procedimientos establecidos en la legislación vigente.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 180 |
En caso de que LA EMPRESA necesite tierras de propiedad privada que se encuentren dentro o fuera del Área de la Concesión, todo lo relativo a su uso, su posesión o su adquisición, con excepción de lo estipulado en el numeral siete (7) del Literal A de la presente Cláusula, se tramitará de conformidad con lo dispuesto en el Código de Recursos Minerales y este Contrato.
13.
LA EMPRESA tendrá derecho a diseñar, construir y operar, directamente o a través de terceros, siempre bajo su propia dirección, muelles, dársenas y demás instalaciones portuarias y atracaderos que LA EMPRESA requiera dentro del Área del Puerto, según se determine en el Estudio de Factibilidad, en relación con las actividades contempladas en el presente Contrato, y se entenderá que dichos muelles, dársenas y demás instalaciones portuarias y atracaderos serán para el uso prioritario de LA EMPRESA. Las tasas o los derechos portuarios que pudiesen establecerse por el uso de dichas instalaciones no se aplicarán ni a LA EMPRESA y sus naves ni a las naves pertenecientes a o que estén bajo el control de terceros que presten servicios relacionados con el objeto del Contrato. Tan pronto como este Contrato llegue al término de su duración de acuerdo con la Cláusula Quinta, las citadas instalaciones portuarias pasarán a ser propiedad de EL ESTADO, y éste asumirá la responsabilidad de su operación.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 181 |
No obstante lo expresado en el párrafo que antecede, EL ESTADO se reservará el derecho de permitir el uso de dichas instalaciones portuarias a otras naves para fines distintos amparados baje el presente Contrato. En este último caso, LA EMPRESA se reservará el derecho de cobrar a dichas naves los derechos de muel1aje que estime convenientes y podrá objetar el uso de l.as instalaciones portuarias por dichas naves si dicho uso perjudica o interfiere de algún modo con las actividades les que LA EMPRESA, sus Afiliadas, contratistas o subcontratistas desarrollan. En todo caso, LA EMPRESA podrá además cobrar derechos o tasas razonables por el uso de grúas, tuber-ías, almacenes de depósito, y demás servicios, instalaciones y facilidades que LA EMPRESA provea o suministre o ponga a disposici 243;n ole dichas naves.
14.
Organizar, establecer y prestar servicios de pilotaje, remolque, reparación, movilización en lanchas y, en general, servicios de ayuda a la navegación. Se entiende que esta facultad no implica la obligación de hacerlo y, por consiguiente, su ejercicio es una potestad discrecional de LA EMPRESA. Estos servicios serán prestados por personal idóneo escogido por EMPRESA al amparo de las licencias que al efecto le otorgará EL ESTADO a dicho personal. El costo de estos servicios será sufragado con cargo a las tasas o derechos que al efecto establezca EL ESTADO. No se aplicarán derechos o tasas a favor de EL ESTADO cuando se trate de naves de propiedad de LA EMPRESA, naves que estén prestando servicios a LA EMPRESA, o naves que presten servicios en relación con las artiividades contempladas en el presente Contrato. Cuando LA EMPRESA no desee seguir prestando alguno de los servicios a que se refiere esta cláusula, deberá notificárselo a EL ESTADO a más tardar con seis (6) meses de antelación. En ese caso, EL ESTADO prestará el servicio cobrando las tarifas de plicación general que se hayan establecida, y éstas se le aplicarán junto a LA EMPRESA como o a quienes presten servicio a LA EMPRESA en relación con las actividades contempladas en el presente Contrato, dando siempre prioridad a LA EMPRESA en la prestación de dichos servicios y actividades. No obstante lo anterior, se entiende que EL ESTADO ofrecerá a LA EMPRESA la tarifa más favorable que al momento ofrezca o pueda ofrecer a otros usuarios.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 182 |
15.
Diseñar, establecer, construir, mantener, renovar y expandir obras, instalaciones, anexos, obras y servicios auxiliares, que tengan que ver con actividades aéreas, marítimas o terrestres, al igual que diseñar, construir, mantener, renovar y expandir rompeolas, muelles, helipuertos, pistas de aterrizaje, torres de comunicación, caminos, puentes, carreteras, malecones, dragados, canales y dársenas en relación con las actividades contempladas en el presente Contrato o con el desarrollo 9e dichas actividades, y hacer uso de semejantes instalaciones sin costo alguno, siempre que ese uso cumpla lo dispuesto en las leyes y reglamentos so b re construcción, sanidad, seguridad, higiene ocupacional y protección del medio ambiente que estén vigentes y sean de aplicación general.
16.
Se entienden incluidas dentro del Área de la Concesión, y parte integral de EL PROYECTO, las instalaciones y el equipo de transporte que sean inamovibles y que LA EMPRESA utilice en relación con las actividades contempladas en el presente Contrato, así como tuberías, acueductos, duetos, rieles, terminales y demás instalaciones destinadas al transporte de mena o minerales, de carga y de mercaderías en general, o a actividades inherentes al funcionamiento de LA EMPRESA, cuando hayan sido construidos o vayan a ser construidos con miras al ejercicio de los derechos de servidumbre de paso que tenga LA EMPRESA.
17.
Administrar y operar EL PROYECTO, y ceder total o parcialmente los correspondientes derechos respecto de una porción o de una etapa o fase de EL PROYECTO o de su totalidad, conforme a lo dispuesto en la Cláusula Novena de este Contrato.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 183 |
18.
Además de los derechos autorizaciones que anteceden, LA EMPRESA tendrá el derecho y la facultad para realizar aquellos actos o actividades que considere incidentales o conducentes a la consecuci6n de los objetivos descritos en la Cláusula Primera de este Contrato y al ejercicio de los derechos y facultades torcidos en la presente Cláusula.
B. OBLIGACIONES DE LA EMPRESA
1.
Los estudios de Evaluaci6n Ambiental Preliminar, de Reconocimiento Ambiental y de Viabilidad Ambiental y sus anexos, en su conjunto denominarles Informe Ambiental, requeridos por el Reglamento Ambiental del Sector Minero vigente a la fecha en que entre en vigencia el presente Contrato, formarán parte integral de este Contrato y serán de obligatorio cumplimiento por LA EMPRESA. La Direcci6n General de Recursos Minerales evaluará los estudios que conforman el Informe Ambiental en consulta con el INRENARE.
2.
Antes de iniciar el período de extracci6n, LA EMPRESA presentará un
Estudio de Viabilidad Ambiental específicamente del Área del Proyecto en la cual se llevará a cabo la respectiva extracci6n. Dicho estudio será realizado o revisado por expertos en la materia previamente aprobados por la Direcci6n General de Recursos Minerales del Ministerio de Comercio e Industrias. Dicho estudio deberá ser evaluado, y se deberá definir su aprobaci6n, modificaci6n o rechazo en un plazo de 45 días luego de la fecha de presentaci6n a la Direcci6n General de Recursos Minerales. Transcurrido dicho plazo, de no haber emanado un pronunciamiento por parte de la Direcci6n General de Recursos Minerales, se entenderá por aprobado el Estudio de Viabilidad Ambiental, de manera que LA EMPRESApodrá proceder a desarrollar sus actividades de acuerdo al contenido de dicho Estudio.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 184 |
3.
Al inicio de cada año, LA EMPRESA deberá presentar un Plan de
Trabajo que <abarque las proyecciones y costos aproximados para el respectivo año a la Dirección General de Recursos Minerales del
Ministerio de Comercio e Industrias.
4.
LA EMPRESA deberá pagar en efectivo a EL ESTADO, sujeto a
las deducciones establecidas en la Cláusula Décima Tercera del presente Contrato, los siguientes cánones superficiales anuales por hectárea sobre el Área de la Concesión no definida como Área 'i' Proyecto según la Cláusula Cuarta del presente
contrato
| | |
| Años | US$ porHectárea |
| 1 ªy 2 ª | 0.50 |
| 3 ªy 4 ª | 1.00 |
| Del 5ª en adelante | 1.50 |
5. LA EMPRESA deberá pagar en efectivo a EL ESTADO, sujeto a las deducciones establecidas en la Cláusula Décima Tercera del Contrato, los cánones superficiales por cada hectárea que comprenda las zonas identificadas como Área (s) de Proyecto según la Cláusula Cuarta del presente Contrato y las regalías anuales sobre los minerales extraídos, conforme a la siguiente tabla:
| | | | |
Clase de Mineral | Primeros 5 años | Del 6ª al 1 0ª años | 11 ª años en adelante | Regalía |
I | B/ 0.75 | B/ 1.25 | B/ 2.00 | 2% |
II | 1.00 | 2.00 | 3.00 | 2% |
III | 1.00 | 2.00 | 3.00 | 4% |
IV | 1.00 | 2.50 | 3.50 | 2% |
V | 0.50 | 1.00 | 1.00 | 2% |
VI | 1.50 | 3.00 | 4.00 | 2% |
Se entiende que las clases de minerales que anteceden tendrán los siguientes significados:
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 185 |
Clase I: Minerales no metálicos, excluyendo los materiales de construcción.
Clase II: Minerales metálicos excepto los minerales precio. sos.
Clase III: Minerales preciosos aluvionales,
Clase IV: Minerales preciosos no aluvionales.
Clase V: Minerales energéticos, excepto los hidrocarburos.
Clase V1: Minerales, de reserva.
Los pagos de cánones superficiales se harán por anualidades adelantadas y los de regalía por trimestres vencidos dentro de un período de sesenta (60) días contados a partir de la fecha de su vencimiento. Los cánones superficiales se computarán basándose en el total de la superficie retenida al principio de cada año.
En la presente cláusula, la regalía a pagar por LA EMPRESA se ex cesa como un porcentaje de la Producción Bruta Negociable según se define en la Cláusula Segunda del presente Contrato .
6.
LA EMPRESA se obliga a presentar anualmente al Ministerio de Comercio e Industrias los informes que se detallan a continuación, y dicha dirección se encargará de informar a otras institución es gubernamentales y, según convenga, proporcionar la información del caso:
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 186 |
a)
Informe de operaciones, el cual formará parte del informe anual, a ¡ renos que, previo aviso a LA EMPRESA con un mínimo de sesenta (60) días de antelación, el Ministerio de Comercio e Industrias requiera que sea entregado en otra forma. Dicho informe deberá contener información relativa a los minerales extraídos, transportados y beneficiados precios aplicables, el número y tipo de operaciones mineras llevadas a cabo durante el período cubierto por el informe y el éxito obtenido en estas operaciones; los procedimientos que se hayan aplicado a las operaciones mineras de acuerdo con las buenas normas de operación, los registros de sondeos, las muestras, los datos topográficos, geológicos y mineralógicos obtenidos, la ubicación de las perforaciones y de los lugares estudiados, mapas, plano s y cortes geológicos y toda la demás información técnica adicional importante obtenida en el proceso de las operaciones y los datos que no se hayan sometido previamente, indicándose el se flan obtenido minerales en cantidades comerciales,y si éste es el caso, un estimado de la fecha en que se Iniciará la extracción y la magnitud de las operaciones planeadas.
b) Informe sobre empleo y adiestramiento, que formará parte del informe anual, a menos que EL ESTADO requiera que tea entregado en otra forma. Este informe consistirá en una declaración que cubra el año fiscal anterior en cuanto al empleo de panameños y extranjeros y al desenvolvimiento de los programas de adiestramiento.
Todo informe contendrá una declaración jurada de lA EMPRESA o de la persona autorizada para actuar en su
nombre.
7.
LA EMPRESA permitirá a EL ESTADO el examen de los informe s técnicos relacionados con EL PROYECTO y la inspeecit5n rutina ría de todas las instalaciones de dicho Proyecto durante días y horas laborables, entendiéndose que EL ESTAPO asume todo gasto y riesgo que las citadas inspecciones le puedan ocasionar.
8.
LA EMPRESA permitirá a EL ESTADO el acceso y la utilisaci6t7 da las facilidades portuarias y las instalaciones complementarias, que LA EMPRESA establezca con sujeción a las disposiciones de la Cláusula Tercera, literal A, numerales 13 y 14 del Contrato.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 187 |
9.
Antes de que se inicien las actividades de extracc 6r:, LR EMPRESA creará y participará en la administraci6n de un fondo de becas por un monto total de DOSCIENTOS CINCUENTA MIL DOLARES de los Estados Unidos de América (US$250, 000. 00) que será empleado para sufragar estudios y cursos de adiestramiento o formaci6n profesional de habitantes de las comunidades aledañas a EL PROYECTO, ubicadas en las Provincias de Coclé y Col6n. Dichos habitantes serán seleccionados por un comité integrado por representantes de las comunidades y de LA EMPRESA.
10.
LA EMPRESA se obliga a dar el debido mantenimiento a todas las obras de minería e infraestructura y de servicios del PROYECTO, siempre ajustándose a las normas y reglamentos vigentes de aplicaci6n general en materia de seguridad ocupacional, sanidad y construcci6n. De igual forma, LA EMPRESA podrá abandonar EL PROYECTO, parcialmente o en su totalidad, cuando lo estime necesario, siempre que cumpla con todas las obligaciones estipuladas en el presente Contrato.
CLÁUSULA CUARTA
Arcas de Proyecto e Inversi6n Inicial
1.
Bajo los términos del presente Contrato, LA EMPRESA, sus Afiliadas, contratistas sub-contratistas podrán en todo momento rea' izar trabajos y estudios de evaluaci6n, factibilidad y exploraci6n minera en todo o en parte del Área de la Concesi6n, con miras a la explotaci6n comercial de EL PROYECTO o cualquier AREA DE PROYECTO.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 188 |
2.
LA EMPRESA y sus Afiliadas tendrán la opci6n de devolver al ESTADO cualquier parte, secci6n o porci6n del Área de La Concesi6n ajustándose de ser procedente, a lo estipulado en la Cláusula Séptima de este Contrato sobre la Protecci6n del Medio Ambiente. Además, LA EMPRESA podrá realizar una evaluación de mineralización del Área de la Concesión, y definir una o más 'Área(s) de Proyecto". Una vez definida un Área de Proyecto, LA EMPRESA iniciará un estudio de factibilidad ('Estudio de Factibilidad') en dicha Área de Proyecto, el cual deberá ser presentado al Ministerio de Comercio e Industrias. LA EMPRESA podrá dividir el Área de la Concesión en un número plural de zonas de desarrollo que estime conveniente y podrá designar una o más de tales zon as como Área de Proyecto, entendiéndose que las mismas podrán tener cualquier forma o configuración. De cualquier forma, LA EMPRESA deberá presentar ante el Ministerio de Comercio e Industrias un estudio de tactibilidad referente a alguna de las Áreas de la Concesión definida como Área de Proyecto, a más tardar dentro de los 18 meses siguientes a la fecha de promulgación de la Ley por medio de la cual se apruebe el presente Contrato, y dicho estudio deberá cumplir con los requisitos establecidos en el Anexo II que forma parte integral del presente Contrato.
3.
Dentro de un período de no más de sesenta (60) meses luego de la
entrada en vigencia del presente Contrato, LA EMPRESA invertirá en exploración, infraestructura, carreteras y un estudio de factibilidad no menos de DIEZ MILLONES DE DOLARES de los Estados Unidos de América (US$1 0, 000, 000. 00).
CLAUSULA QUINTA
Duración del Contrato
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 189 |
Este Contrato tendrá una duración de veinte (20) años contados a partir de la entrada en vigencia de la presente ley que lo aprueba. Si LA EMPRESA ha cumplido sustancial y razonablemente con las obligaciones que contrae por virtud del presente Contrato, y si no se ha producido su terminación por mutuo acuerdo antes de que Haya transcurrido dicho lapso, LA EMPRESA solicitará y obtendrá hasta dos (2) prórrogas consecutivas del Contrato, entendiéndose que cada una de dichas prórrogas tendrá una duración de veinte (20) años. Queda entendido que en atención a solicitud presentada ante el Ministerio de Comercio e Industrias dentro de los ciento veinte (120) días anteriores a los veinte días posteriores al término de cada período de veinte (20) años, el citado Ministerio de Comercio e Industrias otorgará cada una de las respectivas prórrogas de que trata la presente Cláusula, entendiéndose otorgadas dichas prórrogas si el Ministerio de Comercio e Industrias no se pronuncia respecto a la misma dentro de un período de sesenta (60) días luego de presentada la citada solicitud ante el Ministerio de Comercio e Industrias
Al finalizar el presente Contrato, incluyendo sus prórrogas, LA EMPRESA, podrá dejar en sus propiedades o remover de ellas libremente, pero con la debida observancia de este Contrato y de las disposiciones legales y reglamentarias de la República de Panamá que le sean aplicables en materia de demolición, urbanismo y sanidad, todos los artículos de su propiedad, las instalaciones, mejoras, accesorios, anexos, equipos y toda otra propiedad de cualquier naturaleza, sea propiedad mueble o conectada total o parcialmente a la propiedad inmueble de LA EMPRESA, sin que LA EMPRESA tenga que hacer pago alguno a EL ESTADO por razón de tal retiro oo remoción. Sim embargo, de darse tal supuesto, todos los muelles, rellenos, obras e instalaciones marítimas o terrestres construidas por LA EMPRESA sobre tierras u otros bienes de propiedad de EL ESTADO, pasarán a ser propiedad de EL ESTADO. Sin cosot alguno para este.
CLÁUSULA SEXTA
Compromiso de Desarrollo e Inversión
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 190 |
Para que LA EMPRESA mantenga los beneficios fiscales que ELESTADO le otorga mediante el presente Contrato, y como consideraci6n por parte de LA EMPRESA para que EL ESTADO celebre el presente Contrato, LA EMPRE SA se compromete a lo siguiente:
1.
LA EMPRESA, sus AFILIADAS, Contratistas o Subcontratistas llevaran a cabo un ESTUDIO DE FACTIBILIDAD para el desarrollo de la mina de cobre en el AREA DE LA CONCESION y para el procesamiento de la mena a concentrado. El costo de dicho ESTUDIO DE FACTIBILIDAD no será inferior a SIETE MILLONES DE DOLARES de los Estados Unidos de América (US$7,000,000.00), incluyendo as sumas que se hayan invertido en dicho estudio con anterioridad a la fecha de este Contrato. La preparaci6n de dicho ESTUDXO DE FACTIBILIDAD se ajustará a los parámetros establecidos en el Anexo II de este Contrato. LA EMPRESA se obliga a entregar una copia del ESTUDIO DE FACTIBILIDAD al Ministerio de Comercio e Industrias dentro de los 18 meses siguiente:: a la fecha de promulgaci6n de la ley por medio de la cual se apruebe el presente Contrato. LA EMPRESA igualmente entregar& #225; a dicho Ministerio una declaraci6n jurada en la que se detallen las sumas invertidas en la preparaci6n de dicho ESTUDIO DE FACTIBILIDAD.
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2.
Durante los tres años posteriores a la fecha de entrega del ESTUDIO DE FACTIBILIDAD de que trata el numeral anterior al Ministerio de Comercio e Industrias, LA EMPRESA deberá iniciar el desarrollo de la mina de cobre y la construcci6n de la infraestructura necesaria para la operaci6n de dicha mina de conformidad con el programa contemplado en el Anexo III del presente Contrato. No obstante lo anterior, LA EMPRESA podrá aplazar el inicio del desarrollo de la mina y de la construcci6n de la infraestructura correspondiente y por consiguiente el periodo de tiempo equivalente a los meses que transcurran desde la fecha de entrega del mencionado ESTUDIO DE FA CTIBILIDAD durante los cuales el precio promedio de la libra de cobrerefinado según las cotizaciones de la Bolsa de Metales de Londres sea inferior a la s uma que resulte de sumar (a) el precio del cobre utilizado en el citado ESTUDIO DE FACTIBILIDAD que arroja una tasa de retorno que permita conseguir el financiamiento necesario en los mercados de capitales internacionales más (b) un cinco por ciento (5%) de éste. PARÁGRAFO: El aplazamiento por razones de bajo precio del cual trata el ordinal 2 de esta Cláusula no podrá extenderse más allá de cinco (5) años contados desde el vencimiento del plazo inicial de tres (3) años de que trata dicho ordinal, sin que la Empresa le comunique a EL ESTADO su decisión de proceder a realizar la inversión correspondiente al desarrollo y construcción de la mencionada infraestructura y dé inicio a dichos trabajos. De extenderse el aplazamiento más allá de dichos cinco (5) años, quedará resuelto el presente Contrato y vencida la Concesión. Durante el período de aplazamiento, LA EMPRESA podrá formula propuestas para el desarrollo d e EL PROYECTO en términos y condiciones distintos a los pactados en el presente Contrato y EL ESTADO conviene en considerar de buena fe dichas propuestas. No obstante, por los (2) años subsiguientes al vencimiento de dicho plazo de cinco (5) años, LA EMPRESA gozará de primera opción para el desarrollo de EL PROYECTO en caso de que EL ESTADO reciba de algún tercero (el Tercero Ofebente) u na oferta (la Oferta) para ta propósito.
Si el ESTADO recibe alguna Oferta que pretenda aceptar, deberá comunicársela y dar traslado de la misma por escrito a LA EMPRESA, la cual dispondrá de noventa (90) días contados a partir de la fecha de recibo de dicha comunicación para ejercer su primera opción de llevar a cabo el desarrollo de EL PROYECTO, en términos al menos igual de ventajosos para EL ESTADO a los propuestos en dicha Oferta. Si LA EMPRESA lecomunica a EL ESTADO su decisión de no ejercer dicha primera opción o deja de ejercer la misma contados los noventa (90) días de la comunicación y traslado antes señalados, EL ESTADO podrá negociar el o los contratos de concesión con el respectivo Tercero Oferente, siempre que los mismos no reflejen un conjunto de derecho s y obligaciones más ventajosos para el Tercero Oferente que los contenidos en la respectiva Oferta. Este procedimiento de primera opción se aplicará a cualquier Oferta formulada por un Tercero Oferente durante el mencionado período de dos años respecto de la cual LA EMPRESA no haya negado o dejado de ejercer su primera opción.
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3.
Antes del inicio de la producción comercial de cobre, LA EMPRESA conjuntamente con sus Afiliadas, contratistas y subcontratistas cumplirán los siguientes compromisos:
(a)
Invertir no menos de CUATROCIENTOS MILLONES DE DOLARES de los Estados Unidos de América (US$400,000,000.00) en el desarrollo y construcción de la mina e infraestructura de modo consecuente con lo previsto en el Estudio de Factibilidad mencionado en el numeral 1 de esta Cláusula a en cualquier otro Estudio de Factibilidad que se realice con posterioridad o modificaciones a los mismos, que apruebe LA EMPRESA, siempre que se hayan entregado copias de dichos estudios o modificaciones al Ministerio de Comercio e Industrias.
(b)
Contratar no menos de 700 trabajadores panameños para el desarrollo y construcción de la mina, utilizando preferiblemente la grano de obra proveniente del Municipio o los Municipios d o nd e se encuentre ubicada el Área de la Concesión.
4.
Una vez que se alcance la producción sostenida de concentrado de cobre en el Área de la Concesión a las tasas proyectadas en el Estudio de Factibilidad, LA EMPRESA, sus Afiliadas, contratistas y subcontratistas contratarán para la operaci6n de EL PROYECTO a no menos de 300 trabajadores panameños permanentes, quedando entendido que el número total de dichos trabajadores podrá variar como resultado de los cambios en las condiciones de mercado y la innovaciones tecnol6gicas.
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5.
Para efectos de 1n dispuesto en el numeral 2 de esta Cláusula, el precio promedio ajustado del cobre refinado en la Bolsa de Metales de Londres para un mes determinado será igual al promedio de los precios de cierre para una libra de cobre refinado el! cada día de dicho mes durante el cual la Bolsa esté abierta para el ejercicio de las actividades mercantiles, derivado de las cotizaciones publicadas por dicha Bolsa.
6.
En adici6n a cualesquiera demoras que ocurran en el desarrollo de la mina, permitidas por la Cláusula Vigésima del presente Contrato, LA EMPRESA, en consulta con el Ministerio de Comercio e Industrias, podrá aplazar el inicio de dicho desarrollo o la terminaci6n del mismo durante los períodos de inestabilidad econ6mica comprobada en el país o a nivel internacional que ocasionen aumentos imprevistos en los costos de los materiales, suministros o mano de obra por encima de los comtemplados en el Estudio de Factibillidad referido en el numeral primero de esta Cláusula, o cuando dichos períodos de comprobada inestabilidad impidan la obtenci6n de financiamiento para EL PROYECTO en los mercados financieros internacionales bajo términos y condiciones haBITUALES. LA EMPRESA nitificará inmediatamente al Ministerio de Comercio e Industrias en caso de que cualquiera de estos eventos ocurra y consultará con dicho Ministerio mientras dure el respectivo período de inestabilidad con el objeto de detrminar si las condiciones han cambiado o si se hace necesaria una modificaci6n al Estudio de Factibilidad a fin de poder inicial el desarrollo de la misma o la reanudaci6n de dicho desarrollo.
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CLAUSULA SEPTIMA
Protecci6n de.¡ Medio Ambiente
LA EMPRESA se obliga a realizar sus actividades manteniendo en todo momento una protecci6n apropiada del medio ambiente del Área de la Concesi6n, cumpliendo con las disposiciones legales y reglamentarias de aplicaci6n general que estén vigentes en la República de Panamá.
LA EMPRESA responderá por los daños que por su culpa, dolo o negligencia se ocasionen al medio ambiente por raz6n de sus operaciones, y con este fin LA EMPRESA constituirá una fianza a favor de EL ESTADO por la suma de TRES MILLONES DE DOLARES de los Estados Unidos de América (US$3,000,000.00), mediante efectivo, cheque certificado, p6liza de compañía de seguros, carta de promesa de pago de una instituci6n financiera, carta de crédito emitida por un banco local, garantías bancarias, o mediante cualquier o tro medio permitido por las leyes en vigencia. Dicha fianza se constituirá al inicio de la construcci6n de la mina, y la totalidad de la misma o la porci6n no reclamada por EL ESTADO será cancelada o devuelta a LA EMPRESA, según sea el caso, a más tardar al año luego de la term inaci6n del presente Contrato. La misma deberá emitirse a favor del Ministerio de Comercio e Industrias y de la Contraloría General de la República de Panamá. El monto de la fianza no significa límite de responsabilidad para LA EMPRESA.
En adici6n a las obligaciones de restauraci6n contempladas en el C6digo de Recursos Minerales, LA EMPRESA se compromete a financiar un Programa de Reforestaci6n para aquellas áreas de la concesi6n en las cuales LA EMPRESA haya causado algún tipo de deforestaci6n, sujeto al grado de deterioro que se haya causado a la naturaleza. El programa se llevará a cabo utilizando especies de árboles nativos en la zona cercana al Área de la Concesi6n en consulta con las autoridades respectivas, y con posibilidades de que se puedan plantar especies de mayor conveniencia para la población y el medio ambiente.
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CLAUSULA OCTAVA
Contratación de Experta
LA EMPRESA, sus Afiliadas, contratistas y subcontratistas darán preferencia a la contratación de mano de obra nacional. Sin embargo, podrán contratar personal extranjero siempre que el número total de extranjeros contratados no exceda el veinticinco por ciento (25%) de la totalidad de la fuerza laboral de EL PROYECTO.
No obstante lo anterior, desde la entrada en vigencia del presente Contrata y durante los prime os cinco (5) años contados a partir del de las obras de construcción a que se refiere este Contrato, se permitirá un porcentaje mayor de especialistas, técnicos o trabajadores extranjeros con experiencia en el ramo de la minería en atención a los requerimientos de LA EMPRESA, sus Afiliadas, contratistas o subcontratistas, a los que EL ESTADO otorgará los permisos de trabajo, las licencias y las visas que necesiten para tal efecto.
LA EMPRESA se compromete a cumplir con la transferencia de tecnología al personal panameño en caso de contratación de extranjeros.
Para los efectos de la aplicación de los porcentajes antedichos, se considerará la totalidad de la fuerza laboral de EL PROYECTO, que comprenderá los trabajadores contratados por LA EMPRESA, sus Afiliadas, contratistas y subcontratistas.
CLAUSULA NOVENA
Cesión de Contrato
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LA EMPRESA podrá ceder o traspasar total o parcialmente este Contrato sin alterar ninguno de sus términos ni condiciones, al igual que la totalidad o parte del Área de la Concesi6n, siempre que la cesionaria cuente con la capacidad técnica y financiera, pudiendo ser una sociedad panameña o una sociedad extranjera debidamente registrada y facultada para realizar negocios en la República de Panamá_ Dicha cesi6n concederá al cesionario todos los derechos y obligaciones que mediante el presente Contrato asume LA EMPRESA.
Cuando la cesi6n o traspaso a que hace referencia esta Cláusula sea a favor de urja Afiliada de LA EMPRESA, el único requisito con que LA EMPRESA deberá cumplir para efectuar dicha cesi6n o traspaso será el de comunicarlo por escrito al Ministerio de Comercio e Industrias con quince (15) días de anticipaci6n. Una vez realizada dicha notificaci6n, la cesi6n o traspaso será efectiva y el Ministerio de Comercio e Industrias deberá emitir una certificaci6n mediante la cual conste dicha cesi6n o traspaso dentro de los treinta (30) días siguientes.
Cuando la cesi6n o traspaso haya de hacerse a favor de terceros que no sean Afiliadas de LA EMPRESA, se requerirá la autorizaci6n previa del Ministerio de Comercio e Industrias, excepto en los anos a que se refiere el último párrafo de la presente Cláusula. En casos de cesi6n o traspaso a terceros, LA EMPRESA notificará dicho hecho al Ministerio de Comercio e Industrias el cijr1 deberá pronunciarse dentro de los treinta (30) días siguientes a la fecha de la respectiva notificaci6n. Si transcurrido dicho período de treinta (30) días, el Ministerio de Comercio e Industrias no se ha pronunciado con relaci6n a la cesi6n o traspaso respectivo, se entenderá que no existe objeci6n a dicha cesi6n o traspaso y que la misma ha sido aprobada, entendiéndose que el Ministerio de Comercio e Industrias certificará dicho traspaso o cesi6n.
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En caso de sesi6n total o parcial del presente Contrato, el cesionario asumirá todos los derechos y obligaciones que se deriven del mismo, entendiéndose que LA EMPRESA quedará libre de toda obligación dimanante de hechos o actos que se den con fecha posterior a la cesión con respecto a lo cesionado, en caso de cesión o traspaso parcial el Cesionario asumirá la proporción que corresponde de los derechos y obligaciones contrayentes en que se estipule en el respectivo acuerdo de cesión o traspaso.
La cesión o traspaso, ya sea total o parcial, no generalizar a favor de del ESTADO ningún tipo de impuesto, derecho, contribución, tasa o gravamen.
Queda entendido que las concesión mineras amparadas bajo el presente Contrato pueden ser gravadas total o parcialmente, previa notificación al Ministerio de Comercio e Industrias, siempre y cuando el acreedor sea una institución financiera de solidez reconocida y comprobada. Además, no obstante lo anterior, el acreedor hipotecario podrá asumir total o parcialmente la concesión gravada y podrá a su vez traspasarla o cederla a un tercero, siempre que dicho tercero sea una sociedad Panameña o extranjera debidamente registrada en la República de Panamá directamente o a través de una subsidiaria con reconocida capacidad técnica y financiera, con un valor patrimonial neto consolidado para sus accionistas que no será inferior a TRESCIENTOS MILLONES DE DOLARES de los Estados Unidos de A mérica (US$300, 000, 00), incluyendo sus Afiliadas. Bastará la previa notificación al Ministerio de Comercio e Industrias para que dicho traspaso o cesión sea efectiva.
CL AUSULA DÉCIMA
Energía
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LA EMPRESA, directamente o a través de terceros, podrá generar energía eléctrica rara su uso, y con este fin podrá construir y operar instalaciones hidroeléctricas y plantas térmicas, así como otros medios de generaci6n de energía tanto dentro como fuera del Área de la Concesi6n, según lo que LA EMPRESA considere necesario para el desarrollo de las actividades que el presente Contrato contempla. Queda entendido que LA EMPRESA podrá vender y comercializar cualquier excedente de energía eléctrica, siempre y cuando cumpla con las normas y disposiciones vigentes.
CLAUSULA DECIMA PRIMERA
Obligaciones de EL ESTADO
EL ESTADO tendrá las siguientes obligaciones:
A.
Conceder y procurar a LA EMPRESA el uso pleno, ininterrumpido y pacífico del Área de la Concesi6n, la cual se define y describe en la Cláusula Segunda y el Anexo I, que forma parte integral de. presente Contrato.
B.
De ser requeridos por LA EMPRESA, suministrar dentro o fuera del Área de la Concesi6n los servicios de bomberos, policía, aduana, migraci6n, sanidad y cualquier otro servicio público que no preste EL ESTADO. Queda entendido que el costo adicional de dichos servicios así como el de la infraestructura necesaria para la prestaci6n de los mismas correrán por cuenta de LA EMPRESA. Se entiende que los bienes muebles necesarios para la prestaci6n de estos servicios, cuyo coste corra por cuenta de LA EMPRESA, serán propiedad de LA EMPRESA.
C. Otorgar a LA EMPRESA las licencias o permisos, aprobaciones y autorizaciones que requiera EL ESTADO o cualquiera de sus dependencias, instituciones aut6nomas o semiaut6nomas y subdivisiones políticas, en relaci6n con las actividades que desarrolle LA EMPRESA de conformidad con el presente Contrato, quedando entendido que tales licencias, autorizaciones y aprobaciones le serán concedidas a las tarifas vigentes de aplicación general previo cumplimiento de los requisitos correspondientes establecidos por la ley.
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CLAUSURA DECIMA SEGUNDA
Exenciones Fiscales
EL ESTADO le otorga a LA EMPRESA, y a sus Afiliadas (y, en los casos expresamente mencionados, a sus contratistas y subcontratistas), las siguientes exenciones fiscales durante toda la vigencia del presente Contrato.
A.
Exoneración para LA EMPRESA, sus Afiliadas, contratistas y subcontratistas de todo derecho o impuesto de importación, contribución, cargo, derecho consular, gravamen, tasa u otro impuesto o contribución, o de cualquier denominación o clase que recaigan sobre la introducción e importación de equipos, maquinarias, materiales, repuestos, diesel y Bunker C y otros derivados del petróleo quedando entendido que se causará, no obstante, cuando sea aplicable, la tarifa de protección comtemplada en al Cláusula Vigésima Segunda del Contrato No. 35 del 15 de septiembre de 1992, aprobado mediante la Ley No. 31 del 31 de diciembre de 1992, la cual fue instrumentada mediante el Decreto de Gabinete No. 38 del 9 de septiembre de 1992; materias primas, lubricantes, vehículos de trabajo necesarios utilizados en el d esarrollo eficiente y económico de las operaciones amparadas en el presente contrato, naves aeronaves, artefactos, partes y accesorios exclusivamente destinados a la construcción, desarrollo, operación, mantenimiento, infraestructura y actividades de EL PROYECTO. Queda entendido por las partes que los bienes exonerados conforme a este numeral deberán ser utilizados únicamaente en el desarrollo de EL PROYECTO. Dichos bienes no podrán ser vndidos ni traspasados sin autorización previa por escrito de ELESTADO,sino cuando hayan transcurrido un mínimo de dos (2) años desde la fecha de su compra y siempre con sujeci6n al pago del impuesto respectivo, el cual será calculado en base al valor del hiera al momento de la venta o traspaso. Queda entendido, no obstante, que se podrá realizar el traspaso de estos bienes cualquier Afiliada de LA EMPRESA o a cualquier otra persona natural o jurídica (pie goce del beneficio de exenci6n del impuesto de intro ducci6n de que goza LA EMPRESA, cumpliendo con las disposiciones legales vigentes.
Para efectos de acogerse a las exoneraciones del Impuesto de Importaci6n de que trata el literal A de la presente Cláusula, LA EMPRESA, sus Afiliadas, contratistas o subcontratistas, notificarán a la Direcci6n General de Recursos Minerales del Ministerio de Comercio e industrias su intenci6n de introducir los bienes o productos exonerados, y dicha Direcci6n expedirá, dentro de un período máximo de treinta (30) días luego de recibida la notificaci6n, una certificaci6n mediante la cual conste que el solicitante está amparado por la respectiva exoneraci6n. Dicha certificaci6n será aceptada por la Direcci6n General de Aduanas del Ministerio de Hacienda y Tesoro, la cual dará trámite expedito a la introducci6n o importaci6n correspondiente debidamente exonerada.
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B.
Exoneraci6n total para LA EMPRESA, sus Afiliadas, contratistas y subcontratistas del impuesto de transferencia de bienes corporales muebles sobre minerales, equipos, maquinaria, materiales, partes, accesorios, materias primas, grúas, vehículos de trabajo, naves, aeronaves, artefactos, diesel y lubricantes y otros derivados del petr6leo, carga y contenedores, destinarlos parra la operaci6n, construcci6n o mantenimiento de EL PROYECTO, así como sobre aquellos que sean necesarios para el desarrollo de las actividades que lleve a cabo LA EMPRESA o que se lleven a cabo para el beneficio de ésta, en el Área de la Concesi6n de acuerdo con lo establecido en el presente Contrato.
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Los bienes exonerados deberán ser utilizados en actividades propias de EL PROYECTO, y no podrán ser vendidos o traspasados sino transcurridos dos (2) años desde la fecha de su compra, y siempre con sujeci6n al pago del impuesto respectivo que se calculará en base al valor del bien al momento de su venta o traspaso.
Queda entendido que se podrá realizar el traspaso de estos bienes a una afiliada de LA EMPRESA, según se definen en el presente Contrato, o a cualquier otra persona natural o jurídica que goce del beneficio de exenci6n del impuesto de introducci6n de que goza LA EMPRESA sin ningún tipo de restricciones liras que la notificaci6n previa de dicho traspaso a las autoridades del Ministerio de Comercio e Industrias, y que estos traspasos no estarán sujetos al pago de ningún tipo de impuestos e tasas a favor de EL ESTADO.
C.
Exoneraci6n de impuestos sobre la renta aplicable a remesas o transferencias al extranjero, que se hagan para pagar comisiones, préstamos, regalías, devoluciones, cargos por asesoramiento profesional o de administraci6n realizados fuera del territorio nacional, descuentos, pagos a que se refiere la Cláusula Décima Sexta del Contrato, o por cualquier otro concepto relacionado con las actividades objeto del presente Contrato.
D.
Exoneraci6n del pago de las tarifas de carga de productos
minerales y del muellaje de contenedores, estiba, desestiba, manejo, manipulaci6n de estadía, que puedan ser aplicables dentro de las instalaciones portuarias de LA EMPRESA.
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E.
Exoneración de todo impuesto, gravamen o contribución que recaiga sobre las utilidades no distribuidas de LA EMPRESA y sus Afiliadas en cualquier año fiscal.
F.
Exoneración de la obligación de pagar primas y ofertas por los derechos de explotación de minerales en el Área de la Concesión.
CLÁUSULA DECIMA TERCERA
Deducciones Fiscales
1. LA EMPRESA y sus Afiliadas tendrán derecha a incluir como gastos de operación aquellos que sean deducibles según las leyes del Impuesto Sobre la Renta que estén vigentes. Además de los cánones superficiales, regalías, impuestos, y el cargo por depreciación, los siguientes renglones podrán deducirse como gastos de operación.
a)
La deducción anual por concepto de agotamiento de cada uno de los yacimientos minerales conforme a lo contemplado en el literal b del numeral 6 de esta Cláusula;
b)
El costo de las excavaciones, de socavones, calicatas y galerías, excavaciones de tajo abierto, perforación de pozos y demás operaciones afines, que se hayan llevado a cabo sin encontrar minerales en cantidades que ameriten una explotación comercial; y
c) Los gastos por servicios y abastos, así como los demás gastos que se realicen en relación con las investigaciones geológicas preliminares, exploraciones mineras, operaciones preextractivas, y también los gastos que se realicen en relación con las excavaciones de socavones, calicatas y galerías, excavaciones de tajo abierto, perforación de pozos y demás operaciones afines hayan llevado a cabo con miras a las actividades de extracci6n de los minerales.
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Los gastos en artículos sobre los cuales se permitan deducciones en concepto de depreciaci6n, o en concepto de amortizaci6n de capital, no podrán ser incluidos como gastos de operaci6n.
2.
Para determinar las pérdidas de operaci6n sufridas en un período fiscal, LA EMPRESA deberá substraer del ingreso bruto atribuible a las operaciones mineras todas las deducciones autorizada_ por el C6digo de Recursos Minerales, este Contrato y otras leyes aplicables, con excepci6n de las pérdidas que se hayan diferido de un período fiscal anterior.
3.
Se considerarán como gastos generales deducibles los impuestos, derechos, tasas, cargos y demás contribuciones y las sumas pagadas a EL ESTADO, así como los gastos que sean inherentes ,, que se realicen en relaci6n con la educaci6n y adiestramiento de ciudadanos panameños de conformidad con este Contrato, De igual manera se considerarán como gastos generales deducibles los impuestos municipales pagaderos por LA EMPRESA a les municipios de EL ESTADO, en la medida que estos no hayan sido acreditados contra el impuesto sobre la renta a payar por LA EMPRESA, conforme a lo dispuesto en el literal (L) del numeral (I) de la Cláusula Décima Cuarta del presente Contrato.
4. LA EMPRESA establecerá cuentas de depreciaci6n para los bienes depreciables que adquiera durante la vigencia del presente Contrato, Lis cuales se segregarán conforme a las siguientes categorías de bienes:
CATEGORIA A: Edificios y otras mejoras permanentes edificados sobre terrenos, áreas de -estacionamiento, rieles ferroviarios, túneles, represas, puentes y carreteras, repositorios dedesechos instalaciones portuarias, instalaciones de aeropuertos y pistas de aterrizaje;
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CATEGORIA B: Otros activos fjos, incluyendo maquinaría y equipo ubicado en algún inmueble para su mejor uso y otros bienes inmuebles por destinaci6n (excluyendo equipo m6vil, naves y barcazas), elevadores, sistemas eléctricos y de plomería, estructuradas e instalaciones fjas para la generaci6n y transmisi6n de energía eléctrica.
CATEGORÍA C: Equipo m6vil, naves y barcazas, y equipo de minería de cualquier tipo o clase, incluyendo pero sin limitarse a tractores, buses, locomotoras y vagones, aeronaves, facilidades de carga y descarga, equipo para el transporte de carga, cualquier otro tipo de equipo y maquinaria m6vil no incluido dentro de la Categoría D que sigue, sistemas telef6nicos y de comunicaci6n en general;
CATECORIA D: Equipo de laboratorio, equipo de perforaci6n, bienes utilizados para el ensayo o muestreo y otras de naturaleza tecnol6gica, incluyendo equipo de computaci6n, accesorios y programas;
CATEGORIA E: Otros bienes de capital que no resulten incluidos dentro de ninguna de las categorías que anteceden.
El costo de cada activo depreciable que LA EMPRESA adquiera, respecto del cual LA EMPRESA hará uso del beneficio de la depreciaci6n, será adicionado a la cuanta correspondiente a la Categoría a la que pertenezca y, para cada año fiscal, al calcular el respectivo ingreso gravable LA EMPRESA podrá tomar la depreciaci6n por sumas iguales a los porcentajes que a continuaci6n se enumeran aplicados sobre el acumulado del (a) costo original de los activos ya incluidos en las Categorías respectivas al inicio del correspondiente año fiscal, y (b) el cincuenta por ciento (50%) del costo de los bienes añadidos a dichas Categorías durante el referido año fiscal:
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Categoría A: 7%
Categoría B: 15%
Categoría C: 25%
Categoría D: 33%
Categoría E: 20%
Sin embargo, se entiende que con relaci6n a cualesquiera de dichas Categorías, no se podrán deducir en concepto de depreciaci6n sumas mayores al excedente que resulte de restar del acumulado del costo de adquisici6n original de los activos incluidos en la respectiva Categoría, el monto total de la depreciaci6n previamente deducida sobre dicho costo de adquisici6n.
En cualquier año fiscal en que el monto máximo de deducci6n por depreciaci6n permisible en cuanto a activos de cualquier Categoría no sea utilizado para la determinaci6n de la renta neta gravable correspondiente a dicho año fiscal, el saldo no utilizado podrá ser diferido indefinidamente para su deducci6n, total o parcial, en cualquier año fiscal futuro, conjuntamente con cualquier otro monto deducible en dicho futuro año fiscal, quedando entendido, no obstante, que la deducci6n por depreciaci6n en un determinado año fiscal, en cuanto a activos de cualquier Categoría, no excederá el cincuenta por ciento (50%) del acumulado del costo de adquisici6n de los activos incluidos en la Categoría respectiva al final del respectivo año fiscal, y quedará también limitada conforme a lo p revisto en el párrafo inmediatamente anterior de este numeral 4.
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5.
Las pérdidas sufridas en las operaciones de LA EMPRESA de acuerdo con los cómputos del impuesto sobre la renta del año en curso y de años anteriores podrán diferirse a los períodos fiscales siguientes mientras no hayan sido deducidas, pero no podrán diferirse por más de cinco (5) años contados a partir del período fiscal durante el cual se originaron. Una vez transcurridos estos cinco (5) años, esas pérdidas no se podrán deducir ni Causarán devolución alguna por parte del Tesoro Nacional.
6.
Entre otras deducciones permitidas por el Código de Recursos Minerales a la fecha en que entre en vigencia el presente Contrato, LA EMPRESA podrá realizar las deducciones que a continuación se describen:
a.
Los gastos que se comprueben como debidamente incurridos durante un período fiscal en exploraciones mineras relacionadas con la concesión podrán deducirse de los cánones superficiales pagaderos a la Nación por ese período fiscal hasta un máximo del setenta y cinco por ciento (75¢) del monto total de dichos cánones superficiales. Cuando estos hayan sido pagados con anterioridad a la autorización de la deducción, LA EMPRESA podrá acreditar las sumas ya pagadas al pago de cánones superficiales pagaderos en el período fiscal siguiente. No se harán devoluciones en efectivo por dicho concepto.
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b.
En la explotación de minas, canteras y demás recursos naturales no renovables, LA EMPRESA podrá incluir como gastos de operación para efectos del cálculo de la renta neta gravable de cada año fiscal, deducciones por agotamiento en función de las unidades producidas o extraídas. A tal fin, se calculará el contenido probable de tales yacimientos al primer día del año fiscal y se sumará a las unidades producidas en dicho año. La relación de la suma anterior y las unidades producidas en el año, produce la tasa de amortización para ese año, la cual se aplicará porcentualmente sobre el valor del activo, para obtener la deducción por agotamiento. Esta misma operación se hará en los años siguientes hasta el agotamiento completo del yacimiento mineral.
Para efectos de este literal, el párrafo anterior se aplicará segiun la siguiente fórmula:
DA= Deducción de Agotamiento
TA= Porcentaje de Agotamiento
RMi= Reservas Minerales al Inicio del Período
UP= Unidades Extraídas o Producidas durante el Período RA= Reservas o Unidades Adicionales durante el Período
RMf= Reservas Minerales al Final del Año
VA= Valor del Activo
Pf= Precio Promedio de las declaraciones trimestrales de regalías PR= Porcentaje de Recuperación
TM= Toneladas Métricas
LEY- Cantidad de metal contenido en una roca o mena.
FORMULA A SEGUIR
PASO 1
TA0 RMI + UP + RA
UP
PASO 2
RMF= RMI-UP + RA
PASO 3:
VA= (RMF-UP + RA) x PR
PASO 4:
DA= TA x VA
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El valor del contenido probable de los yacimientos y de las nuevas reservas probadas a que se refiere este Literal, será certificado por la Direcci6n General de Recursos Minerales del Ministerio de Comercio e Industrias.
La deducci6n por amortizaci6n minera no podrá exceder el cincuenta por ciento (50%) de los ingresos netos de LA EMPRESA, después de deducir del ingreso bruto de extracci6n todos los gastos de operaci6n, con excepci6n de la amortizaci6n minera permitida, entendiéndose que, para efectos del cálculo de los ingresos netos de que trata este párrafo, dichos gastos de operaci6n no incluyen los intereses a pagar por LA EMPRESA ni la depreciaci6n de activos correspondientes al respectivo período fiscal. Esta limitaci6n se aplicará por separado a cada lugar o dep6sito en el cual se extraiga el mineral o conjuntamente a todos los yacimientos que sean explotados por LA EMPRESA en el mismo molino o trituradora, según LA EMPRESA lo estime conveniente, y el ingreso bruto de extracci6n y los gastos de operaciones se asigna rán a cada lugar o conjuntamente, según sea el caso, de acuerdo con las normas de contabilidad financiera generalmente aceptadas.
c.
La deducci6n por amortizaci6n minera se calculará independientemente para cada uno de los lugares donde se extraiga el mineral y de aumento con la clase de mineral.
LA EMPRESA deberá preparar y presentar junto con la declaraci6n jurada de impuesto sobre la renta para cada período fiscal, un cuadro en el que se resuman los c6mputos hechos para la deducci6n de amortizaci6n minera para cada uno de los lugares mencionados.
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CLAUSULA DÉCIMA CUARTA
Contribuciones a favor de EL ESTADO
I.
Sin perjuicio de las exoneraciones y beneficios que EL ESTADO otorga a LA EMPRESA y sus Afiliadas conforme a lo expresado en este Contrato, LA EMPRESA y sus Afiliadas pagarán al ESTADO los siguientes impuestos, derechos, tasas o gravámenes, contribuciones, cargos o imposiciones:
A.
El impuesto sobre la Renta respecto de las utilidades que obtenga LA EMPRESA, sujeto a lo dispuesto por este Contrato;
B.
Los siguientes .impuestos, derechos y tasas de inscripci6n:
(1)
Un cincuenta por ciento (500) de los impuestos, derechos o tasas que se causen por la inscripci6n de los títulos de propiedad q u e LA EMPRESA o sus Afiliadas constituyan sobre sus bienes o derechos;
(2)
Un cincuenta por ciento (50:) de los impuestos, derechos o tasas que se causen por la Inscripci6n de los gravámenes que LA EMPRESA o sus Afiliadas constituyan sobre sus bienes o derechos;
(3)
Un cincuenta por ciento (50%) de los impuestos, d e re ch o s o tasas que se causen por la inscripci6n de los contratos de arrendamiento financiero q u e LA EMPRESA o sus Afiliadas suscriban;
(4)
Otros derechos o tasas de inscripci6n en el Registro Público que se causen.
C.
Los derechos notariales;
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D.
Un cinco por ciento (54) de impuesto sobre la transferencia de bienes corporales muebles que recaiga sobre la importaci6n o transferencia de bienes corporales muebles según la legislación vigente a la fecha en que entre en vigencia el presente contrato, cuando no se trate de los señalados en los literales A y B de la Cláusula Décima Segunda, los cuales estarán en todo tiempo exentos de impuesto;
E.
Un cincuenta por ciento (50%) del impuesto de timbres que se cause según lo establecido en la legislación vigente;
F.
Los derechos y tasas por el uso de servicios públicos que El EST.2DO o cualquiera de sus subdivisiones o dependencias suministren a LA EMPRESA, y que no sean de aquellos con relación a los cuales LA EMPRESA goce de exoneración conforme a lo dispuesto en el presente Contrato. En todo caso, los derechos o tasas serán pagaderos a las tarifas corrientes de aplicación general;
G.
Las contribuciones y cuotas patronales de la Caja de Seguro Social, las primas por riesgos profesionales y demás contribuciones patronales de naturaleza social basados en la planilla de empleados de LA EMPRESA, las cuales serán pagaderas a las tasas o tarifas corrientes de aplicación general;
H.
El Impuesto de Inmuebles según la legislación y tarifas vigentes de aplicación general, No obstante lo anterior, el Impuesto de Inmueble se pagará hasta un máximo de CIEN MIL DOLARES de los Estados Unidos de América (US$100,000.09) por año, siempre que los inmuebles adquiridos o construidos por LA EMPRESA o sus Afiliadas sean utilizadas para el desarrollo de EL PROYECTO y se encuentren localizados en alguna provincia de la República en que LA EMPRESA o sus Afiliadas hubiesen invertido no menos de DIEZ MILLONES DE DOLARES de los Estados Unidos de América (US$10,000,000.00) en plantas procesadoras de minerales, puertos o instalaciones de transporte Y manejo de carga;
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I.
El impuesto sobre Licencias Comerciales o Industriales hasta un máximo de VEINTE MIL DOLARES de los Estados Unidos de Am6rica (US$20, 000. 00) por año;
J.
Los cánones superficiales y las regalías, sujeto a lo dispuesto por la Cláusula Tercera, literal B, acápites 4 y 5 de este Contrato;
K.
Al o los municipios dentro de los cuales se encuentre ubicada el AREA DE LA CONCESIÓN, le(s) corresponderá el quince por ciento (151) de los beneficios que perciba EL ESTADO en concepto de cánones superficiales y regalías que le correspondan pagar a LA EMPRESA según el presente Contrato, suma 6sta cure será pagada directamente por LA EMPRESA al municipio o los municipios que les corresponda. EL ESTADO, a trav6s de sus entidades competentes, verificará el cumplimiento de dicha obligación.
L.
Impuestos Municipales. El total de los Impuestos Municipales 're se paguen a cualesquiera Municipios no excederá la suma de CIEN MIL DOLARES de los Estados Unidos de Am6rica (US$100,000.00) al año. Cualquier suma adicional que LA EMPRESA deba pagar en concepto de Impuestos Municipales, por encima de las cifras antes mencionadas, será deducible por LA EMPRESA como cr6dito fiscal contra el pago d6. su Impuesto Sobre la Renta en dicho año. El monto máximo de la suma a pagar en concepto de Impuestos Municipales será ajustado en proporción a los cambios en el índice de precios al por mayor de las manufacturas totales de la Contraloría General de la República de Panamá durante períodos de dos araos. El primer ajuste se hará a los cinc() años de vigencia del presente Contrato, tomando en cuenta los cambios ocurridos en el índice de precios mencionado durante los dos años inmediatamente anteriores. Posteriormente los ajustes sucesivos se efectuarán al ;inal de cada período de dos años. En caso de que dicho índice no estuviese disponible de manera que nc se ruedan efectuar los ajustes de que trata esta Cláusula, EL ESTADO y LA EMPRESA, de común acuerdo, aplicarán otro índice o método de ajuste;
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M. Cualesquiera otros impuestos, derechos, gravámenes, tasas, contribuciones, cargos o imposiciones establecidos o que se establezcan en el futuro distintos de aquellos con relaci6n a los cuales LA EMPRESA goce de exoneraci6n en virtud del presente Contrato y siempre que los mismos sean de aplicaci6n general, y que no sean contrarios a ni excedan los establecidos en el presente Contrato y en la legislaci6n vigente a la fecha en que entre en vigor el presente Contrato. Queda entendido que no se considerarán de aplicaci6n general aquellos impuestos, derechos, gravámenes, tasas, contribuciones, cargos o imposiciones que s6lo se apliquen a una industria específica o a una determinada actividad.
II. Sin perjuicio de in dispuesto anteriormente en la presente Cláusula y en las demás disposiciones del,presente Contrato y a excepci6n únicamente de los respectivos cánones superficiales y regalías, mientras LA EMPRESA o no laya terminado de repagar la deuda que LA EMPRESA y sus Afiliadas adquieran para la construcci6n y desarrollo del proyecto, LA EMPRESA y sus Afiliadas estarán exentas totalmente del pago de todo tipo de impuesto, derecho, Casa, cargo, gravamen, contribuci6n o tributo que pudiera causarse por cualquier motivo en relaci6n con el desarrollo de EL PROYECTO, con excepci6n de los impuestos municipales.
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CLAUSULA DÉCIMA QUINTA
Inversión Directa y en Infraestructura
LA EMPRESA, sus Afiliadas, contratistas y subcontratistas tendrán derecho a la utilización de un crédito fiscal que podrá ser usado para pagar al ESTADO los impuestos, tasas, cargos, contribuciones y derechos establecidos por la ley vigente y este Contrato. Dicho crédito fiscal será igual a las sumas invertidas por LA EMPRESA, sus Afiliadas, contratistas y subcontratistas durante la vigencia de este Contrato en infraestructura atinente a EL PROYECTO de los siguientes tipos o categorías:
A.
Infraestructura y equipos de transporte, incluyendo pero sin limitarse a carreteras, ferrocarriles, puentes, plantas generadoras de energía, líneas de transmisión de energía eléctrica y líneas de transmisión de telecomunicaciones;
B.
Facilidades e instalaciones para el transporte, almacenaje, tratamiento y remoción de aguas, incluyendo canales, diques, acueductos, cañerías, tuberías, represas, tan ques de almacenaje J, embalses;
C.
Instalaciones marítimas, puertos, muelles, dársenas, rompeolas, instalaciones móviles y fijas para la carga y descarga de naves, facilidades para la carga botadura y carga de barcazas;
D.
Viviendas o alojamiento para trabajadores;
E.
Infraestructura de tipo social, incluyendo hospitales y estaciones de primeros auxilios, estructuras para uso social y recreacional de la comunidad, calles, aceras y ornamentación, construidos previa autorización de EL ESTADO.
Parágrafo .1 °: El crédito fiscal por inversión directa se podrá utilizar en varias ejercicios fiscales hasta cubrir el 1001 de la inversión que lo motivó. Parágrafo 2°: rara acogerse al beneficio a que se refiere estacláusula, la sociedad que haya realizado la inversión presentará una solicitud al Ministerio de Hacienda y Tesoro, a fin de qué esta certifique la inversión en el año fiscal correspondiente.
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A dicha solicitud deberán adjuntarse, entre otros, los siguientes documentos:
1. Copia de los contratos de obra, si corresponde, relativos a la inversión de cure ce trate;
2.Comprobantes de Paso de todos los costos y gastos efectuados; 3. Copia de los planos de la obra;
4.Permisos de construcción y ocupación; y
5. Certificación emitida por Contador Público Autorizado en la que se haga constar el monto de la inversión.
Parágrafo 3'. La Dirección General de Ingresos del Ministerio de Hacienda y Tesoro, previo análisis de la documentación que presente la sociedad que ejecutó la inversión e inspección de la obra construida, expedirá, a la mayor brevedad, el crédito fiscal correspondiente.
Parágrafo 4'. No habrá lugar a percibir un crédito con respecto al costo de activos depreciables, a pesar de que formen parte de la infraestructura anteriormente descrita, si LA EMPRESA, sus AFILIADAS, Contratistas o Subcontratistas según sea el caso, han optado por incluir el costo de dichos activos en las cuentas de depreciación establecidas conforme a la Cláusula Décima Tercera de este Contrato.
Parágrafo 5ª. En cualquier año fiscal LA EMPRESA, sus Afiliadas, Contratistas o Subcontratistas podrán utilizar la porción que ella determine del saldo de los créditos por inversiones en infraestructura no utilizados en años anteriores, como un crédito para el pago de aquellos impuestos ,que LA FMPRESA seleccione, quedando entendido que dicho crédito no se aplicará con el fin de reducir las sumas a pagar en concepto de impuestos o regalías en cualquier año a menos de la mitad de 1o que LA EMPRESA estaría obligada a pagar de loParágrafo 6'. La Dirección General de Ingresos mantendrá un registro del monto de los créditos fiscales otorgados en virtud de esta Cláusula, así corno de su uso, cesión y los saldos favorables de los mismos.
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CLAUSULA DECIMA SEXTA
Impuestos sobre Prestamistas Y Accionistas de LA EMPRESA
Las personas naturales o jurídicas y agencias internacionales, que otorguen o garanticen financiamiento en cualquier forma o modalidad reconocida a LA EMPRESA o sus Afiliadas, contratistas o subcontratistas, para la construcción, operación o desarrollo de EL PROYECTO, o de cualquier parte de este, estarán exentas de cualquier tipo de impuesto, derecho, tasa, cargo, gravamen, contribución, imposición, incluyendo el Impuestos sobre la Renta que se pueda causar por los intereses devengados por dichos préstamos, descuentos, comisiones, u otros cargos financieros pagaderos por razón de los préstamos o garantías, sea cual fuere la fuente de los fondos de dichos préstamos o garantías, sea cual fuere la fase de desarrollo de EL PROYECTO objeto del respectivo crédito o la forma como dichos tributos se carguen o cobren, entendiéndose que LA EMPRESA no estará obligada a realizar ningún tipo de retenciones con relación al citado financiamiento. Dichos créditos tampoco estarán sujeto a lo dispuesto por el Artículo 2 de la Ley 4 de 1935.
CLAUSULA DECIMA SÉPTIMA
Asuntos Monetarios
EL ESTADO le permitirá a LA EMPRESA y a sus Afiliadas mantener sumas en el extranjero en cualquier moneda y efectuar remesas de cualquier naturaleza libremente, incluyendo pero sin limitarse aremesas para repagar adelantos e inversiones, para pagar dividendos, intereses v utilidades provenientes o relacionadas de alguna u otra forma con EL PROYECTO, exentas de todo impuesto y de todo tributo y obligación de retención durante la vigencia de este Contrato. Igualmente, L . EMPRESA y sus Afiliadas podrán mantener cuentas bancarias fuera de La República de Panamá.
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CLÁUSULA DECIMA OCTAVA
Registrosde lasConcesiones, Derechos y Privilegios
EL ESTADO ha extendido y extenderá a favor de LA EMPRESA los documentos adecuados en que consten las concesiones, derechos y privilegios específicos que emanan de este Contrato y de las cesiones o transferencias del mismo, y en todo momento deberá cumplir con los requisitos administrativos y legales, con el fin de que LA EMPRESA pueda desarrollar sus actividades, ejercer sus derechos y gozar de sus privilegios sin que se produzcan interfere ncias ni obstáculos que impidan el pleno goce de los mismos. Únicamente para fines de publicidad, pero sin que ello se entienda como un requisito o formalidad que afecte la vigencia o efectividad de la Concesión, LA EMPRESA podrá inscribir libre de cesto la Conces ión que ampara el presente Contrato en el Registro Minero de la Dirección General de Recursos Minerales.
CLÁUSULA DECIMA NOVENA
Notificaciones
Los avisos y demás comunicaciones que las disposiciones del presente Contrato estimulan deberán hacerse por escrito y ser entregados personalmente en las direcciones que se indican a continuación, según sea el caso, o deberán ser enviados a la dirección que la parte correspondiente indique a la otra mediante aviso por escrito, con confirmación de su recibo, a menos que las partes convengan otra cosa.
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1)
Ministerio de Comercio e Industrias Edificio de la Lotería, Piso N°21
Calle entre Avenida Cuba y Avenida Perú Tel: 227-4177
Fax: 227-5604
2)
Minera Petaquilla, S.A. Torre Swiss Bank, Piso 13 Urbanización: Marbella Te1:223-5341 Fax:223-3032
3)
Geo-Recursos Internacional, S.A. Torre Banco General, Piso 25 Urbanización Marbella
Tel: 223-5488
Fax: 223-8425
4)
Adrian Resources, S.A.
Torre Banco General, Piso 25 Urbanización Marbella
Tel. 223-5438
Fax: 223-84.25
CLAUSULA VIGISIMA
Caso Fortuito o Fuerza Mayor
Para los fines del presente Contrato, se cons iderarán como caso fortuito, entre otros, los siguientes eventos, hechos o circunstancias: epidemias: terremotos, derrumbes, inundaciones, tormentas u otras condiciones meteorológicas adversas, explosiones, incendios, .rayos, y cualquier otra causa, sea o no de la naturaleza descrita, que sea imprevisible o que esté fuera del control de la parte afectada y en la medida que demore, restrinja o impida la acción oportuna de la parte afectada.
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Para los fines del presente Contrato, se entenderán como fuerza mayor, entre otros, los siguientes eventos, hechos o circunstancias nuevas, revoluciones, ins urrecciones, dis turbio s civiles, bloqueos, tumultos, embargos, huelgas y otros conflictos laborales que no sean atribuibles a culpa o negligencia del empleador o de LA EMPRESA o Afiliadas o contratistas o subcontratistas que correspondan, órdenes o instrucciones de cualquier Gobierno de jure o de facto, o entidad o sub-división del mismo, el precio de los minerales en el mercado internacional de manera que no sea económicamente rentable la explotación de EL PRO YECTO, retrasos en la entrega de maquinarias, fallas de las instalaciones o maquinarias donde quiera que ocurran no imputables a la parte afectada, que afecten adversamente el funcionamiento de EL PROYECTO y, en general, cualquier evento, suceso o circunstancia que sea imprevisible o que esté fuera del control de la parte afectada y en la medida que demore, restrinja o impida la acción oportuna de la misma y no le sea atribuible a su culpa o neglig encia.
Queda entendido que, siempre que no sean obligaciones consistentes en pago de dinero, si una de las partes deja de cumplir alguna de las obligaciones que contrae de acuerdo con este Contrato, tal incumplimiento se considerará corno violación o incumplimiento cuando el mismo sea causado por caso fortuito o por fuerza mayor. Si alguna actividad, siempre que no sea una actividad consistente en pago de dinero, es demorada, restringida o impedida por caso fortuito o por fuerza mayor, tanto el plazo consignado para real izar la actividad afectada como los plazos del presente Contrato serán prorrogados por un período igual al período de duración efectiva del caso fortuito, fuerza mayor o sus causas. Las inversiones aire LA EMPRESA se compromete a realizar en base alEstudio de Factibilidad no serán consideradas bajo ni ngún concepto como obligaciones consistentes en pago de dinero.
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La parte cuya capacidad para cumplir sus obligaciones se vea afectada por fuerza mayor o caso fortuito deberá notificar tan pronto como sea factible a la otra parte por escrito del suceso, señalando sus causas, y las partes harán todos los esfuerzos razonables dentro de sus posibilidades para superar las mismas. No obstante lo anterior, ninguna de las partes estará obligada a solucionar o terminar cualquier conflicto que tuviere con terceras personas o con la fuerza laboral relacionada con EL PROYECTO salvo en condiciones que sean aceptables para ella o de conformidad con laudo arbitral dictado conforme a la Cláusula Vigésima Tercera de este Contrato orden de autoridad judicial o administrativa competente que haya quedado ejecutoriado o que de otro modo tenga carácter definitivo y obligatorio.
CLAUSULA VIGESIMA PRIMERA
Ley Aplicable
El presente Contrato será la norma legal entre las partes y el mismo se regirá por las leyes actualmente en vigor y que rijan en el futuro en la República de Panamá que le sean aplicables, excepto en la medida en que tales leyes o disposiciones legales le sean contrarias o seas, inconsistentes o incompatibles con este Contrato o no sean de aplicación general, entendiéndose que aquellas leyes aplicables a una industria o a una determinada actividad no se considerarán de aplicación general. En los casos no previstos en el presente Contrato, y en cuanto no sean inconsistentes o incompatibles con sus estipulaciones, se aplicarán a este Contrato las normas del Código de Recursos Humanos Minerales en forma supletoria.
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LA EMPRESA, sus Afiliadas, sucesores, cesionarios y causahabientes renuncian a la reclamación diplomática en lo relativo a los deberes y derechos que emanen del presente Contrato, salvo en caso de denegación de justicia. Queda entendido que no se considerará que ha ocurrido denegación de justicia si LA EMPRESA previamente no ha intentado acer uso del derecho al arbitraje que le confiere el presente Contrato.
CLAÚSULA VIGESIMA SEGUNDA
Incumplimientos Sustanciales
Para les electos del presente Contrato, se entenderá como "Incumplimiento Sustancial", el incumplimiento o mora con respecto a alguna de las obligaciones a que se encuentran sujetas las partes de acuerdo con este Contrato cuando, si como consecuencia de ese incumplimiento e mora, se reducen sustancialmente el valor y los intereses del Contrato para la otra parte. Mientras subsista la situación de Incumplimiento Sustancial, la parte afectada por dicho incumplimiento podrá dar a la parte responsable aviso escrito de su decisión de resolver el Contrato, en cuyo caso el presente Contrato quedará resuelto ciento ochenta (180) días calendarios después de recibido dicho aviso, a no ser que el incumplimiento o la mora haya sido subsanado antes del vencimiento de dicho plazo. En el caso de que dicho Incumplimiento Sustancial fuere de tal nat uraleza que haga necesario un plazo mayor de ciento ochenta (180) días calendarios para que pueda ser subsanado, y la parte responsable se encontrare dedicada diligentemente a subsanar dicho incumplimiento o mora, no habrá lugar a la resolución del Contrato al finalizar el plazo establecido, a menos que posteriormente ocurriesen interrupciones de esos esfuerzos atribuibles a la parte responsable de subsanar el incumplimiento o mora. Las partes acuerdan que el derecho de la corte afectada .a resolver el Contrato quedará suspendido mientras las partes se encuentren en el proceso de solucionar cualquier conflicto relacionado con el supuestoIncumplimiento Sustancial según lo establece la Cláusula Vigésima Segunda o mediante cualquier otro método permitido por las leyes vigentes y el presente Contrato, y por un período de sesenta (60) días luego de la fecha en que se determine la existencia del Incumplimiento Sustancial ale gad o por la parte afectada.
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La resolución del Contrato de conformidad con lo dispuesto en la presente Cláusula, no afectará los siguientes derechos:
(a)
El derecho de la parte perjudicada a recibir de la otra parte una compensación monetaria por los daños y perjuicios causados por el incumplimiento o la mora; y
(b)
Los derechos de cualesquiera de las partes emanados y cumulados de conformidad con las disposiciones de este contrato hasta la fecha en que la resolución se haga efectiva.
CLAUSULA VIGESIMA TERCERA
Arbitraje
Las partes declaran su firme propósito de examinar con el ánimo más objetivo y amigable todas las divergencias que pudieran surgir entre ellas con relación al presente Contrato, con el fin de solucionar dicha.; divergencias. Todos los conflictos que surjan en relación con el presente Contrato y que no pudieran ser solucionados en la forma antes indicador, deberán ser resueltos finalmente mediante arbitraje, de conformidad con las Reglas de Procedimiento de la Comisión Interamericana de Arbitraje Comercial, vigentes a la fecha de la entrada en vigencia del presente Contrato, a no ser que al momento de someterse al arbitraje, las partes convengan expresamente regirse por las reglas que puedan estar entonces en vigencia.
Serán susceptibles de arbitraje conforme a lo dispuesto en esta Cláusula las controversias que surjan entre las partes relacionadas con el objeto, la aplicación, la ejecución o laInterpretación del presente Contrato, así como aquellas relacionadas con la validez, el cumplimiento o la terminación del mismo, salvo aquellas controversias que se refieran a la guarda de la integridad de la Constitución.
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El arbitraje se circunscribirá al tema objeto de la controversia y el mismo, pendiente su resolución, no tendrá el efecto de suspender o retardar el cumplimiento de las obligaciones dimanantes del presente Contrato, salvo que medien circunstancias de fuerza mayor o caso fortuito descritas en la Cláusula Vigésima del presente Contrato o que se aplique lo establecido en la Cláusula Vigésima Segunda que DA= Deducción por Agotamiento
TA antecede. Las partes acuerdan que las órdenes de ejecución de los laudos arbitrales serán dictadas por los tribunales de justicia de la República de Panamá o, en caso de que requieran de ejecución en el extranjero, por los tribunales de justicia de cualquier Estado parte de tratados internacionales de reconocimiento de laudos arbitrales de los cuales Panamá sea también parte. vara tales efectos dichos laudos arbitrales serán considerados como si hubieren sido pronunciados por tribunales arbitrales panameños, de conformidad con las disposiciones legales actualmente en vigencia.
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CLAUSULA VIGESIMA CUARTA
Abandono
En caso de que LA EMPRESA decida abandonar total o parcialmente EL PROYECTO, durante la vigencia del Contrato o por motivo de su terminación o vencimiento cualquiera que sea su causa, esta se obliga a notificar dicha decisión al Ministerio de Comercio e Industrias con 'dos años de ant.icipacíón. Conjuntamente con dicha notificación, de presentará ~_in Plan de Restauración del área afectada para su connsideración y aprobación por parte del Minis terio de Comercio e Industrias. Una vez aprobado dicho Plan, el mismo será de obligatorio cumplimiento para LA EMPRESA.
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CLAUSULA VIGÉSIMA QUINTA
Separabilidad
Si alguna de las cláusulas de este Contrato se invalidara total o parcialmente, la validez del resto del Contrato no quedará afectada.
CLÁUSULA VIGÉSIMA SEXTA
Fianza de Cumplimiento
A fin de garantizar el cumplimiento de este Contrato LA EMPRESA consignará una fianza por TRES MILLONES DE DOLARES de los Estados Unidos de América (US$3,000,000.00) a favor de EL ESTADO mediante efectivo, cheque certificado, póliza de compañía de seguros, carta de promesa de pago de una institución financiera, carta de crédito emitida por un banco local, garantías bancarias, o mediante cualquier medio permitido por las leyes en vigencia. Dicha fianza será consignada por LA EMPRESA dentro de los ciento ochenta (180) días siguientes a la fecha en que la ley por medio de la cual se aprueba el presente Contrato sea publicada en la Gaceta Oficial y por el término del Contrato. La misma deberá emitirse a favor del Ministerio de Comercio e Industrias y de la Contraloría General de la Repúbli ca de Panamá. Dicha fianza será cancelada y devuelta a LA EMPRESA a la terminación del presente Contrato.
CLAUSULA VIGÉSIMA SEPTIMA
Timbres
El presente Contrato entrará en vigor a partir de la vigencia de la ley que apruebe su celebración y el mismo causará el pago de la suma de B/.1,000.00 en concepto de impuesto de timbres.
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CLAUSULA VIGESIMA OCTAVA
Subrogación
El presente Contrato, incluyendo y sus Anexos I, II, II y IV, constituye el único acuerdo entre las partes en relación con la materia objeto del mismo. Efectivo a partir de la promulgación de la Ley por medio de la cual se aprueba el presente Contrato, quedará terminado, cancelado, subrogado y extinguido el Contrato No. 27- A de 7 de agosto de 1991 celebrado entre el ESTADO y GEORECURSOS y cualquier otro contrato, modificación, acuerdo o entendimiento entre el ESTADO y GEORECURSOS en relación con el AREA DE LA CONCESIÓN, así como cualquier reclamo o acción que tengan entre sí dichas partes por razón o con motivo de la celebración,cumplimiento o terminación de tales contratos o acuerdos anteriores.
Mediante la Ley que apruebe el presente Contrato y sus Anexos, se entenderá derogado en su totalidad el decreto de Gabinete número 267 de 21 de agosto de 1969.
Este Contrato, incluyendo sus Anexos, requiere la aprobación de la Asamblea Legislativa de la República de Panamá. La Ministra de Comercio e Industrias presentará a la Asamblea Legislativa de la República de Panamá el proyecto de ley por medio del cual se aprueba este Contrato y sus Anexos dentro de los quince (15) días siguientes a la celebración del mismo.
EN FE DE LO CUAL, las partes suscriben el presente Contrato, en dos (2) ejemplares originales de igual tenor y efecto, en la Ciudad de Panamá, el día 16 de febrero de mil novecientos noventa y seis (1996).
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Por EL ESTADO:
Por LA EMPRESA:
(Fdo.)
(Fdo.)
(Nitzia R. de Vi llarrea1)
(Richard Fifer)
Por GEORECURSOS:
Por ADRIAN:
(Fdo.)
(Fdo.)
(Richard Fifer)
(Richard Fifer)
Refrendo:
Gustavo Pérez
Contralor General de la República, a. i.
ANEXO I
Descripción del Área de la Concesión
La Concesión, según se define en este Contrato, tiene un área total de 13,600 Has. y su descripción es la siguiente:
Zona No.1: Partiendo del Punto No.1, cuyas coordenadas geográficas son 80°41 '59.02" de longitud oeste y 8°51'25.11" de latitud norte se sigue una línea recta en dirección este por una distancia de 8,000 metros hasta encontrar el Punto No.2, cuyas coordenadas geográficas son 80°37'38. 15" de longitud oeste y 8°51 '25.11" de latitud norte, de allí se sigue una línea recta en dirección sur por una distancia de 5,000 metros hasta llegar al Punto No. 3, cuyas coordenadas geográficas son 80°37'38. 15" de longitud oeste y 8°48'42.07" de latitud norte, de allí se sigue una línea recta de dirección oeste por una distancia de 8,000 metros hasta llegar al Punto No.4, cuyas coordenadas geográficas son 60°41 '59.02" de longitud oeste y 8°48'42.07" de latitud norte, de allí se sigue una línea recta en dirección norte por una distancia de 5,000 metros hasta encontrar '1. Punto No .l de partida.
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Esta zona tiene una superficie total de cuatro mil (4,000) Has. Y está ubicada en los Corregimientos de Coclé del Norte y San José del General, Distrito de Donoso, Provincia de Colón.
Zona No.2: Partiendo del Punto No.1, cuyas coordenadas geográficas son 80°45'14.67° de longitud oeste y 8ª54`40.76 de latitud norte se sigue una línea recta en dirección este por una distancia de 6,000 metros hasta encontrar el Punto No. 2, cuyas coordenadas geográficas son 80º41`59.02de longitud oeste y 8º54`40. 76de latitud norte, de allí se sigue una línea recta en dirección sur por una distancia de 6,000 metros hasta llegar al Punto No. 4, cuyas coordenadas geográficas son 80°45'14.67" de longitud oeste y 8°48'42.07" de latitud norte, de allí se sigue una línea recta en dirección norte hasta llegar al punto 1 que es el punto de partida. Esta zona tiene un área total de 6,000 Has. Está ubicada en el Corregimiento de Coclé del Norte, Distrito de Donoso, Provincia de Colón y colinda al este con la zona No. 1.
Zona No.3: Partiendo del Punto No .l, cuyas coordenadas geográficas son 80°40'53.8" de longitud oeste y 8°48'42.07" de latitud norte se sigue una línea recta en dirección este por una distancia de 6,000 metros hasta encontrar e1 Punto No. 2, cuyas coordenadas geográficas son 80 °37'3 .1.5" de longitud oeste y 6°48'42.07" de latitud norte, de allí se sigue una línea recta en dirección sur por una distancia de 2, 000 metros hasta llegar al Punto No.3, cuyas coordenadasgeográficas son 80°37'38.15" de longitud oeste y 8°47'36.85" de latitud norte, de-, allí se sigue una línea recta en dirección oeste por un distancia de 6,000 metro s hasta llegar al Punto No.4, cuyas coordenadas geográficas son 80°40 '53.8" de longitud oeste y 8°4 7'36. 85" de latitud norte, de allí se sigue una línea recta en dirección norte hasta llegar al punto 1, que es el punto de partida. Esta zona tiene una área total de 1,200 Has., está ubicada en el Corregimiento de San José del General, Distrito del Donoso, Provincia de Colón y colinda al norte con la zona No. l otorgada a CEO-RECURSOS INTERNACIONAL, S. A., según Contrato No. 27-A del 7 de agosto de1991.
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Zona No.4: Partiendo del Punto NO. 1, cuyas coordenadas geográficas son 80°37 '38.15" de longitud oeste y 8°50 '52.55" de latitud norte se sigue una línea recta en dirección este por una distancia de 3,000 metros hasta llegar al Punto No. 2, cuyas coordenadas geográficas son ,1 0°36'0.48" de longitud oeste y 8°50'52.55" de latitud norte, de allí se sigue en línea recta en dirección sur por una distancia de 6,000 metros hasta llegar al Punto No. 3, cuyas coordenadas geográficas son 80°36'0.48" de longitud oeste y 8 °47'36.85" de latitud norte, de allí se sigue una línea recta en dirección oeste por una distancia de 3,000 metros hasta llegar al Punto No.4, cuyas coordenadas geográficas son 80°37'38.. 15" de longitud oeste y 8 76;47'36.85" de latitud norte, de allí se sigue en línea recta en dirección norte por una distancia de 6,000 metros hasta llegar al punto 1, que es el punto de partida. Esta zona tiene un área total de 1,800 Has. Está ubicada en el Corregimiento de San José del General, Distrito de Donoso, Provincia de Colón, República de Panamá y colinda al oeste con la Zona No.1 otorgada a la Compañía GEO-RECURSCOS INTERNACIONAL, S. A., según Contrato No 27-A del 7 de agosto de 1991 y a la zona No.3 solicitada por la Compañía del mismo nombre.
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ANEXO II
Definición del Estudio de Factibilidad-Proyecto Cerro Petaquilla Base
El Estudio de Factibilidad, el cual incluirá cualquier modificación necesaria al momento en que se establezcan los aspectos económicos y el costo de financiamiento consistirá en un estudio de que- contenga la información necesaria que permita decidir si se explotará comercialmente EL PROYECTO.
En la preparación del Estudio de Factibilidad se seguirán los siguientes procedimientos:
Las pruebas en modelos a escala se habrán completado en su mayor parte y serán respaldadas por pruebas efectuadas en plantas pilotos, si este último es necesario. Las especificaciones de los productos estarán basadas en investigaciones de mercado. Varias visitas al lugar donde se instale la planta podrán ser requeridas.
Se confeccionarán listados de equipos y diseños acerca de la colocación de loar mismos, apoyados en planos de tuberías de un sólo tramo y de tendido eléctrico. No se incluirán las especificaciones de los equipos y no se solicitarán ofertas formales de suplidores, sin embargo, se deberán obtener cotizaciones por escrito de por lo menos un suplidor por cada artículo importante. Los costos de instalación de la maquinaria determinarán, basados en experiencias anteriores, con base a facto res de peso o porcentuales. Los costos de instalación de tuberías y tendido eléctrico podrán basarse en aproximaciones acerca de las extensiones del tendido eléctrico y de las tuberías. Se proveerá un estimado del costo de construccicón de la planta y del campamento y los estimados acerca de los costos de d iseño podrán ser más preciosos. Los ingresos serán calculados en base a estimaciones acerca del desempeño de la planta y a indicadores de pagos pro venientes de fundaciones u otros compradores.
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Información Requerida
Será necesario tener a disposición información topográfica y geotécnica apropiada. Info rmes escritos relacionados con trabajos metalúrgicos deberán estar disponibles. Se deberán determinar los costos reales asociados a la mano de obra disponible en la región y se deberán procurar cotizaciones por escrito de suplidores de mate riales básicos tales romo: combustible, explosivos, pulverizantes, reactives, et., si ello es necesario. Se deberán obtener tarifas de las compañías que provean servicios públicos, tales como, agua, luz, gas, teléfono, que atiendan la región. Si es necesario se debe: investigar la obtención de permisos y licencias de agencias gubernamentales en cuanto éstos sean requeridos. Se deberá investigar la reglamentación aplicable a la polució ;n de aguas y del aire.
Capacitación Requerida
El Estudio de Factibilidad se confeccionará bajo la supervisión de un ingeniero de proyecto con conocimientos en el sector de la industria de la minería de que trata dicho estudio. Dada la existencia de planos generales de diseño, planos de tuberías, tendido eléctrico y de colocación de instrumentos, será posible utilizar las servicios de proyectistas profesionales capacitados para hacer' pro yecciones relativas al tendido eléctrico, tuberías e instrumentación así corno pro yectistas experimentados con relación a la industria de cace trata el estudio.
Utilidad de los Estimados
El factor global de contingencia para el Estudio de Factibilidad estará entre un 103' y un !.SI. Los porcentajes que se asignen a las contingencias constituirán precios valorativos y no deberán interpretarse corno aria indicación de que los estimados son necesariamente precisos dentro de dicho margen de contingencia, ni como una referencia implica a ningún grado de precisión. El Estudio de Factibilidad será en general adecuado para determinar la factibilidad y ayudar a la administración en la confección de un presupuesto para EL PROYECTO.
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ANEXO III
Pro grama Preliminar de Inversión
INGENIERÍA Y ADQUISICIONES US$24,000,000.00
Solicitudes y Autorizaciones de Permisos de Construcción Ingeniería Detallada
Adquisiciones
Contratos
Estudios de Campo
CONSTRUCCIÓN/MINERÍA US$67,000,000, 00
Pre-producción (Fase I)
Depósito de Desechos (Inicial)
Ruta de Acceso (Llano Grande a Petaquilla)
INSTALACIONES DE PROCESAMIEIVTO US$102,000,000.00
Trituración
-
Excavación y Relleno/Concreto
-
Muro de Retención - Tierra Reforzada
-
Instalación de Trituradora
-
Acero para la Construcción de Edificio y Recinto
-
Maquinaria, Tuberías, Tend ido Eléctrico e Instrumentación
Transportadores
Apilamiento de Mena y Restauración
Concentrador
-
Excavación, Concreto y Losa
-
Edificio, Acero Interno y Recinto
-
Instalación de Molinos
-
Maquinaria, Tuberías, Tendido Eléctrico e Instrumentación
SITIO Y GENERAL,US$118,000,000.00
Limpieza, Corte de Maleza, Nivelación Preliminar
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Caminos,
Cercado,
Caseta
de
Entrada,
Estacionamientos
Almacenamiento, Suministro y Distribución de Agua Recolección y Eliminación de Aguas Negras Estanque para el Asentamiento de Desechos de la Mina
Suministro y Transmisión de Electricidad Tendido y Adiciones de la Subestación Principal Distribución de Energía en el Proyecto Comunicaciones
Almacenamiento y Distribución de Combustible
EDIFICIOS DE SERVICIO AL PROYECTO US$9,000,000.00
Edificio de Administración e Ingeniería
Taller de Equipo Rodante/Depósito/Depósito de Explosivos Seco Laboratorio de Pruebas
SISTEMA DE DESECHOS Y RESTAURACIÓN US$28,000,000,00
INFRAESTRUCTURA E INS TALA CIONES US$13,000,000,00QQ. OQ
Campamento de Construcción
Instalaciones Aeronáuticas
Nuevo Aeródromo/Pista
PUERTO US$47,000,000,00
Acondicionamiento del Sitio y Calles
Acueductos y Cañerías
Generación de Energía Eléctrica
Instalaciones para Embarque de Concentrado y Suministros
Nota: las cifras que anteceden están sujetas a variación en base a los resultados finales del Estudio de Factibilidad.
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ANEXO IV
MINERA FETAQUILLA, S.A., debidamente representada por el Ing. Richard Fifer, varón, panameño, mayor de edad, ingeniero, portador de la cédula de identidad personal número 8-433-263 en adelante "MINERA", y ADRIAN RESCURCES, S.A., debidamente representada por Juan Francisco Pardini, varón, panameño, mayor de edad, portador de la cédula de identidad personal número 8-223-797, en adelante ADRIAN", declaran que convienen lo siguiente:
POR CUANTO; MINERA celebrará con EL ESTADO un Contrato de Concesión Minera ("CONTRATO") sobre el Área de la Concesión según dicho término ha sido definido en el Contrato, y recibirá determinados derechos conforme, al mismo respecto de yacimientos ubicados en el área de Cerro Petaquilla; y,
POR CUANTO; ADRIAN es titular de ciertas concesiones mineras colindantes al Área de la Concesión antedicha que se identifican como: Contrato No. 41 del 12 de julio de 1994, Contrato No. 39-A del 7 de julio d- 1994, Contrato No. 39-B de 7 de julio de 1994, Contrato No. 59 de 29 de diciembre de 1994 todos celebrados por y entre el Ministerio de Comercio e Industrias y ADRIAN; y las solicitudes de concesiones Nos. 93-92, 93-93 y 94-3 9 según los registros que reposan en la Dirección General de Recursos Minerales del Ministerio d-' Comercio e Industrias de la República de Panamá ( en adelante `(" )NCESIONES COLINDANTES"); v, POR CUANTO; MINERA y ADRIAN desean reconocerse ciertos derechos y obligaciones recíprocos respecto al uso de derechos de servidumbre de paso y de uso sobre el Área de la Concesión antedicha y sobre las áreas corres¡:endientes a las Concesiones Colindantes, así como de construcción o ubicación y uso de facilidades e instalaciones. En consideración a lo anterior, MINERA y ADRIAN declaran y convienen lo siguiente:
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1.
LA EMPRESA y sus Afiliadas gozarán del derecho de servidumbre de uso sobre la superficie y subsuelo del Área identificada como Concesiones Colindantes y del derecho de acceso al área comprendida por las Concesiones Colindantes por cualquier motivo o causa que según LA EMPRESA sea conveniente para la apropiada exploración, construcción, desarrollo o explotación de EL PROYI'CTO, incluyendo el derecho a situar, construir, eregir, operar, mantener y usar en, o remover de, las Concesiones; Colindantes cualquier tipo de facilidad o instalación que LA EMPRESA estime conveniente (en adelante las "Instalaciones Colindantes "). Se entiende que los derechos de acceso y de servidumbre de uso a que se refiere este párrafo otorgados a favor de la Concesión correrán con y serán inseparables de las tierras que comprenden las Co ncesiones Colindantes y que los mismos sobrevivirán cualquier venta, transferencia, cesión u otorgamiento de cualquier tipo de derecho o interés, incluyendo derechos amparados bajo cualquier tipo de concesión minera, que exista o pueda exi stir sobre dicho predios colindantes.
2.
Sin perjuicio de lo anterior, antes de establecer o construir alguna instalación o estructura permanente e inamovible en las áreas comprendidas por las Concesiones Colindantes, LA EMPRESA o cualquier Afiliada o contratista o sub-contratista de la misma o cualquier cesionario o causahabiente de parte o de la totalidad,¡,-- la Concesión, según se define la misma en el Anexo I del Contrato, deberá llevar a cabo todas las investigaciones geotécnicas, incluyendo trabajos de perforación para condenación de áreas especificas, y cualesquier-1 otras que sean necesarias para determinar la viabilidad ambiental, técnica y económica del sitio en el cual se propone construir o establecer las instalaciones o estructuras permanentes, y realizará una exploración del área de la Concesión Colindante, que será cubierta por dicha instalación., o estructura, para confirmar que no existan minerales actuales o potenciales suficientemente cercanos a la superficie del sitio propuesto come para que la extracción segura y económica de los mismos se vea imposibilitada o perjudicada por la presencia de la instalación o estructura permanente que se pretende establecer, y facilitará los resultados de las citadas investigaciones y exploraciones al titular de la o las Concesión(es) Colindante (s) que se pueda ver afectada.
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Sin perjuicio de lo establecido en el numeral 1 de este Anexo IV, LA EMPRESA o el respectivo titular o beneficiario de la Concesión, según sea el caso, que haya situado alguna estructura o instalación mueble en el área comprendida por la Concesiones Colindantes, removerá, por su propia cuenta y costo, y tan pronto como sea procedente, dicha estructura o instalación o una porción de la misma, si según la opinión razonable del titular de la Conces ión Colindante afectada su localización es desventajosa para la explotación mineral contemplada en dicha Concesión Colindante.
Sin perjuicio de lo establecido en el numeral 1 de este Anexo IV, LA EMPRESA o el respectivo titular o el beneficiario de la Concesión, según sean el caso, llevará a cabo sus actividades relacionadas cc;- la construcción, instalación y operación de cualquier estructura o instalación situada en el área comprendida por la Concesión Sirviente en forma cuidadosa y de acuerdo a los principios de buena pr+cti.a minera y a las leyes vigentes en la República de Panamá, y deberá indemnizar al titular de la Concesión Colindante afectada por cualquier gasto, acción o demanda en su contra que resu1te de las citadas actividades realizadas por LA EMPRESA o el titular beneficiario de la Concesión.
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3.
En la medida en que, en cualquier momento, cualquiera de las Instalaciones Colindantes tenga capacidad en exceso que no sea necesaria para realizar las operaciones existentes o pro gramadas de LA EMPRESA y que no se hubiese previamente comprometido a terceros luego de haberse otorgado tina primera opción al titular de la Concesión Colindante respectiva, LA EMPRESA pondrá a disposición del titular de la Concesión Colindante donde se encuentre ubicada instalación respectiva dicha capacidad en exceso siempre y cuando este titular sea una Afiliada de LA EMPRESA, en el entendimiento de que se hará en términos equitativos y siempre en condiciones no más favorables para LA EMPRESA que aquellas que fuesen aplicables en caso de venta, licencia u otros derechos de uso a terceros o Afiliadas de una instalación similar a l a Instalación Colindante.
4.
Las partes declaran que cualquier conflicto o controversia que se suscite entre las mismas con motivo de la ejecución o cumplimiento de lo convenido en este acuerdo no afectará en modo alguno las respectivas obligaciones y compromisos que vinculan a LINERA conforme al Contrato y a ADRIAN respecto a las Concesiones Colindantes frente a EL ESTADO, a menos el respectivo conflicto o controversia sea motivado o causado por algún acto u omisión de EL ESTADO.
En fe de lo cual se suscribe este documento en dos ejemplares del mismo terror y efecto, en Panamá el 5 de diciembre de 1995.
por ADRIAN RESOURCES, S.A.
MINERA PETAQUILLA, S.A.
(Fdo.)
(Fdo.)
JUAN FRANCISCO PARDINI
RICHARD FIFER
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Artículo 2. Esta Ley entrará en vigencia a partir de su promulgación, deroga el Decreto de Gabinete 267 de 1969 y cualquier disposición que le sea contraria.
COMUNÍQUESE Y CÚMPLACE
Aprobada en tercer debate en el Palacio Justo Arosemena, ciudad de Panamá, a los 30 días del mes de enero de mil novecientos noventa y siete.
CESAR A. PARDIC
VICTOR M. DE GRACIA M.
Presidente
Secretario General
ORGANO EJECUTIVO NACIONAL MINISTERIO DE LA PRESIDENCIA PANAMA, REPUBLICA DE PANAMÁ, 25 DE FEBRERO DE 1997
ERNESTO PEREZ BALLADARESUNES
RAUL ARANGO GASTEAZORO
Presidente de la República
Ministro de Comercio e Industrias
![[exhibit4v003.jpg]](https://capedge.com/proxy/CORRESP/0001176256-09-001023/exhibit4v003.jpg)
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Exhibit 4.W
|
OFFICIAL GAZETTE STATE AGENCY |
YEAR XCIII PANAMA, REPUBLIC OF PANAMA FRIDAY, FEBRUARY 28, 1997 No. 23,235 |
CONTENT
LEGISLATIVE ASSEMBLY
LAW NO. 9
(of February 26, 1997)
“ BY WHICH THE AGREEMENT SUBSCRIBED BETWEEN THE STATE AND THE CORPORATION MINERA PETAQUILLA, S.A., IS APPROVED”....................….. Page 1
NOTICES AND EDICTS
LAW NO. 9
(Of February 26, 1997)
By which the Agreement subscribed between the State
and the Corporation Minera Petaquilla, S.A. is approved.
THE LEGISLATIVE ASSEMBLY
DECREES
Article 1. The Agreement subscribed between THE STATE and the Corporation named MINERA PETAQUILLA, S.A., is approved, and reads as follows:
Between the undersigned, to wit, on the one part NITZIA RODRIGUEZ DE VILLAREAL, female Panamanian, of legal age, with personal identification card Item 8-207-2450 in her capacity as Minister of Commerce and Industries, on behalf of THE STATE, duly authorized by the Cabinet Council meeting held on February 13, 1996, by the authority conferred by Article 195, numeral three, of the Political Constitution of the Republic of Panama, hereinafter called “THE STATE”, and on the other, Richard Fifer, Engineer., male, Panamanian, of legal age, holder of personal Identification card Item 8-433-163 in his capacity as President and Legal Representative of MINERA PETAQUILLA, S.A. a corporation organized, and existing according to the laws of the Republic of Panama, and duly registered in the Microfilm Mercantile Section of the Public Registry, Microjacket 303869, Roll 46505, Frame 0096, duly authorized for this act by a Resolution of the Board of Director of said corporation, dated December 1, 1995, who hereinafter shall be called “THE COMPANY”, subscribe this mineral concession Agreement. Also present at this act and subscribing the present Agreement were the following persons for the following purposes: (a) GEORECURSOS INTERNACIONAL, S.A., corporation constituted and existing pursuant to the laws of the Republic of Panama, duly registered in the Microfilm Section Mercantile of the Public Registry at Microjacket 239116, Roll 30512, Frame 181, represented in this act by Engineer Richard Fifer, whose particulars have been previously presented, in his capacity as President and Legal Representative, duly authorized for this act by Resolution of the Board of Directors dated December 1, 1995, who hereinafter shall be called GEORECURSOS, with the purpose of terminating and substituting the existent concession in conformity with Agreement No. 27-A of August 7, 1991, as stipulated in Clause Twenty Eight of this Agreement and (b) ADR IAN RESOURCES, S.A., corporation constituted and existing pursuant to the laws of the Republic of Panama, duly registered in the microfilm Section Mercantile of the Public Registry at Microjacket 259118, Roll 35173, Frame 002, duly represented in this act by Engineer Richard Fifer, whose particulars have been previously presented, in his capacity as President and Legal Representative, duly authorized to enter into this act by means of a Resolution of the Board of Directors, dated December 1, 1995, who hereinafter shall be called ADRIAN with the purpose of recognizing certain reciprocal rights and obligations jointly with THE COMPANY in relation to certain mining concessions adjacent to the CONCESSION AREAS, according to Annex IV of this Agreement.
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THEREFORE, the parties have agreed to enter into this Agreement subject to the following Clauses:
CLAUSE ONE
Purpose
The main purpose of this Agreement is to grant THE COMPANY, as in fact it is granted with the subscription and approval of this Agreement, the concession of the rights hereinafter stipulated over the gold, copper and other mining deposits, located in the area known as “Cerro Petaquilla”, described in Annex 1 of this Agreement as the “Concession Area”, with the purposes of exploring, extracting, exploiting, benefiting, processing, refining, transporting, selling and marketing all the minerals, base or precious, located in the Concession Area and, for such purposes THE COMPANY may design, construct and operate all sorts of infrastructure work, including housing units, health, education and recreation centers, all types of air and land installations, electric power generation facilities to satisfy the needs of this Concession as well as for other uses expressly allowed, by this Agreement, water treatment plants, storage an d use of natural waters, and in general design, construct and operate all those installations and provide all those other services which are necessary or pertinent for the development of this Concession, all of which hereinafter shall be called “THE PROJECT”.
THE STATE recognizes that the development of THE PROJECT protected by the present Agreement represents a great benefit to stimulate the mining industry in the Republic of Panama, and therefore, THE STATE will consider it a priority and shall provide its assistance to THE COMPANY in order to achieve compliance and fulfillment of the objects and purposes of this Agreement.
CLAUSE TWO
Definitions
For the purposes of this Agreement, the following terms shall have the meaning indicated hereinafter.
AFFILIATE
For the purposes of this Agreement, AFFILIATE shall mean in regards to any natural person or body corporate, the natural person or body corporate that directly or indirectly, controls, is controlled by or is under the common control with said other natural person or body corporate through the holding of fifty percent (50%) or more of the issued and outstanding shares with the ordinary right to vote for the election of the directors of said other natural person or body corporate, or by means of any other method or manner that represents control of said natural person or body corporate. For the purposes of this Agreement it is also understood that TECK CORPORATION, INMET MINING CORPORATION and ADRIAN RESOURCES LTD.; and their affiliates or subsidiaries, shall be considered as Affiliates of THE COMPANY while they are its shareholders.
PROJECT AREA
Is the area that THE COMPANY appoints in the Concession Area to develop the exploitation of minerals and comprises all the installations, facilities and structures that are established on said area by THE COMPANY, its Affiliates, contractors or sub-contractors.
CERRO PETAQUILLA
Is the concession protected under the Agreement subscribed by and between the Ministry of Commerce and Industries and Geo-Recursos Internacional, S.A., identified as Agreement Item 27-A, August 7, 1991, with its renewals and extensions, and described in Annex 1 of the present Agreement.
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CONCESSION
The ensemble of rights granted by THE STATE due to this Agreement, which includes, among others, the right to explore, exploit, and usufruct the ore deposits located in the Cerro Petaquilla area described in Annex 1 of this Agreement, which is called the “Concession Area”.
ADJACENT CONCESSION
Refers to the concessions or requests for concessions, as the case may be, in favor of ADRIAN identified as: Agreement No. 41 of July 12, 1994, Agreement NO. 39-A of July 7, 1994, Agreement No. 39-B of July 7, 1994, Agreement No. 59 of December 29, 1994, all subscribed by and between the Ministry of Commerce and Industries and ADRIAN, and the requests for concessions Nos. 93-92, 93-93 and 94-39 according to the registries filed at the General Direction of Mineral Resources of the Ministry of Commerce and Industries of the Republic of Panama.
CONTRACTOR
Shall be those natural persons or body corporate that THE COMPANY, its Affiliates or Assignees appoint as Contractors for the effects of this Agreement, and it shall suffice that THE COMPANY notifies the Ministry of Commerce and Industries on such appointments for the same to have effect.
COMPANY
Refers to, through the contents of the present Agreement, to MINERA PETAQUILLA, S.A., as well as to its Affiliates and the cessionary entities of the Affiliates and Minera Petaquilla, S.A.
FEASIBILITY STUDY
Shall have the meaning given in Annex II of the present Agreement, which forms an integral part thereof.
FACILITY
Is any excavation, pit, hole, shaft, trench, channel, outlet, equipment, railroad, streets, highways, roads, shelters or rooms for the workers, piping, electric transmission lines, installations and equipment for the generation of any type of energy, accumulation or storage of materials and raw materials, slag heap or accumulation of waste or residues of any type, piers, docks, floaters or floating pads, waste ponds, sedimentation or settling ponds, and other improvements to the property, fixed accessories, mills, crushers, elution or floating installations, installation for the improvement or claiming of waters, trucking or transportation routes, in addition to any other improvements, accessories, installations or constructions that are, according to THE COMPANY, necessary or advisable for the exploration, development, extraction, benefit or transportation of minerals or products related to the Concession Area, which shall be execut ed in compliance with the pertinent environmental regulations.
NEGOTIABLE GROSS PRODUCTION
For the purposes of the present Agreement:
a)
when the ore or its derived concentrate are sold as ore or as concentrate, the gross amount received from the buyer as a result of the sale after deductions, if there were any, all foundry costs, fines and other deductions, and after the deduction of all transportation costs and the insurance of the ore or the concentrate, incurred in their transfer from the mine to the smelter or factory or other place where the final delivery to the buyer is carried out, or
b)
when the ore or the concentrate are processed in a smelter, and the metals recovered in said process are sold and delivered by THE COMPANY, the gross amount received from the buyer as a result of the sale of the metals so delivered, after the deduction of all the costs of smelting, fines and other deductions and after deducting all the costs of transportation and insurance of the ore or the concentrate incurred in their transportation from the mine to the smelter, and all costs of transportation and insurance of the metals, incurred in their transportation from the smelter to the place where its definite delivery to the buyer is carried out, or
c)
when the ore or the concentrate are processed in a smelter property of THE COMPANY or under the control
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thereof, the gross amount that is considered earned regarding the sale of the ore or the concentrate, shall not be less than the amount that may have been obtained from a smelter that was not property of, nor controlled by THE COMPANY in regards to the processing of ore or of concentrate of the same quality and amount.
COMMERCIAL PRODUCTON
Refers to the extraction and processing of the mineral with the purpose of selling a final product. The extraction and processing of mineral to perform tests and determine the metallurgical process to be employed shall not be considered Commercial Production. When seventy per cent (70%) of the designed production capability is achieved, as defined in the Feasibility Study, and this is maintained during ninety consecutive days, it shall be considered that Commercial Production has been attained.
SUBCONTRACTOR
Shall be those natural persons or body corporate that THE COMPANY, its Affiliates or assignees, appoint as Subcontractors for the effects of the present Agreement and it shall suffice that THE COMPANY notifies the Ministry of Commerce and Industries on such appointment forof the same to have effect.
INITIAL TERM
Is the twenty (20) year term following the date of the enactment of the law approving the present Agreement.
CLAUSE THREE
Rights and Obligations
A. RIGHTS OF THE COMPANY
During the life of this Agreement, THE STATE grants THE COMPANY, which it extends, for the effects of the development of THE PROJECT, to its Affiliates, to the contractors and subcontractors that it appoints, the following powers and rights:
1.
In the Concession Area, as described in Annex 1, to perform geological researches related to minerals found in said Concession Area before and during their extraction.
2.
Perform all types of mineral operations, including but not limited to exploration, extraction, exploitation, processing, refining, transportation, benefits, sale and commercialization, within the Concession Area, and carry out all the other necessary and adequate operations and activities for said mining operations inside and outside the Concession Area, always in compliance with the pertinent environmental regulations.
3.
Carry out the activities necessary to benefit the minerals extracted in the Areas of the Project in compliance with the stipulations of the present Agreement.
4.
Transport the extracted ore, concentrate and minerals, as well as any item, supply, materials or goods that THE COMPANY deems convenient for its operation, using any transportation means and security method acknowledged in the mining industry.
5.
Store inside and outside the Concession Area and export and commercialize the ore, concentrate and the minerals extracted in the Concession Area, in accordance with the legal and regulatory provisions in force.
6.
The right of way, when THE COMPANY considers it necessary for the development of THE PROJECT, through the surface and subsoil of all lands and waters property of THE STATE on the date on which the Agreement comes into force, subject to the stipulations of Annex IV of this Agreement, to the point where they do not violate the rights acquired by third parties to this Agreement, and the rights to build, install, maintain and use in the surface or the subsoil of such lands and waters those facilities and installations that THE COMPANY deems convenient for the development of THE PROJECT. In the event of using the right of way by the subsoil, THE COMPANY shall coordinate with the corresponding state entity, everything pertaining to the protection of the underground water in the fresh water reserves that might exist in the site of said right of way. The COMPANY shall enjoy this right of way and can use it withou t being subject to payment for any concept. When the lands property of THE STATE are transferred to private third parties after the enforcement of this Agreement, the rights of way of THE COMPANY shall prevail without detriment to the compensation corresponding to physical damages to crops or permanent improvements built there.
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In relation to the stipulations of Annex IV of this Agreement, THE COMPANY and ADRIAN declare that any conflict or controversy arising between them in the execution or compliance with what has been agreed in Annex IV shall not in any manner affect the respective obligations and commitments which bind THE COMPANY pursuant to this Agreement and ADRIAN with respect to the Adjacent Concessions with THE STATE, unless the respective conflict or controversy is motivated or caused by any act or omission by THE STATE.
7.
The right to make use of and deviate the waters coming form natural sources, when the activities of THE PROJECT so requires, without any charges, it being understood that if these uses damage or interfere with the rights or the properties of persons or private or state entities using such waters on the date that this Agreement comes into effect, these persons or entities shall receive from THE COMPANY fair compensation for the damaged caused pursuant to the standards in force. Likewise, THE COMPANY shall guarantee sufficient drinking water supply for the subsistence of those natural persons lawfully occupying the affected area at the time that this Agreement comes into force.
8.
The right to design and build access bridges, pipelines, canals, railroads, and other access facilities or transportation means, and any other installations and facilities that may be useful or necessary for the realization of THE PROJECT and use said installations or facilities without having to pay any liens, canons, royalties, taxes, nor any other type of charges to THE STATE, excepting the payment of surface canons, royalties and municipal taxes stipulated in this Agreement. It is understood that THE COMPANY is empowered to extract and use any minerals or materials needed to carry out infrastructure works, including but not limited to rock, sand and gravel, and shall have the right to exploit quarries for the same purpose subject to the stipulations of this Agreement and the legislation in force that rules or regulates the exploitation of non-metallic minerals used as construction materials.
9.
Generate electricity for the use of THE PROJECT and sell or commercialize any electricity surplus generated according to the legislation in force, as well as to establish, build and operate any communication installations that THE COMPANY deems necessary for THE PROJECT and the operations related thereto.
10.
The right to obtain without delay licenses, permits, approvals and other authorizations generally required from THE STATE or any of its departments or autonomous or semi-autonomous institutions, and that are necessary for the development of THE PROJECT. Subject to the other provisions of this Agreement, it is understood that all these licenses, approvals or authorizations shall be granted at the usual general application rate.
11.
To process, operate and structure, exempted from the payment of any type of duty, tax or fees from THE STATE, vehicles, helicopters, airplanes, barges, heavy equipment for the use on land or water or amphibian, towboats, ships of great draft, ships for the transportation of workers, and any other machinery or equipment necessary for the effective development of THE PROJECT, and provide air, maritime and land services, on the Panamanian territory as these services are required for the development of THE PROJECT.
12.
THE COMPANY shall have the right to acquire, lease or use, those STATE lands inside or outside the Concession Area that are necessary or useful for the development of THE PROJECT. The COMPANY may acquire these lands in property, lease or use through the Ministry of Finance and Treasury that shall give due course to such requests and will approve their direct concession, to THE COMPANY without the need of submitting such concession to the mechanisms of public biding, tendering or price requests established in the Fiscal Code, provided that said lands are available and inasmuch as the rights acquired by third parties to this Agreement are not violated due to other mining concessions, subject to the provisions of Annex IV of this Agreement. When related to lands acquired in use or in leasing, the amounts to be paid by THE COMPANY shall not be higher than the surface canons by hectare provided for in this Cla use. When it pertains to lands that THE COMPANY wishes to acquire in property, the price to be paid for such lands will be determined by the procedures stipulated by the legislation in force.
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In the event that THE COMPANY needs lands inside or outside the Concession Area that are private property, anything pertaining to its use, possession or acquisition, with the exception of the stipulations of Clause Seven (7) Sub-clause A herein, shall be transacted according to the provisions of the Mineral Resources Code and this Agreement
13.
The COMPANY will have the right to design, build and operate, directly or through third parties, and always under its own management, piers, docks, and other port installations and landing places that THE COMPANY requires in the Port Area as determined in the Feasibility Study, regarding activities anticipated in this Agreement, and it will be understood that such piers, docks and other port installations and landing places will be for the priority use of THE COMPANY. Port duties or fees which may be established for the use of said installations shall not be applied to THE COMPANY and its ships, nor to the ships belonging to or under the control of third parties rendering services for the purpose of the Agreement. As soon as this Agreement concludes its life term pursuant to Clause Five, the previously mentioned port installations shall become property of THE STATE, which is to assume the responsibility o f its operation.
Notwithstanding the provisions of the foregoing paragraph, THE STATE reserves the right to allow the use of such port installations to other ships for purposes different to those considered under this Agreement. In this event, THE COMPANY will reserve the right to collect from such ships the dockage rights it deems convenient and it can object the use of port installations by these ships if such use damages or interferes in any manner with the activities developed by THE COMPANY, its Affiliates, contactors or subcontractors. In any event THE COMPANY may also collect rights or reasonable rates, for the use of cranes, pipelines, storage deposits and other services, installations and facilities that THE COMPANY provides or supplies or puts at the disposition of said ships.
14.
To organize, establish and provide piloting, towing, and repair services, mobilization in boats and in general, services that assist navigation. It is understood that this capacity does not imply the obligation to do so, and therefore, its exercises is a discretionary liberty of THE COMPANY. These services shall be rendered by capable personnel selected by THE COMPANY, protected by the licenses that to that effect are granted by THE STATE to said personnel. The cost of these services shall be financed by the duties and tariffs that to the effect are established by THE STATE. No duties or tariffs in favor of THE STATE shall be applied when the ships are the property of THE COMPANY or ships rendering services to THE COMPANY, or ships providing services related to activities provided for in this Agreement. When THE COMPANY does not wish to continue providing any of the services referred to in this clause, it shall notify THE STATE, at least six (6) months in advance. In this event, THE STATE shall provide the service charging the general applicable rates established, and the same shall be applied to THE COMPANY as well as to those who render services to THE COMPANY in relation to the activities pertaining to this Agreement, in this Agreement always giving priority to THE COMPANY for the provision of such services and activities. Notwithstanding the foregoing, it is understood that THE STATE shall offer THE COMPANY the most favorable tariff which at the time is offered or may be offered to other users.
15.
To design, establish, build, maintain, renew and extend works, installations, annexes, works and auxiliary services that have to do with maritime, air or land activities and also to design, build maintain, renew and expand breakwaters, ports, helicopters, landing strips, communication towers, roads, bridges, highways, boulevards, dredges, canals and docks related to the activities taken into consideration in this Agreement or with the development of said activities and make use of similar installations without any costs, provided that this use complies with the stipulations of the law and the regulations related to construction, health, security, occupational hygiene and environment protection, that are in force and are of general application.
16.
It is understood that irremovable installations and transportation equipment in the Concession Area are included and are an integral part of THE PROJECT, and that THE COMPANY uses in relation to the activities established in the present Agreement, as well as pipelines, aqueducts, ducts, rails, terminals and other installations destined for the transportation of ore or minerals, cargo and goods in general, or activities pertaining to the operation of THE COMPANY, when they have been built or are to be built with the objective of exercising the right of way pertaining to THE COMPANY.
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17.
To manage and operate THE PROJECT and assign totally of partially the pertinent rights regarding a portion or stage or phase of the Project or its totality, according to the stipulations of Clause Nine of this Agreement.
18.
In addition to the aforementioned rights and authorizations, THE COMPANY shall have the right and the faculty to perform those acts or activities which it considers incidental or leading to the attainment of the objectives described in Clause One of this Agreement and to exercise the rights and powers provided by this Clause.
B. OBLIGATIONS OF THE COMPANY
1. The Preliminary Environmental Evaluation, Environment Examination and Environment Feasibility and its annexes, jointly named Environmental Report, required by the Environment Regulations of the Mining Sector, in force on the date of the enforcement of this Agreement, shall be an integral part of this Agreement and shall be of mandatory compliance to THE COMPANY. The General Direction of Mineral Resources shall evaluate the studies that form part of the Environmental Report in consultation with INRENARE.
2.
Before beginning the extraction period, THE COMPANY shall submit an Environment Feasibility Study specific to the Project Area in which the respective extradition will take place. Said study shall be elaborated or revised by experts on the subject, previously approved by the General Direction of Mineral Resources of the Ministry of Commerce and Industries. Said study shall be evaluated and its approval, modification or rejection shall be defined within a term of 45 days counted as of the date of its presentation to the General Direction of Mineral Resources. After the end of this term, if there is no statement from the General Direction of Mining Resources, the Environment Feasibility Study shall be considered approved so that THE COMPANY may proceed with the development of its activities according to the contents of said Study.
3.
At the beginning of each year, THE COMPANY shall submit a Work Plan comprising the projections and approximate costs for the respective year to the General Direction of Mineral Resources of the Ministry of Commerce and Industries.
4.
The COMPANY shall pay to THE STATE in cash, subject to the deductions established by Clause Thirteen of this Agreement, the following yearly surface canons per hectare on the Concession Area not defined as Area “ï” of the Project according to Clause Four of this Agreement.
Years
US$ per Hectare
1 to 2
0.50
3 to 4
1.00
5 and thereafter
1.50
5.
The COMPANY shall pay THE STATE in cash, subject to the deductions established by Clause Thirteen of this Agreement, surface canons per each hectare covering the zones identified as Areas(s) of the Project according to Clause Four of this Agreement, and annual royalties for extracted minerals according to the following table:
| | | | |
Type of | First 5 | From the | 11th year and | Royalty |
Mineral | years | 6th to the | thereafter | |
| | 10th year | | |
I | B/. 0.75 | B/. 1.25 | B/. 2.00 | 2% |
II | 1.00 | 2.00 | 3.00 | 2% |
III | 1.00 | 2.00 | 3.00 | 4% |
IV | 1.00 | 2.50 | 3.50 | 2% |
V | 0.50 | 1.00 | 1.00 | 2% |
VI | 1.50 | 3.00 | 4.00 | 2% |
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It is understood that the foregoing types of minerals shall have the following meanings:
Class
I:
Non-metallic minerals, excluding construction materials.
Class
II:
Metallic minerals except precious minerals.
Class
III:
Precious alluvial minerals
Class
IV:
Precious non-alluvial minerals
Class
V:
Energetic minerals, except hydrocarbons.
Class
VI:
Reserve minerals.
Surface canon payments shall be made in advanced annual payments and royalties at outstanding quarters in a sixty (60) day period started as of the outstanding date. Surface canons shall be estimated based on the total surface held at the beginning of each year.
In this Clause, the royalty to be paid by THE COMPANY is expressed as a percentage of the Negotiable Net Production as defined in Clause Two of this Agreement.
6.
The COMPANY undertakes to annually present to the Ministry of Commerce and Industries the following detailed reports, and said Ministry shall be in charge of informing other governmental institutions and, as deemed convenient, to provide information on the case:
a)
The Operation Report, shall be part of the annual report, unless, through a previous sixty (60) day prior notice to THE COMPANY, the Ministry of Commerce and Industries requests that it be provided otherwise. Said report shall include information regarding minerals extracted, transported and benefit rates applicable, the number and type of mining operations conducted during the period covered by the report, and the success of these operations, the procedures that have been applied to mining operations in accordance with good standards of operation, records of surveys, sampling, and topographical, geological and mineralogical data obtained, locations of drilling and study sites, maps, plans and geological sections and all other technical information obtained in the operation process, and data that has not been previously submitted, indicating whether minerals have been obtained in commercia l quantities, and if this is the case, an estimate of the date of commencement of extraction and magnitude of planned operations.
b)
Report on employment and training, which will form part of the annual report, unless THE STATE requires it be delivered in another form. This report shall consist of a statement covering the previous fiscal year regarding the employment of Panamanians and foreigners and the development of training programs.
Each report shall include an affidavit of THE COMPANY or of the person authorized to act on its behalf.
7.
THE COMPANY shall allow THE STATE to examine the technical reports related to THE PROJECT and to perform routine inspections of all Project Installations during working days and hours, it being understood that THE STATE assumes all expenses and risks that might be caused by the abovementioned inspections.
8.
THE COMPANY shall allow THE STATE to have access and use of port installations and the complementary installations that THE COMPANY sets up subject to the provisions of Clause Three, Point A, Items 13 and 14 of the Agreement.
9.
Before the beginning of extraction activities, THE COMPANY shall create and participate in the administration of a scholarship fund for the total amount of TWO HUNDRED AND FIFTY THOUSAND US DOLLARS (US$250,000.00) which will be used to finance studies and training courses or professional training for the inhabitants of the communities neighboring THE PROJECT, located in the Provinces of Cocle and Colon. Said inhabitants will be selected by a committee integrated by the communities and THE COMPANY.
10.
THE COMPANY undertakes to provide due maintenance to all the mining and infrastructure works and services of THE PROJECT, always complying with the standards and regulations of general application in force that pertain to occupational safety, health and construction. Likewise, THE COMPANY may abandon THE PROJECT, partially or totally, when it deems it necessary provided that it complies with all the obligations stipulated in this Agreement.
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CLAUSE FOUR
Areas of the Project and Initial Investment
1.
Under the terms of this Agreement, THE COMPANY, its Affiliates, contractors and subcontractors may at any time perform works and evaluation studies, feasibility and mining exploration in all or in part of the Concession Area, seeking the commercial exploitation of THE PROJECT or any Area of the PROJECT.
2.
THE COMPANY and its Affiliates shall have the option to return to THE STATE any part, section or portion of the Concession Area, adjusting if necessary to the stipulations of Clause Seven of this Agreement on the protection of the environment. Furthermore THE COMPANY performs a mineralization evaluation of the Concession Area, and defines one or more “Areas of the Project”. Once the Area of the Project has been defined, THE COMPANY shall initiate a feasibility study (“Feasibility Study”) said Project Area, which shall be submitted to the Ministry of Commerce and Industries. THE COMPANY may divide the Concession Area into a plural Item of development zones as it deems convenient and may designate one or more of these zones as Project Area, it being understood that they may have any form or configuration. Anyhow, THE COMPANY must submit to the Ministry of Commerce and Industries a feasib ility study regarding any of the Areas of the Concession defined as Project Area, no later than 18 months following the date of enactment of the Law by which this Agreement is approved, and said study shall comply with the requirements established in Annex II which is an integral part of this Agreement.
3.
Within a period of no more than sixty (60) months after the enforcement of this Agreement, THE COMPANY shall invest in exploration, infrastructure, roads and a feasibility study no less than TEN MILLION US (US$10,000,000.00)
CLAUSE FIVE
Life of the Agreement
This Agreement shall have a twenty (20) year life term as of the date of the enforcement of the law of approval. If THE COMPANY has substantially and reasonably complied with the obligations undertaken in this Agreement, and if its termination by mutual agreement has not occurred before such term has elapsed, THE COMPANY can request and obtain up to two (2) consecutive renewals of the Agreement, it being understood that each one of these renewals shall have a term of twenty (20) years. Taking into consideration the request submitted to the Ministry of Commerce and Industries within one hundred and twenty (120) days prior to the subsequent twenty (20) days at the end of each twenty (20) years term, the Ministry of Commerce and Industries shall grant each one of the respective renewals related to this Clause, it being understood that these renewals are granted if the Ministry of Commerce and Industries does no t make a statement on them within a period or sixty (60) days after the mentioned request has been presented to the Ministry of Commerce and Industries.
At the end of this Agreement, including its renewals, THE COMPANY may leave at its properties or freely remove from them, but with the due adherence to this Agreement and of the legal provisions and regulations of the Republic of Panama that are enforceable on the subject of demolitions, development and sanitation, all articles of its property, installations, improvements, accessories, annexes, equipment and all other property of whichever nature, be it private property or totally or partially connected to the real estate of THE COMPANY, without THE COMPANY having to make any payment whatsoever to THE STATE due to such withdrawal or removal. Nevertheless, in the event of such occurrence, all docks, landfills, maritime and land works and installations built by THE COMPANY on lands or other assets property of THE STATE, shall become property of THE STATE at no cost.
CLAUSE SIX
Development and Investment Commitment
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In order for THE COMPANY to maintain the fiscal benefits that THE STATE grants through this Agreement and as a consideration of THE COMPANY towards THE STATE so that the latter will subscribe this Agreement, THE COMPANY undertakes the following:
1.
THE COMPANY, its AFFILIATES, Contractors or Subcontractors shall carry out a FEASIBILITY STUDY for the development of the copper mine in the CONCESSION AREA and for the processing of ore into concentrate. The cost of said FEASIBILITY STUDY shall not be less than SEVEN MILLION US DOLLARS (US$7,000,000.00), including the amounts that have been invested in said study before the date of this Agreement. The preparation of said FEASIBILITY STUDY must adjust to the guidelines provided in Annex II of this Agreement. THE COMPANY undertakes to deliver a copy of the FEASIBILITY STUDY to the Ministry of Commerce and Industries in 18 months following the date of enactment of the law approving the present Agreement. Likewise, THE COMPANY shall provide said Ministry with an Affidavit detailing the amounts invested in the preparation of said FEASIBILITY STUDY.
2.
In the three years following the date of delivery of the FEASIBILITY STUDY related to the foregoing numeral, to the Ministry of Commerce and Industries, THE COMPANY shall start the development of the copper mine and the construction of the necessary infrastructure for the operation of said mine pursuant to the program provided in Annex II of this Agreement. Notwithstanding the foregoing, THE COMPANY may delay the beginning of the development of the mine and of the construction of the corresponding infrastructure and, therefore, the period of time equivalent to the months elapsed since the delivery date of the aforementioned FEASIBILITY STUDY during which the average price of the pound of refined copper, according to quotes from London Metal Exchange is less than the amount resulting from the addition of (a) the price of copper used in the cited Feasibility Study showing a rate of return that will permit obtaining t he necessary financing in the international capital markets plus (b) five (5%) percent of this.
PARAGRAPH:
The delay due to the low prices mentioned in numeral 2 of this Clause may not be extended for more than five (5) years as of the date of the expiration of the original three (3) year term stipulated in this clause, without THE COMPANY notifying THE STATE of its decision to proceed with the corresponding investment for the development and construction of the aforementioned infrastructure and the initiation of said works. If the delay was to take more than five (5) years, this Agreement shall be annulled and the Concession expired. During the delay period, THE COMPANY can formulate proposals for the development of THE PROJECT in terms and conditions others than those agreed upon under this Agreement, and THE STATE agrees to consider in good faith said proposals. Nevertheless, for the two (2) years following the expiration of the abovementioned five (5) year term, THE COMPANY shall enjoy the first option for the development of THE PROJECT in the event that THE STATE receives from any third party (the “Third Bidder”) an offer (the “Offer”) for that purpose. If THE STATE receives an Offer that it considers accepting, it must inform and notify THE COMPANY in written, and the later will have ninety (90) days as of the date of the delivery of said communication to make us of its first option to perform the development of THE PROJET, in terms at least as advantageous for THE STATE as those proposed in said Offer. If THE COMPANY communicates to THE STATE its decision not to exercise said first option or ceases to exercise the same after the ninety (90) days of the aforementioned communication and notification in writing, THE STATE may negotiate the agreement or agreements of the concession with the respective Third Bidder, provided that it (they) do not reflect a set of rights and obligations that are more advantageous for the Third Bidder t han those contained in the respective offer. This first option procedure shall apply to any Offer presented by a Third Bidder during the aforementioned two year period, in which THE COMPANY has not waived or ceased to exercise its first option.
3.
Before the beginning of the commercial production of copper, THE COMPANY jointly with its Affiliates, contractors and sub-contractors shall comply with the following commitments:
(a)
Invest no less than FOUR HUNDRED MILLION US DOLLARS (USS$400,000,000.00) in the development and construction of the mine and infrastructure in agreement with the provisions of the Feasibility Study mentioned above in Item 1 of this Clause on in any other Feasibility Study which is prepared later on or its modifications, approved by THE COMPANY, provided that copies of said study or modifications have been delivered to the Ministry of Commerce and Industries.
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(b)
Hire no less than 700 Panamanian workers for the development and the construction of the mine, preferably using labor from the Municipality or Municipalities where the Concession Area is located.
4.
Once a sustained production of copper concentrate in the Concession Area at the rates forecasted in the Feasibility Study is obtained, THE COMPANY, its Affiliates, contractors and subcontractors shall hire for the operation of THE PROJECT no less than 300 permanent Panamanian workers, it being understood that the total Item of said workers may fluctuate as a result ofthe changes in the market conditions and technological innovations.
5.
For the effects of what is provided in Item 2 of this Clause, the average adjusted price of refined copper in the London Metal Exchange for a determined month shall be equal to the average of the closing prices for one pound of refined copper on each day of said month during which the Exchange is open for the performance of mercantile activities, derived from the quotes published by said Exchange.
6.
In addition to any delays occurring in the development of the mine, permitted by Clause Twenty of this Agreement, THE COMPANY, in consultation with the Ministry of Commerce and Industries, may delay the beginning of said development or the termination thereof during proven economic instability periods in the country or at the international level causing unforeseen increase in the cost of materials, supplies or labor greater than those foreseen in the Feasibility Study referred to in numeral one of this Clause, or when said proven instability periods does not permit obtainingof financing for THE PROJECT in the international financial markets under normal terms and conditions. THE COMPANY shall immediately notify the Ministry of Commerce and Industries in the event that any of these events occurs and shall consult with said Ministry while the respective instability period lasts, with the p urpose of determining if conditions have changed or if a modification to the Feasibility Study is necessary with the purpose of being able to start the development or the continuation of said development.
CLAUSE SEVEN
Environment Protection
The COMPANY undertakes to carry out its activities maintaining at all times an adequate protection of the environment in the Concession Area, complying with the legal dispositions and regulations of general application in force in the Republic of Panama.
The COMPANY shall be accountable for the damages caused to the environment due to its fault, fraud or negligence in the performance of its operations, and to that end THE COMPANY shall constitute a bond in favor of THE STATE in the amount of THREE MILLION US DOLLARS (US$3,000,000.00), in cash, cashiers check, insurance company policy, promissory note issued by a financial institution, letter of credit issued by a local bank, bank guaranties, or by any other means permitted by the laws in force. Said bond shall be constituted at the beginning of the construction of the mine, and its totality or the portion not claimed by THE STATE shall be canceled or returned to THE COMPANY, as the case may be, no later than one year after the end of this Agreement. The bond shall be issued to the order of the Ministry of Commerce and Industries and the Office of the General Comptroller of the Republic of Panama. The a mount of this bond does not purport to establish a limit to the liability of THE COMPANY.
In addition to the restoration obligations provided for in the Mineral Resources Code, THE COMPANY undertakes to finance a Reforestation Program for those areas of the concession in which THE COMPANY has caused any kind of deforestation, subject to the degree of deterioration caused to nature. The program shall be carried out using species of trees native to the zone neighboring the Concession Area in consultation with the respective authorities, and with the possibility
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of planting species of a greater advantage for the population and the environment.
CLAUSE EIGHT
Hiring of Experts
THE COMPANY, its Affiliates, contractors and sub-contractors shall give preference to hiring national labor. However, foreign personnel may be hired provided that the total Item of hired foreigners does not surpass twenty-five per cent (25%) of the total labor force of THE PROJECT.
Notwithstanding the foregoing, as from the enforcement of this Agreement and during the first five (5) years as ofthe beginning of the construction works referred to in this Agreement, a higher percentage of foreign specialists or technicians or workers with experience in the mining sector shall be allowed taking into consideration the requirements of THE COMPANY, its Affiliates, contractors and subcontractors, to whom THE STATE shall issue the working permits, licenses and visas required to that effect.
The COMPANY undertakes to comply with the transference of technology to Panamanian personnel in the event of hiring foreigners.
For the effects of the application of the aforementioned percentages, the totality of the labor force of THE PROJECT shall be taken into account, which will consist of the workers hired by THE COMPANY, its Affiliates, contractors and sub-contractors.
CLAUSE NINE
Contract Assignment
THE COMPANY can totally or partially assign or transfer this Agreement without any alteration of its terms or conditions, as well as the totality or part of its Concession Area, provided that the assignee counts with the technical and financial capability, which could be a Panamanian corporation or a foreign corporation duly registered and empowered to perform business in the Republic of Panama. Such assignment shall grant the assignee all the rights and obligations that THE COMPANY undertakes with this Agreement.
When the assignment or transfer mentioned in this Clause is on behalf of an Affiliate of THE COMPANY, the only requirement which THE COMPANY shall have to comply with to effect such assignment or transfer shall be to communicate it in written to the Ministry of Commerce and industries fifteen (15) days in advance. Once said notice has been provided the assignment or transfer shall be effective and the Ministry of Commerce and Industries shall issue an official recognition certifying such assignment or transfer within the next thirty (30) days.
When the assignment or transfer is to be made on behalf of third parties that are not Affiliates of THE COMPANY, prior authorization from the Ministry of Commerce and Industries is required, except in the cases referred to in the last paragraph of this Clause. In the event of assignments or transfers to third parties, THE COMPANY must notify the the Ministry of Commerce and Industries which should make a statement within the thirty (30) days following the date of the respective notice. If after the above mentioned thirty (30) days the Ministry of Commerce and Industries has not made a statement in relation to said assignment or transfer, it shall be considered that there is no objection to such assignment or transfer and that it has been approved, it being understood that the Ministry of Commerce and Industries shall certify said transfer or assignment.
In the event of total or partial assignment of the present Agreement, the assignee shall assume all the rights and obligations arising thereof, it being understood that THE COMPANY shall be free from any obligation resulting from facts or acts that take place after the date of the assignment with regards to the assigned, and in the case of partial assignment or transfer, the Assignee shall assume the corresponding proportion deriving from the contracting rights and obligations as stipulated in the respective assignment or transfer agreement.
The assignment or transfer, that it beit total or partial, shall not generate taxes, contributions, fees,nor liens of any nature, in favor of THE STATE.
It is understood that the mining concessions subject to this Contract may be totally or partially encumbered, with prior notification to the Ministry of Commerce and Industries, provided that the creditor is a financial institution of known and proved stability. Additionally, notwithstanding the foregoing, the mortgagee may totally or partially assume the encumbered concession, and may in turn transfer or assign it to a third party, as long as any such third party is a Panamanian corporation or a foreign corporation duly registered in the Republic of Panama directly or through a subsidiary, witha renown technical and financial capability with a net consolidated shareholder’s equity which shall not be lower than at least THREE HUNDRED MILLION US DOLLARS (US$300,000,000.00), including its Affiliates. Prior notification to the Ministry of Commerce and Industries will be satisfactory for t he said transfer or assignment to become effective.
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CLAUSE TEN
Energy
The COMPANY, directly or through third parties, may generate electric power for its own use and for that purposeit may build and operate hydroelectric installations and thermal plants, as well as other means of generating power both inside or outside the Concession Area, as THE COMPANY deems necessary, to develop the activities provided in this Agreement. It is understood that THE COMPANY may sell and commercialize any surplus electric energy, as long as it complies with the rules and provisions in force.
CLAUSE ELEVEN
Obligations of the State
The STATE shall have the following obligations:
A.
To grant and procure THE COMPANY with the full, uninterrupted and pacific use of the Concession Area which is defined and described in Clause Two and in Annex 1 which are an integral part of the present Agreement.
B.
If THE COMPANY so requires, to have inside or outside the Concession Area, the services of firemen, police, customs, migration, health and any other public service that are not provided by THE STATE. It is understood that the additional costs of these services as well as the necessary infrastructure to provide them shall be to the account of the THE COMPANY. It is also understood that the necessary private property necessary to provide these services for which costs are on the account of THE COMPANY shall be the property of THE COMPANY.
C.
To provide THE COMPANY the licenses or permits, approvals and authorizations required by THE STATE or any of its departments, autonomous or semi-autonomous institutions and political subdivisions, in relation to the activities developed by THE COMPANY in compliance with this Agreement, it being understood that such licenses, authorization and approvals shall be granted at the general application tariffs in force prior compliance with the corresponding requirements as established by law.
CLAUSE TWELVE
Fiscal Exemptions
The STATE confers THE COMPANY and its Affiliates (and in the cases expressly mentioned, to its contractors and subcontractors), the following fiscal exemptions during the life of this Agreement:
A.
Exemption for THE COMPANY, its Affiliates, contractors and subcontractors, of any rights, or import tax, contribution, charges, consular rights, lien, duties or any other tax or contribution, or any denomination or class that are imposed on the introduction and import of equipment, machinery, materials, parts, diesel and Bunker C and other petroleum by-products, it is understood that they shall cause, nevertheless, when applicable, the protection tariff stipulated in Clause Twenty-two of Agreement No. 35f of September 15, 1992, approved through Law No. 31 of December 31, 1992, and regulated by Cabinet Decree No. 38 of September 9, 1992; raw material, lubricants, necessary work vehicles used for the efficient and economic development of the operations covered by this Agreement, ships, airships, appliances, spare parts and accessories exclusively destined for the construction, development, operat ion, maintenance, infrastructure and activities of THE PROJECT. It is understood by the parties that the exempted goods pursuant to this numeral shall only be used for the development of THE PROJECT. Said goods shall not be sold or transferred to anybody without previous written authorization from THE STATE, but having elapsed at least two (2) years from the purchase date and always subject to the payment of the respective tax which shall be estimated based on their value at the time of the sale or transfer. It is understood, however, that the goods may be transferred to any Affiliate of THE COMPANY, or any other natural person or body corporate benefiting from the introduction tax exemption that THE COMPANY has, complying with the legal provisions in force.
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In order to be covered by the exemptions of the Import Tax mentioned in Point A of this Clause, THE COMPANY, it Affiliates, contractors and subcontractors shall notify the General Directorate of Mineral Resources of The Ministry of Commerce and Industries its intention of introducing the exonerated assets or product, and said Direction shall deliver, in a maximum period of thirty (30) days after receiving the notice, a document certifying the applicant is has the right to the respective exemption. Said certification shall be accepted by the General Customs Direction of the Ministry of Finance and Treasury which shall give speed to the proceedings of the corresponding introductionof or duly exempted import
B.
Total transfer tax exemption for THE COMPANY, its affiliates, contractors and sub-contractors of movable goods on minerals, equipment, machinery, material, parts, accessories, raw material, cranes, work vehicle, ships, airships, appliances, diesel and lubricants and other petroleum derivatives, cargo and containers, destined for the operation, construction or maintenance of THE PROJECT, as well as those that are necessary for the development of the activities performed by THE COMPANY, or carried out for its benefit, in the Concession Area pursuant to what is established in this Agreement.
The exempted goods shall be used in activities related to THE PROJECT, and cannot be soldnor transferred, until after two (2) years have elapsed as from the purchase date and always subject to the payment of the respective tax, which shall be estimated based at the value of the good at the moment of the sale or transfer.
It is understood that the goods may be transferred to an Affiliate of THE COMPANY, according to what is defined in this Agreement, or to any other natural person or body corporate that benefits from the introduction tax exemption that THE COMPANY has without any type of restrictions other than the previous notification of the transfer to the authorities of the Ministry of Commerce and Industries, and that these transfers shall not be subject to the payment of any type of tax or duties in favor of THE STATE.
C.
Tax exemption on income tax, applicable to remittances or transferences abroad, made to pay commissions, loans, royalties, returns, professional or administrative advice performed outside the national territory, discounts, payments referred to in Clause Sixteen of the Agreement, or for any other concept related to the activities of this Agreement.
D.
Exemption from the payment of duties pertaining to the cargo of mineral products and dockage of containers, stowage, break bulk, handling, sojourn operations, which may be applicable inside the port installations of THE COMPANY.
E.
Exemption from any tax, lien or contribution related to non-distributed profits of THE COMPANY and its Affiliates in any fiscal year.
F.
Exemption from the obligation to pay premiums and offers for exploitation rights of minerals in the Concession Area.
CLAUSE THIRTEEN
Fiscal Deductions
1.
The COMPANY and its Affiliates shall have the right to include as operation expenses those that are deductibles, pursuant to the Income Tax laws in force. Besides surface canons, royalties, taxes and depreciation charges, the following items may be deducted as operation expenses:
a)
Annual deduction in concept of exhaustion for each one of the mineral deposits pursuant to the stipulations of Point b, numeral 6 of this Clause.
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b)
The cost of excavations of subsidence, prospecting and galleries, open-cut excavations, perforation of wells and other similar operations, that have been performed without finding minerals in amounts that would merit a commercial exploitation.
c)
Expenses for services and supplies, as well as other expenses made in relation to preliminary geological investigations, mining explorations, pre-extraction operations, as well as expenses made for subsidence, prospecting and gallery excavations, open-cut excavations, perforation of wells and other similar operations performed with the purpose of extracting minerals.
Expenses for items for which deductions are allowed because of depreciation or for capital amortization cannot be included as operation costs.
2.
To determine operation deficits during a fiscal term, THE COMPANY shall deduct from the gross income attributable to mining operations all deductible amounts authorized by the Mineral Resources Code, this Agreement and other applicable laws, with the exception of deficits that have been differed from a previous fiscal year.
3.
Taxes, rights, duties, charges and other contributions and amounts paid to THE STATE, shall be considered as general deductible expenses, as well as inherent expenses, incurred in relation with the education or training of Panamanian citizens according to this Agreement. Likewise, municipal taxes payable by THE COMPANY to the municipalities of THE STATE shall be considered as deductible general expenses, to the point in which they have not been credited against the income tax payable by THE COMPANY, as stipulated in Point (L), numeral (I) of Clause Fourteen of this Agreement.
4.
THE COMPANY shall establish depreciation accounts for depreciated assets that it acquires during the life of this Agreement, which shall be segregated according to the following categories of assets:
CATEGORY A: Building and other permanent improvements built on lands, parking areas, railroads, tunnels, dams, bridges and roads, waste deposits, port installations, airport installations and landing strips.
CATEGORY B: Other fixed assets, including machinery and equipment located on any real estate for its better use and other real estate by destination (excluding mobile equipment, ships and barges), elevators, electrical and plumbing systems, fixed structures and installations for the generation and transmission of electric power.
CATEGORY C: Mobile equipment, ships and barges and mining equipment of any type or nature, including, but without limitation, tractors, buses, railroad engines and wagons, airplanes, loading and unloading facilities, cargo transportation equipment, any other type of equipment and mobile machinery not included in Category D below, telephone and general communication systems.
CATEGORY D: Laboratory equipment, drilling equipment, assets used for the test or sampling and other of technological nature, including computer equipment, accessories and programs.
CATEGORY E: Other capital assets that are not included in any other previously mentioned category.
The cost of each depreciated asset that the Company acquires, for which the Company will use the benefit of the depreciation, shall be included in the account corresponding to the Categorytowhere it belongs and, for each fiscal year, when calculating the respective taxable income,to THE COMPANY may use the depreciation for amounts equal to the percentages Itemed hereinafter, applied to the accumulated of (a) the original cost of the assets already included in the respective Categories at the beginning of the corresponding fiscal year and (b) fifty per cent (50%) of the cost of the assets added to said Categories during the referred fiscal year.
Category A:
7%
Category B:
15%
Category C:
25%
Category D:
33%
Category E:
20%
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However, it is understood that in regards to any of said Categories, amounts greater than the surplus resulting from subtracting the accumulated from the original acquisition cost of the assets included in the respective Category, the total amount of the depreciation previously deducted on said acquisition cost may not be deducted in concept of depreciation.
In any fiscal year in which the maximum deduction amount for permissible deduction in relation to assets under any Category is not used for determining the net accruable income corresponding to said fiscal year, the unused balance may be indefinitely deferred for its total or partial deduction in any future fiscal year, jointly with any other amount deductible in said future fiscal year, it being understood however that deductions for depreciation in a given fiscal year, in relation to assets under any Category, shall not exceed fifty per cent (50%) of the accumulated of the acquisition cost of the assets included in the respective Category at the end of the respective fiscal year, and it shall also be limited as stipulated in the paragraph immediately preceding this Item 4.
5.
Losses suffered by THE COMPANY in operations according to income tax estimates of the year in course and of previous years may be differed to the following terms, as long as they have not been deducted, but they shall not be deferred for more than five (5) years, counted as of the fiscal year during which they were originated. Once these five (5) years have elapsed, those losses cannot be deductible nor shall they cause any refund from the National Treasury.
6.
Among other deductions allowed the Mineral Resources Code at the date of the enforcement of this Agreement, THE COMPANY may make following deductions:
a)
Expenses proved as duly incurred during a fiscal year in mining explorations related to the concession may be deducted from the surface canons payable to the Nation for that fiscal term to a maximum of seventy-five percent (75%) of the total amount of said surface canons. When these have been paid before the deduction authorization, THE COMPANY shall be allowed to credit the amounts already paid to the payment of surface canons payable in the following fiscal term. There shall not be cash reimbursements for this concept.
b)
In the exploitation of mines, quarries and other non-renewable natural resource, THE COMPANY may include as operation expenses for calculation of taxable net income purposes of each fiscal year, deductions for depletion in function of the produced or extracted units. To that end, the probable content of such deposits as of the first day of the fiscal year shall be calculated and added to units produced in the said year. The relation of the previous amount and the units produced during the year, produce the rate of amortization for that year, and this rate shall be percentually applied to the value of the asset to obtain the deduction for depletion. This same operation shall bemade in the following years until the mineral deposit is totally depleted.
For the purpose of this point b), the preceding paragraph will be applied according to the following formula (as per their initials in Spanish):
DA
= Deduction due to Depletion
TA
= Depletion Percentage
RMI
= Mineral Reserves at Beginning of the Period
UP
= Units Extracted or Produced during the Period
RA
= Additional Units or Reserves during the Period
RMf
= Mineral Reserves at the End of Year
VA
= Asset Value
Pf
= Mean Value of the quarterly royalty statements
PR
= Recovery Percentage
TM
= Metric Tons
LEY (GRADE) = Metal contents of a rock or ore.
FORMULA TO BE APPLIED
Step 1:
TA = RMI + UP + RA
UP
Step 2:
RMf = RMI – UP + RA
Step 3:
VA = (RMf x UPf x RA) X PR
Step 4:
DA = TA x VA
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The value of the probable content of the deposit and the new confirmed referred to in this Point shall be certified by the General Direction of Mineral Resources of The Ministry of Commerce and Industries.
The deduction for mining amortization may not exceed fifty percent (50%) of the net income of THE COMPANY, after deducting all operation expenses from the gross income for the extraction, with the exception of the permitted mining amortization, it being understood that, for the calculation of net income to which this paragraph bears relation to, such operation expenses do not include the interests payable by THE COMPANY, nor the asset depreciation corresponding to the respective fiscal period. This limitation shall be applied separately to each place or deposit where minerals are extracted or jointly to all deposits which are exploited by THE COMPANY in the same mill or grinder, as THE COMPANY deems convenient, and the gross extraction income and operation expenses shall be assigned to each place or jointly, as the case may be, according to the accepted accounting standards.
c)
Deductions for mining amortization shall be estimated independently for each one of the places where the mineral is extracted and according to the type of mineral.
Together with the sworn income tax statement for each fiscal term THE COMPANY shall prepare and present a chart summarizing the calculations made for mining amortization for each one of the mentioned sites.
CLAUSE FOURTEEN
Contributions in favor of THE STATE
1.
Without detriment to the exemptions or privileges that THE STATE grantsto THE COMPANY and its Affiliates pursuant to the stipulations of this Agreement, THE COMPANY and its Affiliates shall payto THE STATE the following taxes, rights, duties, contributions, charges or impositions mentioned as follows:
A.
Income Tax derived from the profits obtained by THE COMPANY, subject to the provisions of this Agreement.
B.
The following taxes, rights and registration fees:
(1) fifty percent (50%) of taxes, rights or duties caused by the registration of property titles that THE COMPANY or its Affiliates may constitute on their assets or rights;
(2) fifty percent (50%) of taxes, rights or duties caused by the registration of encumbrances that THE COMPANY of its Affiliates may constitute on their assets or rights;
(3) fifty percent (50%) of taxes, rights or dutiescaused by the registration of financial leasing contracts that THE COMPANY or its Affiliates may subscribe;
(4) Other rights or registration fees caused at the Public Registry.
C.
Notary fees
D.
A five percent (5%) tax on the transference of movable goods applied to the import or transference of movable goods, according to the legislation in force at the date of the enforcement of this Agreement, when it does not pertain to those mentioned in in which this Contract become in force, when the same are not mentioned in (A) and (B) of Clause Twelve, which will always be exempted from said tax.
E.
Fifty percent (50%) of stamp taxes caused according to the legislation in force.
F.
Rights and duties for the use of public services provided that THE STATE or any of its subdivisions or dependencies provide to THE COMPANY and which are not those which THE COMPANY receives exoneration according to the stipulations of this Agreement. In any event, rights and duties shall be payable at the current rates of general application.
G.
Contributions and employer quotas to Social Security, professional risks premiums and others employer contributions of a social nature based on the employee payroll of THE COMPANY, which shall be payable at the current rates or tariffs of general application.
H.
Property Tax according to the legislation and tariffs of general application in force. Notwithstanding the foregoing, Property Tax shall be paid up to a maximum of ONE HUNDRED THOUSAND US DOLLARS (US$100,000.00) per year, provided that the assets acquired or built by THE COMPANY or its Affiliates are to be used for the development of THE PROJECT and are located in a province of the Republic where THE COMPANY or its Affiliates would have invested not less than TEN MILLION US DOLLARS (US$10,000,000.00) in mineral processing plants, ports or transport and cargo handling installations.
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I.
Industrial or commercial license tax up to maximum of TWENTY THOUSAND US DOLLARS (US$20,000.00) per year.
J.
Surface canons and royalties, subject to the stipulations of Clause Three, point B, what items 4 and 5 of this Agreement.
K.
Fifteen percent (15-%) of the benefits received by THE STATE in concept of surface canons and royalties which THE COMPANY has to pay hereunder shall correspond to the municipality(ies) within which the CONCESSION AREA is located, amount which shall be directly paid by THE COMPANY to the corresponding municipality or municipalities. THE STATE, through its pertinent entity, shall verify compliance with said obligation.
L.
Municipal Taxes. The total of Municipal Taxes that are paid to whichever municipalities shall not exceed the sum to ONE HUNDRED THOUSAND US DOLLARS (US$100,000.00) per year. Any additional amount which THE COMPANY must pay in concept of Municipal Taxes, above the aforementioned sums, shall be deductible by THE COMPANY as a fiscal credit against its Income Tax payment for the current year. The maximum amount of the payable sum in concept of Municipal Taxes shall be adjusted in proportion to the variations on the wholesale price index of the total manufactures of the Office of the Comptroller General of the Republic of Panama for two-year periods. The first adjustment shall be applied upon the fifth year of life of this Agreement, taking into account the changes occurred in the aforementioned price index during the two immediately previous years.
Thereafter, the successive adjustments shall be made at the end of each two-year period. In the event that said index was not available so that the adjustment provided in this Clause may not be made, THE STATE and THE COMPANY, by mutual agreement, shall apply another index or adjustment method.
M.
Any other taxes, rights, liens, duties, contributions, charges or impositions established or to be established in the future, and that are different to those for which THE COMPANY receives exemptions derived from this Agreement, and as long they are of general application, and that they are not contrary tonor exceed those established in the present Contract in this Agreement and in the legislation in force on the date on which this Agreement is enforced. It is understood that taxes, rights, liens, duties, contributions, charges and impositions that are only applied to a specific industry or to a determined activity shall not be considered as of general application.
II.
Without detriment to what is previously provided for in this Clause and in other provisions of this Agreement and with the sole exception of the respective surface canons and royalties, as long as THE COMPANY has either not finished repaying the debt which THE COMPANY or its Affiliates acquire for the construction and development of the project, THE COMPANY, and its Affiliates shall be totally exempted from the payment of any type of tax, rights, duties, charges, liens, contribution or tariff that may be caused due to any reason related to the development of THE PROJECT, with the exception of municipal taxes.
CLAUSE FIFTEEN
Direct Investment and Infrastructure
The COMPANY, its Affiliates, contractors and sub-contractors shall have the right to the use of a fiscal credit which may be used to pay to THE STATE those taxes , duties, charges, contributions and rights established by the law in force and this Agreement. Said fiscal credit shall be equal to the amounts invested by THE COMPANY its Affiliates, contractors and sub-contractors during the life of this Agreement in infrastructure pertaining to THE PROJECT of the following types or categories.
A.
Infrastructure and transportation equipment, including but without being limited to roads, railroads, bridges, energy generating plants, electric power transmission lines and telecommunication transmission lines.
B.
Facilities and installations for transportation, storage, treatment and removal of water, including, canals, dikes, aqueducts, sewage systems piping, tubing, dams, storage tanks and reservoir dams.
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C.
Maritime installations, ports, docks, piers, breakwaters, mobile and fixed installations for loading and unloading ships, facilities for loading of waste and cargo of barges.
D.
Housing or lodging for workers.
E.
Social type infrastructure, including hospitals and first aid stations, structures for social and recreational use of the community, streets, sidewalks, and ornamentation, built with prior authorization from THE STATE.
Paragraph 1: The fiscal credit due to direct investment may be used in various fiscal years until covering 100% of the investment.
Paragraph 2: In order to receive the benefit referred to in this Clause,, the corporation that has made an Investment shall present a request to the Ministry of Finance and Treasury, so that the later willto certify the investment in the corresponding fiscal year.
Adjoining this request should be, among others, the following documents::
1.
Copy of the work contracts, if any, regarding the pertinent investment.
2.
Payment vouchers of all costs and expenses performed.
3.
Copy of the plans of the work.
4.
Construction and occupation permits, and
5.
Certification issued by a Certified Public Accountant evidencing the amount of the investment.
Paragraph 3: The General Directorate of Revenues of the Ministry of Finance and Treasury, previous analysis of the documents submitted by the corporation that executed the investment and inspection of the works built, shall issue, with due celerity, the corresponding fiscal credit.
Paragraph 4: There is no possibility of receiving a credit in relation to cost of depreciable assets, in spite of the fact that they are part of the previously described infrastructure, if THE COMPANY or its AFFILIATES, contractors, or sub-contractors, according to the case, have decided to include the cost of said assets in the depreciation accounts established according to Clause Thirteen of this Agreement.
Paragraph 5: In any fiscal year THE COMPANY, its AFFILIATES, contractors or sub-contractors may use the portion that it determines of the balance of the credits derived from investments in infrastructure not used in previous years, as a credit for the payment of those taxes that THE COMPANY selects, it being understood that said credit shall not be applied with the purpose of decreasing the amounts to be paid in concept of taxes or royalties in any year to less than half of what the Company would be otherwise obliged to pay.
Paragraph 6: The General Direction of Revenues will maintain a registry of the amount of fiscal credits granted due to this Clause, as well as its use, assignment and favorable balances thereof.
CLAUSE SIXTEEN
Taxes on Moneylenders and Shareholders of THE COMPANY
Natural persons or body corporates and international agencies, that grant or guarantee financing in any manner or form acknowledged by THE COMPANY, or its Affiliates, contractors and subcontractors for the construction, operation and development of THE PROJECT, or any part thereof, shall be exempted from any type of taxes, rights, duties, charges, liens, contribution and imposition, including Income Tax, that might be caused by interest earned by said loans, discounts, commissions or other payable financial charges due to loans or guarantees, whatever the origin of the funds of those loans or guarantees, and whichever the development phase of THE PROJECT object of the respective credit or the manner in whichas said taxes are charged or collected, it being understood that THE COMPANY shall not be obliged to perform retentions of any nature regarding aforementioned financing. These credits shall no t be subject to the provisions established in Article 2 of Law 4, of 1935.
CLAUSE SEVENTEEN
Monetary Matters
The STATE shall allow THE COMPANY and its Affiliates to maintain amounts abroad in any currency and freely perform remittances of any nature including but without limited to remittances to repay advances and investments, to pay dividends, interests and profits coming from or related to THE PROJECT, exempted from any tax, and all retention impositions and obligations during the life of this Agreement. Likewise THE COMPANY and its Affiliates may keep bank accounts outside the Republic of Panama.
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CLAUSE EIGHTEEN
Registry of Concessions, Rights and Privileges
The STATE has issued and shall issue in favor of THE COMPANY, the adequate documents evidencing the specific concessions, rights and privileges arising from this Agreement and their assignments or transfers, of the same, and at all times shall comply with the administrative and legal requirements, in order for THE COMPANY to develop its activities, exercise its rights and enjoy its privileges, without the outcome of any interferencenor obstacles which would prevent its full enjoyment. Only for advertising purposes, but without this being understood as a requirement or formality that affects the life or the effectiveness of the Concession, THE COMPANY may register free of charges the Concession under this Agreement in the Mining Registry of the General Direction of Mineral Resources.
CLAUSE NINETEEN
Notices
Notices and additional communications established by the provisions of this Agreement, shall be done in writing andbe delivered personally at the following indicated addresses, according to the case, or sent to the address that the pertinent party indicates to the other by means of a written notice, with acknowledge of receipt, unless the parties agree otherwise.
1)
Ministry of Commerce and Industries
Edificio de la Loteria, Piso No. 21
Calle entre Avenida Cuba y Avenida Peru
Telephone:
227-4177
Fax:
227-5604
2)
Minera Petaquilla, S. A.
Swiss Bank Tower, Piso 13
Urbanizacion Marbella
Telephone: 223-5341
Fax:
223-3032
3)
Geo-Recursos Internacional, S. A.
Banco General Tower, Piso 45
Urbanización Marbella
Telephone: 223-5488
Fax:
223-8425
4)
Adrian Resources, S. A.
Banco General Tower, Piso 25
Urbanización Marbella
Telephone: 223-5488
Fax:
223-8425
CLAUSE TWENTY
Acts of God or Force Majeure
For the purposes of this Agreement, the following events or circumstances among others, shall be considered as Acts of God: epidemics, earthquakes, landslides, storms or other adverse meteorological conditions, explosions, fires, lightning, as well as any other cause, that they are or not of the nature described, that is unpredictable or that is beyond the control of the affected party, and that to the point that it delays, restricts or prevents the timely action of the affected party.
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For the purposes of this Agreement, the following events, acts or new circumstances, among others, shall be understood as force majeure, revolutions, insurrections, civil uprisings, blockages, commotions, embargoes, strikes and other labor conflicts which are not attributable to fault or negligence of the corresponding employer or of THE COMPANY or Affiliates or contractors or subcontractors, orders or instructions of any Government in law or in fact, or entity or subdivision of the same, the price of minerals in the international market to a degree such that it renders the exploitation of THE PROJECT economically non-profitable, delay in the delivery of machinery, faults of the installations or machinery, wherever they happen, not attributable to the affected party, that adversely affects the operation of THE PROJECT and, in general, any event, occurrence or circumstance that is unpredictable or that out of the control of the affected party and to the point that it delays, restricts or prevents its timely action and is not attributable to its fault or negligence.
It is understood that, as long as they are not obligations consisting in money payments, if one of the parties ceases to comply with any of the obligations undertaken pursuant to this Agreement, ,such non-compliance shall not be considered a violation or non-compliance when the same is originated due to an act of God or force majeure. If any activity, as long as it is not an activity pertaining to money payment, is delayed, restricted or precluded due to an Act of God or force majeure, both the established term to carry out the activity affected, as well as the terms of the present Agreement shall be extended for a term equal to the effective duration of the acts of God, force majeure or their causes. The investments that THE COMPANY undertakes to perform based on the Feasibility Study shall not be considered under any concept as obligations consisting in payment of money.
The party whose capacity to comply with its obligations is affected by an Act of God or force majeure shall notify, as soon as feasible, the other party in writing regarding the event, mentioning its causes and the parties will make all the reasonable possible efforts to overcome the event. Notwithstanding the foregoing, neither party shall be obliged to solve or end any conflict that it may have with third parties or with the labor force related to THE PROJECT, except in acceptable conditions or according to the decision of an arbitrator pronounced according to Clause Twenty three of this Agreement or an order from the competent judicial or administrative authority that has been duly executed or that in any other manner has a definite and coercive nature.
CLAUSE TWENTY ONE
Applicable Law
This Contract shall be the legal standard between the parties and shall be governed by the applicable laws that are currently in force in the Republic of Panama, except to the point that said laws or legal provisions that are contrary or inconsistent or incompatible with this Agreement are not of general application, it being understood that those laws that are only applicable to an industry or a determinate activity shall not be considered of general application. In the cases not foreseen in this Agreement, and as long as they are not inconsistent or incompatible with their provisions, the standards of the Mineral Resources Code shall apply to this Agreement in an auxiliary manner.
The COMPANY, its Affiliates, successors and assignees waiveany diplomatic claim in regards to the duties and rights deriving from this Agreement, except in the case of denial of justice. It is understood that it shall not be considered that denial of justice has occurred if THE COMPANY has not previously tried to make use of the arbitration right conferred by the present Agreement.
CLAUSE TWENTY TWO
Substantial Defaults
For the effects of the present Agreement, “Substantial Default” shall be understood as the default or delay in relation with the compliance with any of the obligations to which the parties are subject according to this Agreement when, if as a consequence of that default or delay, the value and the interests of the Agreement substantially decrease for the other party. While the Substantial Default situation exists, the party affected by said default may deliver to the responsible party a written notice of its decision to, end the Agreement and in this event this Agreement shall terminate one hundred and eighty (180) calendar days after the receipt of said notice, unless the default or delay is not corrected before the end of said term. In the event that said Substantial Default is of a nature that makes it necessary to have a term greater than one hundred and eighty (180) calendar days so it can be corrected, and the responsible party is diligently dedicated to correct the default or delay, there shall be no cause to end the Agreement at the end of the established term, unless later on further interruptions of those efforts, attributable to the party responsible for correcting the default or delay occur. The parties agree that the right of the party affected to end the Agreement shall be suspended while the parties are in the process of solving any conflict related to the alleged Substantial Default as provided in Clause Twenty two or by means of any other method allowed by the laws in force and this Agreement and for a term of sixty (60) days after the date on which the existence of Substantial Default alleged by the party affected is determined.
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The termination of this Agreement according to the stipulations of this Clause, shall not affect the following rights:
a)
The right of the damaged party to receive from the other party a monetary compensation for damages caused by the default or delay, and
b)
The rights of any of the parties issuing from and accrued according to the provisions of this agreement, until the date on which the termination comes into effect.
CLAUSE TWENTY THREE
Arbitration
The parties declare their firm purpose of examining in the most objective and friendly manner all discrepancies that may arise between them regarding the present Agreement, with the intent of solving said divergences. All conflicts that arise regarding the present Agreement, and that cannot be solved in the before mentioned manner, shall be finally resolved through arbitration, according to the Procedure Regulations of the Interamerican Commission on Commercial Arbitration, in force on the date this Agreement, unless at the time of submitting to arbitration, the parties expressly agree to be governed by the regulations that may than be in force.
Controversies arising between the parties regarding the objective, application, execution or interpretation or the present Agreement shall be susceptible to arbitration as established in this Clause, as well as those related with its validity, compliance or termination, except for those controversies referring to the respect of the integrity of the Constitution.
The Arbitration shall be limited to the subject matter subject of the controversy and pending on the resolution, shall not have the effect of suspending or delaying compliance with the obligations issuing from this Agreement, with the exception of the events of force majeure or acts of God described in Clause Twenty of this Agreement or that the stipulations of Clause Twenty Two be applied with DA = Deduction due to Depletion. TA comes before. The parties agree that the execution of the decisions of the arbitrators will be pronounced by the courts of justice of the Republic of Panama or, in the event that execution is needed abroad, by the courts of justice of any State that is a part to international treaties recognizing said arbitrage decisions of which Panama is also a party. To that effect said arbitration decisions shall be considered as if they had been pronounced by Panamanian arbitration courts pursuant to the l egal provisions now in force.
CLAUSE TWENTY FOUR
Abandonment
In the event that THE COMPANY decides to partially or totally abandon THE PROJECT during the life of the Agreement, or due to its termination or expiration, whichever the cause may be, it undertakes to notify said decision to Ministry of Commerce and Industries two years in advance. Jointly with such notice, a Restoration Plan for the affected area shall be submitted for the consideration and approval of the Ministry of Commerce and Industries. Once said Plan is approved, it shall be of mandatory compliance for THE COMPANY.
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CLAUSE TWENTY FIVE
Severability
In any Clause of the Agreement is annulled totally or partially, the validity of the rest of the Agreement shall not be affected.
CLAUSE TWENTY SIX
Compliance Guarantee
With the purpose of guaranteeing compliance with the present Agreement, THE COMPANY shall consign a guarantee of THREE MILLION US DOLLARS (US$3,000,000.00) in favor of THE STATE by means of cash, certified check, insurance policy from an insurance company, promissory note from a financial institution, letter of credit issued by a local bank, banking guarantees or by any means allowed by the laws in force. Said bond shall be consigned by THE COMPANY within the one hundred and eighty (180) days following the date on which the law approving this Agreement is published in the Official Gazette and for the term of the Agreement. The same shall be drawn in favor of the Ministry of Commerce and Industries and the Office of the Comptroller General of the Republic of Panama. Said bond shall be canceled and returned to THE COMPANY at the termination of this Agreement.
CLAUSE TWENTY SEVEN
Stamps Taxes
This Agreement shall be in force as of the date enactment of the law approving its subscription, and shall cause the payment o the amount of B/.1,000.00 in concept of stamp taxes.
CLAUSE TWENTY EIGHT
Subrogation
This Agreement, including its Annexes I, II, III and IV, constitutes the sole agreement between the parties in relation to its object matter. Effective as of the date of enactment of the law approving this Agreement, Agreement No. 27-A of August 7, 1991 subscribed by THE STATE and GEORECURSOS and whichever other contracts, amendment, agreement or understanding between THE STATE and GEORECURSOS in relation to the CONCESSION AREA, as well as whichever claim or proceeding which the parties may have pertaining to or with occasion of the subscription, compliance or termination of such previous contracts or agreements.
By the law approving this Agreement and its Annexes, it shall be understood that Cabinet Decree number 267, of August 21, 1969 is totally annulled.
This Agreement including its Annexes, requires the approval of the Legislative Assembly of the Republic of Panama. The minister of Commerce and Industries will submit to the Legislative Assembly of the Republic of Panama the draft bill whereby the present Agreement and its Annexes is approved within the fifteen (15) days following its subscription.
IN WITNESS WHEREOF, the parties subscribe the present, Agreement in two (2) copies, of the same tenor and effect, in the City of Panama, on the sixteenth day February of nineteen hundred ninety-six (1996)
For THE STATE:
For THE COMPANY:
/sgd/
/sgd/
NITZIA R. DE VILLARRAL
RICHARD FIFER
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For GEORECURSOS:
For ADRIAN:
/sgd/
/sgd/
RICHARD FIFER
RICHARD FIFER
Countersignature:
GUSTAVO PERZ
Comptroller General of the Republic
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ANNEX I
Description of the Concession Area
The Concession, as defined in this, Agreement has a total area of 13,600 Hs. and its description is as follows:
Zone No. 1: Starting form Point No. 1, which geographical coordinates are 80°41’59,02” of western length and 8°51’25,11” of north latitude, a straight line is followed in eastern direction by a distance of 8,000 meters until finding Point No. 2, which geographical coordinates are 80°37’38.15” of western length and 8°51’25.11” north latitude; from there a straight line is followed in south direction by a distance of 5,000 meters until reaching Point No. 3, which geographical coordinates are 80°37’38.15” of west length and 8°48’42.07” of north latitude, from there a straight line is followed of west direction by a distance of 8,000 meters until reaching Point No. 4, which geographical coordinates are 80°41’59.02” of west length and 8°48’42.07”of north latitude; from there a straight line is followe d in north direction by a distance of 5,000 meters until finding the starting Point 1.
This zone has a total surface of four thousand (4,000) Hs. and it is located in the Jurisdiction of Northern Cocle and San Jose del General, Donoso District, Province of Colon.
Zone No. 2: Starting from Point No. 1, which geographical coordinates are 80°45’14.67” of west length and 8°54’40.76” of north latitude, a straight line is followed in east direction by a distance of 6,000 meters until finding Point No. 2, which geographical coordinates are 80°41’59.02” of west length an 8°54’40.76” of north latitude, from there a straight line is followed in south direction by a distance of 11,000 meters until reaching Point No. 3, which geographical coordinates are 80°41’59.02” of west length and 8°48’42.07” of north latitude, from there a straight line is followed in western direction by a distance of 6,000 meters until reaching Point No. 4, which geographical coordinates are 80°45’14.67” of western length and 8°48’42.07” of north latitude, from where a straight line is follow ed in north direction until reaching Point 1 which is the starting point. This zone has a total area of 6,000 Hs. It is located in the Jurisdiction of Northern Cocle, Donoso District, Province of Colon, and borders in the east with the Zone No. 1.
Zone No. 3: Starting from Point N. 1, which geographical coordinates are 80°40’53.8” of west length and 8°48’42.07” of north latitude a straight line is followed in east direction by a distance of 6,000 meters until finding Point No. 2, which geographical coordinates are 80°37’38.15 of west length and 8°48’42.07” of north latitude, from there a straight lie is followed in south direction by a distance of 2,000 meters until reaching Point No. 3, which geographical coordinates are 8°47’36.85” of north latitude, from there a straight line is followed in western direction by distance of 6,000 meters until reaching Point No. 4, which geographical coordinates are 80°45’53.8” of western length and 8°47’36.85” of northern latitude, from there a straight line is followed in northern direction until finding point 1, which is the starting point. This zone has a total area of 1,200 Hs., and it is located in the Jurisdiction of San Jose del General, Donoso District, Province of Colon, and adjoins on the north with the Zone No. 1 granted to GEO-RECURSOS INTERNACIONAL, S.A, according to Agreement No. 27-A of August 7, 1991.
Zone No. 4: Starting from Point No. 1., which geographical coordinates are 80°37’38.15” of west length and 8°50’52.55” of north latitude a straight line is followed in east direction by a distance of 3,000 meters until reaching Point No. 2, which geographical coordinates are 80°36’0.48” of west length and 8°50’52.55” of north latitude; from there a straight line is followed in south direction at a distance of 6,000 meters until finding Point No. 3, which geographical coordinates are 80°36’0.48” of west length and 8°47’36.85” of north latitude, from there a straight line is followed in west direction by a distance of 3,000 meters until finding Point No 3., which geographical coordinates are 80°37’38.15” of west length and 8°47’36.85” of north latitude, from where a straight line is followed in nor th direction by a distance of 6,000 meters until finding point 1, which is starting point. This zone has a total area of 1,800 Hs. It is located in the Jurisdiction of San Jose del General, Donoso District, Province of Colon, Republic of Panama and adjoins on the west with the Zone No. 1 granted to the company, GEO-RECURSOS INTERNACIONAL, S.A, according to Agreement No. 27-A of August 7, 1991 and to the Zone No. 3 requested by the Company of the same name.
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ANNEX II
DEFINITION OF THE FEASIBILITY STUDY – CERRO PETAQUILLA PROJECT BASE
The Feasibility Study, which shall include any necessary modifications at the time the economical aspects and financial costs are established, shall consist of a feasibility study that contains all information necessary to decide whether THE PROJECT shall be commercially exploited..
In the preparation of the Feasibility Study the following procedures shall be followed:
The tests in scale model have been completed in most parts and shall be supported by tests carried out in pilot plants, should the latter be necessary. Specifications of the products shall be based on marketing research. Several visits may be required to the place where the plant is installed.
Listings of equipment and designs shall be made, for their location backed by pipeline system drawings of pipelines of one sole strip and electric wiring. Equipment specifications shall not be included and formal bids will not be required from suppliers however, written quotes should be obtained from at least one supplier for each important item. Installation costs of the machinery shall be determined, based on former experience, based on weight and percentage factors. Installation costs of pipelines and electrical wiring may be based on approximations with regard to the extensions of electrical wiring and pipeline. An estimate of the construction cost of the plant and camp shall be provided and estimates on designing costs may be more precise. Income shall be estimated on the basis of estimates on plant performance and payment indicators coming from foundations and other buyers.
Data Required
It will be necessary to have available proper topographic and geotechnical data. Written reports related to metallurgic works should be available. Actual costs of labor available in the region shall be determined, and written quotations from basic material suppliers should be obtained, such as: fuel, explosives, atomizers, reactives, etc., if deemed necessary. Rates from companies providing public services should be obtained, such as water, light, gas, and telephone providing service to the region. If necessary research should be made for obtaining permits and licenses from governmental agencies when required. Regulations applicable to water and air pollution should be studied.
Training Required
The Feasibility Study shall be prepared under the supervision of a project engineer with knowledge of the mining industrial sector as referred to in this study. Considering the existence of general design drawings, pipeline system drawings, electrical wiring and placement of instrumentats, it will be possible to use the services of capable professional project specialists trained to make projections relating to electrical wiring, pipelines and instrumentation as well as experienced project specialists experience relating to the industry referred to in the study.
Use of Estimates
The overall factor of contingencies for the Feasibility Study shall be between 10% and 15%. The percentages assigned to contingencies shall constitute estimating prices and should not be construed as an indication that estimates are necessarily precise within the margin of contingencies, nor as an implicit reference to any degree of precision. In general, the Feasibility Study shall be adequate to determine the feasibility and assist the administration in the preparation of a budget for THE PROJECT.
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ANNEX III
Preliminary Investment Program
ENGINEERING AND ACQUISITIONS US$24,000,000.00
Requests and Construction Permits Authorizations
Detailed Engineering
Acquisitions
Agreements
Field Studies
CONSTRUCTION/MINING US$67,000,000.00
Pre-production (Phase I)
Waste Deposit (Initial)
Access Route (Llano Grande to Petaquilla)
PROCESSING INSTALLATIONS US$102,000,000.00
Crushing
Excavation and Backfill/Concrete
Retaining Wall-Reinforced Soil
Installation of Crushing Machine
Steel for Construction of Building and Enclosure
Machinery, Piping, Electrical Wiring and Instrumentation
Transports
Ore Piling and Restoration
Concentrator
Excavation, Concrete and Slab
Building, Internal Steel and Enclosure
Installation of Mills
Machinery, Piping, Electrical Wiring and Instrumentation
SITE AND GENERAL US$118,000,000.00
Clearing, Weed-cutting, Preliminary Grading
Roads, Fencing, Entry /Booth, Parkings
Storage, Water Provision and Distribution
Sewage Collection and Discarding
Reservoir for Settlement of Mine Wastes
Electricity Provision and Transmission
Main Substation Wiring and Additions
Communications
Fuel Storage and Distribution
BUILDING FOR SERVICE TO THE PROJECT US$9,000,000.00
Administration and Engineering Building
Rolling Equipment Workshop/Warehouse/Dry Explosive Warehouse
Testing Laboratory
WASTE AND RESTORATION SYSTEM US$28,000,000.00
INFRASTRUCTURE AND INSTALLATION US$13,000,000.00
Construction Camp
Aeronautic Installations
New Airdrome/Landing Strip
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PORT US$47,000,000.00
Conditioning of Site and Streets
Water System and Pipes
Generation of Electric Energy
Installations for Shipment of Concentrate and Supplies
Note: The foregoing figures are subject to variation on the basis of final results of the Feasibility Study.
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ANNEX IV
MINERA PETAQUILLA, S.A., duly represented by Eng. Richard Fifer, male, Panamanian, of legal age, engineer, bearer of personal identification card Item, 8-433-263, hereinafter “MINERA”; and ADRIAN RESOURCES, S.A., duly represented by Juan Francisco Pardini, male, Panamanian, of legal age, bearer of personal identification card Item, 8-223-797, hereinafter “ADRIAN”, state that they agree to the following:
WHEREAS, MINERA together with THE STATE shall subscribe a Mining Concession Agreement (“AGREEMENT”) on the Concession Area as said term has been defined in the, Agreement and will receive determined specific rights according to same with respect to deposits located in the area of Cerro Petaquilla; and
WHEREAS, ADRIAN is holder of certain mining grants adjoining the aforementioned Concession Area identified as: Agreement No. 41 of July 12, 1994, Agreement No. 39-A of July 7, 1994, Agreement No. 39-B of July 7, 1994, Agreement No. 59 of December 29, 1994, all subscribed by and between the Ministry of Commerce and Industries and ADRIAN; and concession requests Nos. 93-92, 93-93 and 94-39, according to the records kept in the General Direction of Mineral Resources of the Ministry of Commerce and Industries of the Republic of Panama (hereinafter (“ADJACENT CONCESSIONS”); and
WHEREAS, MINERA and ADRIAN wish to acknowledge certain reciprocate rights and obligations regarding the use of easement rights and the use of the Area of the aforementioned Concession and on areas corresponding to the Adjacent Concessions, as well as of construction and location and use of facilities and installations. In consideration of the foregoing , MINERA and ADRIAN state and agree as follows:
1. THE COMPANY and its affiliates shall be entitled to the easement of use on the surface and subsoil of the Area identified as Adjacent Concessions and access to the area comprising the Adjacent Concessions for whatever reason or cause which, that according to THE COMPANY, is convenient for the proper exploration, construction, development or exploitation of THE PROJECT, including the right to, place, construct, build, operate, maintain and use in, or remove from, the Adjacent Concessions any type of facility or installation deemed convenient by THE COMPANY (hereinafter the “Adjacent Installations”). It is understood that the rights of access and of easement of use referred to in this paragraph granted in favor of the Concession, shall go with, and be inseparable of, the lands comprising the Adjacent Concessions and that same shall outlive any sale, transfer, assignation or granting of any type of right or interest, including rights protected under any type of mining concession existing or which may exist on said adjacent estate.
2. Without impairment to the above, before establishing or constructing any permanent or non movable installation or structure in the areas comprised by the Adjacent Concessions, THE COMPANY, or any affiliate or contractor or subcontractor of same, or any transferee or successor of part or the whole of the Concession, as defined in Annex 1 of the Agreement should carry out all the geotechnical research, including drilling works for condemnation of specific areas and any other necessary to determine the environmental technical and economical viability of the site, in which it is proposed to construct or establish the permanent installations or structures and shall carry out an exploration of the area of the Adjacent Concession, to be covered by said installation or structure, to confirm that there does not exist actual or potential minerals sufficiently near the surface of the proposed site so that its safe and econo mic extraction disabled or impaired by the presence of the permanent installation or structure it intends to establish, and shall provide the results of the mentioned research and exploitations to the holder of the Adjacent Concession(s) which may be affected.
Without impairment to provisions of item 1 of this Annex IV, THE COMPANY or the respective holder or beneficiary of the Concession, as the case may be, which has placed any movable structure or installation in the area known as the Adjacent Concessions, shall remove as soon as possible, at its own account and cost, said structure or installation or a portion of same if, according to the reasonable opinion of the holder of the affected Adjacent Concessions, its location is unfavorable for the mineral exploitation contemplated in said Adjacent Concession.
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Without impairment to provisions in item 1 of this Annex IV, THE COMPANY or the respective holder or beneficiary of the Concession, as the case may be, shall carry out its activities related to the construction, installation and operation of any structure or installation located in the area comprised by the Serving Concession carefully and according to the principles of good mining practices and the laws in effect in the Republic of Panama, and should indemnify the holder of the Adjacent Concession affected for any expense, action or demand against the later , resulting from the cited activities performed by THE COMPANY or the beneficiary holder of the Concession.
3. If at any time any of the Adjacent Installations has a surplus capacity not necessary to carry out the existing or scheduled operations of THE COMPANY and it has not previously committed itself to third parties after having granted a first option to the holder of the respective Adjacent Concession, THE COMPANY shall make available to the holder of the Adjacent Concession where the respective installation is located, this surplus capacity, provided this holder is an Affiliate of THE COMPANY, in the understanding that it will be done in fair terms and always in conditions not more favorable to THE COMPANY than those applicable in the event of sale, license or other rights of use to third parties or affiliates of an installation similar to the Adjacent Installation.
4. The parties state that any conflict or dispute arising between the same for reason of the execution or fulfillment of what has been covered in this agreement shall not affect in any way the respective obligations and commitments that entail MINERA, according to the Agreement and to ADRIAN with regard to the Adjacent Concessions in the face of THE STATE, unless the respective conflict or dispute be motivated or caused by any act or omission of THE STATE.
IN WITNESS WHEREOF, this document is entered into in two similar copies in Panama, December 5, 1995.
by ADRIAN RESOURCES, S.A.
by MINERA PETAQUILLA, S.A.
(signed)
(signed)
JUAN FRANCISCO PARDINI
RICHARD FIFER
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Article 2. This Law shall enter into effect as of its promulgation; it annuls Cabinet Decree 267 of 1969 and any provision contrary to same.
LET IT BE NOTIFIED AND EXECUTED.
Approved in third debate, in the Justo Arosemena Palace, Panama City, on January 30, nineteen hundred ninety seven (1997).
CESAR A PARDIC
VICTOR M. DE GRACIA M.
President
Secretary General
NATIONAL EXECUTIVE BODY. MINISTRY OF THE PRESIDENCY
PANAMA, REPUBLIC OF PANAMA, FEBRUARY 26, 1997
ERNESTO PEREZ BALLADARES
RAUL ARANGO GASTEAZORO
President of the Republic
Ministry of Commerce and Industries
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EXHIBIT 11.A
PETAQUILLA MINERALS LTD.
and its Principal Subsidiaries
(collectively, “the Company" or “Petaquilla”)
CODE OF BUSINESS ETHICS AND CONDUCT
(“the Code”)
Acting with integrity, honesty and in good faith with respect to what is in the best interests of the Company's stakeholders is fundamental to the Company's reputation and ongoing success. Petaquilla is committed to sustainable growth within the parameters of ensuring the safety and well-being of its employees, protecting the environment, and supporting the communities in which it operates. The directors, officers and employees of the Company must be committed to upholding these responsibilities in all facets of the Company's day to day operations.
In addition, the directors, officers and employees of the Company and persons or companies related to or controlled by same are expected to act in accordance with applicable laws and with the highest standards of ethical and professional behaviour. The Company's directors, officers and employees must understand and adhere to the Code and the Company’s other corporate policies. By adopting and enforcing the Code and the other policies, the directors will provide an ethical environment to flow through the Company – “tone at the top” is created with clear communication of expectations from corporate executives, accompanied by congruent behavior throughout the Company. These policies include, but are not limited to, the Company's (a) Corporate Disclosure Policy; (b) Electronic Communications Policy; (c) Whistle-Blower Policy; (d) Anti-Fraud Policy, and (e) Health and Safety Policy, and with department al policies not included in this Code.
The Directors shall arrange for translation of the Code into Spanish and shall cause both the English and Spanish language versions to be posted on the Company’s intranet site for viewing by all directors, officers and employees of the Company. It should also be posted in hard copy in all Company locations so that it is easily viewable by all staff.
If clarification of this code is required, the VP Corp Affairs in Vancouver (English), or the Manager of Human Resources in Panama (Spanish), should be contacted.
The Directors shall also arrange for distribution of individual letters to all staff, in English or in Spanish as appropriate, notifying staff members of the existence of the Code and its existence in both hard and electronic copies. Staff shall initial receipt of the letters to indicate that they have received, or have access to the Code.
Failure to comply with the Code, and the rules and procedures outlined in the Company's corporate policies may result in discipline, suspension or dismissal of any officer or employee of the Company. The Company and, specifically, Corporate Counsel may also be required by law to report material violations of securities legislation to the relevant authorities.
For further information on discipline, suspension or dismissal, please refer to the Company’s Disciplinary Policy.
Standards of Conduct
1.
Conflicts of Interest
All directors, officers, and employees have a duty to act in the best interests of the Company. A "conflict of interest" takes place when an individual's private interest improperly takes precedent over the interests of the Company or interferes, or appears to interfere, with the interests of the Company. A conflict may arise when an individual takes actions or has private interests that impede his ability to perform his or her Company work objectively and effectively, in the best interests of the Company. Directors, officers and employees should avoid conflicts of interest, and in no circumstances may use their position at the Company to obtain any improper personal benefit.
The Company respects the right of directors, officers, and employees to take part in business and other activities outside of their Company obligations. These activities, however, must not conflict with their responsibilities as Company directors, officers, and employees. The Company’s directors, officers, and employees must not serve as directors, officers, employees or consultants for a competitor, or an actual or potential business partner of the Company, without written approval of the Board of Directors.
Company directors, officers, and employees may not invest in or trade in shares of a competitor or an actual or potential business partner of the Company where such investment or trading may appear or tend to influence business decisions or compromise independent judgment. This prohibition does not apply to shares of a publicly traded company where such investment or trading relates to less than five percent of its issued shares. However, investing or trading in the Company's competitors or business partners remains subject to applicable laws and regulations regarding insider trading, including prohibitions against trading when in possession of material non-public information regarding such companies, whether such information is gained in the course of employment with the Company or otherwise.
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Acceptance by a director (or a member of his or her immediate family), officer (or a member of his or her immediate family), or employee (or a member of his or her immediate family) of gifts or entertainment of a value that may influence business decisions or compromise independent judgment is prohibited.
If a conflict of interest exists, and there is no failure of good faith on the part of the director, officer, or employee, the Company's policy generally will be to allow a reasonable amount of time for the director, officer, or employee to correct the situation in order to prevent undue hardship or loss. However, all decisions in this regard will be at the discretion of the Board of Directors, whose primary concern in exercising such discretion will be the best interests of the Company.
If a director, officer, or employee is aware of a material transaction or relationship (including those involving family members) that could reasonably be expected to give rise to a conflict of interest, they should discuss the matter promptly with their immediate supervisor, department head, or the Board of Directors.
2.
Protection and Proper Use of Company Assets and Opportunities
All directors, officers, and employees should protect the Company’s assets and ensure their efficient use. The Company’s assets must be protected from loss, damage, theft, misuse, and waste. Company assets include time at work and work product, as well as the Company’s equipment and vehicles, computers and software, trading and bank accounts, Company information and the Company’s reputation, trademarks and name. The Company’s telephone, email, voicemail and other electronic systems are primarily for business purposes. Personal communications using these systems must be minimized. directors, officers, and employees should exercise prudence in incurring and approving business expenses, in the service of the Company’s interests, ensuring they are reasonable in the circumstances.
3.
Information Systems
Use, duplication, or sale of proprietary software, except as described in the manufacturers/ owners licence agreement or conditions applying to use, is an infraction of copyright law and is strictly prohibited. The Company's electronic communications systems are Company resources and all electronic communications are regarded as Company records. Offensive material (e.g. pornography) is not permitted on the Company systems in any form. The Company reserves the right to monitor employee use of its information systems. Subject to Board of Director’s approval, the Company may access and disclose the contents of electronic messages and files. The Company does not guarantee the privacy of electronic communications or information stored on Company systems. This material may be accessed through activities such as the maintenance of mail systems and computer networks.
Directors, officers, and employees owe a duty to the Company to not act in any way contrary to the Company’s legitimate interests. Directors, officers, and employees are prohibited from (a) taking for themselves personal opportunities that are discovered through the use of corporate property, information or position, unless the Board of Directors of the Company has already been offered the opportunity and declined it; (b) using corporate property, information, or position for personal gain without disclosure to and approval by the Board of Directors; and (c) without the knowledge and consent of the Board of Directors competing with the Company.
4.
Confidentiality
Directors, officers, and employees should maintain all confidential information in strict confidence, except when disclosure is authorized by the Company or legally mandated. Confidential information includes, among other things, any non-public information concerning the Company, including its business, financial performance, results or prospects, and any non-public information provided by a third party with the expectation that the information will be kept confidential and used solely for the business purpose for which it was conveyed. The obligation to safeguard the Company’s confidential information continues after the engagement or directorship with the Company has ended. The Company’s policy on maintaining confidentiality is set forth in the Company’s Corporate Disclosure Policy.
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5.
Fair Dealing
Each director, officer, and employee should endeavor to deal fairly with the Company's counterparties, suppliers, competitors and employees. No director, officers, or employee may take unfair personal advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair-dealing practice.
6.
Employee Harassment or Discrimination
The Company is committed to fair employment practices and a workplace in which all individuals are treated with dignity and respect. The Company will not tolerate or condone any type of discrimination prohibited by law. The Company expects that all relationships among persons in the workplace will be professional and free of bias and harassment.
7.
Public Disclosure
The Company, through news releases, website content, and filings with securities regulatory authorities, is committed to providing timely, factual and accurate disclosure of material information about the Company to its shareholders, the financial community and the public. The Company's policy governing public disclosure is set forth in the Company’s Corporate Disclosure Policy. Directors, officers and employees involved in the Company's disclosure process are responsible for acting in furtherance of such policies. It is important that they thoroughly understand and comply with them.
8.
Compliance with Laws, Rules and Regulations
The Company is committed to compliance with all applicable laws, rules, and regulations in each jurisdiction in which it does business. All directors, officers, and employees are expected to obey those laws, rules, and regulations in each jurisdiction. Directors, officers, and employees should educate themselves on the laws, rules, and regulations that govern their work and, if uncertain, should seek the assistance of their supervisor or department head.
The Company, its directors, officers, and employees are subject to laws and regulations regarding insider trading. Generally, Canadian and United States securities laws prohibit trading in the securities (including equity securities, convertible securities, options, bonds, and any stock index containing the security) of any company while in possession of material, non-public information regarding such company. This prohibition applies to Company securities as well as to the securities of other companies. The Company has adopted a policy on Corporate Disclosure in order to prevent improper trading in securities of the Company and the improper communication of undisclosed material information regarding the Company.
It is unlawful under the Foreign Corrupt Practices act to make payments to foreign officials for the purpose of obtaining or retaining business for, or with, or directing business to, any one person. The Company’s representatives may encounter particular pressure to make such payments in countries where extraordinary competition exists for mining opportunities and should be particularly vigilant not to be tempted by assertions that such practices are common or condoned in that country. Examples of improper payments include gifts, tips or other monetary amounts not required by law, providing entertainment, and sponsoring government travel. If an individual is uncertain that any conduct or proposed conduct is appropriate, they should discuss the matter with their supervisor or department head.
9.
Political Contributions and Activities
The Company must maintain a position of impartiality with respect to national, regional, or local politics. As a result, the Company does not contribute funds to any political party, politician, or candidate for public office in any country. The Company may contribute information to the public debate of policy issues that affect the Company in the countries in which it operates, such as discussing relevant issues with government officials or providing written advice about the likely impact of proposed policies on the Company. At times, attendance at events hosted by a political party may be required for briefing purposes. The Board of Directors must be consulted if in doubt about whether attendance at a function would compromise the Company’s impartiality.
10.
Environmental, Safety, and Occupational Health Practices
The Company believes that sound environmental, safety, and occupational health management practices are in the best interests of its business, its employees, its shareholders, and the communities in which it operates. The Company is committed to conducting its business in accordance with recognized local industry environmental, safety, and occupational health practices and standards and to meeting or exceeding all applicable environmental and occupational health and safety laws and regulations. This is the responsibility of all directors, officers, and employees.
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The Company's safety and occupational health policy is set forth in Petaquilla’s Health and Safety Policy. It is important that directors, officers, and employees thoroughly understand and comply with such policy.
11.
Alcohol, Drug and Tobacco Use
The Company’s directors, officers, and employees are to take appropriate steps to prevent workplace injuries and illnesses and to contribute to a safe and healthy work environment. This obligation includes responsible behaviour with respect to the use of alcohol, drugs and tobacco at work, when conducting Company business, and at Company-sponsored activities. Alcohol and drug use can affect work performance, posing health and safety risks. Directors, officers, and employees must not be impaired by any illegal or legal drugs, including alcohol, while at work or when conducting Company business.
In addition, the Company prohibits the possession, transfer, or use of illegal substances on Company premises, in conjunction with Company business, or at Company functions.
12.
Cultural Sensitivity
Employees who accept an international assignment are responsible for familiarizing themselves and their accompanying family members with the norms, laws and customs of the country in which they will be living and working. To assist with this, it is the Company’s policy to arrange orientation training regarding local customs and business practices that will ensure the employee can effectively perform his or her job. Where suitable, the Company will also provide assignees and accompanying family members with cultural training and information about living conditions that will help them to reside successfully in their host location. It is impossible, however, for training to address all of the issues that may arise while living in a foreign environment. Therefore, it is the assignee's responsibility to ensure that they fully understand the cultural implications of their behaviour at all times and to seek advice from loca l management if they have questions about particular actions, words, customs or similar issue.
13.
Management Overrides
The Company acknowledges that, from time to time, extenuating circumstances may arise, in which Company policies or procedures cannot be fully followed. Not every instance in which a policy is overridden or an exception to policy is taken, will constitute a breach of the Code. However, examples of inappropriate management overrides are requests for (a) unsupported payments to be made; (b) unauthorized purchases, (c) significant unsupported accounting entries, (d) significant unapproved information technology changes, and (e) hiring employees without appropriate authorizations.
In order to ensure that any decision to depart from Company policy is not inconsistent with the Code, any Manager or Supervisor who directs another employee to disregard the Code, or to depart from a Company policy, procedure or internal control, will report the matter directly to the Company’s Chief Financial Officer with a brief explanation as to why the Manager or Supervisor took the view that the departure from policy was considered warranted in the circumstances. The Chief Financial Officer will maintain a log of all instances of override reported and provide a summary on a quarterly basis to the Audit Committee.
Any employee who is directed by a Manager or Supervisor to depart from a Company policy and believes that the direction might constitute a violation of the Company’s Code of Business Ethics and Conduct or who has concerns about accounting, internal controls and auditing matters should report the matter as a possible violation of the Code to the Chief Financial Officer. Where it is inappropriate to report the matter to the Chief Financial Officer, or where confidentiality is required, the matter should be reported in accordance with the Whistle-Blower Policy. The Whistle-Blower Policy outlines the procedures for reporting to the Whistleblower contact.
14.
Extension of Credit to Officers and Directors
It is unlawful for any issuer, directly or indirectly, including through any subisdiary, to extend or maintain credit, to arrange an extension of credit, in the form of a personal loan to, or for any director or excutive officer of the Company. Therefore, the Company may not advance funds to directors and officers as per Section 402(2) of the Sarbanes-Oxley Act.
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Compliance and Reporting
All directors, officers, and employees are expected to take all responsible steps to prevent a violation of the Code; to identify and raise potential issues before they lead to problems; and to seek additional guidance when necessary. If any director, officer, or employee has any questions regarding the best course of action in a particular situation, or if they suspect a possible violation of a law, of a regulation or of the Code, by any director, officer, or employee, they should follow the guidance provided in the Whistle-Blower Policy, as explained below.
In the case of accounting, internal accounting controls or auditing matters, the director, officer, or employee should promptly contact the Chief Financial Officer, the Audit Committee, or, if necessary, the Board of Directors.
If a director, officer, or employee prefers to report any suspected Code violations anonymously, including concerns regarding accounting, internal accounting controls, and other auditing matters, or if any of the persons to whom they have reported these circumstances has not, in their view, responded appropriately, the Company has established a Whistle-Blower Policy, which is available on both the Company's web site (www.petaquilla.com) and intranet site. Alternatively, a copy of the Whistle-Blower Policy can be provided by submitting a request to the VP Corporate Affairs in Vancouver or to the Manager of Human Resources in Panama.
Waivers of the Code of Business Ethics and Conduct
Petaquilla may waive certain provisions of the Code. Waivers may be granted only formally by the Board of Directors via Directors’ Resolution, and disclosed to shareholders, as appropriate.
This Code of Business Ethics and Conduct was adopted by the Board of Directors of Petaquilla Minerals Ltd. on the 31st day of May, 2008.
By order of the Board of Directors
PETAQUILLA MINERALS LTD.
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EXHIBIT 11.B
PETAQUILLA MINERALS LTD.
and its Principal Subsidiaries
(collectively, the “Company” or “Petaquilla”)
WHISTLE-BLOWER POLICY
Petaquilla's Code of Business Ethics and Conduct as well as its Code of Ethics for Financial Reporting Officers provides an overview of Petaquilla's commitment to applying high ethical standards to its business practices. However, they are not intended to be all-inclusive rule books. An English language copy of Petaquilla's Code of Business Ethics and Conducts and its Code of Ethics for Financial Reporting Officers can be viewed on Petaquilla's web site at www.petaquilla.com and both Spanish and English language versions are available on the Company’s intranet site.
Many of the statements made therein are backed up by in depth policies and procedures. However, in the current working environment, formal policies and procedures cannot always keep up with new challenges or adequately deal with complex situations. Therefore, please never hesitate to ask a question or report a concern.
Petaquilla has also adopted procedures to govern the receipt, retention, and treatment of complaints regarding accounting, internal control or auditing matters, including fraud. The procedures are outlined in the Anti-Fraud Policy.
Your most immediate resource is your direct supervisor. He or she may have the information you need, or may be able to refer the questions to another appropriate source. There may, however, be times when you would prefer not to go to your supervisor. You may want confidential advice about a business ethics dilemma facing you or a suspected wrongdoing. You may want more information than your supervisor can give you or you may want to report an ethical concern about your supervisor's conduct. Examples of such business ethics dilemmas/wrongdoings may include:
·
An unlawful act whether civil or criminal
·
Breach of or failure to implement or comply with approved policy
·
Knowingly breaching municipal, provincial, state, or federal laws or regulations
·
Unprofessional conduct or below recognized, established standards of practice
·
Questionable accounting or auditing practices
·
Dangerous practice likely to cause physical harm/damage to any person or property
·
Failure to rectify to take reasonable steps to report a matter likely to give rise to a significant and avoidable cost or loss to the Company
·
Abuse of power or authority for any unauthorized or ulterior purpose
·
Unfair discrimination in the course of the employment or provision of services
·
Any other similar acts
You can discuss these types of concerns with the Chairman of the Audit Committee or the Chief Financial Officer. Alternatively, you can file a report, an anonymous report if you wish, with an independent third party, at the numbers listed below without fear of reprisal:
Do you have a question, a concern, or wish to file a report?
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CALLS FROM CANADA AND THE UNITED STATES Call the Whistle-Blower Hotline controlled by an independent third party at: 1-877-749-2924 | OR | CALLS FROM PANAMA Call the Whistle-Blower Hotline controlled by an independent third party using one of the two methods described below:
METHOD 1: If you are dialing from a Company office or a Company owned mobile phone, please dial 1-877-749-2924. |
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 275 |
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(you may remain anonymous if you choose to) | | METHOD 2: If METHOD 1 fails or if you are calling from a non-Company, please dial the AT&T Access Code of 800-0109 and wait for the prompt, a voice recording followed by a “bong” or operator to dial the number. Then please dial 1-877-749-2924. If an operator has answered, please ask the operator to dial 1-877-749-2924 for you.
You will hear a pre-recorded greeting, select Spanish as your language. You will then hear music while an Interview Specialist is connected to your call with an interpreter.
(you may remain anonymous if you choose to) |
Your request for information or action will be handled promptly, discreetly, and professionally. The conversation will be kept in confidence to the extent appropriate or permitted by policy or law. If you're reporting a concern, you will be informed as much as possible about the steps that will be taken to address your concern.
In no order of preference, the official contacts for reporting suspected fraudulent or other dishonest acts are any or all of the following:
(a)
The Company’s Chairman of the Audit Committee;
(b)
The Company’s Chief Financial Officer; and/or
(c)
The independent third party Whistle-Blower Hotline.
Employees, with a reasonable basis for believing such acts have occurred, have a responsibility to report it to their supervisor, to the Company’s Chairman of the Audit Committee, to its Chief Financial Officer and/or to the Whistle-Blower Hotline. As mentioned above, employees have the option of forwarding their concern anonymously.
The official contacts, as noted above, will then determine if an investigation is warranted. If it is determined that an investigation is warranted, they will investigate the suspected fraudulent or dishonest act and depending on the nature of the complaint, may consult the Company’s legal counsel or the Board of Directors.
Employees shall not confront the individual being investigated, or initiate independent investigations. In those instances where the investigation indicates criminal activity, the appropriate law enforcement agency will be informed.
Where possible, the official contacts may undertake the following process:
(a)
investigation by the Chairman of the Audit Committee and/or Chief Financial Officer
(b)
referral to the police or appropriate authorities
(c)
referral to the external auditor
(d)
an independent inquiry
In order to protect individuals and those accused of misdeeds or possible malpractice, initial inquiries will be made to decide whether an investigation is appropriate and, if so, what form it shall take.
The overriding principle with which the Company will act is the interest of the Company and its shareholders.
Some concerns may be resolved by agreed action without the need for investigation. If urgent action is required, this will be taken before any investigation is conducted.
Within fifteen (15) working days of a concern being raised, the responsible officer will write to you:
(a)
acknowledging that a concern has been received;
(b)
indicating how he/she proposes to deal with the matter;
(c)
giving an estimate of how long it will take to provide a final response
(d)
telling you whether any initial enquiries have been made; and
(e)
telling you whether further investigations will place and if not, why not.
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The amount of contact between the persons considering the issues and you will depend on the nature of the matter raised, the potential difficulties involved and the clarity of information provided. If necessary, the Company will seek further information from you.
The Company will take steps to minimize any difficulties which you may experience as a result of raising a concern. For instance, if you are required to give evidence in criminal or disciplinary proceedings the Company will arrange for you to receive advice about the procedure.
The Company accepts that you need to be assured that the matter has been properly addressed. Thus, subject to legal constraints, we will inform you of the outcomes of the investigation.
Concerns will be investigated as quickly as possible. It should also be kept in mind that it may be necessary to refer a matter to an external agency and this result in an extension to the investigation process. Also, the seriousness and complexity of any complaint may have an impact upon the time taken to investigate a matter. A designated person will indicate at the outset the anticipated time scale for investigating the complaint.
If you raise a concern or report suspected wrongdoing by your supervisor, another employee, officer, member of the board of directors, and/or the Whistle-Blower hotline, Petaquilla will not take action against you even if, after investigation, there is no finding of wrongdoing, and will not tolerate retaliation or allow you to be victimized as long as (a) your report was made in good faith, (b) you believed it to be substantially true, (c) you were not maliciously making false allegations, and (d) you were not seeking any personal or financial gain.
If you call one of the official contacts and choose to remain anonymous, your right to do so will be respected. You should know, however, that it's normally easier to investigate concerns if you identify yourself and the others involved. Please note that should you choose to email any of the official contacts, your e-mail address will show up on your message.
Petaquilla's legal counsel, corporate security and human resources personnel will be involved in the process, as appropriate. We will always inform the appropriate human resources personnel of any suspected cases of unlawful discrimination or harassment.
Acting with integrity, honesty and in good faith with respect to what is in the best interests of the Company's stakeholders is fundamental to the Company's reputation and ongoing success. Petaquilla is committed to sustainable growth within the parameters of protecting the environment, ensuring the safety and well-being of its employees, and supporting the communities in which it operates. The directors, officers, senior employees and consultants of the Company must be committed to upholding these responsibilities in all facets of the Company's day to day operations.
The Directors shall cause the entire "Whistle-Blower Policy” to be officially translated into Spanish and shall further cause both Spanish language and English language versions to be posted on the Company’s intranet site for viewing by all directors, officers and employees of the Company. In addition, the “Whistle-Blower Policy” will be posted in hardcopy format for viewing in all Company locations.
The Board of Directors is responsible for approving any updates or changes to the provisions of this Policy. Additionally, any updates or changes to the provisions of this Policy must be publicly disclosed in a prompt manner.
This Policy, pursuant to Section 301.4 of the Sarbanes-Oxley Act requiring audit committees to establish procedures for receiving and handling complaints related to accounting, internal accounting controls, or auditing matters; and the confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters, was amended by the Board of Directors of Petaquilla Minerals Ltd. on the 31st day of May, 2008.
By order of the Board of Directors
PETAQUILLA MINERALS LTD.
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Policy Approval Date: | 2008 March 1 |
Last Revision Date: | 2008 May 31 |
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 277 |
EXHIBIT 12.A
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT 2002
I, Joao Manuel , President and Chief Executive Officer of Petaquilla Minerals Ltd., certify that:
1.
I have reviewed this Amendment No. 2 to the annual report on Form 20-F of Petaquilla Minerals Ltd.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
Date:
November 6, 2009
By:
/s/ Joao Manuel
Joao Manuel
President and Chief Executive Officer
(principal executive officer)
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 278 |
EXHIBIT 12.B
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT 2002
I, Bassam Moubarak, Chief Financial Officer of Petaquilla Minerals Ltd., certify that:
1.
I have reviewed this Amendment No. 2 to the annual report on Form 20-F of Petaquilla Minerals Ltd.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
Date:
November 6, 2009
By:
/s/ Bassam Moubarak
Bassam Moubarak
Chief Financial Officer
(principal financial officer)
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 279 |
EXHIBIT 13.A
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with Amendment No. 2 to the Annual Report of Petaquilla Minerals Ltd. (the “Company”) on Form 20-F for the transition period ended May 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joao Manuel , President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
2.
The information contained in the Report fairly presents, in all materials respects, the financial condition and results of operations of the Company.
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/s/ Joao Manuel | |
Joao Manuel | |
(principal executive officer) | |
Dated: November 6, 2009
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 280 |
EXHIBIT 13.B
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with Amendment No. 2 to the Annual Report of Petaquilla Minerals Ltd. (the “Company”) on Form 20-F for the transition period ended May 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bassam Moubarak, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
2.
The information contained in the Report fairly presents, in all materials respects, the financial condition and results of operations of the Company.
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/s/ Bassam Moubarak | |
Bassam Moubarak |
(principal financial officer) |
Dated: November 6, 2009
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
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Form 20-F/A_Amendment No. 2_Transition Period Ended 2008 May 31 | Page 281 |
SCHEDULE B
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F/A
AMENDMENT NO. 1
(Mark One)
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
May 31, 2009
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
o
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
________________________________
For the transition period from__________________ to ____________________
Commission file number:
000-26296
Petaquilla Minerals Ltd.
(Exact name of Registrant as specified in its charter)
Not applicable
(Translation of Registrant's name into English)
Province of British Columbia, Canada
(Jurisdiction of incorporation or organization)
Suite 410, 475 West Georgia Street, Vancouver, British Columbia, Canada V6B 4M9
(Address of principal executive offices)
Bassam Moubarak, telephone (604) 694-0021, facsimile (604) 694-0063,
Suite 410, 475 West Georgia Street,Vancouver, British Columbia, Canada V6B 4M9
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 1 |
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Name of each exchange on which registered
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Shares Without Par Value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the 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.
96,040,121
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o Yes þ No
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.
o Yesþ 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
o Yes o No
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 2 |
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):
o Large accelerated filer
o Accelerated filer
þ Non-accelerated filer
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
o U.S. GAAP
o International Financial Reporting Standards
þ Other
as issued by the International Accounting
Standards Board
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
þ Item 17 o 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).
o Yes þ No
_____________________________________________________________________________________
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 3 |
Explanatory Note
Petaquilla Minerals Ltd. (the “Company”) has filed this Amendment No. 1 (“Amendment No. 1”) to its Annual Report on Form 20-F for the fiscal year ended May 31, 2009, to (i) expand the Company’s description of the Ley Petaquilla (as defined herein); (ii) update its risk factor disclosure; (iii) present selected financial data in Item 3.A. that has been reconciled to U.S. Generally Accepted Accounting Principles ("U.S. GAAP"); (iv) expand its disclosures to include more specific information about its senior secured notes and convertible senior secured notes; (v) add a total column to its Tabular Disclosure of Contractual Obligations; (vi) correct a typographical error in its management report on internal control over financial reporting; (vii) add disclosure in its notes to the financial statements to clarify that it changed its fiscal year end from January 31 to April 30 in 2007 and from April 30 to May 31 in 2008; (viii) up date its disclosure in its financial statement notes regarding a change in the Company’s accounting policy for mineral properties and to clarify the origination of the difference in accounting for mineral properties and deferred costs in the Company’s U.S. GAAP reconciliation; (ix) update its disclosure in its financial statement notes regarding deferral of expenditures and recognizing revenues as a reduction of deferred expenditures in the Company’s U.S. GAAP reconciliation; (x) update its disclosure in its financial statement notes regarding an inventory write-down in the Company’s U.S. GAAP reconciliation; and (xi) file as exhibits certain instruments defining the rights of the Company’s security holders. The Company directs the reader of Amendment No. 1 to the following specific Items in this Amendment No. 1 for further details: Item 3.A. – Key Information – Selected Financial Data, Item 3.D. – Key Information – Risk Factors, Item 5.B. – Operating a nd Financial Review and Prospects – Liquidity and Capital Resources, Item 5.F. – Operating and Financial Review and Prospects – Tabular Disclosure of Contractual Obligations, Item 15 – Controls and Procedures, Item 17 – Financial Statements and Item 19 – Exhibits.
This Amendment No. 1 sets forth the complete text of the above-referenced Items and all amendments thereto as well as updates the Company’s prior responses to the other Form 20-F Items, and includes new certifications pursuant to Rules 13a-14(a) and 15d-14(a) and Rules 13a-14(b) and 15d-14(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
The information set forth in this report on Form 20-F is as at November 6, 2009, unless an earlier or later date is indicated.
Financial information in this Amendment No. 1 is presented in accordance with accounting principles generally accepted in Canada (“Canadian GAAP”). Measurement differences between accounting principles generally accepted in Canada and in the United States, as applicable to the Company, are set forth in Item 3.A. and Note 29 to the accompanying financial statements of the Company.
This Amendment No. 2 contains forward-looking information and forward-looking statements as defined in applicable securities laws. These statements relate to future events or our future performance. All statements other than statements of historical fact are forward-looking statements.
Forward-looking statements include, but are not limited to, statements with respect to the future price of gold, silver and other minerals, the estimation of mineral reserves and resources, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital expenditures, costs and timing of the development of new deposits, success of exploration activities, permitting time lines, currency exchange rate fluctuations, requirements for additional capital, government regulation of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage.
Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate” or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”.
Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking statements, including but not limited to: risks related to international operations; risks related to joint venture operations; actual results of current exploration activities; conclusions of economic evaluations; changes in project parameters as plans continue to be refined; future prices of gold and silver; possible variations in ore reserves, grade or recovery rates; failure of plant, equipment or processes to operate as anticipated; accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of development or construction activities, as well as those factors discussed in the section ent itled “Risk Factors” in this Amendment No. 1. Although we have attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
Statements in this Amendment No. 1 regarding expected completion dates of feasibility studies, anticipated commencement dates of mining or metal production operations, including when our Molejon project is anticipated to begin production, projected quantities of future metal production and anticipated production rates, operating efficiencies, costs and expenditures are forward-looking statements. Actual results could differ materially depending upon the availability of materials, equipment, required permits or approvals and financing, the occurrence of unusual weather or operating conditions, the accuracy of reserve estimates, lower than expected ore grades or the failure of equipment or processes to operate in accordance with specifications. See Item 3.D. – Key Information – Risk Factors for other factors that may affect our future financial performance.
Forward-looking statements in this Amendment No. 1 are as of November 6, 2009. We do not undertake to update any forward-looking statements that are incorporated by reference herein, except in accordance with applicable securities laws.
This Amendment No. 1 contains references to United States dollars and Canadian dollars. All dollar amounts referenced, unless otherwise indicated, are expressed in United States dollars and Canadian dollars are referred to as “CAD$”.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 4 |
![](https://capedge.com/proxy/CORRESP/0001176256-09-001023/part1tablesx1x1.jpg) | |
PETAQUILLA MINERALS LTD. |
SECURITIES AND EXCHANGE COMMISSION |
FORM 20-F |
TABLE OF CONTENTS |
|
Page No.
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| GLOSSARY OF MINING TERMS | 9 |
| CAUTIONARY NOTE REGARDING RESOURCE AND RESERVE ESTIMATES | 11 |
PART 1 | | 12 |
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ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 12 |
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ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE | 12 |
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ITEM 3. | KEY INFORMATION | 12 |
3.A. | Selected Financial Data | 12 |
3.B. | Capitalization and Indebtedness | 15 |
3.C. | Reasons for The Offer and Use of Proceeds | 15 |
3.D. | Risk Factors | 15 |
| We face risks related to our operations in foreign countries. | 15 |
| Our operations are subject to environmental and other regulation. | 15 |
| We do not have probable or proven reserves. | 16 |
| Mining is subject to various physical hazards. | 17 |
| We do not have all of the required permits for commencement of commercial production. | 17 |
| Potential delays in the advancement of the Molejon gold deposit and cost overruns mayoccur. | 17 |
| We have limited experience with development-stage mining operations. | 17 |
| Mineral prices can fluctuate dramatically and have a material adverse effect on ourresults of operations. | 18 |
| We are dependent upon additional funding in order to sustain our operations. | 18 |
| We have a history of losses, an accumulated deficit and a lack of revenue from operationsand there is substantial uncertainty regarding our ability to continue as a going concern. | 18 |
| We have a history of material weaknesses at our subsidiaries. | 19 |
| The requirements of the Ley Petaquilla may have an adverse impact on us. | 19 |
| Our directors may have conflicts of interest. | 20 |
| Increased costs to procure labour and materials may affect expenditures relating topotential future production. | 20 |
| We face strong competition for the acquisition of mining properties. | 20 |
| Our common shares are subject to penny stock rules, which could affect trading in our shares. | 20 |
| U.S. investors may not be able to enforce their civil liabilities against us or our directors, controlling person and officers. | 20 |
| If we are characterized as a Passive Foreign Investment Company (“PFIC”), our U.S.shareholders may be subject to adverse U.S. federal income tax consequences. | 21 |
ITEM 4. | INFORMATION ON THE COMPANY | 21 |
4.A. | History and Development of the Company | 21 |
| Molejon Property – Panama | 22 |
| Principal Capital Expenditures and Divestitures Over Last Three Fiscal Years | 23 |
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 5 |
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| Current Capital Expenditures and Divestitures | 23 |
| Public Takeover Offers | 23 |
4.B. | Business Overview | 23 |
4.C. | Organizational Structure | 24 |
4.D. | Property, Plants and Equipment | 26 |
| Mineral Concession Lands | 26 |
| Introduction | 26 |
| Property Location | 26 |
| Location, Access & Physiography | 28 |
| Plant and Equipment | 29 |
| Title | 29 |
| Exploration History | 30 |
| Outlook – 2010 | 34 |
| Regional and Local Geology | 34 |
| Mineralization | 35 |
| Doing Business in Panama | 35 |
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ITEM 4A. | UNRESOLVED STAFF COMMENTS | 38 |
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ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | 38 |
5.A. | Operating Results | 38 |
| 12 Months Ended May 31, 2009, Compared to 12 Months Ended May 31, 2008 | 41 |
| One Month Ended May 31, 2008, Compared to One Month Ended May 31, 2007 | 43 |
| 12 Months Ended April 30, 2008, Compared to 12 Months Ended April 30, 2007 | 44 |
| Three Months Ended April 30, 2008, Compared to Three Months Ended April 30, 2007 | 46 |
| 12 Months January 31, 2007, Compared to 12 Months Ended January 31, 2006 | 47 |
5.B | Liquidity and Capital Resources | 48 |
| May 31, 2009, Compared with May 31, 2008 | 49 |
| May 31, 2008, Compared with April 30, 2008 | 50 |
| April 30, 2008, Compared to April 30, 2007 | 51 |
| April 30, 2007, Compared to January 31, 2007 | 51 |
5.C. | Research and Development, Patents and Licenses, etc. | 52 |
5.D. | Trend Information | 52 |
5.E. | Off-Balance Sheet Arrangements | 52 |
5.F. | Tabular Disclosure of Contractual Obligations | 52 |
| | |
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | 54 |
6.A. | Directors and Senior Management | 54 |
6.B. | Compensation | 55 |
| Cash and Non-Cash Compensation – Directors and Officers | 55 |
| Option Grants to Directors and Officers During Fiscal Year Ended May 31, 2009 | 56 |
| Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values | 57 |
| Defined Benefit or Actuarial Plan Disclosure | 57 |
| Termination of Employment, Change in Responsibilities and Employment Contracts | 57 |
| Directors | 58 |
6.C. | Board Practices | 58 |
6.D. | Employees | 59 |
6.E. | Share Ownership | 59 |
| | |
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | 60 |
7.A. | Major Shareholders | 60 |
7.B. | Related Party Transactions | 61 |
7.C. | Interests of Experts and Counsel | 62 |
ITEM 8. | FINANCIAL INFORMATION | 62 |
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 6 |
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8.A. | Consolidated Statements and Other Financial Information | 62 |
8.B. | Significant Changes | 62 |
| | |
ITEM 9. | THE OFFER AND LISTING | 62 |
9.A. | Offer and Listing Details | 62 |
9.B. | Plan of Distribution | 64 |
9.C. | Markets | 64 |
9.D. | Selling Shareholders | 64 |
9.E. | Dilution | 64 |
9.F. | Expenses of the Issue | 64 |
| | |
ITEM 10. | ADDITIONAL INFORMATION | 65 |
10.A. | Share Capital | 65 |
10.B. | Memorandum and Articles of Association | 65 |
10.C. | Material Contracts | 66 |
10.D. | Exchange Controls | 67 |
10.E. | Taxation | 69 |
| Material Canadian Federal Income Tax Consequences | 69 |
| Dividends | 69 |
| Capital Gains | 69 |
| Material United States Federal Income Tax Consequences | 70 |
| U.S. Holders | 70 |
| Distributions on our Common Shares | 70 |
| Disposition of our Common Shares | 71 |
| Passive Foreign Investment Company | 71 |
| Foreign Tax Credit | 72 |
| Controlled Foreign Corporation | 73 |
| Information Reporting; Backup Withholding | 73 |
10.F. | Dividends and Paying Agents | 73 |
10.G. | Statement by Experts | 73 |
10.H. | Documents on Display | 73 |
10.I. | Subsidiary Information | 74 |
| | |
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 74 |
| | |
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | 75 |
| | |
PART II | | 75 |
| | |
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | 75 |
| | |
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS ANDUSE OF PROCEEDS | 75 |
| | |
ITEM 15. | CONTROLS AND PROCEDURES | 76 |
| | |
ITEM 16. | [RESERVED] | 77 |
ITEM 16.A. | Audit Committee Financial Expert | 78 |
ITEM 16.B. | Code of Ethics | 78 |
ITEM 16.C. | Principal Accountant Fees and Services | 78 |
ITEM 16.D. | Exemptions From the Listing Standards for Audit Committees | 79 |
ITEM 16.E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 80 |
ITEM 16.F. | Change in Registrant’s Certifying Accountant | 80 |
16.G. | Corporate Governance | 80 |
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 7 |
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PART III | | 80 |
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ITEM 17. | FINANCIAL STATEMENTS | 80 |
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ITEM 18. | FINANCIAL STATEMENTS | 130 |
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ITEM 19. | EXHIBITS | 130 |
| | |
| SIGNATURES | 132 |
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 8 |
GLOSSARY OF MINING TERMS
The following is a glossary of some of the terms used in the mining industry and referenced herein:
cutoff grade
thedeemed grade of mineralization, established by reference to economic factors, above which material is included in mineral deposit calculations and below which material is considered waste. May be either an external cutoff grade, which refers to the grade of mineralization used to control the external or design limits of an open pit based upon the expected economic parameters of the operation, or an internal cutoff grade, which refers to the minimum grade required for blocks of mineralization present within the confines of an open pit to be included in mineral deposit estimates;
diamond drill
a machine designed to rotate under pressure an annular diamond-studded cutting tool to produce a more or less continuous solid sample (drill core) of the material that is drilled;
epithermal
a term applied to those mineral deposits formed in and along fissures or other openings in rocks by deposition at shallow depths from ascending hot solutions;
exploration Information
geological, geophysical, geochemical, sampling, drilling, trenching, analytical testing, assaying, mineralogical, metallurgical and other similar information concerning a particular property that is derived from activities undertaken to locate, investigate, define or delineate a mineral prospect or mineral deposit;
indicated mineral resource
that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed;
inferred mineral resource
that part of a Mineral Resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes;
junior resource company
as used herein means a company whose mineral resource properties are in the exploration phase only and which is wholly or substantially dependent on equity financing or joint ventures to fund its ongoing activities;
measured mineral resource
that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters, to support production planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity;
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 9 |
mineral deposit, deposit or mineralized material
a mineralized body which has been physically delineated by sufficient drilling, trenching and/or underground work and found to contain a sufficient average grade of metal or metals to warrant further exploration and/or development expenditures. Such a deposit does not qualify under standards of the Securities Exchange Commission as a commercially mineable ore body or as containing ore reserves, until final legal, technical and economic factors have been resolved;
mineral reserve
the economically mineable part of a Measured or Indicated Mineral Resource demonstrated by at least a Preliminary Feasibility Study. 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 resource
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;
open pit mining
the process of mining an ore body from the surface in progressively deeper steps. Sufficient waste rock adjacent to the ore body is removed to maintain mining access and to maintain the stability of the resulting pit;
ore
a natural aggregate of one or more minerals which, at a specified time and place, may be mined and sold at a profit, or from which some part may be profitably separated;
ounces
troy ounces;
oz/tonne
troy ounces per metric ton;
ppb
parts per billion;
ppm
parts per million;
porphyry deposit
a disseminated mineral deposit often closely associated with porphyritic intrusive rocks;
preliminary feasibility study
a comprehensive study of the viability of a mineral project that has advanced to a stage where the mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, 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, acting reasonably, to determine if all or part of the Mineral Resource may be classified as a Mineral Reserve;
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 10 |
probable mineral reserve
the economically mineable part of an Indicated mineral resource and, in some circumstances, a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study. Such 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;
proven mineral reserve
the economically mineable part of a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study. Such Study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction is justified;
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;
stockwork
a rock mass so interpenetrated by small veins of ore that the whole must be mined together. Stockworks are distinguished from tabular or sheet deposits, (i.e. veins or beds), which have a small degree of thickness in comparison with their extension in the main plane of the deposit;
strike length
the longest horizontal dimensions of a body or zone of mineralization;
stripping ratio
the ratio of waste material to ore that is experienced in mining an ore body;
tonne
metric ton (2,204 pounds).
CAUTIONARY NOTE REGARDING RESOURCE AND RESERVE ESTIMATES
The terms “mineral reserve”, “proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined in accordance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) -CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended. These definitions differ from the definitions in SEC Industry Guide 7 under the United States Securities Act of 1993, as amended (the “Securities Act”). Under SEC Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis or report must be filed with the appropriate governmental aut hority.
In addition, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. Investors are caut ioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC Industry Guide 7 standards as in place tonnage and grade without reference to unit measures.
Accordingly, information contained in this Amendment No. 1 contains descriptions of our mineral deposits that may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 11 |
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
This Amendment No. 1 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide the information called for by this item.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
This Amendment No. 1 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide the information called for by this item.
ITEM 3. KEY INFORMATION
3.A. Selected Financial Data
The following tables summarize our selected financial data prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) and reconciled for measurement differences to United States generally accepted accounting principles (“U.S. GAAP”). The information in the tables was extracted from the more detailed financial statements and related notes included with this filing and should be read in conjunction with these financial statements and with the information appearing under the heading “Item 5 – Operating and Financial Review and Prospects”. Note 29 of our consolidated financial statements, included with this filing, sets forth the material variations in U.S. GAAP. Results for the periods presented are not necessarily indicative of results for future periods.
INFORMATION IN ACCORDANCE WITH CANADIAN GAAP:
| | | | | | | | |
| | 12 Months | 1 Month | 12 Months | 3 Months | 12 Months |
| | Ended | Ended | Ended | Ended | Ended |
| | May 31 | May 31 | April 30 | April 30 | January 31 |
| | 2009 | 2008(2) | 2008(2) | 2007(2) | 2007(2) | 2006(2) | 2005(2) |
(a) | Total revenue | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
(b)
| (Loss) beforeextraordinaryitems(1) | | | | | | | |
| Total | $(21,099,866) | $(5,544,998) | $(16,111,007) | $(8,492,639) | $(30,712,592) | $(3,948,102) | $(1,388,449) |
| PerShare(1) | $(0.22) | $(0.06) | $(0.17) | $(0.09) | $(0.40) | $(0.06) | $(0.03) |
(c) | Total assets | $81,543,823 | $71,208,177 | $58,789,331 | $24,981,649 | $22,743,078 | $9,279,398 | $1,607,006 |
(d) | Total long-term debt | $52,939,642 | $30,939,670 | $1,367,249 | $631,775 | $739,159 | $0 | $0 |
(e) | Total shareholderequity (deficiency) | $(8,920,288) | $14,606,134 | $18,765,944 | $14,370,149 | $18,647,224 | $8,798,091 | $1,523,766 |
(f) | Cash dividendsdeclared per share | n/a | n/a | n/a | n/a | n/a | n/a | n/a |
(g) | Capital stock (number of issuedand outstanding common shares) | 96,040,121 | 95,958,641 | 95,958,641 | 89,876,951 | 89,367,031 | 70,246,303 | 51,264,537 |
(h) | Net earnings (loss)for the period | | | | | | | |
| Total | $(21,099,866) | $(5,544,998) | $(16,111,007) | $(8,492,639) | $(30,712,592) | $(3,948,102) | $(1,388,449) |
| PerShare(1) | $(0.22) | $(0.06) | $(0.17) | $(0.09) | $(0.40) | $(0.06) | $(0.03) |
(1)
The effect of potential share issuances pursuant to the exercise of options and warrants would be anti-dilutive and, therefore, basic and diluted losses per share are the same.
(2) Prior years’ numbers have been restated to reflect a change in accounting policy and change in reporting currency. See Item 5.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 12 |
INFORMATION IN ACCORDANCE WITH U.S. GAAP:
| | | | | | | | |
| | 12 Months | 1 Month | 12 Months | 3 Months | 12 Months |
| | Ended | Ended | Ended | Ended | Ended |
| | May 31 | May 31 | April 30 | April 30 | January 31 |
| | 2009 | 2008(2) | 2008(2) | 2007(2) | 2007(2) | 2006(2) | 2005(2) |
(a) | Total revenue | $653,941 | $0 | $0 | $0 | $0 | $0 | $0 |
(b) | (Loss) beforeextraordinaryitems | | | | | | | |
| Total | $(46,852,067) | $(3,597,227) | $(49,752,062) | $(14,635,836) | $(35,682,285) | $(4,120,582) | $(1,388,449) |
| Per Share(1) | $(0.49) | $(0.04) | $(0.53) | $(0.16) | $(0.46) | $(0.07) | $(0.03) |
(c) | Total assets | $26,542,454 | $37,419,662 | $36,108,361 | $19,470,848 | $19,202,974 | $9,106,918 | $1,607,006 |
(d) | Total long-termdebt | $59,727,593 | $17,303,337 | $1,367,249 | $631,775 | $739,159 | $0 | $0 |
(e) | Totalshareholders’equity (deficiency) | $(70,709,608) | $(5,546,048) | $(3,915,026) | $8,859,348 | $15,107,120 | $8,625,611 | $1,523,766 |
(f) | Cash dividendsdeclared per share | n/a | n/a | n/a | n/a | n/a | n/a | n/a |
(g) | Capital stock(number of issuedand outstandingcommon shares) | 96,040,121 | 95,958,641 | 95,958,641 | 89,876,951 | 89,367,031 | 70,246,303 | 51,264,537 |
(h) | Net earnings(loss) for theperiod | | | | | | | |
| Total | $(46,852,067) | $(3,597,227) | $(49,752,062) | $(14,635,836) | $(35,682,285) | $(4,120,582) | $(1,388,449) |
| PerShare(1) | $(0.49) | $(0.04) | $(0.53) | $(0.16) | $( 0.46) | $(0.07) | $(0.03) |
(1)
The effect of potential share issuances pursuant to the exercise of options and warrants would be anti-dilutive and, therefore, basic and diluted losses per share are the same.
(2) Prior years’ numbers have been restated to reflect a change in reporting currency. See Item 5.
We have not declared or paid any dividends since incorporation and we do not anticipate doing so in the foreseeable future. Our present policy is to retain all available funds for use in our operations and the expansion of our business.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 13 |
Difference Between Canadian and United States Generally Accepted Accounting Principles
Loss for the periods
| | | | | | | | | |
| | Twelve months ended | | | One month ended | | | Twelve months ended | |
| | May 31, 2009 | | | May 31, | | | April 30, | |
| | | | | 2008 | | | 2008 | |
|
(Loss) for the period – Canadian GAAP | $ | (21,099,866 | ) | $ | (5,544,998 | ) | $ | (16,111,007 | ) |
Gain on dilution of equity investment | | (2,238,492 | ) | | - | | | (12,582,085 | ) |
Mineral properties expensed under U.S. GAAP | | (17,562,548 | ) | | (1,884,160 | ) | | (22,680,970 | ) |
Revenue recognized | | 653,941 | | | - | | | - | |
Cost of goods sold | | (1,260,127 | ) | | - | | | - | |
Amortization | | (640,425 | ) | | - | | | - | |
Write down of inventory in finished goods andwork in progress | | (2,404,695 | ) | | - | | | - | |
Change in fair value of warrantsdenominated in Canadian dollars under U.S. | | 22,871,582 | | | - | | | - | |
Foreign exchange on difference in mineralproperties expensed under U.S. GAAP | | (9,639,262 | ) | | - | | | 1,622,000 | |
Foreign exchange on difference in seniorsecured notes under U.S. GAAP | | 3,180,313 | | | - | | | - | |
Additional loss relating to redemption andmodification of senior secured noteagreement under U.S. GAAP | | (18,712,488 | ) | | 3,831,931 | | | - | |
Net loss – U.S. GAAP | $ | (46,852,067 | ) | $ | (3,597,227 | ) | $ | (49,752,062 | ) |
Basic and diluted loss per share – U.S. GAAP | $ | (0.49 | ) | $ | (0.04 | ) | $ | (0.53 | ) |
|
|
| | Three months | | | Twelve months | | | Twelve months | |
| | ended April 30, | | | ended January | | | ended January 31, | |
| | 2007 | | | 31, | | | 2006 | |
|
(Loss) for the period – Canadian GAAP | $ | (8,492,639 | ) | $ | (30,712,592 | ) | $ | (3,948,102 | ) |
Gain on dilution of equity investment | | (632,396 | ) | | (1,701,589 | ) | | - | |
Mineral properties expensed under U.S. GAAP | | (5,510,801 | ) | | (3,540,104 | ) | | (172,480 | ) |
|
Foreign exchange on difference in mineralproperties under U.S. GAAP | | - | | | 272,000 | | | - | |
Net loss – U.S. GAAP | $ | (14,635,836 | ) | $ | (35,682,285 | ) | $ | (4,120,582 | ) |
Basic and diluted loss per share – U.S. GAAP | $ | (0.16 | ) | $ | (0.46 | ) | $ | (0.07 | ) |
| | | | | | | | | |
Balance Sheets | | May 31 2009 | | | May 31,2008 | | | April 30, 2008 | |
| | | | | | | | | |
|
Total assets – Canadian GAAP | $ | 81,543,823 | | $ | 71,208,177 | | $ | 58,789,331 | |
Mineral properties expensed or charged to cost ofsales and revenue under U.S. GAAP | | (55,001,369 | ) | | (33,788,515 | ) | | (22,680,970 | ) |
Total assets – U.S. GAAP | $ | 26,542,454 | | $ | 37,419,662 | | $ | 36,108,361 | |
Long term debt – Canadian GAAP | $ | 52,939,642 | | $ | 30,939,670 | | $ | 1,367,249 | |
Allocation of fair value of senior notes under U.S.GAAP | | - | | | (13,636,333 | ) | | - | |
Derivative liability – warrants | | 6,292,830 | | | - | | | - | |
Equity component of convertible debt treated as aliability under U.S. GAAP | | 495,121 | | | - | | | - | |
Long term debt – U.S. GAAP | $ | 59,727,593 | | $ | 17,303,337 | | $ | 1,367,249 | |
|
Balance Sheets (cont.) | | May 31 2009 | | | May 31,2008 | | | April 30, 2008 | |
| | | | | | | | | |
|
Shareholder’s equity (deficit) - Canadian GAAP | $ | (8,920,288 | ) | $ | 14,606,134 | | $ | 18,765,944 | |
Mineral properties expensed or charged to cost of sales and revenue under U.S. GAAP | | (55,001,369 | ) | | (33,788,515 | ) | | (22,680,970 | ) |
(Decrease) increase in retained earnings due to translation of prior year mineral property expensesand senior secured notes | | (4,564,949 | ) | | 1,622,000 | | | - | |
Difference in accumulated other comprehensiveincome | | 4,564,949 | | | (1,622,000 | ) | | | |
Increase in net income due to the change in fair value of warrants denominated in Canadian dollars under U.S. GAAP | | 22,871,582 | | | - | | | - | |
Decrease in warrants due to fair value of warrants denominated in Canadian dollars under U.S. GAAP | | (29,164,412 | ) | | - | | | - | |
Additional loss relating to redemption and modification of senior secured note agreement under U.S. GAAP | | (14,903,816 | ) | | 3,831,931 | | | - | |
Allocation of fair value of senior secured notes under U.S. GAAP | | 14,903,816 | | | 9,804,402 | | | - | |
Equity component of convertible debenture treated as a liability under U.S. GAAP | | (495,121 | ) | | - | | | - | |
Shareholders’ equity (deficit) – U.S. GAAP | $ | (70,709,608 | ) | $ | (5,546,048 | ) | $ | (3,915,026 | ) |
| | | | | | | | | |
Balance Sheets | | April 30, 2007 | | | January 31,2007 | | | January 31, 2006 | |
| | | | | | | | | |
|
Total assets – Canadian GAAP | $ | 24,981,649 | | $ | 22,743,078 | | $ | 9,279,398 | |
Mineral properties expensed or charged to cost ofsales and revenue under U.S. GAAP | | (5,510,801 | ) | | (3,540,104 | ) | | (172,480 | ) |
Total assets – U.S. GAAP | $ | 19,470,848 | | $ | 19,202,974 | | $ | 9,106,918 | |
|
Shareholder’s equity (deficit) - Canadian GAAP | $ | 14,370,149 | | $ | 18,647,224 | | $ | 8,798,091 | |
Mineral properties expensed under U.S. GAAP | | (5,510,801 | ) | | (3,540,104 | ) | | (172,480 | ) |
Shareholders’ equity (deficit) – U.S. GAAP | $ | 8,859,348 | | $ | 15,107,120 | | $ | 8,625,611 | |
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 14 |
3.B. Capitalization and Indebtedness
This Amendment No. 1 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide the information called for by this item.
3.C. Reasons For The Offer and Use of Proceeds
This Amendment No. 1 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide the information called for by this item.
3.D. Risk Factors
We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. Investors should carefully consider the risks described below before investing in our securities. The occurrence of any of the following events could harm us. If these events occur, the trading price of our common shares could decline, and investors may lose part or even all of their investment.
A risk analysis has as yet to be completed for the Molejon deposit. While it is possible to speculate on possible risks associated with an open pit mining operation in Panama, there may be as yet to be identified significant risk factors. Any as yet to be identified risks cannot be completely eliminated and it is possible that the occurrence of one or more of such factors could have a material adverse effect on our financial condition and results of operations.
We face risks related to our operations in foreign countries.
Currently our only properties are located in Panama, a country with a developing mining sector but no commercially producing mines. Consequently, we are subject to and our mineral exploration and mining activities may be affected in varying degrees by certain risks associated with foreign ownership, including inflation, political instability, political conditions and government regulations. Any changes in regulations or shifts in political conditions are beyond our control and may adversely affect our business. Operations may be affected by government regulations with respect to restrictions on production, restrictions on foreign exchange and repatriation, price controls, export controls, restriction of earnings distribution, taxation laws, expropriation of property, environmental legislation, water use and mine safety and renegotiation or nullification of existing concessions, licenses, permits and contracts. In particul ar, the status of Panama as a developing country may make it more difficult for us to obtain any required production financing for our properties from senior lending institutions.
Failure to comply strictly with applicable laws, regulations and local practices relating to mineral rights applications and tenure could result in loss, reduction or expropriation of entitlements or the imposition of additional local or foreign parties as joint venture partners with carried or other interests. The occurrence of these various factors and uncertainties cannot be accurately predicted and could have an adverse effect on our operations or profitability.
Our operations are subject to environmental and other regulation.
Our current or future operations, including development activities and commencement of production on our properties, require permits from various governmental authorities and such operations are and will be subject to laws and regulations governing prospecting, development, mining, production, exports, taxes, labour standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety, community services and other matters. Companies engaged in the development and operation of mines and related facilities generally experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits. There can be no assurance that approvals and permits required to commence production on our various properties will be obtained. Additional permits and studies, which may include environmental impact studies conducted before permits can be obtained, may be necessary prior to operation of the properties in which we have interests and there can be no assurance that we will be able to obtain or maintain all necessary permits that may be required to commence construction, development or operation of mining facilities at these properties on terms which enable operations to be conducted at economically justifiable costs.
Our potential mining and processing operations and exploration activities in Panama are subject to various federal and provincial laws governing land use, the protection of the environment, prospecting, development, production, exports, taxes, labour standards, occupational health, waste disposal, toxic substances, mine safety, community services and other matters. Such operations and exploration activities are also subject to substantial regulation under these laws by governmental agencies and may require that we obtain permits from various governmental agencies. We believe we are in substantial compliance with all material laws and regulations that currently apply to our activities. There can be no assurance, however, that all permits we may require for construction of mining facilities and conduct of mining operations will be obtainable on reasonable terms or that such laws and regulations would not have a material adverse e ffect on any mining project we might undertake.
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 15 |
Amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation thereof, could have a material adverse impact on us and cause increases in capital expenditures or production costs or reduction in levels of production at producing properties or abandonment or delays in development of new mining properties.
To the best of our knowledge, we are currently operating in compliance with all applicable environmental regulations. However, Autoridad Nacional del Ambiente (“ANAM”), Panama’s national environmental authority, has established certain conditions to be met before we can place the Molejon property into commercial production as a mine. We have yet to satisfy all of these conditions, and discussions are underway with ANAM to arrive at a consensus on the final conditions to be met. Our position is that Law No. 9 of the Legislative Assembly of Panama (the “Ley Petaquilla”), a project-specific piece of legislation enacted in February 1997 to deal with the orderly development of the Cerro Petaquilla Concession, takes precedence over the resolutions of ANAM, and that we are in compliance with the Ley Petaquilla. The Supreme Court of Panama has issued an order suspending the implementation of a fine levied in 2008 against us by ANAM. There is no guarantee that ANAM will not purport to levy further fines against us, claiming breaches of the environmental statutes and policies of Panama, in the event that we proceed to commercial production without having satisfied conditions set out by ANAM. We intend to strictly comply with the Ley Petaquilla, including the environmental provisions thereof, and will vigorously oppose any such action by ANAM.
There are currently no producing mines in Panama and various independent environmental groups or individuals would like to prevent mining in Panama. As such, our operations could be significantly disrupted or suspended by activities such as protests or blockades that may be undertaken by such groups or individuals.
We do not have probable or proven reserves.
We are engaged in the acquisition, exploration, exploration management and sale of mineral properties, with the primary aim of developing them to a stage where they can be exploited at a profit. Our property interests are in the exploration stage and are without a known body of commercial ore. Although an open pit mine is planned and construction of a gold plant is nearing completion at the Molejon gold property for the processing of gold-bearing ores, there is no guarantee we will realize any profits in the short to medium term. Any profitability in the future from our business will be dependent upon locating mineral reserves, which itself is subject to numerous risk factors.
The business of exploring for minerals and mining involves a high degree of risk. Few properties that are explored are ultimately developed into producing mines. Should our mineral properties reach the developing stage, we will be subjected to an array of complex economic factors and accordingly there is no assurance that a positive feasibility study or any projected results contained in a feasibility study of a mineral deposit will be attained.
Although the ore resource and mineral deposit figures included herein have been carefully prepared by us, or, in some instances have been prepared, reviewed or verified by independent mining experts, these amounts are estimates only and no assurance can be given that any particular level of recovery of minerals from ore resources will in fact be realized or that an identified mineral deposit will ever qualify as a commercially mineable (or viable) ore body which can be legally and economically exploited. Mineral resources are estimates of the size and grade of deposits based on limited sampling and on certain assumptions and parameters and until reserves or mineralization are actually mined and processed, the quantity of mineralization and resource grades must be considered estimates only.
Further exploration, drilling and other engineering analyses are required in order to have any of our resources classified as proven reserves. Estimates of reserves, mineral deposits and potential future production costs can also be affected by such factors as permitting regulations and requirements, weather, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations and work interruptions. In addition, the grade of ore ultimately mined may differ from that indicated by drilling results. Short-term factors relating to ore reserves, such as the need for orderly exploration of ore bodies or the processing of new or different grades, may also have an adverse effect on mining operations and on the results of operations. There can be no assurance that minerals recovered in small-scale laboratory tests will be duplicated in large-scale tests under on-site conditions. Material changes in ore r eserves, grades, stripping ratios or recovery rates may affect the economic viability of projects. Ore reserves are reported as general indicators of mine life. Reserves should not be interpreted as assurances of mine life or of the profitability of current or future operations.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 16 |
Mining is subject to various physical hazards.
The business of gold mining is subject to a variety of risks such as cave-ins and flooding, environmental hazards, industrial accidents, unusual or unexpected changes to rock formations, changes in the regulatory environment, the discharge of toxic chemicals, gold bullion losses and other hazards. Such occurrences could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage, delays in mining, delays in production, increased production costs, monetary losses and possible legal liability. We have obtained insurance in amounts that we consider to be adequate to protect ourselves against certain risks of mining and processing to the extent that is economically feasible but which may not provide adequate coverage in all circumstances. We may become subject to liability for hazards against which we cannot insure ourselves, or against which we are inadequately insur ed or against which we may elect not to insure because of premium costs or other reasons. In particular, we are not insured against all forms of environmental liability.
We do not have all of the required permits for commencement of commercial production.
Further activities on the Molejon gold property for completion of construction of mill facilities and commencement and continuation of production will require additional approvals, permits and certificates of authorization from different government agencies on an ongoing basis. Obtaining the necessary governmental permits is a complex and time consuming process involving numerous jurisdictions and may involve public hearings and costly undertakings. The duration and success of permitting efforts are contingent upon many variables not within our control. Environmental protection permitting, including the approval of reclamation plans, could increase costs and cause delays in the development of the Molejon gold deposit, depending on the nature of the activity to be permitted and the interpretation of applicable requirements implemented by the permitting authority. There can be no assurance that all necessary permits will be obtained and , if obtained, that the costs involved will not exceed those previously estimated by us. It is possible that the costs and delays associated with the compliance with such standards and regulations could become such that we would not proceed with the development or operation of a mine or mines.
Potential delays in the advancement of the Molejon gold deposit and cost overruns may occur.
Our ability to meet timing and cost estimates for properties cannot be assured. Technical considerations, delays in obtaining governmental approvals, inability to obtain financing or other factors could cause delays in exploring properties and such delays could materially affect our financial performance.
Whilst the Molejon gold deposit development is underway, costs for required equipment remain under review and may escalate beyond original estimates. This possible cost escalation, along with other as yet unresolved logistical and engineering issues relating to the Molejon development, all part of a standard building, construction and anticipated start up of a new mining operation, may result in significant cost experiences that differ from present day estimates. There is no guarantee the Molejon gold project will, after more development and engineering work is completed, together with required capital equipment purchases, be an economically feasible production opportunity.
We have limited experience with development-stage mining operations.
We have limited experience in placing resource properties into production and our ability to do so will be dependent upon using the services of appropriately experienced personnel or entering into agreements with other major resource companies that can provide such expertise. There can be no assurance that we will have available to us the necessary expertise when and if we place our resource properties into production. There also exists significant risk in being able to recruit experienced employees or contractors to allow us to move forward in pursuing development-stage mining operations.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 17 |
Mineral prices can fluctuate dramatically and have a material adverse effect on our results of operations.
The mining industry in general is intensely competitive and there is no assurance that, even if commercial quantities of minerals are discovered, a profitable market will exist for the sale of same. Factors beyond our control may affect the marketability of any substances discovered. Gold prices have experienced volatile and significant price movements over short periods of time and are affected by numerous factors beyond our control, including international economic and political trends, expectations with respect to the rate of inflation, currency exchange rates, interest rates, global and regional consumption patterns and economic crises, speculative activities and increased production due to improved mining and production methods. The supply of and demand for gold is affected by various factors, including political events, economic conditions and production costs in major producing regions and governmental policies with respect to gold holdings by a na tion or its citizens. The demand for and supply of gold affects gold prices but not necessarily in the same manner as demand and supply affect the prices of other commodities. The supply of gold consists of a combination of mine production and existing stocks of bullion and fabricated gold held by governments, public and private financial institutions, industrial organizations and private individuals. There can be no assurance that the price of recovered minerals will be such that our properties can be mined at a profit.
We are dependent upon additional funding in order to sustain our operations.
We have only generated cash of $653,941 from the sale of gold and silver in the past and, although we are preparing for production at the Molejon gold property, cash flow to satisfy our operational requirements, debt repayments and cash commitments is not guaranteed from the operations of the Molejon gold plant. In the past, we have relied on sales of equity securities or debt financing to meet most of our cash requirements, together with project management fees, property payments and sales or joint ventures of properties. There can be no assurance that funding from these sources will be sufficient in the future to satisfy our operational requirements, debt repayments and cash commitments.
We do not presently have sufficient financial resources to undertake all of our planned exploration and development programs. The development of our properties depends upon our ability to obtain financing through any or all of the joint venturing of projects, debt financing, equity financing or other means. There is no assurance that we will be successful in obtaining the required financing. Failure to obtain additional financing on a timely basis could cause us to forfeit our interest in our properties and reduce or terminate our operations on such properties.
We have a history of losses, an accumulated deficit and a lack of revenue from operations and there is substantial uncertainty regarding our ability to continue as a going concern.
In their report on the consolidated financial statements for the period ended May 31, 2009, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
We have incurred net losses to date. As at May 31, 2009, we had an accumulated operating deficit of $119,774,936, a shareholders’ deficit of $8,920,288 and for the 12-months ended May 31, 2009, incurred a loss of $21,099,866 from continuing operations. Continuing operations are dependent on us achieving profitable operations and being able to raise capital, if and when necessary to meet our obligations and repay liabilities when they come due.
We have not yet had any revenue from the exploration activities on our properties. The Molejon gold property is our most advanced property. Even if we generate future revenue from any of our properties, including the Molejon gold property, we may continue to incur losses beyond the period of commencement of such activity. There is no certainty that we will produce revenue, operate profitably or provide a return on investment in the future and recent significant increases in gold commodity prices may not be sustainable. As such, they may not be reliable as indicators of future consistent realizable values, should any of our mineral deposits reach commercial production.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 18 |
We did not generate revenue from operations during the 12 months ended May 31, 2009, the one month ended May 31, 2008, the 12 months ended May 31, 2008, the three months ended April 30, 2007, and the 12 months ended January 31, 2007. Expenses for the 12-months ended May 31, 2009, were $25,603,711, a decreasefrom $29,284,791 for the 12-months ended May 31, 2008.
We are executing a business plan to allow us to continue as a going concern, which is to achieve profitability through cost containment and increased revenues. We have reduced our losses and intend to reduce them further, ultimately achieving profitability. There is significant uncertainty that we will be successful in executing this plan. Should we fail to achieve profitability, or if necessary, raise sufficient capital to sustain operations, we may be forced to suspend our operations, and possibly even liquidate our assets and wind-up and dissolve.
During the fiscal year ended May 31, 2009, we raised an additional $27,750,000 in gross proceeds by completing our senior secured notes debt financing. We followed with the completion of a supplemental senior secured notes debt financing of $20,000,000 in gross proceeds and a convertible senior secured notes debt financing of $40,000,000 in gross proceeds. In addition, we raised $43,238,852 through the sale of our 20,418,565 common shares of Petaquilla Copper Ltd. and, thus, retired a portion ($43,238,852) of our outstanding senior secured notes.
Our consolidated financial statements are prepared on a going concern basis, which assumes that we will be able to realize our assets at the amounts recorded and discharge our liabilities in the normal course of business in the foreseeable future. Should this assumption not be appropriate, adjustments in the carrying amounts of the assets and liabilities to their realizable amounts and the classifications thereof will be required and these adjustments and reclassifications may be material.
We have a history of material weaknesses at our subsidiaries.
We have a history of material weaknesses at our subsidiaries which resulted in ineffective internal controls. Our Audit Committee, with the assistance of outside independent counsel, has commenced an internal investigation into the continued non-compliance of our subsidiaries. Because the internal review is ongoing, we cannot predict the ultimate consequences of the review.
The requirements of the Ley Petaquilla may have an adverse impact on us.
Our operations in Panama are governed primarily by Law No. 9 of the Legislative Assembly of Panama (the “Ley Petaquilla”), a project-specific piece of legislation enacted in February 1997 to deal with the orderly development of the Cerro Petaquilla Concession.
The Ley Petaquilla granted a mineral exploration and exploitation concession to Minera Petaquilla, S.A. (“MPSA”), a Panamanian company formed in 1997 to hold the Cerro Petaquilla Concession covering approximately 136 square kilometres in north-central Panama. Although we no longer hold an interest in the copper deposits therein, we continue to hold the rights to the Molejon gold deposit and, as the Cerro Petaquilla Concession encompasses this deposit, the Ley Petaquilla governs our exploration activities.
The Ley Petaquilla contains fiscal and legal stability clauses necessary in order to obtain project financing and includes tax exemptions on income, dividends and imports. The Ley Petaquilla also provides for an increase in the annual available infrastructure tax credit, higher depreciation rates for depreciable assets which cannot be used in the infrastructure tax credit pool, and a favorable depletion allowance.
In order to maintain the Cerro Petaquilla Concession in good standing, MPSA must pay to the Government of Panama an annual rental fee of $1.00 per hectare during the first five years of the concession, $2.50 per hectare in the sixth to the tenth years of the concession and $3.50 per hectare thereafter. Initially, the annual rental was approximately $13,600 payable by MPSA and funded pro rata by its shareholders. The current annual rental is approximately $34,000. The concession was granted for a 20-year term with up to two 20-year extensions permitted subject to the requirement to begin mine development and to make a minimum investment of $400 million in the development of the Cerro Petaquilla Concession.
Under the Ley Petaquilla, MPSA was required to begin mine development by May 2001. However, MPSA was able to defer commencing development operations by one month for every month that the price of copper remained below $1.155 per pound for up to a further five years (i.e. until May 2006 at the latest). In September 2005, the multi-phase Petaquilla Mine Development Plan (the “Plan”) submitted to the Government of Panama by us and MPSA was approved by Ministerial Resolution. The Molejon gold mineral deposit forms part of the Cerro Petaquilla Concession and the first phase of the Plan focuses on the advancement of the Molejon gold deposit by us as commenced in 2006. Subsequent phases of the Plan are the responsibility of MPSA.
The Ley Petaquilla also requires MPSA to (i) deliver an environmental report to the General Direction of Mineral Resources of the Ministry of Commerce and Industiries (“MICI”) for evaluation; (ii) submit, prior to extraction, an environmental feasibility study specific to the project area in which the respective extradition will take place; (iii) submit annually a work plan comprising the projections and approximate costs for the respective year to the MICI; (iv) post letters of credit in support of required compliance and environmental protection guarantees; (vi annually pay surface canons; (vi) annually pay royalties for extracted minerals; (vii) annually present to the MICI detailed reports covering operations and employment and training; (viii) create and participate in the administration of a scholarship fund to finance studies and training courses or professional training for the inhabitants of the communities neighboring the Cerro Peta quilla Concession in the provinces of Cocle and Colon; and (ix) maintain all mining and infrastructure works and services of the project, always complying with the standards and regulations of general application in force that pertain to occupational safety, health and construction.
For reference, a copy of Law No. 9 as passed by the Legislative Assembly of Panama on February 26, 1997, was provided with our Form 20-F for the fiscal year ended May 31, 2009, as Exhibit 4.V. An English translation of the law is attached to this Amendment No. 1 as Exhibit 4.W.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 19 |
Our directors may have conflicts of interest.
As at November 6, 2009, two of our directors, David Levy and Daniel Small, hold positions with Platinum Management (NY) LLC, an investment advising firm to Platinum Partners Value Arbitrage Fund LP, a New York based investment fund. Platinum Partners Value Arbitrage Fund LP holds securities in our company and a portion of our debt. However, none of our directors are directors or officers of Platinum Partners Value Arbitrage Fund LP nor are any of our directors insiders of any other reporting company. While currently none of our directors beneficially owns a 10% or greater interest in the voting power of any other mineral resource companies, they could in the future. To the extent that these other companies may participate in ventures in which we may participate, our directors may have a conflict of interest in negotiating and concluding terms respecting the extent of such partic ipation, which could result in competitive harm to us. In the event that such a conflict of interest arises at a meeting of our directors, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. In appropriate cases we will establish a special committee of independent directors to review a matter in which several directors, or management, may have a conflict. In accordance with the laws of the Province of British Columbia, our directors are required to act honestly, in good faith and in our best interests. In determining whether or not we will participate in a particular program and the interest therein to be acquired by it, our directors primarily consider the potential benefits to us, the degree of risk to which we may be exposed and our financial position at that time. Other than as indicated, we have no other procedures or mechanisms to prevent conflicts of interest.
Increased costs to procure labour and materials may affect expenditures relating to potential future production.
The mining industry has been impacted by increased demand for critical resources such as input commodities, mining equipment, milling equipment and skilled labour. These shortages have caused unanticipated cost increases and delays in delivery times, thereby impacting capital expenditures and mine and mill completion. These conditions may reoccur in the future and may have an effect on costs of potential future production and the achievement of production targets.
We face strong competition for the acquisition of mining properties.
Significant and increasing competition exists for the limited number of mineral property acquisition opportunities available. As a result of this competition, some of which is with large established mining companies with substantial capabilities and greater financial and technical resources than we have, we may be unable to acquire additional attractive mineral properties on terms we consider acceptable. Accordingly, there can be no assurance that our exploration and acquisition programs will yield any new reserves or result in any commercial mining operation.
Our common shares are subject to penny stock rules, which could affect trading in our shares.
Our common shares are classified as “penny stock” as defined in Rule 15g-9 promulgated under the Exchange Act. In response to perceived abuse in the penny stock market generally, the Exchange Act was amended in 1990 to add new requirements in connection with penny stocks. In connection with effecting any transaction in a penny stock, a broker or dealer must give the customer a written risk disclosure document that (a) describes the nature and level of risk in the market for penny stocks in both public offerings and secondary trading, (b) describes the broker's or dealer's duties to the customer and the rights and remedies available to such customer with respect to violations of such duties, (c) describes the dealer market, including “bid” and “ask” prices for penny stock and the significance of the spread between the bid and ask prices, (d) contains a toll-free telephone number for inquiries on disciplin ary histories of brokers and dealers and (e) defines significant terms used in the disclosure document or the conduct of trading in penny stocks. In addition, the broker-dealer must provide to a penny stock customer a written monthly account statement that discloses the identity and number of shares of each penny stock held in the customer’s account and the estimated market value of such shares. The extensive disclosure and other broker-dealer compliance related to penny stocks may result in reducing the level of trading activity in the secondary market for our common shares, thus limiting the ability of our shareholders to sell their shares.
U.S. investors may not be able to enforce their civil liabilities against us or our directors, controlling persons and officers.
Our company and our officers and directors are residents of countries other than the United States, and all of our assets are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or enforce in the United States against such persons judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of United States federal securities laws or state securities laws.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 20 |
We believe that a judgment of a United States court predicated solely upon civil liability under United States securities laws would probably be enforceable in Canada if the United States court in which the judgment was obtained has a basis for jurisdiction in the matter that was recognized by a Canadian court for such purposes. However, there is doubt whether an action could be brought in Canada in the first instance on the basis of liability predicated solely upon such laws.
If we are characterized as a Passive Foreign Investment Company (“PFIC”), our U.S. shareholders may be subject to adverse U.S. federal income tax consequences.
We have not made a determination as to whether we are considered a PFIC as such term is defined in the U.S. Internal Revenue Code of 1986, as amended (the “Code”), for U.S. federal income tax purposes for the current tax year and any prior tax years. A non-U.S. corporation generally will be considered a PFIC for any tax year if either (1) at least 75% of its gross income is passive income or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income.
In general, if we are or become a PFIC, any gain recognized on the sale of our common stock and any “excess distributions” (as specifically defined in the Code) paid on the common stock must be ratably allocated to each day in a U.S. taxpayer’s holding period for the common stock. The amount of any such gain or excess distribution allocated to prior years of such U.S. taxpayer’s holding period for the common stock generally will be subject to U.S. federal income tax at the highest tax applicable to ordinary income in each such prior year, and the U.S. taxpayer will be required to pay interest on the resulting tax liability for each such prior year, calculated as if such tax liability had been due in each such prior year. For more information, see “Material United States Federal Income Tax Consequences-Passive Foreign Investment Company.”
ITEM 4. INFORMATION ON THE COMPANY
4.A. History and Development of the Company
Our company, Petaquilla Minerals Ltd., is a British Columbia company engaged in the acquisition, exploration and exploration management of mineral properties with the goal of bringing properties to production. We were incorporated under the laws of the Province of British Columbia, Canada, on October 10, 1985, by registration of our Memorandum and Articles of Association (the “Articles”) with the British Columbia Registrar of Companies under the name Adrian Resources Ltd. We changed our name to Petaquilla Minerals Ltd. on October 12, 2004.
Our principal executive office address is Suite 410, 475 West Georgia Street, Vancouver, British Columbia, V6B 4M9 Canada. Our telephone number is (604) 694-0021 and our facsimile number is (604) 694-0063.
We have eleven subsidiaries and one joint venture interest as detailed below:
(i)
We own all of the issued shares of Adrian Resources (BVI) Ltd., which was incorporated in the British Virgin Islands on December 17, 1999.
(ii)
Adrian Resources (BVI) Ltd. owns all of the issued shares of Petaquilla Minerals, S.A., which was incorporated in the Republic of Panama on April 28, 1992, and holds title to certain of our exploration concessions in the Republic of Panama. Although originally incorporated under the name Adrian Resources, S.A., the name of such subsidiary was changed to Petaquilla Minerals, S.A. on February 3, 2005.
(iii)
Petaquilla Minerals, S.A. owns all of the issued shares of Petaquilla Gold, S.A., a Panamanian corporation formed on August 11, 2005. Petaquilla Gold, S.A. holds the Molejon gold property interest and other potential gold deposits within the Cerro Petaquilla Concession lands.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 21 |
(iv)
Petaquilla Minerals, S.A. owns all of the issued shares of Instituto Petaquilla, S.A., a Panamanian corporation which was formed on April 23, 2007, to conduct training and education programs for our personnel.
(v)
Petaquilla Minerals, S.A. owns all of the issued shares of Brigadas Verdes, S.A., a Panamanian corporation which was formed on March 27, 2007, to coordinate and manage reforestation activities.
(vi)
Compañìa Minera Belencillo, S.A., a Panamanian corporation, was formed on September 21, 2005, in accordance with the agreement signed between Petaquilla Minerals, S.A. and Madison Enterprises (Latin American), S.A. Petaquilla Minerals, S.A. owns 68.88% of Compañìa Minera Belencillo, S.A., which in turn holds a 100% interest in Zone 2 of the Rio Belencillo Concession and 68.88% of Zone 1, subject to an option by Madison Enterprises (Latin American), S.A. to earn a 31.12% interest in Zone 1 of the Rio Belencillo Concession. On May 7, 2005, we entered into an option agreement with Gold Dragon Capital Management Ltd. (“Gold Dragon”) whereby Gold Dragon could earn a 100% interest in the concession lands by the expenditure of $500,000 over two years on mutually agreed upon property expenditures.
(vii)
Petaquilla Gold, S.A. owns 50.2% of the shares of Petaquilla Infraestructura, S.A. (formerly named Petaquilla Power & Water, S.A.), a Panamanian corporation formed on September 21, 2006, primarily for the purposes of (i) designing, constructing, operating, maintaining and installing equipment and networks for the generation, transmission and commercialization of electrical energy; and (ii) developing projects for the production, distribution and commercialization of potable water.
(viii)
Petaquilla Gold, S.A. also owns all of the issued shares of Aqua Azure, S.A., a Panamanian corporation which was formed on October 10, 2006, to purchase, sell, lease, manage, commercialize and hold investment in various moveable goods.
(ix)
We own all of the issued shares of Petaquilla Infrastructure Ltd., incorporated in British Columbia, Canada, on May 29, 2009.
(x)
Petaquilla Infrastructure Ltd. owns all of the issued shares of Petaquilla Infraestructura Ltd., which was incorporated in the British Virgin Islands on February 21, 2008.
(xi)
Petaquilla Infraestructura Ltd. owns all of the issued shares of Petaquilla Hidro, S.A., a Panamanian corporation formed on October 10, 2008.
(xii)
Petaquilla Infraestructura Ltd. owns all of the issued shares of Panama Central Electrica, S.A., a Panamanian corporation formed on February 16, 2009.
Molejon Property – Panama
Our interest in the Molejon deposit was acquired in 1992 and 1993 through two separate series of transactions and in 2005 by way of an agreement amongst the shareholders of MPSA. Specifically,in June 2005, the shareholders of MPSA agreed to separate the gold deposit and other precious metal mineral deposits that might be developed within the Cerro Petaquilla Concession from the copper mineral deposits within the Cerro Petaquilla Concession. The agreement provided for us, through our subsidiary, Petaquilla Gold, S.A., to own a 100% interest in the Molejon gold deposit, as well as all other gold and precious metal mineral deposits that might be developed within the Cerro Petaquilla Concession, subject to a graduated 5% - 7% Net Smelter Return, based on the future gold price at the time of production, payable to others.
In September 2005, the multi-phase Petaquilla Mine Development Plan (the “Plan”) submitted to the Government of Panama by us and MPSA was approved by Ministerial Resolution. The Molejon gold mineral deposit forms part of the Cerro Petaquilla Concession lands and the first phase of the Plan focuses on the advancement of the Molejon gold deposit by us commencing in 2006. Subsequent phases of the Plan are the responsibility of MPSA, the joint venture company in which we no longer hold an interest.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 22 |
Principal Capital Expenditures and Divestitures Over Last Three Fiscal Years
As at May 31, 2009, we incurred $60,843,501 in Molejon property expenses which have been capitalized as mineral properties as noted below.
| | | | |
| Plant | $47,610,795 | | |
| Camp | 5,252,168 | | |
| Plant equipment | 2,973,133 | | |
| Reclamation costs | 3,458,304 | | |
| Capitalized interest expense | 1,549,101 | | |
| | $60,843,501 | | |
Current Capital Expenditures and Divestitures
We have either ongoing or anticipated capital expenditures during the fiscal year ending May 31, 2010. With respect to the planned exploration and advancement of the Molejon property, we anticipate having capital expenditures of approximately $5,000,000 to $10,000,000 during the fiscal year ending May 31, 2010. However, such expenditures are subject to further consideration and to our ability to obtain external financing. There is no assurance that we will be successful in obtaining such financing.
Public Takeover Offers
During the 12 month period ended May 31, 2009, and during the current fiscal year, we did not receive any public takeover offers from third parties nor did we make any such takeover offers.
4.B. Business Overview
Molejon Property – Panama
We currently have no significant properties in Canada and we are not actively exploring, or seeking to acquire interests in, mineral properties in Canada. Our primary focus has been the exploration of the Molejon gold deposit and other mineral properties in the Republic of Panama. We have not yet generated any revenue from our exploration activities and operations.
The Republic of Panama, through the Ministry of Commerce and Industry, is the regulatory body overseeing the Cerro Petaquilla Concession and potential future development thereof. Law No. 9, the Ley Petaquilla, passed by the Legislative Assembly of Panama on February 26, 1997, is a project-specific piece of legislation dealing with the orderly development of the Cerro Petaquilla Concession, including the Molejon gold deposit. The Ley Petaquilla could be amended by the government of Panama through the enaction of a subsequent law but no such law has been enacted since the Ley Petaquilla legislation was adopted in February 1997. At such time, the Ley Petaquilla granted a mineral exploration and exploitation concession to MPSA, a Panamanian company which was formed in 1997 to hold the 136 square kilometer Cerro Petaquilla Concession. Our Molejon property comprises approximately 10% of the Cerro Petaquilla lands.
The Ley Petaquilla contains fiscal and legal stability clauses necessary in order to obtain project financing and includes tax exemptions on income, dividends and imports. The Ley Petaquilla also provides for an increase in the annual available infrastructure tax credit, higher depreciation rates for depreciable assets, which cannot be used in the infrastructure tax credit pool, and a favourable depletion allowance.
There were no competing bidders for the concession at the time the Ley Petaquilla was enacted and the concession was granted for an initial 20-year term with two 20-year extensions permissible subject to the requirements to begin mine development and to make a minimum required investment. In 2005, we and our former partners in MPSA delivered the Plan to the Government of Panama and the Plan was approved by Ministerial Resolution in September 2005. Development of the Molejon gold mineral deposit by us, which commenced in 2006 forms the first phase of the Plan. Subsequent phases of the Plan will be the responsibility of MPSA.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 23 |
Such government approval of the Plan resulted in the extension of the land tenure for an initial 20-year period which commenced September 2005, subject to MPSA meeting certain other ongoing development and operational conditions. In addition, pursuant to the Ley Petaquilla, in order to maintain the Cerro Petaquilla Concession in good standing, we and MPSA must continue to meet certain obligations.
The Ley Petaquilla comprises the agreement between the Republic of Panama and the corporation of Minera Petaquilla, S.A. and its affiliates and identifies each party’s rights and obligations. The majority of our obligations require that the Republic of Panama be provided with a variety of reports, studies and work plans, payment of surface canons, access and use of port installations, evidence of bonding, etc. An example of an obligation that requires government approvals concerns the environment and states that an Environmental Feasibility Study specific to the project area in which the respective extradition will take place must be submitted to the General Direction of Mineral Resources of the Ministry of Commerce and Industries. Said study shall be evaluated and its approval, modification or rejection shall be defined within a term of 45 days counted as of the date of its presentation to the General Direc tion of Mineral Resources. After the end of this term, if there is no statement from the General Direction of Mining Resources, the Environmental Feasibility Study shall be considered approved. For complete disclosure of Panama’s requirements, please refer to Exhibit 4.V., Law No. 9 as passed by the Legislative Assembly of Panama on February 26, 1997, attached to our Annual Report on Form 20-F for fiscal year ended May 31, 2009. An English translation of the law is attached to this Amendment No. 1 as Exhibit 4.W.
4.C. Organizational Structure
The following chart sets out our corporate structure and the mineral properties owned by each of our subsidiaries:
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 24 |
![](https://capedge.com/proxy/CORRESP/0001176256-09-001023/corporateentities2x1x1.jpg)
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 25 |
4.D. Property, Plant and Equipment
All of our properties are in the exploration stage and are without a known body of commercial ore. Although an open pit mine is planned and a gold processing plant is currently being commissioned at the Molejon gold property, we have not begun commercial production and have not generated any revenue from any mineral producing properties in the 12 months ended May 31, 2009. See also“Item 4.A. – History and Development of the Company”.
To date, during the process of commissioning the Molejon gold plant, we have produced approximately 24,767 ounces of gold and 10,594 ounces of silver since April 7, 2009. We expect commercial production to commence in fiscal 2010.
Mineral Concession Lands
Introduction
We are currently focused on bringing our Molejon gold project located on the Cerro Petaquilla Concession to commercial production. We also hold the rights to 659 square kilometres of virtually unexplored land surrounding the known deposits of the Cerro Petaquilla Concession.
Our concession lands are located approximately 75 miles west of Panama City and six miles from the Caribbean coast within the Donoso District of the Province of Colon in the Republic of Panama.
Property Location
Figure 1
Mineral Property Location Map
![[graphicx1x1.jpg]](https://capedge.com/proxy/CORRESP/0001176256-09-001023/graphicx1x1.jpg)
A map identifying the various concession lands, including the Cerro Petaquilla Concession held by MPSA and our Molejon gold deposit, follows below as Figure 2.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 26 |
Figure 2
Concession Map
![[graphicx2x1.jpg]](https://capedge.com/proxy/CORRESP/0001176256-09-001023/graphicx2x1.jpg)
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 27 |
Figure 3 is a diagram focusing primarily on the 136-square kilometre Cerro Petaquilla Concession with our Molejon gold deposit area cross-hatched in red:
Figure.3
Cerro Petaquilla Concession
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The Cerro Petaquilla Concession is largely held by MPSA although, pursuant to the Molejon Gold Project Agreement dated June 2, 2005 (the “Molejon Gold Project Agreement”), the full text of which was filed as Exhibit 4.T. to our Annual Report on Form 20-F for the fiscal year ended May 31, 2009, we hold the rights to the Molejon gold deposit found within the concession lands as well as to other gold and precious metal mineral deposits that might be developed within Cerro Petaquilla Concession. This concession contains a large copper-gold porphyry system and our epithermal gold deposit, Molejon, amenable to open pit mining. To date, exploration has identified eight copper-gold porphyry deposits along with our Molejon gold deposit.
Our activities are focused on the Molejon gold deposit and the first phase of the Plan submitted by us and MPSA and approved by the government of Panama in 2005. We have begun construction and advancement of the area for the purposes of extracting ore from the Molejon gold deposit. In addition, we intend to perform further exploration on other identified gold targets within the Cerro Petaquilla Concession and those within our wholly-owned properties surrounding the Cerro Petaquilla Concession.
Location, Access & Physiography
The Cerro Petaquilla Concession is located 20 kilometres inland from the Caribbean coast and elevation within the concession boundaries ranges between 70 metres and 350 metres above sea level. The Cerro Petaquilla Concession falls within the rainfall shadow of the Continental Divide and the terrain is generally rugged and covered with heavy rainforest vegetation. The climate of the Cerro Petaquilla Concession is characteristic of tropical rainforests. Precipitation is high throughout the year with annual rainfall averaging at least 4,700 mm in the concession area. The heaviest precipitation is evenly distributed from May to December and the months of January to April are typically the driest months.
The Molejon gold property within the Cerro Petaquilla Concession is accessible by road or helicopter. We have completed construction of the 28-kilometre Llano Grande–Coclesito dirt road from Coclesito, a village of approximately 700 inhabitants, to the mine site. As part of the Llano Grande-Coclesito Road Improvement Project, the Cascajal Bridge has been completed and was inaugurated on January 16, 2007, by the Minister of Public Works of Panama. An additional bridge spanning the San Juan River has also been completed. This road replaces a network of trails, which was the previous access, and the new road portion will ultimately be upgraded to rural paved status as part of ongoing development work. While the road has initially been designed to provide access to the mine site, it will ultimately comprise part of a future expansion of the national road network connectingcommunities with the region. Thirty kilometres of gravel road connects Coclesito with La Pintada, a town of 5,000 people on the country's paved highway network, and the Pan-American Highway to the south. This road will also be upgraded to rural paved status as part of ongoing development work.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 28 |
Plant and Equipment
Currently, a gold-processing surface plant that will initially utilize three ball mills and a carbon-in-pulp processing facility is under construction and near completion. Ball mills are operational, and construction of leach tanks, carbon-in pulp tanks and pulp and tailings thickeners is complete. The adsorption, desorption, refinery (ADR) plant building and the cyanide detoxification system are 100% complete. The carbon, acid wash and elution columns are mounted, the regeneration kiln structure and frames are mounted and six generator sets are in place and functioning. The emergency pond is complete. Tailings pond no. 2 is being completed in three stages, of which two have been finalized. The final construction item – completion of the plant’s crushing system – is expected to be finished in fiscal 2010. Commissioning of the Molejon gold plant is currently underway.
With respect to the planned exploration and advancement of the Molejon property, we anticipate having capital expenditures of approximately $5,000,000 to $10,000,000 during the fiscal year ending May 31, 2010, with such funds to be used for the third stage of the tailings pond construction, spare parts, supplies and other materials and equipment items as needed. However, such expenditures are subject to further consideration and to our ability to obtain external financing. There is no assurance that we will be successful in obtaining such financing.
Figure 4
Molejon Gold Plant
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Title
Cerro Petaquilla Concession – Panama
Prior to October 18, 2006, we owned, through our indirect share ownership of MPSA, a 52% interest in the Cerro Petaquilla Concession. Specifically, our 52% ownership of MPSA was held through our wholly-owned subsidiary of Georecursos Internacional, S.A. (“Georecursos”). On October 18, 2006, we entered into a Plan of Arrangement with Petaquilla Copper Ltd. (“Copper”), whereby we effectively transferred ownership of Georecursos to Copper, and, thereby, our interest in the copper assets within the Cerro Petaquilla Concession lands to Copper.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 29 |
We retain the rights to the Molejon gold deposit as well as to other gold and precious metal mineral deposits that may be developed within the Cerro Petaquilla Concession and continue to operate under the Ley Petaquilla as does the joint venture company, MPSA.
Molejon Property – Panama
With the above noted and pursuant to the Molejon Gold Project Agreement, the shareholders of MPSA agreed to separate the gold deposit and other precious metal mineral deposits that might be developed from the copper mineral deposits within the Cerro Petaquilla Concession. Such agreement provides for us, through our subsidiary, Petaquilla Gold, S.A., to own a 100% interest in the Molejon gold deposit, as well as all other gold and precious metal mineral deposits that might be developed within the Cerro Petaquilla Concession, subject to a graduated 1% - 5% Net Smelter Return, based on the future gold price at the time of production, payable to shareholders of MPSA.
Pursuant to the contract law under which the Cerro Petaquilla Concession was granted by the government of the Republic of Panama, we with our then partners delivered the phased Plan to the government of Panama. In September 2005, the multi-phase Plan submitted to the Government of Panama by us and MPSA was approved by Ministerial Resolution. This approval resulted in the extension of the land tenure for an initial 20 year period which commenced in September 2005, subject to MPSA meeting certain other development and operational conditions on an ongoing basis. The land tenure provides for two additional 20-year terms that are also subject to MPSA meeting certain other ongoing development and operational conditions.
The Molejon gold mineral deposit, owned 100% by us, forms part of the Cerro Petaquilla Concession lands and the first phase of Plan focuses on the development of the Molejon gold deposit by us which commenced in 2006. The development of the Cerro Petaquilla copper deposit is included in subsequent phases of the Plan, and is the responsibility of MPSA.
Exploration History
Although the Cerro Petaquilla Concession has been investigated since 1968 when the potential for copper porphyry mineral deposits within the area was first recognized, no former exploration program analyzed the drilling and surface sampling for gold. As such, the only existing gold data is that accumulated by us. Drilling to date has shown that the distribution and intensity of gold values within mineralized zones varies directly with areas of elevated copper and depleted molybdenum contents.
Exploration - Results Obtained by Us or on Our Behalf
In October 2005, we received an NI 43-101 compliant mineral resource estimate on the Molejon gold deposit from SRK Consulting (Canada) Inc. (“SRK”). SRK estimated inferred mineral resources at 0.5 g/t cutoff were 11.2 million tonnes at 2.48 g/t Au. We used a cutoff grade at 0.5g/t for all resources estimates since other mines in the Central America region have operated profitably at a gold price of $500 per ounce using a resource estimate at such cutoff. Inferred mineral resources at 0.5, 0.6 and 0.7 g/t Au cut-offs are included in the following table.
Table: Mineral Resource Estimate at 0.5, 0.6 and 0.7 g/t Au Cut-Offs
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| Inferred Resources |
Au g/t Cut -Off | Million Tonnes * | Au g/t | Contained Ounces Au * |
0.5 | 11.2 | 2.48 | 893,000 |
0.6 | 10.8 | 2.56 | 889,000 |
0.7 | 10.1 | 2.68 | 870,000 |
(* Note: Tonnes and ounces have been rounded to reflect relative accuracy of the resource estimate.)
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 30 |
SRK found the drilling, sampling methods and approach, sample preparation, analysis, security (chain of custody) and quality assurance/quality control procedures (“QA/QC”) used during the exploration and delineation of the Molejon gold mineralization to be acceptable for resource estimation.
Based on the results of the resource estimate, SRK recommended that we proceed with the planned infill drill program, use the infill drill data along with twinned holes to revalidate the previous drilling and surface trench results and complete specific gravity and mineralogical testwork. Upon completion of this work, a re-estimation of resources would be warranted in preparation for subsequent engineering studies. Additional metallurgical and geotechnical work was also recommended in preparation for future engineering work.
The October 2005 SRK report represents an increase of 35% over a pre-NI 43-101 resource estimate of 7.8 million tonnes grading 2.63 grams for total contained gold of 661,000 ounces using a bottom cut-off grade of 0.500 g/t Au.
In January 2006, during a follow-up trenching program on the Molejon gold deposit, a 200-metre strike length of high-grade gold mineralization in the Central Zone was delineated. Overall, the trenching program resulted in a significant reinterpretation of the Molejon mineralization - three or more mineralization trends in quartz breccia and silicified andesite breccia extend across the deposit.
During 2006, we also commenced and completed a 14,005-metre diamond-drilling program at the Molejon gold deposit. The drilling program was threefold. First, the majority of drilling, or 11,398 metres, consisted of infill drilling in the southern part (the starter pit area) of the deposit to reduce the separation between existing drill holes to 20 to 35 metres. The Molejon gold deposit was previously diamond drilled in a 124-hole program conducted by Teck Corporation, Inmet Mining Corporation and us (formerly Adrian Resources Ltd.) in 1994-1995 on 50-metre grid lines with 40 to 70 metres between holes. Second, additional resource drilling totaling 1,627 metres was performed on areas where trenching had identified new targets. Third, the remainder of the drilling, which consisted of approximately 980 metres focused on condemnation drilling and established the location for the 2,200 tonne per day plant currently being constructed. Geotechnical drilling was also performed in order to characterize construction conditions.
One of our objectives when we commenced the 2006 drill program was to confirm the location of the starter pit and to upgrade SRK’s October 2005 inferred mineral resource estimate to an indicated and measured category. In April 2007, we received an NI 43-101 compliant gold resource estimate completed by AAT Mining Services (AquAeTer, Inc. d/b/a AAT Mining Services) that significantly upgraded the prior resource estimate of 893,000 ounces of inferred gold ounces. The new resource calculation outlined 405,141 ounces of measured resources, 109,192 ounces of indicated resources and 361,011 ounces of inferred resources at the Molejon Gold deposit. AAT Mining Services also estimated that 179,934 ounces of the measured and indicated ounces contained in the low-grade material have potential for blending with the high-grade to achieve an optimum mill feed without loss of resources. Moreover, drilling confirmed the high-grade area of 1.667 mm tonnes grading 5.0 g/tonne at a cutoff grade of 2.5 g/tonne.
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Category | Tonnage | Cut-off (g/tonnes) | Average Grade | Ounces |
Measured | 6.846 Mio | 0.5 | 1.84 | 405,141 |
Indicated | 3.121 Mio | 0.5 | 1.09 | 109,192 |
Inferred | 10.473 Mio | 0.5 | 1.07 | 361,011 |
The 361,011 ounces of gold presently defined as inferred resources are currently being evaluated by infill drilling to 25 metre centres with an aim to convert this resource to measured and indicated resources for the Molejon Gold Plant Expansion Feasibility Study. Most of these mineralized drill holes are 50 to 75 metres away from measured and indicated mineralized resources. The on-site Qualified Person, Sean C. Muller, P. Geo., observed and verified that the 2006 drilling and laboratory procedures on the Molejon gold project met or exceeded NI 43-101 standards. Strict quality assurance and quality control protocols were defined and implemented under his supervision including the submission of blanks, standards and duplicate core samples to the laboratory.
More than 120 new test holes were used to update SRK’s October 2005 resource estimate.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 31 |
The second objective was to test for additional mineralization. The additional resource drilling discovered another deeper mineralization trend north of the known resource at the Molejon property. This new trend, known as the NW Deep, exhibits two cohesive blocks of mineralization, one near the surface and another at a depth of approximately 100 metres. The extension of the known mineralization trends to the NNE, and the WSW continues to be extended through step-out drilling.
The third objective was to confirm the location of the gold processing plant. Thus, condemnation drilling was conducted to ensure that ore zones do not underlie the proposed plant, related infrastructure and tailings impoundment sites.
In addition, the results obtained from both the 1994-1995 and 2006 diamond-drilling programs will be used to assist in the completion of pit modeling and a feasibility study.
In early 2007, we continued drilling by commencing a minimum 40,000 metre exploration and development diamond-drill program focusing on the 20 square kilometer area knows as the El Real Trend, which includes our 100% owned Molejon deposit and Copper’s Botija Abajo/Brazo project zones, and which is open in three directions. In August and September 2007, we released results and details concerning this drill program along the El Real copper gold trend. At the time, we and Copper had jointly been active in five different zones in the Cerro Petaquilla Concession with six drill rigs working on the El Real mineralized gold and copper trend between Molejon and Botija Abajo/Brazo. Results from several drill holes indicated the zone may be much larger in size than previously estimated, that the area had a new silver zone and confirmed the mineralized trend between the Botija Abajo, Botija Abajo West, Brazo and Molejon open pit. The overall goal of this large scale, wide spaced drill program was to identify and delineate the many targets on the El Real Trend and tie the Botija Abajo/Brazo zone to the Molejon open pit gold deposit.
Two drill rigs were also working on a new extension of the Molejon deposit in the North Central zone outside of the current pit outline. Drill hole 332, included in the first results from this program and located within the south-western part of the current pit design, intercepted high grade mineralization near the surface: 9 metres @ 17.24g/t Au. In addition, deep mineralization found in several holes confirmed our structural model and indicated a significant extension of known mineralized breccias outside of the current designed pit limits. The results offered encouraging support for our stated goal of increasing resources. The new hole locations were designed to test mineralization trends suggested by recent resource modeling. Results from several holes located within the south-western part of the current pit indicated a significant volume of near surface, higher grade material in an area drilled previously on a wide spacing and previously interpreted as a l ower grade zone. The results supported upgrading previously low grade material, with new higher grade intervals.
In October 2007, we announced the results of an updated NI 43-101 compliant gold resource estimate based on results obtained through September 2007. AAT Mining Services has estimated a total measured resource of 532,801 ounces and an indicated resource of 223,785 ounces at the Molejon gold deposit (see table below). Additionally, an inferred resource of 342,111 ounces at an average grade of 0.872 g/t above a cutoff of 0.5 g/t was estimated. The 123,000 indicated resource ounces of gold delineated at the nearby Botija Abajo deposit through June 2007 increases the total gold resources at the global Molejon project by 40% since the last resource estimate announced in April 2007.
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Grade cutoff | Tonnes | Au | Au | Au |
in g/t | | grams/tonne | grams | ounces |
.5 | 7,683,176 | 1.013 | 7,784,218 | 250,272 |
2.5 | 1,170,618 | 3.469 | 4,060,956 | 130,565 |
5.0 | 591,315 | 7.993 | 4,726,538 | 151,964 |
Total | 9,445,109 | 1.75 | 16,571,712 | 532,801 |
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 32 |
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Grade cutoff | Tonnes | Au | Au | Au |
in g/t | | grams/tonne | grams | ounces |
.5 | 5,873,534 | 0.924 | 5,426,666 | 174,474 |
2.5 | 345,516 | 3.236 | 1,117,982 | 35,944 |
5.0 | 62,508 | 6.651 | 415,769 | 13,367 |
Total | 6,281,558 | 1.11 | 6,960,417 | 223,785 |
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Grade Cutoff g/Tonne | Inferred Tonnes | Average Gold Grade g/Tonne | Inferred Gold Grams (contained) | Inferred Gold Troy Ounces (contained) |
0.5 | 12,190,533 | 0.869 | 10,589,925 | 340,479 |
2.5 | 18,471 | 2.747 | 50,747 | 1,632 |
Total | 12,209,004 | 0.872 | 10,640,672 | 342,111 |
Another 342,111 inferred ounces have been geostatistically shown in a new area northwest of the Molejon measured and indicated resources.
In 2006, about 500,000 ounces of gold were in the inferred category of which over 50% were converted to measured and indicated resources by infill drilling in 2007. Over 22,000 metres were cored at Molejon in 2007 bringing the total drilling along the gold trend to about 40,000 metres since the beginning of the program in 2006. As at October 18, 2007, seven rigs were currently drilling in the area, three in Molejon and four elsewhere along the El Real trend.
The recent modeling effort included a complete review of the drilling, geology, sampling methods and approach, sample preparation, analysis, security (chain of custody) and QA/QC procedures used during the exploration of the Molejon gold deposit. The on-site independent qualified person, Sean C. Muller, P. Geo., a Qualified Person under NI 43-101, oversaw the drilling program ensuring that the appropriate quality assurance protocols were being followed and that the data was being qualified under strict quality controls. He observed and verified that recent drilling, sample preparation and ALS Chemex laboratory procedures utilized for the Molejon project meet NI 43-101 standards. Strict QA/QC protocols have been defined and implemented under Mr. Muller’s supervision, including the submission of blanks, standards and duplicate core samples to the laboratory.
In March 2008, we announced drill hole results received for 132 holes added since the last resource model update of the Molejon gold deposit in October 2007.
The two objectives of the drill program were to provide infill information to complement data obtained from previous drilling and to advance towards delineating the mineral deposit. The program succeeded in meeting both its objectives. First, the results obtained from infill drilling would allow for the conversion of inferred and indicated resources to indicated and measured resources, respectively. Second, as the condemnation holes supported the model, the results obtained from delineation drilling have verified the geologic interpretation and have also provided for important increases in geologic understanding.
The holes that did not intercept mineralization were effectively around the perimeter of the known deposit. The holes that did intersect mineralization were drilled to define the suspected high grade and, while important for increasing the high grade envelope, also verified the model. Additionally, these results provided the basis to expand the previously modeled high grade ore shell to encompass a previously undrilled region.
The independent Qualified Person, Cathryn Stewart, P. Geo., verified that recent drilling, sample preparation and laboratory procedures utilized for the Molejon project met NI 43-101 standards. Strict QA/QC protocols have been defined and implemented for the submission of blanks, standards and duplicate core samples to the laboratory. Samples were analyzed at ALS Chemex Labs Ltd.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 33 |
During the fiscal year ended May 31, 2009, our exploration activity decreased as the majority of our resources were focused on the construction of the Molejon gold plant. Nonetheless, we obtained permits from local environmental authorities to establish satellite exploration camps across our concessions and construction of a regional base camp and several field camps has been completed.
Outlook - 2010
We are focusing on bringing our Molejon gold deposit to production and are currently in the process of commissioning the mill. In addition, with the establishment of base camps and logistics across our other concessions, we plan to expand our exploration efforts during the fiscal year ending May 31, 2010.
Regional and Local Geology
Panama is underlain by an island arc built upon late Cretaceous oceanic crust and is considered prospective for porphyry copper-gold-molybdenum deposits.
Andesitic tuffs and flows of presumed early to middle Tertiary age cover the majority of the Cerro Petaquilla Concession lying at the southern limit of a 400 square kilometre batholith, dated at 32.6+2 million years, which has intruded the older volcanic sequence. The core of the batholith is composed of quartz monzonite, grading outward to granodiorite and porphyritic granodiorite. The Petaquilla and Botija deposits are centered on porphyritic stocks and dykes lying peripheral to the southern margin of the batholith.
At the Botija deposit, the intrusive is a medium-grained, crowded porphyry composed of 25% plagioclase phenocrysts, 15% hornblende phenocrysts and 5-10% quartz grains in a feldspar rich matrix. At the Petaquilla deposit, the intrusive is more obviously porphyritic, with a generally lower percentage of phenocrysts. Contact phases and dykes at each deposit are finer-grained varieties of the main intrusive. In particular, feldspar, hornblende, quartz porphyry dykes appear to be late stage phases of the granodiorite. Most of these porphyry dykes post-date the mineralization, indicating that they were introduced during the waning stages of hydrothermal alteration and mineralization. The youngest units encountered on the property are the unmineralized basalt and andesite dykes.
Copper-gold-molybdenum porphyry deposits have been identified and partially delineated at the Petaquilla and Botija deposits, which are centred four kilometres apart on an east-west trend within the Cerro Petaquilla Concession. Four types of well-developed alteration have been observed within the various intrusive units: potassic, phyllic, quartz-chloritic and propylitic. Potassic alteration is found near the core of the porphyry system and is not extensive. It is characterized by quartz, potassium feldspar, biotite, sericite and lesser amounts of anhydrite and magnetite. The majority of copper mineralization is hosted in the phyllic altered rock, which is composed of quartz and sericite with minor kaolinite and K-spar. Propylitic alteration, marked by chlorite, pyrite, calcite and epidote, marks the outer extent of alteration in a porphyry system. The phyllic and quartz-chlonite alteration zones are usu ally found between the potassic core and the peripheral propylitic zone, although either may be missing. Alteration of the andesitic volcanic units, characterized by prograde biotite hornfels and fine grained sulphide mineralization occurs when they are found to be proximal to the intrusive contact or within zones of intrusive dyking.
The Petaquilla deposit is largely hosted by porphyritic granodiorite below its intrusive contact with andesite forming a flat-lying to gently dipping sheet, trending east-west and dipping to the north. It has been drilled for 1,600 metres along strike and remains open along strike to the south, east and west and at depth.
The Valle Grande deposit is hosted dominantly by prophyritic granodiorite and, similar to the Petaquilla deposit, is a flat-lying sheet, trending northwest-southeast and dipping to the north. It has been drilled for 2,400 meters along strike and is considered to have limited expansion potential.
The Botija deposit trends east-west and dips 20-30 degrees to the north or northeast. It has been intersected by drilling along strike for 1,800 metres and up to 600 metres down dip. The Botija deposit remains open near the surface to the south, along strike to the east and the west, and in many places at depth both vertically and down dip to the north.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 34 |
The general geology of the Molejon epithermal gold target is dominated by volcanic and subvolcanic intrusives, including massive andesite flows, feldspar-porphyritic andesite flows, andesitic tuffs and andesitic agglomerates. This volcanic package has been intruded by feldspar-quartz porphyry and feldspar porphyry units. A northeast trending fault is believed to be the major structural control for the emplacement of the hydrothermally altered quartz-carbonate breccia.
Mineralization
Mineralization at the nearby Petaquilla, Valle Grande and Botija deposits is largely concentrated within potassic or phyllic altered porphyritic intrusives of granodioritic composition. Volcanic-hosted copper mineralization, associated with strong biotite alteration, is widespread at the Petaquilla deposit and contributes significantly to its tonnage. Mineralization in each deposit consists of chalcopyrite and pyrite as disseminations, within quartz veinlets and filling brittle, irregular fractures. Pyrite content generally decreases with higher grade copper mineralization and increases towards the periphery of the deposits. Chalcopyrite occurs most commonly as very fine disseminations within an altered intrusive matrix or biotite hornfels. It is often associated with magnetite and/or chlorite or biotite altered mafic minerals, most notably in lower-grade sections of propylitic alteration. Stockwork quartz vei nlets are best developed within potassic alteration, where they crosscut pervasive silicification. The irregular fracture-filling style of copper mineralization, which locally approaches a sulphide net, is largely confined to biotite-altered andesite at the Petaquilla deposit. This is cut in places by narrow quartz-chalcopyrite veins which have developed bleached selvages of biotite destruction. A fourth style of mineralization, consisting of chalcopyrite and pyrite coatings along steep, widely spaced cooling joints is confined to granodiorite along the eastern periphery of the Botija deposit.
Molybdenite is present mainly in quartz, carbonate, chalcopyrite veinlets hosted by granodiorite within the most intensely altered and mineralized portion of each deposit. Bornite occurs locally with chalcopyrite and contributes significantly to the copper grade in some sections, mainly within hornfelsed andesites in the Petaquilla deposit. Although leaching is widespread throughout the upper 10 to 30 metres of the deposits, supergene copper mineralization is not present in significant amounts. Magnetite is an important accessory in both deposits, disseminated throughout both the porphyritic intrusives and the intruded andesite.
At our Molejon deposit, epithermal gold-silver mineralization occurs within structurally controlled zones of hydrothermal quartz-carbonate breccia and the fractured and altered rocks marginal to the quartz-carbonate breccia. Assay boundaries of gold-silver mineralization are not sharply constrained by geological contacts. Highest grade mineralization usually occurs in the quartz-carbonate breccia but economic mineralization also occurs in feldspar-quartz porphyry, and more rarely in feldspar-porphyritic andesite flows.
Doing Business in Panama
The following briefly summarizes our understanding of the economic and political climate in Panama based on research and information compiled by us from various sources that we believe to be reliable.
Democracy was restored in Panama in December 1989, following the invasion of Panama by the U.S. military. In May 1994, Panama held its first democratic elections in almost 30 years. Pursuant to the constitution of Panama, the president of the country holds office for five years. Therefore, elections were subsequently held in May 1999, 2004, and, most recently, in May 2009. On May 3, 2009, Ricardo Martinelli won Panama’s presidential election, reversing a recent trend of left-wing victories in Latin America.
Ricardo Martinelli and his right-wing alliance led by his Democratic Change party won 61% of the vote and took office on July 1, 2009. Mr. Martinelli’s business experience impressed voters worried about their livelihoods in a global recession that has stunted Panama’s recent strong economic growth. Panama's U.S. dollarized economy has led Latin America with growth of near or above 10% in recent years, fueled by U.S.-Asia trade through Panama’s transoceanic canal and robust banking activity. However, Panama last year suffered its highest inflation levels since the early 1980s. Since such time, inflation has slowed as economic growth has slowed. Growth in 2009 could slow to 3% or less as the global crisis affects credit and shipping.
Mr. Martinelli, a U.S.-educated, political conservative and self-made businessman leads a business empire including supermarkets, banks and agricultural firms, and has promised a massive public works program to return Panama to growth. Potential projects have included construction of ports, highways and a Panama City subway. In general, Mr. Martinelli was viewed as more supportive of business than other candidates.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 35 |
Although launched by the former Panamanian president, Martin Torrijos, and his Democratic Revolutionary Party, Mr. Martinelli will oversee the $5.25 billion expansion of the Panama Canal. The expansion programme, scheduled to be completed in 2014, aims to increase the capacity of the Panama Canal, making it large enough to accommodate supertankers and the largest container ships.
Panama has long had close ties to the United States, which built the Panama Canal and ousted dictator General Manuel Noriega in 1989.
We note that the comparative sovereign rating for Panama by The Economist Intelligence Unit is in the mid-range, both globally and regionally, as shown below. The sovereign rating measures the risk of a build-up in arrears of principal and/or interest on foreign- and/or local-currency debt that is the direct obligation of the sovereign or guaranteed by the sovereign.
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Countries | Month | Score | Overall Country Risk Rating (AAA=least risky, D=most risky) | Outlook |
Argentina | June 2009 | 66 | CCC | Negative |
Bolivia | June 2009 | 58 | B | Negative |
Brazil | June 2009 | 46 | BB | Stable |
Chile | June 2009 | 28 | A | Stable |
Columbia | June 2009 | 47 | BB | Stable |
Costa Rica | June 2009 | 52 | B | Stable |
Ecuador | June 2009 | 77 | CC | Negative |
Guatemala | June 2009 | 47 | BB | Stable |
Honduras | June 2009 | 59 | B | Negative |
Mexico | June 2009 | 42 | BBB | Negative |
Panama | June 2009 | 47 | BB | Negative |
Peru | June 2009 | 39 | BBB | Stable |
Venezuela | June 2009 | 60 | B | Negative |
Rating Band Characteristics |
AAA | Capacity and commitment to honour obligations not in question under any foreseeable circumstances. |
AA | Capacity and commitment to honour obligations not in question. |
A | Capacity and commitment to honour obligations strong. |
BBB | Capacity and commitment to honour obligations currently, but somewhat susceptible to changes in economic climate. |
BB | Capacity and commitment to honour obligations currently, but susceptible to changes in economic climate. |
B | Capacity and commitment to honour obligations currently, but very susceptible to changes in economic climate |
CCC | Questionable capacity and commitment to honour obligations. Patchy payment record. |
CC | Somewhat weak capacity and commitment to honour obligations. Patchy payment record. Likely to be in default on some obligations. |
C | Weak capacity and commitment to honour obligations. Patchy payment record. Likely to be in default on significant amount of obligations. |
D | Very weak capacity and commitment to honour obligations. Poor payment record. Currently in default on significant amount of obligations. |
Mining has not historically been a significant factor in the Panamanian economy and, consequently, Panama does not have the infrastructure and trained personnel required for modern mining operations. The government of Panama has, however, included the development of mineral resources in its economic plan to diversify the Panamanian economy and has taken steps to put in place the legislative framework needed to foster development of these resources.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 36 |
The Code of Mineral Resources of the Republic of Panama has been subject to substantial modifications, among which the most important are Law No. 3 of January 28, 1988, and Law No. 32 of February 9, 1996. The main purpose of such amendments was to simplify the procedure for filing the necessary petitions to obtain concessions, either for conducting mining exploration or mining extraction operations and property rights over the minerals extracted. These amendments grant total exemption from import taxes and customs duties for all equipment, spare parts and materials used in the development of any type of mining operations and there are no export taxes on mineral production.
An exploration concession permits the holder to explore for the minerals specified in the concession. The rental rates payable by the holder to the Government of Panama are $0.50 per hectare for the first two years, $1.00 per hectare for the third and fourth years and $1.50 for the fifth year and thereafter. A 2% gross overriding royalty on the value received for all minerals of higher commercial value (e.g. gold and silver) mined from the concession is payable to the government of Panama.
The holder of an exploration concession has the exclusive right to obtain an exploitation concession for the subject area upon determining that the minerals covered by the concession may be produced in commercial quantities through a separate request to the Government of Panama. Rental rates for exploitation concessions fluctuate, depending on the mineral concerned and the extraction period, between $0.75 and $4.00 per hectare. Rental rates for metallic minerals such as copper, iron, zinc, aluminum and precious metals are $1.00 per hectare for the first five years, $2.00 from the sixth to the tenth year and $3.00 the eleventh year and thereafter. A 2% gross overriding royalty on the value received for all minerals mined from the concession is payable to the Government of Panama. However, this overriding royalty will be 4% for minerals of higher commercial value such as gold and silver.
Exploitation concessions generally permit the holder to carry out additional pre-development exploration, to construct all necessary production facilities and to extract, process, store, transport, market and export the minerals subject to the concession so long as production is ongoing.
In 1995, the Panamanian Tax Reform Law was enacted to simplify the corporate income tax rates applicable to income earned in Panama (Law No. 28 of June 20, 1995). Since June 1995, the corporate income tax rate has been 30%. In addition to corporate income tax, Panamanian law provides for a dividend tax. With the exceptions provided for in the Fiscal Code of the Republic of Panama, all corporations must retain 10% of the amounts they may distribute among their shareholders as dividends or share quotas. In case dividends are not distributed, or the entire amount distributed as dividend or share quota is less than 40% of the net profit of that fiscal period, minus taxes paid by the corporation, the corporation must cover 10% of the remainder.
The Fiscal Code of the Republic of Panama indicates certain expenses which may be deducted from the income tax, applicable to companies conducting mining activities. Additionally, the Code of Mineral Resources establishes certain expenses related to such activities that may be deducted from income tax as well.
There are currently no significant restrictions on repatriation from Panama of earnings to foreign entities other than the income tax and the dividends tax referred to above. There are currently no material currency exchange or foreign investment restrictions.
Based on our understanding of current Panamanian environmental laws and regulations, we do not anticipate that such laws will have an adverse material impact on the operations we may conduct in the future. Based on geochemical analysis and reporting, we anticipate that our Molejon gold project will meet or exceed the effluent and leachate requirements of Panamanian environmental laws and regulations. We will be using a carbon-in-pulp (“CIP”) floatation process, which allows in process cyanide destruction before effluent is discharged. This process is inherently safer and more controllable than traditional acid and cyanide open-air heap leach processing. Any acidity produced at the experimental pH is expected to be buffered by the receiving waters around the Molejon project, which have a pH between 7.4 and 7.8 and total alkalinity between 15 mg/L and 27 mg/L (as CaCO3). Results for both tails and waste rock leachate indicate that the Molejon project will have net acid neutralizing potential. The results of the continuous tests showed that the INCO SO2 cyanide destruction method is an efficient process for decreasing the total cyanide concentrations in the Petaquilla CIP leach pulp.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 37 |
The foregoing laws of general application apply to our Panamanian mineral properties other than the Cerro Petaquilla Concession which is governed primarily by the Ley Petaquilla. Please refer to“Item 4 - Information on Our Company - B. Business Overview”.
Panama's currency, the Balboa, is at parity with the U.S. dollar. Exchange transactions are allowed in U.S. dollars and, as a result, foreign currency fluctuations may be material for us to the extent that fluctuations between the Canadian and U.S. dollar are material.
Item 4A. UNRESOLVED STAFF COMMENTS
We have received written comments from the SEC regarding our transition reports for the 13 months ended May 31, 2008, and 15 months ended April 30, 2007, and, as a result of our subsequent review, we identified errors requiring restatement of our financial information and other disclosures. We have incorporated in this Amendment No. 1 the changes pursuant to the SEC’s comments and, as a result, disclosure for the 13 months ended May 31, 2008, and 15 months ended April 30, 2007, has been amended to the one month ended May 31, 2008, 12 months ended April 30, 2008, three months ended April 30, 2007 and the 12 months ended January 31, 2007.
These comments are still unresolved. We expect to file a Form 20-F/A for the transition period from May 1, 2007, to May 31, 2008, to respond to these comments.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
5.A. Operating Results
We are in the business of the acquisition and exploration of mineral properties, with the primary aim of developing them to a stage where they can be exploited at a profit. At that stage, our operations would, to a significant extent, be dependent on the prevailing market prices for any of the minerals produced by such operations. We do not currently have any producing properties and our operations on our various properties are currently limited to exploratory searches for mineable deposits of minerals. We are hopeful that our activities on the Molejon deposit will both expand the reserves and classify the reserves as proven mineral reserves. However, there is no guarantee such results will be obtained. During the 12 month period ended May 31, 2009, we were primarily engaged in the continued construction and advancement of our Molejon property in Panama. As a result, our future mineral exploration and mining a ctivities may be affected in varying degrees by Panama's political stability and government regulation, all of which are beyond our control. See"Item 3 - Key Information – 3.D. Risk Factors”.
Historically our fiscal year end was January 31. During the period ended April 30, 2007, we changed our fiscal year end from January 31 to April 30 due to the complexities of the Plan of Arrangement with Copper. We changed our fiscal year end again in 2008 from April 30 to May 31. We made this change because we wanted to demonstrate to the Panamanian government that we had sufficient funds to continue work on the mine.
Prior to March 1, 2009, the Canadian dollar was determined to be the measurement currency of the Company’s operations and these operations have been translated into United States dollars up until this date using the current rate method as follows: all assets and liabilities are translated into United States dollars at the exchange rate prevailing at the balance sheet date; all revenue and expense items are translated at the average rate of exchange for the period; and the resulting translation adjustment is recorded as accumulated other comprehensive income (“AOCI”), a separate component of shareholders’ equity. Subsequent to the change in measurement currency described below, the AOCI balance will remain the same until the entities which gave rise to the AOCI balance are disposed of. In addition, unrealized gains and losses due to movements in exchange rates on balances held in foreign currencies are shown separately on the Consolidat ed Statement of Cash Flows.
Due to several financings in U.S. dollars, the most recent in March 2009, as well as the commencement of startup operations in Panama and expected revenue generation in U.S. dollars, it has been determined that as of March 1, 2009, the United States dollar is the reporting and measurement currency of the Company’s operations and therefore these operations have been translated using the temporal method from that date onward. Under this method, foreign currency monetary assets and liabilities are translated into United States dollars at the exchange rates prevailing at the balance sheet date; non-monetary assets denominated in foreign currencies are translated using the rate of exchange at the transaction date; and foreign exchange gains and losses are included in the determination of earnings.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 38 |
Change in Reporting Currency
Effective March 1, 2009, the Company changed its reporting currency to the U.S. Dollar (USD). The change in reporting currency increases transparency of the financial results of the Company and provides better visibility for the stakeholders.
Prior to March 1, 2009, the Company reported its annual and quarterly consolidated balance sheets and the related consolidated statements of operations, deficit, comprehensive income, accumulated other comprehensive income and cash flows in Canadian dollars (CAD). In making the change in reporting currency, the Company followed the recommendations of the Emerging Issues Committee (EIC) of the Canadian Institute of Chartered Accountants (CICA), set out in EIC-130 – “Translation Method when the Reporting Currency Differs from the Measurement Currency or there is a Change in the Reporting Currency.”
In accordance with EIC-130, the financial statements for all the years and periods presented have been translated to the new reporting currency (USD) using the current rate method. Under this method, the statements of operations, deficit and comprehensive (loss) income and cash flows statement items for each year and period have been translated into the reporting currency using the average exchange rates prevailing during each reporting period. All assets and liabilities have been translated using the exchange rate prevailing at the consolidated balance sheets dates. Shareholders’ equity transactions have been translated using the rates of exchange in effect as at the date of the various capital transactions. All resulting exchange differences arising from the translation are included as a separate component of other comprehensive income. All comparative financial information has been restated to reflect the Company’s results as if they had been historicall y reported in US dollars.
Mineral Properties
During the current fiscal year, as a result of the initiation of a new exploration program, the Company commenced its review of the impact of International Financial Reporting Standards (“IFRS”) on its accounting policies including an examination of the Company’s current accounting policies. Due to this review, the Company determined that it was appropriate to change its accounting policy for mineral properties whereby exploration and development costs are to be expensed until such time as reserves are proven and financing to complete development has been obtained. Previously, the Company capitalized its exploration and development expenditures as incurred, which is permitted under Canadian generally accepting accounting principles (“Canadian GAAP”). This change in accounting policy has also been applied to the calculation of dilution gains and equity losses from the Company’s equity investment in Petaquilla Copper Ltd.
Management believes that this revised accounting policy will provide a more relevant and reliable basis of accounting. Among other benefits, the revised accounting policy aligns the accounting treatment of mineral property expenditures with standards used by producing mining companies in the resource sector and with global accounting standards. The change in accounting policy has been applied retrospectively, and the comparative statements for May 31, 2008, April 30, 2008, April 30, 2007 and January 31, 2007 have been restated.
The effect of the adjustment on the financial statements is summarized in the tables below.
| | | | | | | | | | |
Consolidated balance Sheet | | May 31, 2008 as | Restatement | | | Change in | | | May 31, 2008 | |
| | previously | Adjustment | | | Accounting Policy | | | restated | |
| | reported | (Note 28) | | | Adjustment | | | | |
Mineral properties | $ | 67,541,355 | - | | $ | (29,802,222 | ) | $ | 37,739,133 | |
Investment in Petaquilla Copper Ltd. | | 9,507,564 | (1,207,000 | ) | | (5,892,121 | ) | | 2,408,443 | |
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 39 |
| | | | | | | | | | |
Consolidated Statement of | | May 31, 2008 as | | Restatement | | Change in | | | May 31, 2008 | |
Operations and Comprehensive | | previously | | Adjustment | | Accounting Policy | | | restated | |
Loss and Deficit | | reported | | (Note 28) | | Adjustment | | | | |
Exploration and development costs | $ | - | | - | $ | (562,237 | ) | $ | (562,237 | ) |
Loss from equity investment | | (230,752 | ) | - | | (549,094 | ) | | (779,846 | ) |
Net loss/comprehensive loss for the period | | (4,433,667 | ) | - | | (1,111,331 | ) | | (5,544,998 | ) |
Loss per share – basic and diluted | | (0.05 | ) | - | | (0.01 | ) | | (0.06 | ) |
| | | | | | | | | | |
Consolidated Statement of Cash | | May 31, 2008 as | | Restatement | | Change in | | | May 31, 2008 | |
Flows | | previously reported | | Adjustment | | Accounting Policy | | | restated | |
| | | | (Note 28) | | Adjustment | | | | |
Operating activities | $ | (9,953,001 | ) | - | $ | (181,315 | ) | $ | (10,134,316 | ) |
Investing activities | | (1,471,217 | ) | - | | 181,315 | | | (1,289,902 | ) |
| | | | | | | | | | | |
Consolidated Statement of | | April 30, 2008 as | | Restatement | | | Change in | | | April 30, 2008 | |
Operations and Comprehensive | | previously | | Adjustment | | | Accounting Policy | | | restated | |
Loss and Deficit | | reported | | (Note 28) | | | Adjustment | | | | |
Exploration and development costs | $ | - | | - | | $ | (11,690,204 | ) | $ | (11,690,204 | ) |
Gain on dilution of equity investment | | 13,011,861 | | (529,212 | ) | | 99,436 | | | 12,582,085 | |
Loss from equity investment | | (4,390,462 | ) | - | | | (3,910,909 | ) | | (8,301,371 | ) |
Gain on sale of equity investment | | 4,603,347 | | (646,815 | ) | | 390,545 | | | 4,347,077 | |
Net loss/comprehensive loss forthe period | | 176,152 | | (1,176,027 | ) | | (15,111,132 | ) | | (16,111,007 | ) |
Loss per share – basic and diluted | | (0.00 | ) | (0.01 | ) | | (0.16 | ) | | (0.17 | ) |
| | | | | | | | | | |
Consolidated Statement of Cash | | April 30, 2008 as | | Restatement | | Change in | | | April 30, 2008 | |
Flows | | previously | | Adjustment | | Accounting Policy | | | restated | |
| | reported | | (Note 28) | | Adjustment | | | | |
Operating activities | $ | 1,539,335 | | - | $ | (8,207,195 | ) | $ | (6,667,860 | ) |
Investing activities | | (28,184,779 | ) | - | | 8,207,195 | | | (19,977,584 | ) |
| | | | | | | | | |
Consolidated Statement of | | | | | | | | | |
Operations and Comprehensive | | April 30, 2007 as | | | Change in Accounting | | | | |
Loss and Deficit | | previously reported | | | Policy Adjustment | | | April 30, 2007 restated | |
Exploration and developmentcosts | $ | | | $ | (2,167,355 | ) | $ | (2,167,355 | ) |
Gain on dilution of equity investment | | 700,626 | | | (68,230 | ) | | 632,396 | |
Loss from equity investment | | (1,363,509 | ) | | (694,215 | ) | | (2,057,724 | ) |
Net loss/comprehensive loss forthe period | | (5,562,839 | ) | | (2,929,800 | ) | | (8,492,639 | ) |
Loss per share – basic and diluted | | (0.06 | ) | | (0.03 | ) | | (0.09 | ) |
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 40 |
| | | | | | | | | |
Consolidated Statement of Cash Flows | | April 30, 2007 as | | | Change in | | | April 30, 2007 restated | |
| | previously reported | | | Accounting Policy | | | | |
| | | | | Adjustment | | | | |
Operating activities | $ | (1,618,081 | ) | $ | (2,063,009 | ) | $ | (3,681,090 | ) |
Investing activities | | (1,838,515 | ) | | 2,063,009 | | | 224,494 | |
| | | | | | | | | | | | |
Consolidated Statement of | | January 31, 2007 | | | Restatement | | | Change in | | | January 31, 2007 | |
Operations and Comprehensive | | as previously | | | Adjustment | | | Accounting Policy | | | restated | |
Loss and Deficit | | reported | | | (Note 28) | | | Adjustment | | | | |
Exploration and development costs | $ | - | | $ | - | | $ | (10,930,276 | ) | $ | (10,930,276 | ) |
Gain on dilution of equity investment | | - | | | 2,000,514 | | | (298,925 | ) | | 1,701,589 | |
Loss from equity investment | | - | | | (191,400 | ) | | (523,356 | ) | | (714,756 | ) |
Stockbased compensation | | (8,805,950 | ) | | (6,156,781 | ) | | - | | | (14,962,731 | ) |
Net loss/comprehensive loss for the period | | (14,612,368 | ) | | (4,347,667 | ) | | (11,752,557 | ) | | (30,712,592 | ) |
Loss per share – basic and diluted | | (0.19 | ) | | (0.06 | ) | | (0.15 | ) | | (0.40 | ) |
| | | | | | | | | |
Consolidated Statement of Cash Flows | | | | | Change in | | | | |
| | January 31, 2007 as | | | Accounting Policy | | | January 31, 2007 | |
| | previously reported | | | Adjustment | | | restated | |
Operating activities | $ | (4,103,416 | ) | $ | (10,403,459 | ) | $ | (14,506,875 | ) |
Investing activities | | (22,799,414 | ) | | 10,403,459 | | | (12,395,955 | ) |
12 Months Ended May 31, 2009, Compared to 12 Months Ended May 31, 2008
| | | | | | | | | | | | | | | | |
Financial Results for the Twelve Months Ended May 31, 2008 | | | | | | | | | | | |
| | One Month | | | 12 Months | | | One Month | | | 12 Months | | | | 12 Months | |
| | Ended May | | | Ended April | | | Ended May | | | Ended May | | | | Ended May | |
| | 31, 2008 | | | 30, 2008 | | | 31, 2007 | | | 31, 2008 | | | | 31, 2009 | |
| | | | | | | | (unaudited) | | | (unaudited) | | | | | |
EXPENSES | | | | | | | | | | | | | | | | |
Accounting and legal | $ | 15,536 | | $ | 1,306,921 | | $ | 58,159 | | $ | 1,264,298 | | | $ | 1,944,302 | |
Accretion of asset retirement obligation | | 52,098 | | | 305,692 | | | 25,640 | | | 332,150 | | | | 331,504 | |
Consulting fees | | 21,170 | | | 943,250 | | | 90,363 | | | 874,057 | | | | 370,248 | |
Amortization | | 35,511 | | | 344,968 | | | 133,036 | | | 247,443 | | | | 336,602 | |
Filing fees | | 280 | | | 87,005 | | | 6,907 | | | 80,378 | | | | 115,295 | |
Investor relations and shareholder information | | 54,595 | | | 1,012,822 | | | 62,249 | | | 1,005,168 | | | | 1,121,895 | |
Office administration | | 177,657 | | | 2,366,940 | | | 191,333 | | | 2,353,264 | | | | 2,152,886 | |
Rent | | 1,630 | | | 122,495 | | | 13,603 | | | 110,522 | | | | 240,693 | |
Exploration and development costs | | 562,237 | | | 11,690,204 | | | 723,000 | | | 11,529,441 | | | | 7,761,862 | |
Stockbased compensation | | 77,890 | | | 5,561,247 | | | 641,848 | | | 4,997,289 | | | | 898,454 | |
Travel | | 121,849 | | | 857,907 | | | 79,603 | | | 900,153 | | | | 1,014,530 | |
Debt issuance costs | | 3,894,873 | | | - | | | - | | | 3,894,873 | | | | 6,398,825 | |
Wages and benefits | | 177,329 | | | 1,668,455 | | | 150,029 | | | 1,695,755 | | | | 2,916,615 | |
Total expenses | | (5,192,655 | ) | | (26,267,906 | ) | | (2,175,770 | ) | | (29,284,791 | ) | | | (25,603,711 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
OTHER INCOME (EXPENSE) | | | | | | | | | | | | | | | | |
Foreign exchange gain (loss) | | 295,059 | | | 1,342,442 | | | (144,621 | ) | | 1,782,122 | | | | (8,157,720 | ) |
Interest income | | 78,658 | | | 51,926 | | | 8,542 | | | 122,042 | | | | 169,366 | |
Asset usage fees | | (695 | ) | | 126,775 | | | 59,649 | | | 66,431 | | | | (4,155 | ) |
Gain on sale of equity investment | | - | | | 4,347,077 | | | - | | | 4,347,077 | | | | 40,604,938 | |
Interest on long term debt | | (15,613 | ) | | (68,465 | ) | | - | | | (84,078 | ) | | | (37,382 | ) |
Power and drilling services | | 70,094 | | | 76,430 | | | - | | | 146,524 | | | | 156,597 | |
Loss from equity investment | | (779,846 | ) | | (8,301,371 | ) | | (323,150 | ) | | (8,758,067 | ) | | | (2,396,011 | ) |
Gain on dilution of equityinvestment | | - | | | 12,582,085 | | | 2,913,982 | | | 9,668,103 | | | | 2,238,492 | |
Redemption loss on senior secured notes | | - | | | - | | | - | | | - | | | | (13,130,982 | ) |
Marktomarket loss on senior secured notes | | - | | | - | | | - | | | - | | | | (14,939,298 | ) |
| | (352,343 | ) | | 10,156,899 | | | 2,514,402 | | | 7,290,154 | | | | 4,503,845 | |
Net (loss) income and comprehensive (loss) income for the period | $ | (5,544,998 | ) | $ | (16,111,007 | ) | $ | 338,632 | | | $(21,994,637 | ) | | $ | (21,099,866 | ) |
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 41 |
We did not generate revenue from operations during the 12 months ended May 31, 2009, or the 12 months ended May 31, 2008.
Expenses for the 12 months ended May 31, 2009, were $25,603,711 compared to $29,284,791 for the 12 months ended May 31, 2008, a decrease of $3,681,080. The decrease was attributable to a decrease in exploration and development costs due to the change in activities from exploration and development in 2008 to pre-operations and mill commissioning during the second half of fiscal 2009. The decrease was also attributable to a decrease in stock-based compensation due to a fewer number of options vesting in fiscal 2009. These decreases were partially offset by an increase in debt issuance costs as a result of the issuance of the second, third and supplemental tranches of senior secured notes and the issuance of convertible senior secured notes during the current fiscal year. Only one tranche of senior secured notes was issued in the 12 months ended 2008.
Other income for the 12 months ended May 31, 2009, was $4,503,845 compared to $7,290,154 for the 12 months ended May 31, 2008. The decrease in other income is due to the redemption losses and mark-to-market losses on the senior secured notes and the convertible senior secured notes totalling $28,070,280 which resulted from an increase in the fair value of the senior secured notes (“Notes”) due to mark-to-market accounting, a change in the discount rate on the Notes from 26.65% to 20.58% as at February 28, 2009, and the partial redemption of Notes during the 12 months ended May 31, 2009. As the Notes issued in the 12 months ended May 31, 2008, fiscal year were issued close to year end there were no such mark-to-market losses during this comparative period. The decrease in other income was also due to a lower gain on dilution of equity investment as the equity investment was sold in the second quarter of fiscal 2009 and a foreign exchange loss of $8,157,720 compared to a foreign exchange gain of $1,782,122 in the prior 12 months. This primarily resulted from the significant decrease in the Canadian dollar, impacting the majority of our liabilities which are denominated in United States dollars coupled with a significant increase in U.S. denominated liabilities (senior secured notes) which occurred during the first nine months of fiscal 2009, prior to the adoption of the U.S. dollar as our functional currency.
.
The decreases in other income were partially offset by a lower loss from equity investment due to the sale of the equity investment in the second quarter of fiscal 2009 as well as a higher gain on sale of the equity investment.
The net loss for the 12 months ended May 31, 2009, was $21,099,866 or $(0.22) per share compared to a net loss of $21,994,637 or $(0.24) per share for the 12 months ended May 31, 2008.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 42 |
One Month Ended May 31, 2008, Compared to One Month Ended May 31, 2007
Summarized Financial Information | | | | | | |
| | One Month Ended | | | One Month Ended | |
| | May 31, 2008 | | | May 31, 2007 | |
| | | | | (unaudited) | |
EXPENSES | | | | | | |
Consulting fees | $ | 21,170 | | $ | 90,363 | |
Amortization | | 35,511 | | | 133,036 | |
Stockbased compensation | | 77,890 | | | 641,848 | |
Debt issuance costs | | 3,894,873 | | | - | |
Other expenses | | 1,163,211 | | | 1,310,523 | |
Total expenses | | (5,192,655 | ) | | (2,175,770 | ) |
| | | | | | |
OTHER INCOME (EXPENSE) | | | | | | |
Foreign exchange gain (loss) | | 295,059 | | | (144,621 | ) |
Loss from equity investment | | (779,846 | ) | | (323,150 | ) |
Gain on dilution of equity investment | | - | | | 2,913,982 | |
Other | | 132,444 | | | 68,191 | |
| | (352,343 | ) | | 2,514,402 | |
| | | | | | |
Net earnings (loss) and comprehensive earnings (loss) for the period | $ | (5,544,998 | ) | $ | 338,632 | |
| | | | | | |
Basic and diluted earnings (loss) per share | $ | (0.06 | ) | $ | 0.00 | |
| | | | | | |
Basic weighted average number of common shares outstanding | | 93,131,030 | | | 90,893,766 | |
|
Diluted weighted average number of common shares outstanding | | 93,131,030 | | | 95,811,357 | |
We did not generate revenue from operations during the one month ended May 31, 2008 or the one month ended May 31, 2007.
Expenses for the one month ended May 31, 2008, were $5,192,655 compared to $2,175,770 for the one month ended May 31, 2007, an increase of $3,016,885. The increase was attributable to debt issuance costs of $3,894,873 related to the senior secured notes financing in May 2008. There were no debt issuance costs during the one month ended May 31, 2007. This increase was partially offset by a decrease of $563,958 in stock-based compensation expense. The decrease is related to a lower number of options vesting during the one month ended May 31, 2008.
Other expense for the one month ended May 31, 2008, was $352,343 compared to income of $2,514,402 for the one month ended May 31, 2007. The decrease in other income is largely due to the gain on dilution of equity investment of $2,913,982 recorded in the one month ended May 31, 2007. There was no dilution gain recorded during the one month ended May 31, 2008 as there were no additional shares issued by Copper during that period. This decrease was partially offset by a foreign exchange gain of $295,059 for the one month ended May 31, 2008 compared to a foreign exchange loss of $144,621 for the one month ended May 31, 2007. The foreign exchange gain reflects the increase in value of the Canadian dollar relative the United States dollar, affecting the valuation of the Company’s liabilities which are predominantly denominated in United States dollars.
The net loss for the one month ended May 31, 2008 was $5,544,998 or $(0.06) per share compared to net earnings of $338,632 or $0.00 per share for the one month ended May 31, 2007.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 43 |
12 Months Ended April 30, 2008, Compared to 12 Months Ended April 30, 2007
| |
| |
| |
| Twelve months ended April 30, 2008 |
EXPENSES | |
Accounting and legal | 1,306,921 |
Accretion of asset retirement obligation | 305,692 |
Consulting fees | 943,250 |
Amortization | 344,968 |
Filing fees | 87,005 |
Investor relations and shareholder information | 1,012,822 |
Office administration | 2,366,940 |
Rent | 122,495 |
Exploration and development costs | 11,690,204 |
Stock-based compensation | 5,561,247 |
Travel | 857,907 |
Wages and benefits | 1,668,455 |
Total expenses | (26,267,906) |
| |
OTHER INCOME (EXPENSE) | |
Foreign exchange gain (loss) | 1,342,442 |
Interest income | 51,926 |
Interest on long-term debt | (68,465) |
Asset usage fees | 126,775 |
Gain on sale of equity investment | 4,347,077 |
Power and drilling services | 76,430 |
Loss from equity investment | (8,301,371) |
Gain on dilution of equity investment | 12,582,085 |
Total other income (expenses) | 10,156,899 |
Net (loss) and comprehensive (loss) for the period | (16,111,007) |
Basic and diluted (loss) per share | (0.17) |
Basic and diluted weighted average number of common shares outstanding | 93,131,030 |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 44 |
Financial Results for the Twelve Months Ended April 30, 2007
| | | | | | | | | | | | |
| | 12 Months | | | Three Months | | | Three Months | | | 12 Months | |
| | Ended | | | Ended | | | Ended | | | Ended | |
| | January 31, 2007 | | | April 30, 2007 | | | April 30, 2006 | | | April 30, 2007 | |
| | | |
| | | | | | | | (unaudited) | | | (unaudited) | |
EXPENSES | | | | | | | | | | | | |
Accounting and legal | $ | 433,266 | | $ | 204,246 | | $ | 82,011 | | $ | 555,501 | |
Consulting fees | | 667,788 | | | 277,051 | | | 135,543 | | | 809,296 | |
Amortization | | 296,442 | | | 116,893 | | | 29,063 | | | 384,272 | |
Filing fees | | 67,027 | | | 5,473 | | | 3,611 | | | 68,889 | |
Investor relations and shareholder information | | 979,155 | | | 132,438 | | | 130,023 | | | 981,570 | |
Office administration | | 700,350 | | | 152,031 | | | 99,576 | | | 752,805 | |
Rent | | 124,344 | | | 33,074 | | | 15,510 | | | 141,908 | |
Exploration and development costs | | 10,930,276 | | | 2,167,355 | | | 1,954,609 | | | 11,143,022 | |
Stockbased compensation | | 14,962,731 | | | 2,915,884 | | | 50,486 | | | 17,828,129 | |
Travel | | 1,248,787 | | | 230,293 | | | 147,563 | | | 1,331,517 | |
Wages and benefits | | 1,591,959 | | | 154,811 | | | 144,010 | | | 1,602,760 | |
Total expenses | | (32,002,125 | ) | | (6,389,549 | ) | | (2,792,005 | ) | | (35,599,669 | ) |
| | | | | | | | | | | | |
OTHER INCOME (EXPENSE) | | | | | | | | | | | | |
Foreign exchange gain (loss) | | 23,723 | | | (757,632 | ) | | (30,567 | ) | | (703,342 | ) |
Gain on sale of marketable securities | | 18,584 | | | - | | | 18,584 | | | - | |
Interest income | | 260,393 | | | 49,080 | | | 72,015 | | | 237,458 | |
Interest on longterm debt | | - | | | (59,845 | ) | | - | | | (59,845 | ) |
Asset usage fees | | - | | | 90,635 | | | - | | | 90,635 | |
Loss from equity investment | | (714,756 | ) | | (2,057,724 | ) | | - | | | (2,772,480 | ) |
Gain on dilution of equity investment | | 1,701,589 | | | 632,396 | | | - | | | 2,333,985 | |
Total other income (expenses) | | 1,289,533 | | | (2,103,090 | ) | | 60,032 | | | (873,589 | ) |
|
Net loss and comprehensive loss for the period | $ | (30,712,592 | ) | $ | (8,492,639 | ) | $ | (2,731,973 | ) | $ | (36,473,258 | ) |
Basic and diluted loss per share | | | | | | | | | | $ | (0.46 | ) |
|
Basic and diluted weighted average number of common shares outstanding | | | | | | | | | | | 79,992,262 | |
| | | | | | | | | | | | |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 45 |
Expenses for the 12 months ended April 30, 2008, decreased by $9,331,763 to $26,267,906 compared with $35,599,669 for the 12 months ended April 30, 2007, due to a decrease in stock-based compensation of $12,266,882, which is attributable to fewer options being granted and the decreasing fair market value of our common shares and a decrease in travel of $473,610 due to fewer employees and consultants traveling abroad. These decreases were partially offset by an increase in office administration of $1,614,135 related to an increase in insurance expense, additional employees, rent for new offices in Panama and donations to local social programs, an increase in accounting and legal of $751,420 due to additional work performed as a result of the increase in activities, an increase in exploration and development costs of $547,182 related to construction of the processing mill and the mine and accretion of the asset retirement obligation of $305,692.
In the 12 months ended April 30, 2008, other income increased by $11,030,488 to $10,156,899 compared with a net expense of $873,589 for the 12 months ended April 30, 2007. The increase in other income is due to a foreign exchange gain of $1,342,442 compared with a foreign exchange loss of $703,342 for the 12 months ended April 30, 2007, which was primarily the result of a significant increase in the exchange rate from Canadian dollars to United States dollars, a gain of $4,347,077 on the transfer of 1,815,069 Copper shares back to Copper in settlement of the amount owing to Copper as at December 31, 2007, with no such gain recorded in the prior 12 months, and a dilution gain of $12,582,085 during the 12 months ended April 30, 2008 compared with $2,333,985 during the prior 12 months. The dilution gain resulted from the difference between our carrying cost of Copper and the amount paid up for each Copper share issued. These income increases were parti ally offset by interest income of $51,926 earned during the 12 months ended April 30, 2008 compared to $237,458 for the 12 months ended April 30, 2008 due to lower cash balances on hand during the 2008 period as well as an equity loss of $8,301,371 for the 12 months ended April 30, 2008 compared to $2,772,480 for the prior 12-month period. The equity loss reflects our portion of the losses that are attributed to our percentage ownership in Copper.
The net loss for the 12 months ended April 30, 2008, was $16,111,007 or $(0.17) per basic and diluted share compared to a net loss for the 12 months ended April 30, 2007 of $36,473,258, or $(0.46) per basic and diluted share.
Three Months Ended April 30, 2008 Compared to Three Months Ended April 30, 2007
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 45 |
Summarized Financial Information
| | | | | | |
| | Three months ended | | | Three months ended | |
| | April 30, 2008 | | | April 30, 2007 | |
| | (unaudited) | | | | |
EXPENSES | | | | | | |
Accounting and legal | $ | 616,815 | | $ | 204,246 | |
Stockbased compensation | | 588,184 | | | 2,915,884 | |
Exploration and development costs | | 2,969,606 | | | 2,167,355 | |
Travel | | 66,593 | | | 230,293 | |
Other expenses | | 1,071,082 | | | 871,771 | |
Total expenses | | (5,312,280 | ) | | (6,389,549 | ) |
| | | | | | |
OTHER INCOME (EXPENSE) | | | |
Foreign exchange gain (loss) | | (384,373 | ) | | (757,632 | ) |
Loss from equity investment (Note 6) | | (1,666,409 | ) | | (2,057,724 | ) |
Gain on dilution of equity investment (Note 6) | | 151,331 | | | 632,396 | |
Other | | 24,071 | | | 79,870 | |
Total other income (expenses) | | (1,923,522 | ) | | (2,103,090 | ) |
Net (loss) and comprehensive (loss) for th e period | $ | (7,235,802 | ) | $ | (8,492,639 | ) |
| | | | | | |
Basic and diluted earnings (loss) per shar e | $ | (0.08 | ) | $ | (0.09 | ) |
|
Basic and diluted weighted average number of common shares outstanding | | 95,694,330 | | | 89,615,924 | |
| | | | | | |
| | | | | | |
We did not generate revenue from operations during the three months ended April 30, 2008, or the three months ended April 30, 2007.
Expenses for the three months ended April 30, 2008 were $5,312,280 compared to $6,389,549 for the three months ended April 30, 2007, a decrease of $1,077,269. This decrease was largely attributable to a decrease in stock-based compensation of $2,327,700 due to a fewer number of options vesting during the period and well as a decrease of $163,700 in travel. This decrease was partially offset by an increase in accounting and legal of $412,569 related to higher audit fees for the 2008 year-end audit and an increase of $802,251 in exploration and development costs related to the construction of the mine and processing mill.
Other expenses for the three months ended April 30, 2008, were $1,923,522 compared to $2,103,090 for the three months ended April 30, 2007, a decrease of $179,568. This decrease was largely attributable to a decrease of $373,259 in foreign exchange loss and a decrease of $391,315 in loss from equity investment. The foreign exchange loss relates to the value of the Canadian dollar compared to the United States dollar and the loss from equity investment reflects our portion of the losses that are attributed to our percentage ownership in Copper. The decreases were partially offset by a decrease of $481,065 in the gain on dilution of equity investment. The dilution gain resulted from the difference between our carrying cost of Copper and the amount paid by other investors for additional Copper shares issued. The dilution gain is lower for the three months ended April 30, 2008 as fewer additional shares were issued by C opper during this period.
The net loss for the three months ended April 30, 2008, was $7,235,802 or $(0.08) per share compared to $8,492,639 or $(0.09) per share for the three months ended April 30, 2007.
12 Months Ended January 31, 2007, Compared to Fiscal Year Ended January 31, 2006
We did not generate revenue from operations during the 12 months ended January 31, 2007 or during the fiscal year ended January 31, 2006. Expenses for the 12 months ended January 31, 2007 were $32,002,125 a substantial increase from $3,923,712 for the year ended January 31, 2006. The increase in expenses is primarily due to the escalation of our operations at the Molejon gold deposit. Increased levels of operations including drilling, equipment procurement, plant construction, and construction of roads, bridges and other infrastructure have also led to increased general and administrative costs. Exploration and development costs were $10,930,276 for the 12 months ended January 31, 2007 compared to $1,827,630 for the fiscal year ended January 31, 2006. Stock-based compensation, a non-cash expense, increased to $14,962,731 compared to $340,301 in the prior year, as a result of options granted and vested during the period, options previously valu ed at grant date and revalued at approval date, and options arising from the Plan of Arrangement that were revalued on the Plan of Arrangement date. Wages and benefits were $1,591,959 for the 12 months ended January 31, 2007 compared to $330,022 for the prior 12 months as a result of the increased activity during the latter period.
During the 12 months ended January 31, 2007 we recorded interest income of $260,393, a loss of $714,756 from equity investment and a gain of $1,701,589 on dilution of equity investment. During the fiscal year ended January 31, 2006, we recorded a foreign exchange loss of $77,647 and interest income of $40,009. There were no dilution gains or equity losses for the 12 months ended January 31, 2006 as the equity investment was not acquired until the following year.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 46 |
The net loss for the 12 months ended January 31, 2007, was $30,712,592 or $(0.40) per share compared to a net loss of $3,948,102 or $(0.07) per share for the fiscal year ended January 31, 2006.
5.B. Liquidity and Capital Resources
The Company has not generated any operating revenues to date, has experienced recurring operating losses and has accumulated an operating deficit of $119,774,936 as at May 31, 2009 (May 31, 2008 - $98,675,070, April 30, 2008 - $93,130,072 and April 30, 2007 - $77,019,064) and a shareholders’ deficit of $8,920,288 at May 31, 2009. We also had a working capital deficiency of $24,386,116 at May 31, 2009 (May 31, 2008 - $3,714,457, April 30, 2008 - $27,645,485 and April 30, 2007 - $243,635 net working capital).
At May 31, 2009, the Company has $29,407,502 outstanding in senior secured notes (“Notes”) and $34,794,455 outstanding in convertible senior secured notes (“Convertible Notes”). The Notes will mature five years from dates of issuance (May 21, 2008, July 9, 2008 and October 3, 2008) at 120% of principal. After 18 or 24 months from the date of issuance of the Notes, depending upon the agreement reached with the Note holders, the holders of the Notes can give six months’ notice to cause the Company to purchase all of the Notes then outstanding at a price equal to the sum of (a) 120% of the principal amount of such Notes to be purchased and (b) accrued and unpaid interest on the principal amount of the Notes.
On an annual basis, commencing November 1, 2009, the Note holders and Convertible Note holders can cause the Company to redeem an amount of Notes and Convertible Notes equal to 35% of “Distributable Cash”. Distributable Cash is defined as cash available after:
a)
satisfaction of the Company’s debt obligations (principal and interest);
b)
satisfaction of the Company’s general and administrative expenses, capital expenditures and other expense obligations;
c)
deduction for income tax obligations; and
d)
retaining reasonable working capital or other reserves.
Reasonable working capital and other reserves are to be defined mutually between the Company and the Note holders. As of May 31, 2009 neither of these has been defined.
On a semi-annual basis, commencing September 15, 2009 for the Notes and September 15, 2010 for the Convertible Notes, the Company shall make principal payments ranging from $nil to $8,000,000 depending upon the weighted average market price of gold for the six months prior to the payment date as follows:
| | |
Weighted Average Market Gold Price | Aggregate Pro Rata Principal Payment |
|
Over $1,000 | $ | 8,000,000 |
$900 to $1,000 | $ | 6,000,000 |
$800 to $900 | $ | 4,000,000 |
Less than $800 | | - |
During the fiscal year ending May 31, 2010, estimated payments on the Notes are $13,044,569 in principal, $2,608,914 in premium and $3,158,017 in interest; payments of principal and interest on bank loans total $178,760 and capital lease payments are $5,741,567.
The Company is not yet in commercial production. If we are unable to generate positive cash flow from production activities, the Company may have to raise additional funds to continue ongoing commissioning of the Molejon project and further exploration of the surrounding concessions, and to meet its operating obligations. Management may pursue additional sources of financing and while it has been successful in the past there can be no assurance that it will be able to do so in the future.
Our principal property, the Molejon gold deposit, is located in the Cerro Petaquilla Concession in Panama and, as a result our operations on the property may be subject to additional risks as more fully described in“Item 3 - Key Information – 3.D. Risk Factors”.
Our mineral exploration activities have been funded primarily through sales of common shares and through debt financing and we expect that we will continue to be able to utilize these sources of financing until we develop further cash flow from our operations. We have not made use of any financial instruments for hedging purposes.
During the 12 months ended May 31, 2009, we raised $27,750,000 in gross proceeds by completing our Notes financing. We followed with the completion of a supplemental Notes financing of $20,000,000 in gross proceeds and the Convertible Notes financing of $40,000,000 in gross proceeds. In addition, we raised $43,238,852 through the sale of our 20,418,565 common shares of Copper and, thus, retired a portion ($43,238,852) of our outstanding Notes. However, additional funds are required to meet our planned corporate and administrative expenses for the 2010 fiscal year and to undertake ongoing advancement and further exploration of the Molejon gold deposit. Accordingly, there is substantial doubt about our ability to continue as a going concern.
We had material commitments for capital expenditures in the amount of $950,013 at May 31, 2009. Based on our working capital at May 31, 2009, we require additional financing for our currently held properties during the 2010 fiscal year.
Our management reviews annually the carrying value of our interest in each mineral property and where necessary, properties are written down to the estimated recoverable amount determined on a non-discounted basis after giving effect to any property option agreements and cost recovery agreements. Costs relating to properties abandoned are written off when the decision to abandon is made.
Other than as discussed herein, we are not aware of any trends, demands, commitments, events or uncertainties that may result in our liquidity either materially increasing or decreasing at present or in the foreseeable future. Material increases or decreases in our liquidity will be substantially determined by the timing of any production decision on the Cerro Petaquilla Concession.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 47 |
May 31, 2009, Compared with May 31, 2008
At May 31, 2009, our current assets totaled$5,350,239and our working capital deficiency was$24,386,116compared with current assets of $13,611,277 and a working capital deficiency of $3,714,457 at May 31, 2008, due toexpenditures required to complete the construction of the processing mill.
At May 31, 2009, total liabilities were $90,464,111 compared to $56,602,043 at May 31, 2008, due to the issue of three additional tranches of Notes and the issue of Convertible Notes in fiscal 2009.
At May 31, 2009, we had total assets of $81,543,823 compared to $71,208,177 at May 31, 2008.
Share capital at May 31, 2009, was $89,208,668 (96,040,121 shares) compared to $89,002,273 (95,958,641 shares) at May 31, 2008.
The most significant contribution to working capital in the 12 months ended May 31, 2009, came from proceeds of $43,238,852 from the sale of the equity investment, whereas, in the one month ended May 31, 2008, the most significant contribution to working capital came from the issue of senior secured notes for net proceeds of $23,517,628.
In June 2008, we closed on a gross amount of $10,000,000comprising the second tranche of our $60 million Notes financing and, in July 2008, we closed on a gross amount of $17,750,000 comprising the third tranche of our $60 million Notes financing. The first tranche of $32,250,000 had been closed on May 21, 2008. The Notes issued with respect to this debt financing bear interest at an annual rate of 15% and mature five years from the date of issuance at 120% of the principal and are guaranteed, on a joint and several basis, by all of our assets and by those of our subsidiaries. After 18 or 24 months from the date of issuance of the Notes, depending upon the agreement reached with the Note holders, the holders of the Notes can give six months’ notice to cause the Company to purchase all of the Notes then outstanding at a price equal to the sum of (a) 120% of the principal amount of such Notes to be purchased and (b) accrued and u npaid interest on the principal amount of the Notes. We have the right to redeem the Notes at any time at 120% of the principal amount plus any accrued or unpaid interest on the Notes. If the Notes are redeemed within one year of issuance, all prepaid interest totalling$4,162,500shall be forfeited. As we incurred $1,050,000 in financing costs and paid $3,000,000 in prepaid interest with respect to the second tranche, the net amount received by us for the second tranche equalled$6,000,000. Further,we incurred$1,850,000in financing costs and $2,662,500 in prepaid interest with respect to the third tranche; thereby, the net amount received by us for the third and final tranche equalled$13,237,500. For additional information, please refer to"Item 8 - Financial Information – 8.B .Significant Changes – Section (v)”.
The Company initially issued 60,000 Notes with the first, second and third tranche of the Notes financing. Each Note was issued with 382 share purchase warrants. Each warrant entitled the holder to purchase one common share at CAD$ 2.30 for a period of five years from the date of purchase. On April 17, 2009 the Company repriced these warrants to entitle the holder to purchase one common share at CAD $0.65 for the remainder of the warrant period with the provision that, if the closing trading price of the Company’s common shares on the TSX is CAD$ 1.00 or more for a period of 30 consecutive trading days, the Company has the option to require the earlier exercise of the warrants. The effect of repricing the warrants was an increase in the value of the warrants of $1,781,500 and a decrease to contributed surplus for the same amount.
In September 2008, we sold all 20,418,565 of our common shares of Copper at CAD$2.20 per share raising $43,238,852 which we used to retire $43,238,852 of our outstanding senior secured notes.
In October 2008, we closed a supplemental Notes financing issuing a total of 20,000 Notes and raising gross proceeds of $20,000,000. The Notes from this supplemental financing bear the same terms as the Notes issued in our previous Notes financing except that no warrants were issued in conjunction with the supplemental financing. As we incurred $1,125,000 in financing costs with respect to the supplemental financing and paid $3,000,000 in prepaid interest, the net amount received by us equalled $15,875,000.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 48 |
In March 2009, we closed the Convertible Notes financing issuing a total of 40,000 Convertible Notes and raising gross proceeds of $40,000,000. Each note in the principal amount of $1,000 is convertible into common shares at CAD$2.25 per share. The Convertible Notes bear interest at an annual rate of 15% and mature two years from date of issuance at 110% of the principal amount of such Convertible Notes . We may prepay the Convertible Notes at any time for an amount equal to 110% of the principal amount of such Convertible Notes and accrued and unpaid interest on the principal amount of the Convertible Notes . The indebtedness represented by the Convertible Notes rankpari passuwith the previou sly issued Notes . Holders of the previously issued Notes were offered the opportunity to exchange amounts due upon maturity of their existing Notes and participated pro rata in this Convertible Note financing up to $24,187,083. Notes representing $21,000,000 in redemption value participated in exchange for the Convertible Notes . As we incurred $2,140,000 in financing costs and $6,000,000 in prepaid interest with respect to the supplemental financing, the net amount received by us less the Notes exchanged equalled $10,860,000.
On an annual basis, commencing November 1, 2009, the Note holders and Convertible Note holders can cause the Company to redeem Notes and Convertible Notes equal to 35% of “Distributable Cash”. Distributable Cash is defined as cash available after:
a)
satisfaction of the Company’s debt obligations (principal and interest);
b)
satisfaction of the Company’s general and administrative expenses, capital expenditures and other expense obligations;
c)
deduction for income tax obligations; and
d)
retaining reasonable working capital or other reserves.
Reasonable working capital and other reserves are to be defined mutually between the Company and the Note holders. As of March 31, 2009 neither of these has been defined.
On a semi-annual basis, commencing September 15, 2009 for the Notes and September 15, 2010 for the Convertible Notes, the Company shall make principal payments ranging from $nil to $8,000,000 depending upon the weighted average market price of gold for the six months prior to the payment date as follows:
| | |
Weighted Average Market Gold Price | Aggregate Pro Rata Principal Payment |
|
Over $1,000 | $ | 8,000,000 |
$900 to $1,000 | $ | 6,000,000 |
$800 to $900 | $ | 4,000,000 |
Less than $800 | | - |
May 31, 2008 Compared with April 30, 2008
At May 31, 2008, our current assets totaled $13,611,277 and our working capital deficiency was $3,714,457 compared with current assets of $2,672,727 and a working capital deficiency of $27,645,485 at April 30, 2008 due to funds raised from our senior secured notes financing in May 2008.
At May 31, 2008, total liabilities were $56,602,043 compared to $40,023,388 at April 30, 2008 due to a senior secured notes balance at May 31, 2008 of $26,785,359 partially offset by a decrease of $9,917,624 in accounts payable.
At May 31, 2008, we had total assets of $71,208,177 compared to $58,789,331 at April 30, 2008.
Share capital at May 31, 2008 was $89,002,273 (95,958,641 shares) compared to $89,640,627 (95,958,641 shares) at April 30, 2008.
The most significant contribution to working capital in the one month ended May 31, 2008, came from the issue of senior secured notes for net proceeds of $23,517,628 whereas, in the 12 months ended April 30, 2008, the most significant contribution to working capital came from advances from Copper of $17,682,808 and issuance of capital stock for net proceeds of $13,309,397.
In May 2008, we closed on a gross amount of $32,250,000 comprising the first tranche of our $60 million Notes financing. The Notes issued with respect to this debt financing bear interest at an annual rate of 15% and will mature five years from date of issuance at 120% of the principal and are guaranteed, on a joint and several basis, by all of our and our subsidiaries’ assets. We have the right to redeem the Notes at any time at 120% of the principal amount plus any accrued or unpaid interest on the Notes. If the Notes are redeemed within one year of issuance, all prepaid interest totalling $4,837,500 shall be forfeited. After 24 months from the date of issuance of the Notes, holders of the N otes shall have the right to cause u s to purchase all of our Notes then outstanding at a price equal to the sum of (a) 120% of the principal amount of such Notes to be purchased and (b) accrued and unpaid interest on the principal amount of the Notes. On an annual basis, the Note holders can cause us to redeem Notes equal to 35% of free cash flow. Each of the 32,250 Notes issued in this first tranche of the financing was issued with 382 share purchase warrants, thus, totalling 12,812,280 warrants inclusive of compensation warrants. Each warrant entitled the holder to purchase one common share at CAD$ 2.30 for a period of five years from the date of purchase. On April 17, 2009 , the Company repriced these warrants to entitle the holder to purchase one common share at CAD $0.65 for the remainder of the warrant period with the provision that if the closing trading price of the Company’s common shares on the TSX is CAD$ 1.00 or more for a period of 30 consecutive trading days, the Company has the option to require the earlier exercise of the warrants.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 49 |
As we incurred $3,894,872 in financing costs and $4,837,500 in prepaid interest, the net amount received by us for this first tranche equalled $23,517,628. For additional information, please refer to"Item 8 - Financial Information – 8.B.Significant Changes – Section (v)”.
April 30, 2008 Compared to April 30, 2007
At April 30, 2008, current assets totaled $2,672,727 compared to $6,247,576 at April 30, 2007. The decrease is attributable to a decrease of $4,141,083 in the amount receivable from a related company.
At April 30, 2008, total liabilities were significantly higher at $40,023,388 compared to $10,611,499 as at April 30, 2007 related to the substantial increase in activity in the 12 months ended April 30, 2008. The increases included an increase in the amount payable to a related company of $9,809,747, an increase in the operating credit line facility of $8,190,385, an increase in deferred services and materials of $4,277,501, an increase in accounts payable and accrued liabilities of $4,129,408, an increase in obligation under capital leases of $2,095,941 and an increase in bank overdraft of $1,015,627.
Our working capital deficiency was $27,645,485 at April 30, 2008 compared with working capital of $243,635 at April 30, 2007.
At April 30, 2008, we had total assets of $58,789,332 compared with $24,981,649 at April 30, 2007. This is primarily a result of increases in capitalized project development costs and property, plant and equipment.
Share capital at April 30, 2008, and April 30, 2007, was $89,640,627 (95,958,641 shares) and $74,794,361 (89,876,951 shares), respectively.
Operating expenses for the 12 months ended April 30, 2008 and the 12 months ended April 30, 2007,were $26,267,906, inclusive of general and administrative expenses, and $35,599,669, respectively largely due to stock-based compensation expense of $17,828,129 for the 12 months ended April 30, 2007.
The most significant contributions to working capital in the 12 months ended April 30, 2008, came from advances from Copper of $17,682,808 and issuance of capital stock, which provided net proceeds of $13,309,397. The most significant contribution to working capital in the 12 months ended April 30, 2007, came from the issuance of capital stock which provided proceeds of $26,064,602 net of share issuance costs.
In May 2007, we completed a non-brokered private placement issuing 1,387,879 units at a price of CAD$2.00 per unit and 24,033 units priced at CAD$2.02 per unit, for gross proceeds of $2,552,698. Each unit consisted of one common share and one-half of one common share purchase warrant, with each whole warrant exercisable into a common share at a price of CAD$3.50 per share until the warrants expired on May 8, 2009. The fair value of the warrants issued on this private placement was $263,263.
In January 2008, we completed a non-brokered private placement issuing a total of 3,140,500 units at a price of CAD$3.00 per unit and raising gross proceeds of $9,736,579. Each unit consisted of one common share and one-half of one common share purchase warrant aggregating 1,691,875 warrants with the inclusion of the issued compensation warrants. Each whole warrant is exercisable into a common share at a price of CAD$3.50 per share until the warrants expire on October 31, 2009 (1,120,875), December 19, 2009 (182,000) and January 9, 2010 (389,000). We paid finders’ fees of $381,793 in cash and $86,439 in warrants.
April 30, 2007, Compared to January 31, 2007
At April 30, 2007, current assets totaled $6,247,576 compared to $8,386,604 at January 31, 2007. Total liabilities were $10,611,499 at April 30, 2007 compared with $4,095,854 at January 31, 2007. Working capital at April 30, 2007 was $243,635 compared to $5,029,909 at January 31, 2007.
At April 30, 2007, we had total assets of $24,981,649 compared with $22,743,078 at January 31, 2007. This is primarily a result of increases in capitalized project development costs partially offset by a decrease in cash.
Share capital at April 30, 2007, and January 31, 2007, was $74,794,361 (89,876,951 shares) and $73,890,062 (89,367,031 shares), respectively.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 50 |
5.C. Research and Development, Patents and Licenses, etc.
As we are a junior resource company with no producing properties, the information required by this section is not applicable.
5.D. Trend Information
As we are a junior resource company with no producing properties, the information required by this section is not applicable.
5.E. Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements required to be disclosed in this Amendment No. 1 .
5.F. Tabular Disclosure of Contractual Obligations
Commitments
As at May 31, 2009, we had the following contractual obligations:
| | | | | | | | | | | |
| | Less than 1 | | | | | | | More than 5 | | |
| | Year | | 2 Years | | 3 Years | 4-5 Years | | Years | | Total |
|
Office lease | $ | 60,676 | $ | 60,676 | $ | 15,168 | Nil | | Nil | $ | 136,520 |
Capitalexpenditurecommitment | $ | 950,013 | | Nil | | Nil | Nil | | Nil | $ | 950,013 |
Equipment lease | $ | 5,741,567 | $ | 4,164,972 | $ | 461,907 | Nil | | Nil | $ | 10,368,446 |
Senior secured notes | $ | 18,811,500 | $ | 16,800,010 | | Nil | Nil | | Nil | $ | 35,611,510 |
Convertible seniorsecured notes | | Nil | $ | 49,616,537 | | Nil | Nil | | Nil | $ | 49,616,537 |
Long term debt | $ | 178,760 | | Nil | | Nil | Nil | | Nil | $ | 178,760 |
Asset retirement obligation | | Nil | | Nil | | Nil | Nil | $ | 6,701,000 | $ | 6,701,000 |
|
Total | $ | 25,742,516 | $ | 70,642,195 | $ | 477,075 | Nil | $ | 6,701,000 | $ | 103,562,786 |
Capital Lease Obligation
The Company entered into four capital lease arrangements with Banco Bilbao Vizcaya Argentaria (Panama) S.A. (“BBVA”) for the purchase of equipment to advance the Molejon project into production.
The equipment includes but is not restricted to: ball mills, a Metso crushing plant, cranes and an aggregate crushing plant.
As a condition of the leases, the equipment will serve as collateral throughout the amortization period and will be registered with the Public Registry of the Republic of Panama. Further, IMN has pledged a term deposit in the amount of $2,361,098 (May 31, 2008 - $2,361,098) as additional security.
Future minimum lease payments on the capital lease obligations are as follows:
| | | | | | | | |
| | | | | | | | |
| | | | | | | May 31, 2008 | |
| | | | May 31, 2009 | | | (Note 2) | |
2010 | | | $ | 5,741,567 | | $ | 2,663,569 | |
2011 | | | | 4,164,972 | | | 2,663,569 | |
2012 | | | | 461,907 | | | 1,684,045 | |
| | | | 10,368,446 | | | 7,011,183 | |
Less imputed interest of 9% | | | | (922,291 | ) | | (844,537 | ) |
Total | | | | 9,446,155 | | | 6,166,646 | |
Current obligation | | | | 5,054,987 | | | 2,174,903 | |
Long - term obligation | | | $ | 4,391,168 | | $ | 3,991,743 | |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 51 |
Operating Credit Facility
The Company has an operating credit line facility with Banco Bilbao Vizcaya Argentaria (Panama) S.A. (“BBVA”) up to a maximum of $13,379,554. The facility is converted to capital leases when the asset purchases are completed. The facility has a fixed rate of 9% on $11,018,456 and 6% on $2,361,098, is secured by the assets purchased and is registered with the Public Registry of the Republic of Panama. At May 31, 2009 there is a remaining credit line balance of $332,511 available upon which the Company may draw.
Long-term debt
During the fiscal year ended April 30, 2007, the Company arranged bank loans totalling $1,277,230 for the purchase of equipment and vehicles. The loans are secured by the purchased assets plus term deposits in the amount of $400,000.
The following table summarizes the loans outstanding as at May 31, 2009 and May 31, 2008:
| | | | | | |
| | May 31, 2009 | | | May 31, 2008 (Note 2 | ) |
| | | | | | |
Equipment loan #1, repaid May 2009 | $ | - | | $ | 125,783 | |
Vehicle loan #1, repaid May 2009 | | - | | | 28,141 | |
Equipment loan #2, repayable at $7,445 per month including interest at 9.0%, maturing October 2009 | | 29,891 | | | 111,631 | |
Equipment loan #3, repayable at $18,095 per month including interest at 9.25%, maturing January 2010 | | 125,575 | | | 319,176 | |
Vehicle loan #2, repayable at $793 per month, including interest at 9.25%, maturing January 2010 | | 5,527 | | | 13,988 | |
| | 160,993 | | | 598,719 | |
Less: current portion | | (160,993 | ) | | (436,151 | ) |
| $ | - | | $ | 162,568 | |
Asset Retirement Obligation
The Company’s asset retirement obligation relates to site-restoration and clean-up costs for its Molejon gold project located in Panama.
A reconciliation of the provision for asset retirement obligation is as follows (Note 2):
| | | |
| | | |
Balance at April 30, 2008 | $ | 4,306,000 | |
Accretion | | 52,098 | |
Foreign exchange translation difference | | (24,882 | ) |
Balance at May 31, 2008 | $ | 4,333,216 | |
Accretion | | 331,504 | |
Balance at May 31, 2009 | $ | 4,664,720 | |
The provision for asset retirement obligation is based upon the following assumptions:
a)
The total undiscounted cash flow required to settle the obligation is approximately $6,701,000;
b)
Asset retirement obligation payments are expected to occur during fiscal years 2014 and 2015;
c)
A credit adjusted risk-free rate of 7.65% has been used to discount cash flows.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 52 |
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6.A. Directors and Senior Management
The following information regarding our directors and members of senior management, including names, business experience, offices held and outside principal business activities, is at November 6, 2009:
Raul Ferrer
Mr. Raul Ferrer (January 8, 1973) was appointed to our board of directors (the “Board of Directors”) on November 6, 2009. Mr. Ferrer is a leading financial advisor to a number of businesses operating in Panama. He is a former financial investments director with the Panamanian equity investment firm, Wall Street Securities.
Richard Fifer
Mr. Richard Fifer (born January 23, 1957) is a Panamanian citizen and a U.S.-trained geologist. He has served on our Board of Directors from March 1993 to November 1998, July 2002 to July 2003, and from November 12, 2003, to the present. In addition, he served as our Chief Executive Officer from December 14, 2004, to March 23, 2005, and from April 14, 2007, to September 15, 2009. Since 1994, he has been President of Geoinfo, S.A., a Panamanian company that provides geographic mapping technology and solutions. He was Chairman and President of CODEMIN, Panama’s state mining company, from January 1997 to January 2000. Under the Ministry of Foreign Affairs Panama, he was the President's Plenipotentiary Ambassador-at-large from March 2002 to September 2003. He was also Governor of the Province of Cocle, Panama, from March 2002 to September 2003. Mr. Fifer holds a B.Sc. i n both Geology and Geophysical Engineering and an M.A. in Finance.
David Kaplan
Mr. David Kaplan was appointed to our Board of Directors on November 6, 2009. He is a former key member of LIM Advisors LLC, a multi-strategy investment group, where he managed a portfolio of metal and energy futures and securities for a commodity hedge fund. He is a also a former Vice-President of Gerald Metals Inc., financial analyst with Glencore Ltd., and graduate of the Wharton School of the University of Pennsylvania .
David Levy
Mr. David Levy (born December 22, 1984) was appointed to our Board of Directors on November 6, 2009. He is a member of the private placement group at the investment advising firm of Platinum Management (NY) LLC, where he has participated in over 25 capital raising transactions for public and private corporations. He specializes in structuring and negotiating financings at all levels of the capital structure through extensive industry research, financial analysis and modeling. Mr. Levy graduated with honors from Sy Syms School of Business of Yeshiva University.
Joao Manuel
Mr. Joao Manuel (born November 6, 1952) was appointed our President and Chief Executive Officer on November 6, 2009, after having served as our Chief Operating Officer since December 1, 2008. Before joining us, Mr. Manuel held the position of Chief Financial Officer of Copper, which was also a reporting issuer listed on the Toronto Stock Exchange. Mr. Manuel has over 20 years of management experience in large, multinational corporations worldwide, including General Electric Company, ITT Europe Ltd. and Nokia Consumer Electronics. He is a former Managing Director of Inapa France S.A. and Chief Financial Officer and Deputy Chief Executive Officer of the Inapa Group, Europe’s fourth largest paper merchant with operations in eight countries.
Bassam Moubarak
Mr. Bassam Moubarak (born February 6, 1977), a Chartered Accountant, was appointed our Chief Financial Officer on February 11, 2008. Before joining us, Mr. Moubarak held the position of Senior Manager with the public accounting firm of Deloitte & Touche LLP, where he led audits of public companies and oversaw implementations pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. Prior to joining Deloitte & Touche LLP, he was responsible for audits of companies in both the public and private sectors with Grant Thornton LLP. His expertise covers corporate financial reporting, designing financial processes and controls and risk management. He also holds an economics degree.
Daniel Small
Mr. Daniel Small (born April 16, 2969) was appointed to our Board of Directors on November 6, 2009. He is a Managing Director at the investment advising firm of Platinum Management (NY) LLC (“Platinum”), where he leads the firm’s private placement group. Prior to joining Platinum, Mr. Small was a Senior Analyst, who served on the investment committee at Glenview Capital Management, a $7 billion hedge fund. He is a former Director of the Strategic Risk Group at Merrill Lynch responsible for a $1 billion multi-strategy proprietary investing platform. As a former Director in the Mergers & Acquisitions Department at SG Cowen Securities, he advised corporations in the financing and restructuring of public and private corporations. Mr. Small is a graduate of the Wharton School of the University of Pennsylvania and earned a doctorate in law from the University of Pennsylvania Law Sc hool.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 53 |
6.B. Compensation
During the 12 months ended May 31, 2009, we paid cash compensation to our directors and officers as described below. No other funds were set aside or accrued by us during the 12 months period ended May 31, 2009, to provide pension, retirement or similar benefits for our directors or officers pursuant to any existing plan provided or contributed to by us or our subsidiaries under applicable Canadian laws.
We are required, under applicable securities legislation in Canada, to disclose to our shareholders details of compensation paid to our executive officers. The following fairly reflects all material information regarding compensation paid to our executive officers and disclosed to our shareholders under applicable Canadian law.
Cash and Non-Cash Compensation - Directors and Officers
Effective June 1, 2008, we had five directors including Ralph Ansley, Robert Baxter, John Cook, Richard Fifer and Marco Tejeira and three officers including Richard Fifer as President and Chief Executive Officer, Bassam Moubarak as Chief Financial Officer and Graham Scott as Corporate Secretary. During the course of last our fiscal year, Ralph Ansley resigned from his directorship on July 7, 2008, due to medical reasons and Marco Tejeira did not stand for re-election at our annual general meeting of shareholders held on November 18, 2008.
At our annual general meeting of shareholders, five directors namely Robert Baxter, John Cook, Richard Fifer, Gaston Araya and John Resing were elected to the board by our shareholders on November 18, 2008. Subsequently, Christopher Davie, joined our company on September 15, 2009, in the capacity of President and Chief Executive Officer. On November 5, 2009, Robert Baxter, John Cook, Gaston Araya and John Resing resigned from our board, Graham H. Scott resigned as Corporate Secretary and Christopher Davie resigned as President and Chief Executive Officer. On November 6, 2009, sole director, Richard Fifer, was joined on the board by Raul Ferrer, David Kaplan, David Levy and Daniel Small to re-establish the number of directors at five.
We currently have three officers namely Joao Manuel, appointed as President and Chief Executive Officer on November 6, 2009; Bassam Moubarak, appointed as Chief Financial Officer on February 11, 2008; and Richard Fifer, appointed as Non-Executive Chairman of our Board of Directors on November 6, 2009.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 54 |
The following table sets forth all annual and long-term compensation for services provided to us during the 12 months ended May 31, 2009, by individuals who were our directors and officers on May 31, 2009:
Summary Compensation Table
| | | | | | | |
Short Term Compensation | Long Term Compensation |
| | | | Awards | Payouts | |
Name and Principal Position
|
Salary (CAD$)
|
Bonus (CAD$)
| Other Annual Compen- sation (CAD$)
| Common Shares Under Options granted (#)
| Restricted Shares or Restricted Share Units (CAD$) |
LTIP Payouts (CAD$)
|
All Other Compen- sation (CAD$)
|
| | | | | | | |
Gaston Araya Director(1) | $30,700 $18,000(2) | nil | nil | 100,000(5) 300,000(5) | n/a | n/a | nil |
| | | | | | | |
Robert Baxter Director Chairman of the Board | $33,740 | nil | nil | 400,000(5) | n/a | n/a | nil |
| | | | | | | |
John Cook Director Executive Vice-Chairman | $169,470 | nil | nil | 431,200(5) | n/a | n/a | nil |
| | | | | | | |
Richard Fifer Director, President and Chief Executive Officer | $346,094 | nil | nil | 118,800 585,000 1,470,216(5) | n/a | n/a | nil |
| | | | | | | |
Joao Manuel Chief Operating Officer(3) | $188,060 | nil | $52,224 | 300,000 | n/a | n/a | nil |
| | | | | | | |
Bassam Moubarak Chief Financial Officer | $227,917 | $61,500 | nil | 100,000(5) 200,000 | n/a | n/a | nil |
| | | | | | | |
John Resing(4) Director | $22,625(2) | nil | nil | 400,000 | n/a | n/a | nil |
| | | | | | | |
Graham Scott Corporate Secretary | nil | nil | nil | 43,200 193,664(5) | n/a | n/a | nil |
| | | | | | | |
(1)
Gaston Araya was elected to our Board of Directors on November 18, 2008, and resigned on November 5, 2009.
(2)
Dollar amounts shown are in United States Dollars.
(3)
Joao Manuel was appointed Chief Operating Officer on December 1, 2008. He was appointed President and Chief Executive Officer on November 6, 2009.
(4) John Resing was elected to our Board of Directors on November 18, 2008,and resigned on November 5, 2009.
(5) Stock options cancelled effective July 31, 2009.
Option Grants to Directors and Officers During Fiscal Year Ended May 31, 2009
The table below sets forth stock options granted by us during the 12 months ended May 31, 2009, to ourthen directors and officers.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 55 |
| | | | | |
Name
| Common Shares Under Options Granted (#)(1) | % of Total Options Granted in Fiscal Year(2)
|
Exercise or Base Price ($/Share)(3) (CAD$) | Market Value of Common Shares Underlying Options on Date of Grant ($/Share) |
Expiration Date
|
Gaston Araya(6) Director | 300,000(4) (5) | 28.04% | $1.96 | nil | May 5, 2013 |
| | | | | |
Joao Manuel Chief Operating Officer | 300,000 | 28.04% | $0.52 | nil | December 1, 2013 |
| | | | | |
Bassam Moubarak Chief Financial Officer | 200,000 | 18.69% | $0.39 | nil | January 5, 2014 |
| | | | | |
John Resing(6) Director | 400,000 | 37.38% | $0.56 | nil | November 18, 2013 |
| | | | | |
(1)
Stock options vest over a period of 21 months.
(2)
Percentage of all options granted during the 12 months ended May 31, 2009.
(3)
The exercise price of stock options is set at not less than the Volume Weighted Average Trading Price for the five trading days immediately preceding the date of the stock option grant.
(4)
The grant date of May 5, 2008, for such options preceded our fiscal year ended May 31, 2009. However, such options were approved by our shareholders during our fiscal year ended May 31, 2009, at our annual general meeting of shareholders held on November 18, 2008.
(5)
Stock options cancelled effective July 31, 2009.
(6)
Messrs. Araya and Resing resigned from our board of directors on November 5, 2009.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table sets forth details of all exercises of stock options during the 12 months ended May 31, 2009 by our directors and officers and the value of unexercised options as of May 31, 2009:
| | | | |
Name | Common Shares Acquired on Exercise (#) | Aggregate Value Realized ($) | Unexercised Options at Fiscal Year-End (#)(1) (2) Exercisable/ Unexercisable | Value of Unexercised In-the-Money Options at Fiscal Year-End ($)(1) (2) Exercisable/ Unexercisable |
| | | | |
Gaston Araya | nil | nil | 250,000(3) / 150,000(3) | nil |
| | | | |
Robert Baxter | nil | nil | 400,000(3) / 0 | nil |
| | | | |
John Cook | nil | nil | 431,200(3) / 0 | nil |
| | | | |
Richard Fifer | nil nil nil | nil nil nil | 118,800 / 0 585,000 / 0 1,470,216(3) / 0 | 43,956 / 0 52,650 / 0 nil / nil |
| | | | |
Joao Manuel | nil | nil | 75,000 / 225,000 | 8,250 / 24,750 |
| | | | |
Bassam Moubarak | nil nil | nil nil | 75,000(3) / 25,000(3) 50,000 / 150,000 | nil / nil 12,000 / 36,000 |
| | | | |
John Resing | nil | nil | 150,000 / 250,000 | 10,500 / 17,500 |
| | | | |
Graham Scott | nil nil | nil nil | 43,200 / 0 193,664(3)/ 0 | 3,888 / 0 nil / nil |
| | | | |
(1)
The figures relate solely to stock options.
(2)
Value of unexercised in-the-money options calculated using the closing price of our common shares on the Toronto Stock Exchange on Friday, May 29, 2009, which was $0.63, less the exercise price of in-the-money stock options.
(3)
Stock options cancelled effective July 31, 2009.
Defined Benefit or Actuarial Plan Disclosure
We do not provide retirement benefits for our directors and officers nor do we provide compensation pursuant to any bonus or profit-sharing plan.
Termination of Employment, Change in Responsibilities and Employment Contracts
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 56 |
We have entered into formal agreements with our President and Chief Executive Officer, our Chief FinancialOfficer and with the head of our Exploration and Resources Development division establishing financial arrangements that would be in effect in the event of a change of control of our company. Each agreement provides for, in the event of the termination of the engagement of such persons following a change of control of our company, the payment of an amount equal to two times the annual compensation being paid to such person as at the time of the change of control.
Our employment agreement with our Chief Financial Officer, Bassam Moubarak, also contains a risk mitigation provision providing 12 months of compensation in the event of termination of his employment without just cause. The 12 months of compensation provision would also apply in the event of his dismissal due to any layoff based on group restructuring or a sale of assets.
Directors
With the exception ofdirectors whom also serve as officers, we have arrangements in place in which directors are entitled to receive an attendance fee of $1,000 per meeting of our Board of Directors and an attendance fee of $800 per committee meeting attended during our most recently completed financial year and subsequently up to and including the date of thisAmendment No. 1. In addition, directors are entitled to compensation of $800 per day for technical or professional services performed on behalf of us and directors are also reimbursed for actual expenses incurred in the performance of their duties as directors.
Further, with the exception ofdirectors whom also serve as officers, directors are entitled to an annual retainer of $24,000.The Non-Executive Chairman of the Board is entitled to annual base compensation in the amount of CAD$60,000.
6.C. Board Practices
Our Board of Directors is responsible for the stewardship of our business and affairs. Its main role is to oversee corporate performance and to ensure that management has the talent, professionalism and integrity necessary to successfully carry out our strategic plan and achieve our corporate objectives. Directors are elected at each annual meeting of our shareholders and serve until our next annual meeting, at which time directors may stand for re-election, or until their successors are elected or appointed.
During the 12 months ended May 31, 2009, we did not nor did any of our subsidiaries have any arrangement to provide benefits to our directors upon termination of employment.
From June 1, 2008, to July 7, 2008, our Audit Committee was comprised of Ralph Ansley, John Cook and Marco Tejeira, with John Cook serving as the Chairman. Upon Dr. Ansley’s resignation on July 7, 2008, the Audit Committee was comprised of John Cook and Marco Tejeira.From November 18, 2008,to November 5, 2009 , our Audit Committee included Gaston Araya, Robert Baxter and John Resing, with John Resing serving as the Chairman.Since November 6, 2009, our Audit Committee has been comprised of Raul Ferrer, David Kaplan and David Levy. Each Audit Committee member is financially literate and is appointed by our Board of Directors to hold office until removed by the Board of Directors or until our next annual general meeting, at which time the appointments expire and such individuals are eligible for re-appointment. The Audit Committee reviews o ur interim financial statements and annual audited consolidated financial statements, liaises with our auditors, and recommends to our Board of Directors whether or not to approve such financial statements. Our Audit Committee must convene a meeting to consider any matters our auditor believes should be brought to the attention of the Board of Directors or our shareholders.
Our Audit Committee operates pursuant to a charter adopted by our Board of Directors. Our Audit Committee is responsible primarily for monitoring: (i) the integrity of our financial statements; (ii) compliance with legal and regulatory requirements; and (iii) the independence and performance of our internal and external auditors.
We are currently conducting an internal investigation under the oversight of our Audit Committee and with the assistance of outside independent counsel of certain of our international operations, focusing on the material weakness identified during our assessment of internal controls as at May 31, 2009.
From November 18, 2008,to November 5, 2009 , our Compensation Committee was composed of Robert Baxter, John Cook and John Resing.Since November 6, 2009, our Compensation Committee has included Raul Ferrer, Richard Fifer and Daniel Small. The Compensation Committee is appointed by our Board of Directors and is responsible for reviewing and approving annual salaries, bonuses and other forms and items of compensation for board members, committee members and our senior officers. Except for plans that are, in accordance with their terms or as required by law, administered by our board of directors or another particularly designated group, the Compensation Committee also administers and implements all of our stock option and other stock-based and equity-based benefit plans, recommends changes or additions to those plans and reports to our board of directors on compensation matters. Our Chief Executive Officer does not vote upon or participate in the deliberations regarding his compensation.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 57 |
Since November 6, 2009, our Corporate Governance Committee has been composed of Raul Ferrer, Richard Fifer and David Kaplan with David Kaplan acting as coordinator for meetings of the Corporate Governance Committee. The primary function of our corporate governance committee is to assist our board of directors in developing our approach to corporate governance issues and monitoring performance against the defined approach.
6.D. Employees
As at May 31, 2009, we had approximately 800 employees, including six permanent employees and three contract staff members working out of our principal executive office located in Vancouver, Canada, and approximately 790 at our various locations in Panama. Our office in Panama City had 22 employees in the administration, accounting, legal and investor relations departments. Our Santa Ana and La Pintada offices near Penonome, Panama, focus on logistics, engineering and accounting with approximately 65 employees. Our geological exploration team contained approximately 20 team members and our Molejon gold plant site had approximately 680 employees.
Our subsidiary company, Petaquilla Gold, S.A. has a labor contract with union employees at our Molejon gold plant. A single union, Sindicato de los Trabajadores de las Empresas Mineras Petaquilla, negotiates the labour contract on our workers’ behalf. There are no relationships between our management and the union and we consider labour relations with our employees to be in good standing. We have not experienced any disruptions of our operations as a result of any labour disagreements to date.
6.E. Share Ownership
As at November 6 , 2009, the following table sets forth the share ownership of those persons listed in subsection 6.B. above and includes the details of all options or warrants to purchase our shares held by such persons:
| | | | | |
Name | Number of Common Shares Held at November 6, 2009 | Number of Common Shares Subject to Options or Warrants at November 6, 2009 | Beneficial Percentage Ownership(1) | Exercise Price (CAD$) | Expiry Date |
Gaston Araya | nil | nil | * | n/a | n/a |
| | | | | |
Robert Baxter | 87,500 | nil | * | n/a | n/a |
| | | | | |
John Cook | 95,000 | nil | * | n/a | n/a |
| | | | | |
Richard Fifer | 4,348,783 | 118,800 585,000 | 5.22% | $0.26 $0.54 | July 11, 2010 February 1, 2011 |
| | | | | |
Joao Manuel | nil | 300,000 | * | $0.52 | December 1, 2013 |
| | | | | |
Bassam Moubarak | 10,000 | 200,000 | * | $0.39 | January 5, 2014 |
| | | | | |
John Resing | 48,500 | 400,000 | * | $0.56 | November 18, 2013 |
| | | | | |
Graham Scott | 28,000 | 43,200 | * | $0.54 | February 1, 2011 |
| | | | | |
*
Indicates less than 1%
(1)
Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares owned by a person and the percentage ownership of that person, common shares subject to options and warrants held by that person that are currently exercisable or exercisable within 60 days of November 6 , 2009, are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. This table has been prepared based on 96,040,121 common shares outstanding as of November 6 , 2009.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 58 |
On June 23, 1994, we adopted a stock option plan (the "Option Plan") which authorized our Board of Directors to grant incentive stock options to our directors, officers and employees or our associated, affiliated, controlled or subsidiary companies, in accordance with the terms of the Option Plan and the rules and policies of the Toronto Stock Exchange. Under the terms of the Option Plan, the aggregate number of our common shares reserved for issuance under the Option Plan at any time could not exceed 4,950,968. The aggregate number of common shares reserved for issuance under the Option Plan to any person may not exceed 5% of the number of our outstanding common shares. On July 24, 2002, our Board of Directors amended the Option Plan to increase the number of shares reserved for issuance thereunder from 4,950,968 to 7,436,158.
On December 8, 2006, we adopted a new stock option plan (the “New Plan”) authorizing our Board of Directors to grant incentive stock options to directors, executive officers, employees or consultants of our company or of our subsidiaries in accordance with the terms of the Option Plan and as may be acceptable pursuant to the policies of the Toronto Stock Exchange. Under the terms of the New Plan, the aggregate number of our common shares reserved for issuance under the New Plan at any time may not exceed 10,000,000. The approval of our disinterested shareholders must be obtained before (a) the number of common shares under option to insiders within any 12-month period; or (b) the number of common shares issuable to insiders at any time, when combined with all of our security-based compensation arrangements, may exceed 10% of our issued and outstanding common shares. The approval of our disinterested shareholders must also be obtained for the reduction in the exercise price, or extension of the term, of options previously granted to insiders.
At our annual general meeting of shareholders held on November 18, 2008, our shareholders approved an amended and restated stock option plan (the “Amended Plan”) increasing the maximum number of shares that may be the subject of options at any given time from 10,000,000 to 10,700,000 common shares. The Amended Plan also allows for cashless exercises by option holders in the event of a bona fide takeover offer of our company.
The exercise price of options issued under our Amended Plan will not be lower than the “market price” as defined in the Toronto Stock Exchange Company Manual, being the volume weighted average trading price on the Toronto Stock Exchange for the shares for the five trading days immediately preceding the date on which the option is granted. Options granted must be exercised no later than 10 years after the date of grant or such lesser period as may be determined by our Board of Directors. Our Board of Directors may at its discretion in granting any option set a vesting period whereby the option may only be exercisable in pre-determined installments.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A. Major Shareholders
The following table sets forth the name of the only shareholder who, to the knowledge of our management, as at November 6 , 2009, beneficially owns greater than 5% of any class of our voting securities:
| | |
Name | Number of Common Shares Held at November 6 , 2009 | Percentage of Common Shares Outstanding at November 6 , 2009 |
| | |
Walnut Street Absolute Return Fund, L.P. | 9,539,050 | 9.93% |
There has been no significant change in the percentage ownership held by our major shareholder during the past three years and our major shareholder does not have different voting rights.
As at November 6 , 2009, there were 96,040,121 of our common shares issued and outstanding. Based on the records of our registrar and transfer agent, Computershare Trust Company of 510 Burrard Street, Vancouver, British Columbia, Canada, as at such date there were a total of 205 holders of our common shares, of which 43 were resident in Canada holding an aggregate 82,868,260 common shares, 114 were resident in the United States holding an aggregate 11,166,447 common shares and 48 holders holding an aggregate of 2,005,414 common shares were not resident in either Canada nor the United States. The shareholdings of United States holders represented approximately 11.6269% of our total issued and outstanding common shares as at November 6 , 2009.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 59 |
To the extent known to our management, we are not directly or indirectly owned or controlled by another corporation(s), by any foreign government or by any other natural or legal person(s) severally or jointly. Further, we do not know of any arrangements that may, at a subsequent date, result in a change of control of our company.
7.B. Related Party Transactions
During the twelve months ended May 31, 2009:
The Company paid consulting fees of $4,234 (one month ended May 31, 2008 - $1,890, twelve months ended April 30, 2008 - $103,965, three months ended April 30, 2007 - $13,421 and twelve months ended January 31, 2007 - $361,985) to related companies controlled by a director and a former officer.
The Company paid consulting fees and wages of $252,334 (one month ended May 31, 2008 - $9,051, twelve months ended April 30, 2008 - $140,535, three months ended April 30, 2007 - $nil and twelve months ended January 31, 2007 - $nil) to companies controlled by directors and an officer.
The Company paid legal fees of $269,526 (one month ended May 31, 2008 – $nil, twelve months ended April 30, 2008 - $107,329, three months ended April 30, 2007 - $38,438 and twelve months ended January 31, 2007 - $202,536), share issue costs of $nil (one month ended May 31, 2008 – $nil, twelve months ended April 30, 2008 - $162,523, three months ended April 30, 2007 - $nil and twelve months ended January 31, 2007 - $99,566) and financing costs of $104,272 (one month ended May 31, 2008 - $95,257, twelve months ended April 30, 2008 – $nil, three months ended April 30, 2007 - $nil and twelve months ended January 31, 2007 - $nil) to a law firm controlled by an officer.
The Company paid for goods and services of $155,805 (one month ended May 31, 2008 – $nil, twelve months ended April 30, 2008 - $127,326, three months ended April 30, 2007 - $23,110 and twelve months ended January 31, 2007 - $94,514) to a company controlled by an officer.
The Company sold dore bars containing 256 ounces to a director and officer for net proceeds of $220,060 (thirteen months ended May 31, 2008 – $nil). The sale was completed using the London Gold Market PM fix price.
At May 31, 2009, $25,925 was owed to an officer of the Company.
Other than the above transactions, there were no material transactions in the 12 months ended May 31, 2009, or proposed material transactions between us or any of our subsidiaries and:
(a)
enterprises that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, us;
(b)
associates;
(c)
individuals owning, directly or indirectly, an interest in our voting power that gives them significant influence over us, and close members of any such individual's family;
(d)
key management personnel, that is, those persons having authority and responsibility for planning, directing and controlling our activities (or their wholly owned private companies), including directors and senior management of companies and close members of such individuals' families;
(e)
enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence including enterprises owned by our directors or major shareholders and enterprises that have a member of key management in common with us.
None of our officers or directors, or any associate of such person, was indebted to us at any time during the 12 months ended May 31, 2009, the one month ended May 31, 2008, the 12 months ended April 30, 2008, the three months ended April 30, 2007, nor during the 12 months ended January 31, 2007 .
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 60 |
7.C. Interests of Experts and Counsel
This Amendment No. 1 is being filed as an Annual Report under the Exchange Act and, as such, there is no requirement to provide any information under this section.
ITEM 8. FINANCIAL INFORMATION
8.A. Consolidated Statements and Other Financial Information
This Annual Report contains our consolidated financial statements for the 12 months ended May 31, 2009, the one month ended May 31, 2008, the 12 months ended April 30, 2008, the three months ended April 30, 2007, and the 12 months ended January 31, 2007, which contains an Independent Auditor’s Report on Financial Statements dated September 1, 2009, comments by Auditors for U.S. Readers on Canada – U.S. Reporting Conflict, Consolidated Balance Sheets as at May 31, 2009 and May 31, 2008. Consolidated Statements of Operations and Comprehensive Loss and Deficit for the Fiscal Periods ended May 31, 2009, May 31, 2008, April 30, 2008, April 30, 2007, and January 31, 2007, Consolidated Statements of Cash Flows for the Fiscal Periods Ended May 31, 2009, May 31, 2008, April 30, 2008, April 30, 2007, and January 31, 2007, and Notes to the Consolidated Financial Statements.
Dividend Distributions
The timing, payment, form and amount of dividends paid on our common shares, if and when declared, is determined by our board of directors, based upon considerations such as our cash flow, results of operations and financial condition, the need for funds to finance ongoing operations and such other business matters as our board of directors considers relevant.
8.B. Significant Changes
Subsequent to May 31, 2009:
1)
Our wholly-owned subsidiary Panama Central Electrica, S.A. (“PCE”) entered into a Memorandum of Understanding (“MOU”) with Generadora Hidroelectrica Santa María, S.A. (¨Santa Maria¨) for the development of a 25MW hydroelectric plant (the ¨Hydro Project¨) in the Province of Veraguas, Panama.
2)
We granted 150,000 stock options, 60,000 options expired and 3,245,080 options were cancelled. We are currently reviewing the accounting impact of the option cancellations.
3)
We are currently cunducting an internal investigation under the oversight of our Audit Committee and with the assistance of independent counsel, of certain international operations, focusing on the material weakness identified during our management's assessment of internal controls at May 31, 2009.
4)
The Company’s management conducted an assessment of the Molejon Gold Mine resulting in the identification of several deficiencies in the plant construction and operation. These deficiencies have led to several areas of the plant not operating to design specifications resulting in additional future costs to mitigate construction deficiencies. A process for estimating costs of mitigation is in the identification stage thus no amounts can be quantified at this time.
5)
The Company entered into a forward sale agreement for 7,000 ounces of gold to be delivered in October and November 2009. Disruption of plant operations from any cause may result in delivery default and result in additional cost being incurred.
6)
In September 2009, the Company made a principal, premium and interest payment of $6,208,844 on its senior secured notes pursuant to the provisions of the debt agreement (Note 12).
7)
As a result of operational issues, the Company has been unable to meet its current production targets and requires additional funding in order to continue operations. Management is currently in substantive negotiations with lenders to secure additional financing; however, there is no guarantee that management will be successful in its efforts.
8)
On November 5, 2009, Gaston Araya, Robert Baxter, John Cook and John Resing resigned from the Company’s board of directors, Christopher Davie resigned as President and Chief Executive Officer and Graham H. Scott resigned as Corporate Secretary.
9)
On November 6, 2009, Raul Ferrer, David Kaplan, David Levy and Daniel Small joined the Company’s board of directors. In addition, Richard Fifer was appointed Non-Executive Chairman of the board of directors and Joao Manuel was appointed President and Chief Executive Officer.
ITEM 9. THE OFFER AND LISTING
9.A. Offer and Listing Details
The high and low sale prices for our common shares on the Toronto Stock Exchange for each of the preceding six months, each fiscal quarter in each of the last two full financial years and subsequent period and each of the last five full financial years are as follows:
| | | | |
| | High (CAD$) | | Low (CAD$) |
October 2009 | $ | 0.39 | $ | 0.20 |
September 2009 | $ | 0.49 | $ | 0.31 |
August 2009 | $ | 0.65 | $ | 0.45 |
July 2009 | $ | 0.79 | $ | 0.57 |
June 2009 | $ | 0.79 | $ | 0.57 |
May 2009 | $ | 0.73 | $ | 0.53 |
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| | | | |
| | High (CAD$) | | Low (CAD$) |
June 1, 2009 – May 31, 2010 | | | | |
First Quarter | $ | 0.79 | $ | 0.45 |
(June 1, 2009 – August 31, 2009) | | | | |
June 1, 2008 – May 31, 2009 | $ | 1.98 | $ | 0.285 |
Fourth Quarter | $ | 0.73 | $ | 0.35 |
(March 1, 2009 – May 31, 2009) | | | | |
Third Quarter | $ | 0.61 | $ | 0.285 |
(December 1, 2008 – February 28,2009) | | | | |
Second Quarter | $ | 1.30 | $ | 0.36 |
(September 1, 2008 – November 30, 2008) | | | | |
First Quarter | $ | 1.98 | $ | 0.93 |
(June 1, 2008 – August 31, 2008) | | | | |
May 1, 2008 – May 31, 2008 | $ | 2.32 | $ | 1.75 |
May 2007 – April 2008 | $ | 3.42 | $ | 1.87 |
Fourth Quarter | $ | 3.05 | $ | 1.87 |
(February 1, 2008 – April 30, 2008) | | | | |
Third Quarter | $ | 3.35 | $ | 2.60 |
(November 1, 2007 – January 31,2008) | | | | |
Second Quarter | $ | 3.42 | $ | 2.36 |
(August 1, 2007 – October 31, 2007) | | | | |
First Quarter | $ | 3.23 | $ | 2.13 |
(May 1, 2007 – July 31, 2007) | | | | |
February 2007 – April 2007 | $ | 2.45 | $ | 1.90 |
February 2006 – January 2007 | $ | 3.04 | $ | 1.02 |
February 2005 – January 2006 | $ | 1.19 | $ | 0.30 |
The closing price of our common shares on the Toronto Stock Exchange on November 6 , 2009, was CAD$0.32.
The high and low sale prices for our common shares on the Over The Counter Bulletin Board for each of the preceding six months, each fiscal quarter in each of the last two full financial years and subsequent period and each of the last five full financial years are as follows:
| | | | |
2009 | | High | | Low |
October 2009 | $ | 0.37 | $ | 0.20 |
September 2009 | $ | 0.458 | $ | 0.2923 |
August 2009 | $ | 0.68 | $ | 0.411 |
July 2009 | $ | 0.729 | $ | 0.4971 |
June 2009 | $ | 0.729 | $ | 0.4971 |
May 2009 | $ | 0.64 | $ | 0.4453 |
June 1, 2009 – May 31, 2010 | | | | |
First Quarter | $ | 0.729 | $ | 0.411 |
(June 1, 2009 – August 31, 2009) | | | | |
June 1, 2008 – May 31, 2009 | $ | 1.99 | $ | 0.26 |
Fourth Quarter | $ | 0.64 | $ | 0.26 |
(March 1, 2009 – May 31, 2009) | | | | |
Third Quarter | $ | 0.53 | $ | 0.26 |
(December 1, 2008 – February 28,2009) | | | | |
Second Quarter | $ | 1.18 | $ | 0.28 |
(September 1, 2008 – November30, 2008) | | | | |
First Quarter | $ | 1.99 | $ | 0.852 |
(June 1, 2008 – August 31, 2008) | | | | |
May 1, 2008 – May 31, 2008 | $ | 2.349 | $ | 1.75 |
May 2007 – April 2008 | $ | 3.40 | $ | 1.80 |
Fourth Quarter | $ | 3.06 | $ | 1.80 |
(February 1, 2008 – April 30, 2008) | | | | |
Third Quarter | $ | 3.40 | $ | 2.50 |
(November 1, 2007 – January 31,2008) | | | | |
Second Quarter | $ | 3.331 | $ | 2.1824 |
(August 1, 2007 – October31,2007) | | | | |
First Quarter | $ | 3.08 | $ | 2.00 |
(May 1, 2007 – July 31, 2007) | | | | |
February 2007 – April 2007 | $ | 2.24 | $ | 1.6398 |
February 2006 – January 2007 | $ | 2.7059 | $ | 0.901 |
February 2005 – January 2006 | $ | 1.19 | $ | 0.30 |
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 62 |
The closing price of our common shares on the Over the Counter Bulletin Board on November 6 , 2009, was $0.3025.
9.B. Plan of Distribution
This Amendment No. 1 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this section.
9.C. Markets
Our common shares traded on the Vancouver Stock Exchange from March 29, 1988, until August 21, 1998, when they were delisted from trading at our request. Our common shares have traded on the Toronto Stock Exchange since January 28, 1994. We trade our shares on the Toronto Stock Exchange under the trading symbol "PTQ". Our common shares traded on the NASDAQ Small Cap Market from February 5, 1996, until April 12, 1999, when they were delisted for failure to meet minimum bid requirements and began to trade on the Over the Counter Bulletin Board on April 13, 1999. We trade our shares on the Over the Counter Bulletin Board under the trading symbol "PTQMF". We commenced trading on the Frankfurt Stock Exchange under the trading symbol “P7Z” on October 24, 2005.
9.D. Selling Shareholders
This Amendment No. 1 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this section.
9.E. Dilution
This Amendment No. 1 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this section.
9.F. Expenses of the Issue
This Amendment No. 1 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this section.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 63 |
ITEM 10. ADDITIONAL INFORMATION
10.A. Share Capital
This Amendment No. 1 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this section.
10.B. Memorandum and Articles of Association
We were incorporated on October 10, 1985, pursuant to theCompany Act,which has been replaced by theBusiness Corporations Act(British Columbia) (the "Act") and are registered with the Registrar of Companies for British Columbia under incorporation number 298967. We are not limited in our objects and purposes.
With respect to our directors, our Articles provide that a director who is, in any way, directly or indirectly interested in an existing or proposed contract or transaction with us, or who holds any office or possesses any property whereby, directly or indirectly, a duty or interest might be created to conflict with his duty or interest as a director, shall declare the nature and extent of his interest in such contract or transaction or the conflict or potential conflict with his duty and interest as a director, as the case may be, in accordance with the provisions of the Act and shall abstain from voting in respect thereof. This prohibition does not apply to:
(i)
any such contract or transaction relating to a loan to us, which a director or a specified corporation or a specific firm in which he has an interest has guaranteed or joined in guaranteeing the repayment of the loan or any part of the loan;
(ii)
any contract or transaction made or to be made with, or for the benefit of a holding corporation or a subsidiary corporation of which a director is a director;
(iii)
any contract by a director to subscribe for or underwrite shares or debentures to be issued by us or our subsidiary, or any contract, arrangement or transaction in which a director is, directly or indirectly interested if all the other directors are also, directly or indirectly interested in the contract, arrangement or transaction;
(iv)
determining the remuneration of the directors;
(v)
purchasing and maintaining insurance to cover directors against liability incurred by them as directors; or
(vi)
the indemnification of any director by us.
Our Articles also provide that our directors may from time to time on our behalf borrow such money in such manner and amount, on such security, from such sources and upon such terms and conditions as they think fit; issue bonds, debentures and other debt obligations, either outright or as security for any of our liabilities or obligations, or any other person; and mortgage, charge, whether by way of specific or floating charge, or give other security on the undertaking, or on the whole or any part of our property and assets (both present and future). Variation of these borrowing powers would require an amendment to our Articles which would, in turn, require the approval of our shareholders by way of a Special Resolution, as defined hereinafter. A “Special Resolution” means a resolution cast by a majority of not less than ¾ of the votes cast by our shareholders who, being entitled to do so, vote in person or by proxy at our general meeting of which notice as our Articles provide and not being less than 21 days notice specifying the intention to propose the resolution as a special resolution, has been duly given (or, if every shareholder entitled to attend and vote at the meeting agrees, at a meeting of which less than 21 days notice has been given), or a resolution consented to in writing by each of our shareholders who would have been entitled to vote in person or by proxy at our general meeting, and a resolution so consented to is deemed to be a special resolution passed at our general meeting.
There is no requirement in our Articles or in the Act requiring retirement or non-retirement of directors under an age limit requirement, nor is there any minimum shareholding required for a director's qualification.
Holders of our common shares are entitled to vote at meetings of shareholders, and a Special Resolution, as described above, is required to effect a change in the rights of shareholders. Holders of common shares are not entitled to pre-emptive rights. Holders of common shares are entitled, ratably, to our remaining property upon our liquidation, dissolution or winding up, and such holders receive dividends if, as, and when, declared by our directors. There are no restrictions on the purchase or redemption of common shares by us while there is an arrearage in the payment of dividends or sinking fund installments. There is no liability on the part of any shareholder to further capital calls by us nor any provision discriminating against any existing or prospective holder of our securities as a result of such shareholder owning a substantial number of common shares. There are no limitations on the rights to own securit ies, including the rights of non-resident or foreign shareholders to hold or exercise voting rights on the securities imposed by the Act or by our constating documents.
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We are required to give our registered shareholders not less than 21 days notice of any general meeting held by us unless all such shareholders consent to reduce or waive the period. In addition, we are obliged to give notice to registrants and intermediaries who hold common shares on behalf of the ultimate beneficial owners no fewer than 35 or more than 60 days prior to the date of the meeting. We then deliver, in bulk, proxy-related materials in amounts specified by the intermediaries. None of our common shares owned by registrants or intermediaries may be voted at our general meeting unless all proxy-related materials are delivered to the ultimate beneficial owners of such common shares. Such ultimate beneficial owner must then deliver a proxy to us within the time limited by us for the deposit of proxies in order to vote the common shares in respect of which such person is the beneficial owne r.
There is no provision in our Articles that would have an effect of delaying, deferring or preventing our change in control and that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or any of our subsidiaries) other than a shareholder rights plan adopted by our Board of Directors effective March 7, 2006, and approved by our shareholders at the Annual and Special Meeting held on June 6, 2006 (the “Shareholder Rights Plan”).
The Shareholder Rights Plan is designed to ensure that all shareholders receive equal treatment and to maximize shareholder values in the event of a take-over bid or other acquisition that could lead to a change in control of our company. It is not intended to deter take-over bids. Take-over bid contests for corporate control provide a singular opportunity for shareholders to obtain a one-time gain. After the acquisition of effective control, the opportunity for this one-time gain normally does not reoccur. As with most public companies, control of our company can probably be secured through the ownership of much less than 50% of the shares. Without a shareholder rights plan, it would be possible for a bidder to acquire effective control, over a relatively short period of time, through open market and private purchases, using various techniques permitted under the securities legislation in Canada, without making a bid available to all shareholders. Such a cquisition of control would probably be an effective deterrent to other potential offerors. The person acquiring control would probably, over a period of time, be able to consolidate and increase its control without the price for control ever being tested through an open market auction. Shareholder rights plans are designed to prevent this occurrence by forcing all acquisitions of control into a public offer mode. A public offer will not necessarily achieve all of the objectives of ensuring the maximum value to shareholders. A take-over bid can be completed in a time period as short as 35days. This is too short a time period to ensure that the directors can develop other competing alternatives. The Shareholder Rights Plan is intended to provide time to shareholders to properly assess any take-over bid and to provide the Board of Directors with sufficient time to explore and develop alternatives for maximizing shareholder value, including, if conside red appropriate, identifying and locating other potential bidders.
Our Shareholder Rights Plan is incorporated by reference as Exhibit 2.A. to this Amendment No. 1.
10.C. Material Contracts
We have entered into formal agreements with our President and Chief Executive Officer, our Chief Financial Officer, our Chief Operating Officer and with the head of our Exploration and Resources Development department establishing financial arrangements that would be in effect in the event of a change of control of our company. Each agreement provides for, in the event of the termination of the engagement of such persons following a change of control of our company, the payment of an amount equal to two times the annual compensation being paid to such person as at the time of the change of control. A copy of each of these agreements has been previously filed with the SEC.
Our Employment Agreement with our Chief Financial Officer, Bassam Moubarak, also contains a risk mitigation provision providing 12 months’ compensation in the event of termination of his employment without just cause. The 12 months’ compensation provision will also apply in the event of his dismissal due to any layoff based on group restructuring or a sale of assets. A copy of the Employment Agreement dated February 11, 2008, between Petaquilla Minerals Ltd. and Bassam Moubarak was filed as Exhibit 4.U. to our Annual Report on Form 20-F for the fiscal year ended May 31, 2009.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 65 |
10.D. Exchange Controls
There are no governmental laws, decrees or regulations in Canada relating to restrictions on the export or import of capital, or affecting the remittance of interest, dividends or other payments to non-resident holders of our common shares. Any remittances of dividends to United States residents are, however, subject to a 15% withholding tax (5% if the shareholder is a corporation owning at least 10% of our outstanding common shares) pursuant to Article X of the reciprocal tax treaty between Canada and the United States. See“Item 10 – Additional Information – E. Taxation” below.
Except as provided in the Investment Canada Act (the "Act"), which has provisions which govern the acquisition of a control block of voting shares by non-Canadians of a corporation carrying on a Canadian business, there are no limitations specific to the rights of non-Canadians to hold or vote our common shares under the laws of Canada or the Province of British Columbia or in our charter documents.
Our management considers that the following general summary fairly describes those provisions of the Act pertinent to an investment in us by a person who is not a Canadian resident (a "non-Canadian").
The Act requires a non-Canadian making an investment which would result in the acquisition of control of the Canadian business to notify the Investment Review Division of Industry Canada, the federal agency created by the Act; or in the case of an acquisition of a Canadian business, the gross value of the assets of which exceeds certain threshold levels or the business activity of which is related to Canada's cultural heritage or national identity, to file an application for review with the Investment Review Division.
The notification procedure involves a brief statement of information about the investment on a prescribed form which is required to be filed with Industry Canada by the investor at any time up to 30 days following implementation of the investment. Once the completed notice has been filed, a receipt bearing the certificate date will be issued to the non-Canadian investor. The receipt must advise the investor either that the investment proposal is unconditionally non-reviewable or that the proposal will not be reviewed as long as notice of review is not issued within 21 days of the date certified under the receipt. It is intended that investments requiring only notification will proceed without government intervention unless the investment is in a specific type of business activity related to Canada's cultural heritage and national identity.
If an investment is reviewable under the Act, an order for review must be issued within 21 days after the certified date on which notice of investment was received. An application for review in the form prescribed is required to be filed with Industry Canada prior to the investment taking place. Once the application has been filed, a receipt will be issued to the applicant, certifying the date on which the application was received. For incomplete applications, a deficiency notice will be sent to the applicant, and if not done within 15 days of receipt of application, the application will be deemed to be complete as of the date it was received. Within 45 days after the complete application has been received, the Minister responsible for the Investment Canada Act must notify the potential investor that the Minister is satisfied that the investment is likely to be of net benefit to Canada. If within such 45-day period the Minister is unable to complete the review, the Minister has an additional 30 days to complete the review, unless the applicant agrees to a longer period. Within such additional period, the Minister must advise either that he is satisfied or not satisfied that the investment is likely to be of net benefit to Canada. If the time limits have elapsed, the Minister will be deemed to be satisfied that the investment is likely to be of net benefit to Canada. The investment may not be implemented until the review has been completed and the Minister is satisfied that the investment is likely to be of net benefit to Canada.
If the Minister is not satisfied that the investment is likely to be of net benefit to Canada, the non-Canadian must not implement the investment or, if the investment has been implemented, could be penalized by being required to divest himself of control of the business that is the subject of the investment. To date, the only types of business activities which have been prescribed by regulation as related to Canada's cultural heritage or national identity deal largely with publication, film and music industries. Because our total assets are less than the $5 million notification threshold, and because our business activities would likely not be deemed related to Canada's cultural heritage or national identity, acquisition of a controlling interest in us by a non-Canadian investor would not be subject to even the notification requirements under theInvestment Canada Act.
The following investments by non-Canadians are subject to notification under the Act:
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 66 |
1.
an investment to establish a new Canadian business; and
2.
an investment to acquire control of a Canadian business that is not reviewable pursuant to the Act.
The following investments by a non-Canadian are subject to review under the Act:
1.
direct acquisition of control of Canadian businesses with assets of $5 million or more, unless the acquisition is being made by a World Trade Organization ("WTO") member country investor (the United States being a member of the WTO);
2.
direct acquisition of control of Canadian businesses with assets of $250,000,000 or more by a WTO investor;
3.
indirect acquisition of control of Canadian business with assets of $5 million or more if such assets represent more than 50% of the total value of the assets of the entities, the control of which is being acquired, unless the acquisition is being made by a WTO investor, in which case there is no review;
4.
indirect acquisition of control of Canadian businesses with assets of $50 million or more even if such assets represent less than 50% of the total value of the assets of the entities, the control of which is being acquired, unless the acquisition is being made by a WTO investor, in which case there is no review; and
5.
an investment subject to notification that would not otherwise be reviewable if the Canadian business engages in the activity of publication, distribution or sale of books, magazines, periodicals, newspapers, film or video recordings, audio or video music recordings or music in print or machine-readable form.
Generally speaking, an acquisition is direct if it involves the acquisition of control of the Canadian business or of its Canadian parent or grandparent and an acquisition is indirect if it involves the acquisition of control of a non-Canadian parent or grandparent of an entity carrying on the Canadian business. Control may be acquired through the acquisition of actual voting control by the acquisition of voting shares of a Canadian corporation or through the acquisition of substantially all of the assets of the Canadian business. No change of voting control will be deemed to have occurred if less than one-third of the voting control of a Canadian corporation is acquired by an investor.
A WTO investor, as defined in the Act, includes an individual who is a national of a member country of the World Trade Organization or who has the right of permanent residence in relation to that WTO member, a government or government agency of a WTO investor-controlled corporation, limited partnership, trust or joint venture and a corporation, limited partnership, trust or joint venture that is neither WTO-investor controlled or Canadian controlled of which two-thirds of its board of directors, general partners or trustees, as the case may be, or any combination of Canadians and WTO investors.
The higher thresholds for WTO investors do not apply if the Canadian business engages in activities in certain sectors such as uranium, financial services, transportation services or communications.
The Act specifically exempts certain transactions from either notification or review. Included among this category of transactions is the acquisition of voting shares or other voting interests by any person in the ordinary course of that person's business as a trader or dealer in securities.
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10.E. Taxation
Material Canadian Federal Income Tax Consequences
Through consultation with counsel, our management believes that the following general summary accurately describes all material Canadian federal income tax consequences applicable to a holder of our common shares who is a resident of the United States, that qualifies for benefits under the Canada-United States Convention (1980), as amended (the “Treaty”) and who is not a resident of Canada and who does not use or hold, and is not deemed to use or hold, his common shares of us in connection with carrying on a business in Canada (a "non-resident holder").
This summary is based upon the current provisions of the Income Tax Act (Canada) (the "ITA"), the regulations thereunder (the "Regulations"), the current publicly announced administrative and assessing policies of Canada, Customs and Revenue Agency and all specific proposals (the "Tax Proposals") to amend the ITA and Regulations announced by the Minister of Finance (Canada) prior to the date hereof. This summary assumes that the Tax Proposals will be enacted in their form as of the date of this Annual Report. This description, except for the Tax Proposals, does not take into account or anticipate any changes in law, whether by legislative, government or judicial action, nor does it take into account provincial, territorial, or foreign tax considerations which may differ significantly from those discussed herein.
Dividends
Dividends paid on our common shares to a non-resident holder will be subject to withholding tax. The Treaty provides that the normal 25% withholding tax rate under the ITA is reduced to 15% on dividends paid on shares of a corporation resident in Canada (such as our company) to beneficial owners of the dividends who are residents of the United States, and may also provide for a further reduction of this rate to 5% where the beneficial owner of the dividends is a corporation that is a resident of the United States which owns at least 10% of the voting shares of the corporation paying the dividend.
No dividends have ever been paid by us.
Capital Gains
Under the ITA, a taxpayer's capital gain or capital loss from a disposition of a share of our company is the amount, if any, by which his proceeds of disposition exceed (or are exceeded by) the aggregate of his adjusted cost base of the share and reasonable expenses of disposition. One half of a capital gain (the "taxable capital gain") is included in income, and one half of a capital loss in a year (the "allowable capital loss") is deductible from taxable capital gains realized in the same year. The amount by which a shareholder's allowable capital loss exceeds his taxable capital gains in a year may be deducted from a taxable capital gain realized by the shareholder in the three previous or any subsequent year, subject to certain restrictions in the case of a corporate shareholder.
A non-resident holder is not subject to tax under the ITA in respect of a capital gain realized upon the disposition of a share of a public corporation unless the share represents "taxable Canadian property" to the holder thereof. We are a public corporation for purposes of the ITA and a common share of our company will be taxable Canadian property to a non-resident holder if, at any time during the 60 month period immediately preceding the disposition, the non-resident holder, persons with whom the non-resident holder did not deal at arm's length, or the non-resident holder and persons with whom he did not deal at arm's length together owned not less than 25% of the issued shares of any class of our shares. Our shares may also be taxable Canadian property to a holder if the holder acquired them pursuant to certain tax-deferred "rollover" transactions whereby the holder exchanged property that was taxable Canadian property for our shares.
Where a non-resident holder who is an individual ceased to be resident in Canada, he will be subject to Canadian tax on any capital gain realized on disposition of our shares at that time.
Where a non-resident holder realizes a capital gain on a disposition of our shares that constitute taxable Canadian property, the Treaty relieves the non-resident shareholder from liability for Canadian tax on such capital gains unless:
(a)
the non-resident holder is an individual who was resident in Canada for not less than 120 months during any period of 20 consecutive years preceding, and at any time during the 10 years immediately preceding, the disposition and the shares were owned by him when he ceased to be resident in Canada or are property substituted for property that was owned at that time, or
(b)
the shares formed part of the business property of a "permanent establishment" or pertained to a fixed base used for the purpose of performing independent personal services that the shareholder has or had in Canada within the 12 months preceding the disposition.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 68 |
Material United States Federal Income Tax Consequences
The following is a discussion of material U.S. federal income tax consequences that may be relevant with respect to the acquisition, ownership and disposition of our common shares by a U.S. Holder (as hereinafter defined). This discussion does not address all potentially relevant federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion does not cover any state, local or foreign tax consequences. Accordingly, holders and prospective holders of our common shares are urged to consult their own tax advisors about the specific federal, state, local and foreign tax consequences to them of acquiring, holding and disposing of our common shares, based upon their individual circumstances.
The following discussion is based upon the sections of the Code, Treasury Regulations, published Internal Revenue Service (“IRS”) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time and which are subject to differing interpretations. This discussion does not consider the potential effects, both adverse and beneficial, of any proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.
U.S. Holders
As used in this annual report, a “U.S. Holder” means a holder of our common shares who is (i) a citizen or individual resident of the United States, (ii) corporation, or other entity treated as a corporation for U.S. tax purposes, created or organized in or under the laws of the United States or any state thereof (including the District of Columbia), (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if such trust was in existence on August 20, 1996 and validly elected to be treated as a United States person for U.S. federal income tax purposes or if (1) a court within the U.S. is able to exercise primary supervision over its administration and (2) one or more U.S. persons have the authority to control all of the substantial decisions of such trust. This summary does not address the tax consequences to, and the term U.S. Holder does not include, persons subject to specific pr ovisions of federal income tax law, such as tax-exempt organizations, qualified retirement plans, individual retirement accounts and other tax-deferred accounts, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals, persons or entities that have a “functional currency” other than the U.S. dollar, shareholders subject to the alternative minimum tax, shareholders who hold common shares as part of a straddle, hedging or conversion transaction and shareholders who acquired their common shares through the exercise of employee stock options or otherwise as compensation for services. This summary is limited to U.S. Holders who own common shares as capital assets, within the meaning of Section 1221 of the Code, and who own (directly and indirectly, pursuant to applicable rules of constructive ownership) no more than 10% of the value of our total outstanding stock. This summary does not a ddress the consequences to a person of the ownership, exercise or disposition of any options, warrants or other rights to acquire common shares.
If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds our common shares, the tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner should consult its own tax advisors as to the U.S. tax consequences of being a partner in a partnership that acquires, holds, or disposes of our common shares.
Distributions on Our Common Shares
Subject to the discussion below under “Passive Foreign Investment Company,” U.S. Holders receiving dividend distributions (including constructive dividends) with respect to our common shares generally are required to include in gross income for U.S. federal income tax purposes the gross amount of such distributions (without reduction of any Canadian income or other tax withheld from such distributions), equal to the U.S. dollar value of such distributions on the date of receipt (based on the exchange rate on such date), to the extent that we have current or accumulated earnings and profits. Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holder’s federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder’s federal taxable income by those who itemize deductions (See more detailed discussion at “Foreign Tax Credit” below). Dividends paid on our com mon shares will not generally be eligible for the dividends received deduction provided to corporations receiving dividends from certain U.S. corporations.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 69 |
For taxable years beginning before January 1, 2011, dividends received by U.S. Holders that are individuals, estates or trusts from “qualified foreign corporations,” as defined in Section 1(h)(11) of the Code, generally are taxed at the same preferential tax rates applicable to long-term capital gains. Although not free from doubt, it appears that we are a “qualified foreign corporation,” as defined in Section 1(h)(11) of the Code if we are not, and have not been, a PFIC, as described below under “Passive Foreign Investment Company.” We have not determined whether or not we meet the definition of a PFIC for the current tax year and any prior tax years. A corporation that is a PFIC, along with other foreign corporations given special status under the Code, for its taxable year during which it pays a dividend, or for its immediately preceding taxable year, will not be treated as a “qualifying foreign corporation” and dividends r eceived by U.S. Holders that are individuals, estates or trusts generally will be subject to U.S. federal income tax at ordinary income tax rates (and not at the preferential tax rates applicable to long-term capital gains).
In the case of foreign currency received as a dividend that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Generally any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for U.S. dollars, will be ordinary income or loss.
Disposition of Our Common Shares
Subject to the discussion below under “Passive Foreign Investment Company,” U.S. Holders will recognize gain or loss upon the sale of our common shares equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received and (ii) the shareholder’s tax basis in our common shares. Preferential tax rates apply to long-term capital gains of U.S. Holders that are individuals, estates or trusts. In general, gain or loss on the sale of our common shares will be long-term capital gain or loss if our common shares are a capital asset in the hands of the U.S. Holder and are held for more than one year. Deductions for net capital losses are subject to significant limitations.
Passive Foreign Investment Company
We have not determined whether or not we meet the definition of PFIC, within the meaning of Sections 1291 through 1298 of the Code for the current tax year and any prior tax years. We may or may not qualify as a PFIC in subsequent years due to changes in our assets and business operations. A U.S. Holder who holds stock in a foreign corporation during any year in which such corporation qualifies as a PFIC is subject to numerous special U.S. federal income taxation rules. The following is a discussion of these special rules as they apply to U.S. Holders of our common shares.
Section 1297 of the Code defines a PFIC as a corporation that is not formed in the U.S. if, for any taxable year, either (i) 75% or more of its gross income is “passive income,” which includes interest, dividends and certain rents and royalties or (ii) the average percentage, by fair market value (or, if the corporation is not publicly traded and either is a controlled foreign corporation or makes an election, by adjusted tax basis), of its assets that produce or are held for the production of passive income is 50% or more.
U.S. Holders owning shares of a PFIC are subject to a special tax and to an interest charge based on the value of deferral of U.S. tax attributable to undistributed earnings of a PFIC for the period during which the shares of the PFIC are owned. This special tax would apply to any gain realized on the disposition of shares of a PFIC. In addition, the gain is subject to U.S. federal income tax as ordinary income, taxed at top marginal rates, rather than as capital gain income. The special tax would also be payable on receipt of excess distributions (any distributions received in the current year that are in excess of 125% of the average distributions received during the 3 preceding years or, if shorter, the shareholder’s holding period). However, if the U.S. Holder makes for any tax year a timely election to treat a PFIC as a qualified electing fund (“QEF”) with respect to such shareholder’s interest therein, the above-desc ribed rules generally will not apply. Instead, the electing U.S. Holder would include annually in his gross income his pro rata share of the PFIC’s ordinary earnings and any net capital gain regardless of whether such income or gain was actually distributed. Special rules apply to U.S. Holders who own their interests in a PFIC through intermediate entities or persons. Generally, shareholders do not make a QEF election unless they have sufficient information to determine their proportionate share of a corporation’s net capital gain and ordinary earnings. We have not calculated these amounts for any shareholder, and do not anticipate making these calculations in the foreseeable future.Therefore, U.S. Holders of our common shares should consult their own financial advisor, legal counsel or accountant regarding the QEF election before making this election.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 70 |
U.S. Holders who hold, actually or constructively, marketable stock of a foreign corporation that qualifies as a PFIC may elect to mark such stock to the market (a “mark-to-market election”). If such an election is made, such U.S. Holder will not be subject to the special taxation rules of PFIC described above for the taxable years for which the mark-to-market election is made. A U.S. Holder who makes such an election will include in income for the taxable year an amount equal to the excess, if any, of the fair market value of our common shares as of the close of such tax year over such U.S. Holder’s adjusted basis in such shares. In addition, the U.S. Holder is allowed a deduction for the lesser of (i) the excess, if any, of such U.S. Holder’s adjusted tax basis in the shares over the fair market value of such shares as of the close of the tax year or (ii) the excess, if any of (A) the mark-to-market gains for our common shares included by such U.S. Holder for prior tax years, including any amount which would have been included for any prior year but for Section 1291 interest on tax deferral rules discussed above with respect to a U.S. Holder, who has not made a timely QEF election during the year in which he holds (or is deemed to have held) our common shares and we are a PFIC (“Non-Electing U.S. Holder”) over (B) the mark-to-market losses for shares that were allowed as deductions for prior tax years. A U.S. Holder’s adjusted tax basis in our common shares will be increased or decreased to reflect the amount included or deducted as a result of mark-to-market election. A mark-to-market election will apply to the tax year for which the election is made and to all later tax years, unless the PFIC stock ceases to be marketable or the IRS consents to the revocation of the election.
The IRS has issued proposed regulations that, subject to certain exceptions, would treat as taxable certain transfers of PFIC stock by a Non-Electing U.S. Holder that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations and transfers at death. Generally, in such cases, the basis of our common shares in the hands of the transferee and the basis of any property received in the exchange for those shares would be increased by the amount of gain recognized. A U.S. Holder who has made a timely QEF election (as discussed above) would not be taxed on certain transfers of PFIC stock, such as gifts, exchanges pursuant to corporate reorganizations and transfers at death. The transferee’s basis in this case will depend on the manner of the transfer. The specific tax effect to the U.S. Holder and the transferee may vary based on the manner in which the common shares are transferred. Each U.S. Holder should consult a ta x advisor with respect to how the PFIC rules affect their tax situation.
The PFIC and QEF election rules are complex. U.S. Holders should consult a tax advisor regarding the availability and procedure for making the QEF election as well as the applicable method for recognizing gains or earnings and profits under the foregoing rules.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian or other foreign income tax with respect to the ownership of our common shares may be entitled, at the option of the U.S. Holder, to either receive a deduction or a tax credit for U.S. federal income tax purposes with respect to such foreign tax paid or withheld. Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” In addition, this limitation is calculated separately with respect to specific categories of income including “passive ca tegory income” and “general category income.” Gain or loss recognized by a U.S. Holder on the sale or other taxable disposition of our common shares generally will be treated as “U.S. source” for purposes of applying the foreign tax credit rules. Dividends received by U.S. Holders on our common shares generally will be treated as “foreign source” and generally will be categorized as “passive income” for purposes of applying the foreign tax credit rules. The availability of the foreign tax credit and the application of the limitations with respect to the foreign tax credit are fact specific, and each U.S. Holder of our common shares should consult their own financial advisor, legal counsel or accountant regarding the foreign tax credit rules.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 71 |
Controlled Foreign Corporation
If more than 50% of the total voting power or the total value of our outstanding shares is owned, directly or indirectly, by citizens or residents of the U.S., U.S. partnerships or corporations, or U.S. estates or trusts (as defined by Section 7701(a)(30) of the Code), each of which own, directly or indirectly, 10% or more of the total voting power of the our outstanding shares (each a “10% Shareholder”), we could be treated as a “Controlled Foreign Corporation” (“CFC”) under Section 957 of the Code.
Our classification as a CFC would effect many complex results, including that 10% Shareholders would generally (i) be treated as having received a current distribution of our “Subpart F income” and (ii) would also be subject to current U.S. federal income tax on their pro rata share of our earnings invested in “U.S. property.” The foreign tax credit may reduce the U.S. federal income tax on these amounts for such 10% Shareholders (See more detailed discussion at “Foreign Tax Credit” above). In addition, under Section 1248 of the Code, gain from the sale or other taxable disposition of our common shares by a U.S. Holder that is or was a 10% Shareholder at any time during the five-year period ending with the sale is treated as a dividend to the extent of our earnings and profits attributable to the common shares sold or exchanged.
If we are classified as both a PFIC and a CFC, we generally will not be treated as a PFIC with respect to 10% Shareholders. This rule generally will be effective for taxable years of 10% Shareholders beginning after 1997 and for its taxable years ending with or within such taxable years of 10% Shareholders.
We have not determined whether we meet the definition of a CFC, and there can be no assurance that we will not be considered a CFC for the current or any future taxable year.
The CFC rules are very complicated, and U.S. Holders should consult their own financial advisor, legal counsel or accountant regarding the CFC rules and how these rules may impact their U.S. federal income tax situation.
Information Reporting; Backup Withholding
Certain information reporting and backup withholding rules may apply with respect to certain payments related to our common shares. In particular, a payor or middleman within the U.S., or in certain cases outside the U.S., will be required to withhold at a current rate of 28% (which rate is scheduled for periodic adjustment) of any payments to a U.S. Holder regarding dividends paid by us, or proceeds from the sale of, such common shares within the U.S., if a U.S. Holder fails to furnish its correct taxpayer identification number (generally on Form W-9) or otherwise fails to comply with, or establish an exemption from, the backup withholding tax requirements. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a refund or a credit against the U.S. Holder’s U.S. federal income tax liability, provided the required information is furnished to the IRS. We do not assume responsibility for the withholding of tax at sour ce. U.S. Holders should consult their own financial advisor, legal counsel or accountant regarding the information reporting and backup withholding rules applicable to our common shares.
10.F. Dividends and Paying Agents
This Amendment No. 1 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this section.
10.G. Statements by Experts
This Amendment No. 1 is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this section.
10.H. Documents on Display
Any documents referred to in this Amendment No. 1 may be inspected at our head office located at Suite 410, 475 West Georgia Street, Vancouver, British Columbia, V6B 4M9 Canada, during normal business hours.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 72 |
10.I. Subsidiary Information
There is no additional information relating to our subsidiaries, which must be provided in Canada and which is not otherwise called for by the body of Canadian GAAP used in preparing our consolidated financial statements.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments that potentially subject us to credit risk consist of cash and cash equivalents, restricted cash and accounts receivable. We have reduced our credit risk by investing its cash and cash equivalents and restricted cash in term deposits with financial institutions that operate globally. Also, as the majority of its receivables are with the government of Canada in the form of sales tax and, the credit risk is minimal. Therefore, we are not exposed to significant credit risk and overall our credit risk has not changed significantly from the prior year.
Liquidity risk
Liquidity risk is the risk that we will not be able to meet our financial obligations as they fall due. We have in place a planning and budgeting process to help determine the funds required to ensure we have the appropriate liquidity to meet our operating and growth objectives. We have historically relied on issuance of shares, senior secured debt, convertible senior secured debt and leasing arrangements to develop the Molejon gold project and may require doing so again in the future. On an annual basis we may be required to pay 35% of our distributable cash as defined in our senior secured notes and convertible senior secured notes indenture and convertible senior secured notes indenture.
Currency risk
Financial instruments that impact our net earnings or other comprehensive income due to currency fluctuations include: Canadian dollar denominated cash and cash equivalents, restricted cash, accounts receivable and accounts payable. The sensitivity of our net earnings and other comprehensive income to changes in the exchange rate between the Canadian dollar and the United States dollar is summarized in the table below:
| | | | | |
| | As at May 31, 2009 | |
| | 10% Increase in the | | 10% decrease in the | |
| | Canadian Dollar | | Canadian Dollar | |
(Decrease) increase in net earnings | $ | 61,184 | $ | (61,184 | ) |
(Decrease) increase in other comprehensive (loss)income | | - | | - | |
Comprehensive (loss) income | $ | 61,184 | $ | (61,184 | ) |
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market interest rates. Cash and cash equivalents and restricted cash bear interest at fixed rates.
Other current financial assets and liabilities are not exposed to interest rate risk because they are non-interest bearing.
The operating credit line facility, leases and long-term debt bear interest at a fixed rate and are also not exposed to interest rate risk.
Qualitative Information about Market Risk
Our objectives of capital management are intended to safeguard our ability to support our normal operating requirements on an ongoing basis, continue the development and exploration of our mineral properties and support any expansionary plans.
Our capital structure consists of long-term debt, leases, senior secured notes, convertible senior secured notes and equity attributable to common shareholders, comprised of issued capital, contributed surplus and deficit. We manage the capital structure and make adjustments in light of changes in economic conditions and the risk characteristics of our assets.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 73 |
To effectively manage our capital requirements, we have in place a planning and budgeting process to help determine the funds required to ensure we have the appropriate liquidity to meet our operating and growth objectives. We have historically relied on issuance of shares, senior secured debt, convertible senior secured debt and leasing arrangements to develop the project and may require doing so again in the future.
We are monitoring market conditions to secure funding at the lowest cost of capital. We are exposed to various funding and market risks which could curtail our access to funds.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
This Amendment No. 1 is being filed as an annual report under the Exchange Act for a fiscal year ending before December 15, 2009, and, as such, there is no requirement to provide any information under this item.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
There has not been a material default in the payment of principal, interest, a sinking or purchase fund installment, or any other material default not cured within thirty days, relating to our indebtedness or any of our significant subsidiaries. There are no payments of dividends by us in arrears, nor has there been any other material delinquency relating to any class of our preference shares.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Effective March 7, 2006, our Board of Directors adopted a shareholder rights plan, which was subsequently approved by our shareholders at our Annual and Special Meeting held on June 6, 2006.
The Shareholder Rights Plan is designed to ensure that all shareholders receive equal treatment and to maximize shareholder values in the event of a take-over bid or other acquisition that could lead to a change in control of our company. It is not intended to deter take-over bids. Take-over bid contests for corporate control provide a singular opportunity for shareholders to obtain a one-time gain. After the acquisition of effective control, the opportunity for this one-time gain normally does not reoccur. As with most public companies, control of our company can probably be secured through the ownership of much less than 50% of our shares. Without a shareholder rights plan, it would be possible for a bidder to acquire effective control, over a relatively short period of time, through open market and private purchases, using various techniques permitted under the securities legislation in Canada, without making a bid available to all shareholders. Such a cquisition of control would probably be an effective deterrent to other potential offerors. The person acquiring control would probably, over a period of time, be able to consolidate and increase its control without the price for control ever being tested through an open market auction. Shareholder rights plans are designed to prevent this occurrence by forcing all acquisitions of control into a public offer mode. A public offer will not necessarily achieve all of the objectives of ensuring the maximum value to shareholders. A take-over bid can be completed in a time period as short as 35 days. This is too short a time period to ensure that the directors can develop other competing alternatives. The Shareholder Rights Plan is intended to provide time to shareholders to properly assess any take-over bid and to provide our Board of Directors with sufficient time to explore and develop alternatives for maximizing shareholder value, including, if considered appropriate, identifying and lo cating other potential bidders.
Our Shareholder Rights Plan was filed as Exhibit 4.W to our Annual Report on Form 20-F for the fiscal year ended May 31, 2009.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 74 |
ITEM 15. CONTROLS AND PROCEDURES
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our President (serving as our principal executive officer) and Chief Financial Officer (serving as our principal financial officer), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report (the “Evaluation Date”). Based upon that evaluation, our President and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the SEC’s rules and forms, and accumulated and communicated to our management, including our President and Chief Financial Officer, to allow timely decisions reg arding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
An internal control material weakness is a deficiency, or aggregation of deficiencies, such that the risk of material misstatements in financial statements will not be prevented or detected on a timely basis by employees in the normal course of their work. An internal control significant deficiency, or aggregation of deficiencies, is one that could result in a misstatement of the financial statements that is more than inconsequential.
During the transition period ended May 31, 2008, we identified material weaknesses in internal controls.
These material weaknesses were as follows:
·
We did not have sufficient accounting resources at one of our subsidiaries in order to account for and apply internal control to transactions originating at the subsidiary.
·
Our IT configuration at one of our subsidiaries does not have the appropriate system privileges set up for each job function; and
·
We had a lack of detective and preventative controls with regard to oversight of recorded transactions at one of our operating subsidiaries
On September 1, 2008 we transitioned to new accounting software that established appropriate system privileges for each job function. This allowed us to resolve the material weakness relating to our IT configuration at one of our subsidiaries.
In March 2009, we upgraded the skills of the accounting staff by recruiting staff that are qualified accountants to oversee the recording of transactions for all of our operating subsidiaries. Detective controls at our head office were implemented in order to mitigate the risk of transactions not being recorded appropriately. This allowed us to resolve the material weakness relating to sufficiency of accounting resources to apply internal controls to transactions originating at the subsidiary and to implement detective controls with respect to oversight of recorded transactions at one of our operating subsidiaries.
Our management assessed the effectiveness of our internal control over financial reporting as of May 31, 2009, and this assessment identified the following material weakness in our internal control over financial reporting:
·
Our policies and procedures relating to cash disbursements at one of our operating subsidiaries were not followed.
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In making our assessment of internal control over financial reporting management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Because of the material weakness described in the preceding paragraph, our management believes that, as of May 31, 2009, our internal control over financial reporting was not effective as of the Evaluation Date based on those criteria.
Our Audit Committee has been provided information on the deficiency. Together, our Audit Committee, Board of Directors, and our management continue to work to mitigate the risk of a material misstatement in our financial statements. Subsequent to year-end, we redesigned the internal controls for our operating subsidiaries by replacing all signing authorities at these operations with senior level employees from the parent company. We are currently conducting an internal investigation under the oversight of our Audit Committee and with the assistance of outside independent counsel of certain of our international operations, focusing on the material weakness identified above.
Other than the foregoing, d uring the period covered by this report, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Our independent registered public accounting firm has issued an opinion on the effectiveness of our internal control over financial reporting as of May 31, 2009. The report can be found in the “Independent Auditor’s Report on Internal Controls under Standards of the Public Company Accounting Oversight board (United States of America)”.
Attestation Report of our External Auditor
The effectiveness of our internal control over financial reporting as of May 31, 2009, has been audited by our independent registered chartered accountants, Ernst & Young LLP, who also audited our consolidated financial statements for the year ended May 31, 2009. Ernst & Young LLP have expressed an adverse opinion on the effectiveness of our internal control over financial reporting as of May 31, 2009, and their report is included on page 85 of this Amendment No. 1 .
Changes in Internal Control Over Financial Reporting
During the period covered by this report, other than the changes discussed under Management's Annual Report on Internal Control Over Financial Reporting, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
ITEM 16. [RESERVED]
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 76 |
16.A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that it does have at least one audit committee financial expert serving on our Audit Committee. John Resing, a Certified Public Accountant and member of the American Institute of Certified Public Accountants (AICPA), serves as the Chairman of our Audit Committee. He has over 15 years’ experience as an outside director of a number of public and private U.S. firms and extensive experience in strategic planning, annual operating plans, financial oversight, SEC reporting, board governance and financing strategy. He has held Chief Financial Officer and Managing General Partner positions and is a former partner of the accounting and auditing firm of Coopers & Lybrand (now Pricewaterhouse Coopers LLP). Further, John Resing is considered to be “independent”, as defined in National Instrument 52-110, Audit Committees, as adopted by the Canadian Securities Administrators.
16.B. CODE OF ETHICS
Effective May 31, 2008 , our Board of Directors adopted an updated Code of Business Ethics and Conduct that applies to, among other persons, our President and Chief Executive Officer, being our principal executive officer, and our Chief Financial Officer, being our principal financial officer, and our controller, as well as persons performing similar functions. As adopted, our Code of Business Ethics and Conduct sets forth written standards that are designed to deter wrongdoing and to promote:
(1)
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
(2)
full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in other public communications made by us;
(3)
compliance with applicable governmental laws, rules and regulations;
(4)
the prompt internal reporting of violations of the Code of Business Ethics and Conduct to an appropriate person or persons identified in the Code of Business Ethics and Conduct; and
(5)
accountability for adherence to the Code of Business Ethics and Conduct.
Our Code of Business Ethics and Conduct requires, among other things, that all of our personnel shall be accorded full access to our President and Chief Executive Officer and Chief Financial Officer with respect to any matter which may arise relating to the Code of Business Ethics and Conduct. Further, all of our personnel are to accorded full access to our Board of Directors if any such matter involves an alleged breach of the Code of Business Ethics and Conduct by our President and Chief Executive Officer or Chief Financial Officer.
In addition, our Code of Business Ethics and Conduct emphasizes that all employees, and particularly managers and/or supervisors, have a responsibility for maintaining our financial integrity, consistent with generally accepted accounting principles, and federal, provincial and state securities laws. Any employee who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to his or her immediate supervisor or to our Chairman of the Audit Committee or Chief Financial Officer or, if anonymity is preferred, to an independent whistle-blower hotline operated and controlled by a third party. It is against our policy to retaliate against any individual who reports in good faith the violation or potential violation of our Code of Business Ethics and Conduct by another.
Our Code of Business Ethics and Conduct and our Whistle-Blower Policy are filed as Exhibits 11.A and 11.B to our Annual Report on Form 20-F for the period ended May 31, 2008. The full text of our Code of Business Ethics and Conduct and our Whistle-Blower Policy can be viewed on our website atwww.petaquilla.com and we will provide a copy of each document to any person without charge, upon request. Requests can be sent to: Petaquilla Minerals Ltd., Suite 410 - 475 West Georgia Street, Vancouver, BC, Canada V6B 4M9.
16.C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate amounts billed by our auditors to us for (i) the period covered by the 12 months ended May 31, 2009 and (ii) the period covered by the one month ended May 31, 2008, and 12 months ended April 30, 2008, for audit fees, audit-related fees, tax fees and all other fees are set forth below:
| | | | | |
| | 12 Months Ended | | | One Month Ended May 31, 2008 |
| | May 3, 2009 | | | and |
| | (CAD$) | | | 12 Months Ended April30, 2008 |
| | | | | (CAD$) |
Audit Fees (1) | $ | 791,298 | (5) | $ | 571,675 |
AuditRelated Fees (2) | $ | 40,000 | (5) | $ | 35,110 |
Tax Fees (3) | $ | 20,000 | (5) | $ | 17,616 |
All Other Fees (4) | | | | $ | 130,000 |
Totals | $ | 851,298 | (5) | $ | 754,401 |
| | | | | |
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 77 |
(1)
“Audit Fees" represent the aggregate fees billed for professional services rendered by our principal accountant for the audit of our annual financial statements or services that are normally provided by our accountant in connection with statutory and regulatory filings or engagements.
(2)
“Audit-Related Fees" represent the aggregate fees billed for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees” above.
(3)
“Tax Fees" represent the aggregate fees for professional services rendered by our principal accountant for tax compliance, tax advice and tax planning.
(4)
“All Other Fees" represent the aggregate fees billed for products and services provided by our principal accountant, other than the services reported under “Audit Fees”, “Audit-Related Fees” and “Tax Fees” above.
(5)
Fees for the 12 months ended May 31, 2009, are estimated.
The Audit Committee has adopted procedures requiring Audit Committee review and approval in advance of all particular engagements for services provided by our independent auditor. Consistent with applicable laws, the procedures permit limited amounts of services, other than audit, review or attest services, to be approved by one or more members of the Audit Committee pursuant to authority delegated by the Audit Committee, provided the Audit Committee is informed of each particular service. All of the engagements (i.e. 100%) and fees for the 12 months ended May 31, 2009, the one month ended May 31, 2008, and the 12 months ended April 30, 2008, were approved by the Audit Committee and all such engagements were completed by our independent auditor with no work performed by persons other than our independent auditor’s full-time, permanent employees. The Audit Committee reviews with our auditor whether the non-audit services to be provided are compatible with maintaining the auditor's independence. The Board has determined that, starting in the fiscal year ended January 31, 2005, fees paid to our independent auditors for non-audit services in any year would not exceed the fees paid for audit services during the year. Permissible non-audit services will be limited to fees for tax services, accounting assistance or audits in connection with acquisitions, and other services specifically related to accounting or audit matters such as audits of employee benefit plans.
16.D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not Applicable.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 78 |
16.E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
No purchases were made by us or on our behalf or any “affiliated purchaser”, as defined in §240.10b-18(a)(3), of shares or other units of any class of our equity securities that is registered pursuant to Section 12 of the Exchange Act.
16.F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not Applicable.
16.G. CORPORATE GOVERNANCE
Not Applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS
Please see the Financial Statements and Exhibits listed in Item 19 hereof and filed as part of this Amendment No. 1 . These consolidated financial statements were prepared in accordance with Canadian GAAP and are expressed in United States dollars. Such consolidated financial statements have been reconciled to U.S. GAAP (see Note 29 therein).
PETAQUILLA MINERALS LTD.
(An Exploration Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008,
Twelve Months Ended April 30, 2008, and Three Months Ended April 30, 2007
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 79 |
PETAQUILLA MINERALS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 80 |
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Management Report on Internal Control over Financial Reporting
The management of Petaquilla Minerals Ltd. (“Petaquilla” or the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Petaquilla’s internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
An internal control material weakness is a deficiency, or aggregation of deficiencies, such that the risk of material misstatements in financial statements will not be prevented or detected on a timely basis by employees in the normal course of their work. An internal control significant deficiency, or aggregation of deficiencies, is one that could result in a misstatement of the financial statements that is more than inconsequential.
During the prior year, the Company identified material weaknesses in internal controls.
These material weaknesses were as follows:
§
The Company did not have sufficient accounting resources at one of its subsidiaries in order to account for and apply internal controls to transactions originating at the subsidiary.
§
The Company’s IT configuration at one of its subsidiaries did not have the appropriate system privileges set up for each job function.
§
There was a lack of detective and preventative controls with regard to oversight of recorded transactions at one of the Company’s operating subsidiaries.
On September 1, 2008, the Company transitioned to new accounting software that resulted in appropriate system privileges being set up for each job function. This allowed the Company to resolve the material weakness relating to the IT configuration at one of its subsidiaries.
In March 2009, the Company upgraded the skills of the accounting staff by recruiting qualified accountants to oversee the recording of transactions for all of its operating subsidiaries. Detective controls at head office were implemented in order to mitigate the risk of transactions not being recorded appropriately. This allowed the Company to resolve the material weakness relating to sufficiency of accounting resources to apply internal controls to transactions originating at the subsidiary and to implement detective controls with respect to the oversight of recorded transactions at one of its subsidiaries.
The Company’s management assessed the effectiveness of Petaquilla’s internal controls over financial reporting as of May 31, 2009 and this assessment identified the following material weakness:
·
The Company’s policies and procedures relating to cash disbursements at one of the Company’s operating subsidiaries were not followed.
In making the assessment of internal control over financial reporting, the Company’s management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Because of the material weakness described in the preceding paragraph, Petaquilla’s management believes that, as of May 31, 2009 (“the Evaluation Date”), the Company’s internal control over financial reporting was not effective as of the Evaluation Date based on those criteria.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 81 |
The Audit Committee has been provided information on the deficiency. Together, the Company’s Audit Committee, Board of Directors, and management continue to work to mitigate the risk of a material misstatement in the Company’s financial statements. Subsequent to year-end, Petaquilla redesigned the internal controls at the operating subsidiaries by replacing all signing authorities at these operations with senior level employees from the parent company. The Company is currently conducting an internal investigation, under the oversight of the Audit Committee and with the assistance of independent counsel, of certain of the Company’s international operations, focusing on the material weakness identified above.
Other than the foregoing, during the period covered by this report, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PETAQUILLA MINERALS LTD.
| | |
By:/s/ Richard Fifer | | By:/s/ Bassam Moubarak |
Richard Fifer, President and Chief Executive Officer | | Bassam Moubarak, Chief Financial Officer |
(principal executive officer) | | (principal financial and accounting officer) |
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 82 |
INDEPENDENT AUDITORS’ REPORT ON
FINANCIAL STATEMENTS
To the Shareholders ofPetaquilla Minerals Ltd.
We have audited the consolidated balance sheets ofPetaquilla Minerals Ltd.(the “Company”) as at May 31, 2009 and 2008 and the consolidated statements of operations and comprehensive loss and deficit and cash flows for the year ended May 31, 2009, the one month period ended May 31, 2008, the year ended April 30, 2008, the three month period ended April 30, 2007 and the year ended January 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the 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 that 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 May 31, 2009 and 2008, and the results of its operations and its cash flows for the year ended May 31, 2009, the one month period ended May 31, 2008, the year ended April 30, 2008, the three month period ended April 30, 2007 and the year ended January 31, 2007 in conformity with Canadian generally accepted accounting principles.
As discussed in note 2, during 2009 the Company changed its accounting policy for mineral properties. Also, as discussed in note 2 to the consolidated financial statements, during 2009 the Company changed its reporting currency to U.S. dollars.
As discussed in notes 28 and 29, the Company has restated the accompanying consolidated financial statements as at and for the periods ended May 31, 2008, April 30, 2008, April 30, 2007 and January 31, 2007 to correct errors in the accounting for its equity method investment and mineral properties. Also, as discussed in note 29, the Company has restated the accompanying consolidated financial statements as at and for the period ended May 31, 2008 to correct an error in the accounting for debt issue costs.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as at May 31, 2009, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 1, 2009 expressed an adverse opinion thereon.
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Vancouver, Canada, September 1, 2009. (except for Note 27 which is as of November 6, 2009) | ![[indepauditrep002.jpg]](https://capedge.com/proxy/CORRESP/0001176256-09-001023/indepauditrep002.jpg)
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 83 |
COMMENTS BY AUDITORS FOR U.S. READERS ON
CANADA – U.S. REPORTING CONFLICT
In the United States, reporting standards for auditors require the addition of an explanatory paragraph, following the opinion paragraph, when the financial statements are affected by conditions and events that cast substantial doubt on the Company’s ability to continue as a going concern, such as those described in note 1 to the consolidated financial statements. Our report to the shareholders dated September 1, 2009 is expressed in accordance with Canadian reporting standards which do not permit a reference to such events and conditions in the auditors’ report when these are adequately disclosed in the financial statements.
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Vancouver, Canada, September 1, 2009. (except for Note 27 which is as of November 6, 2009) | ![[indepauditrep006.jpg]](https://capedge.com/proxy/CORRESP/0001176256-09-001023/indepauditrep006.jpg)
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 84 |
INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROLS
UNDER STANDARDS OF THE PUBLIC COMPANY ACCOUNTING
OVERSIGHT BOARD (UNITED STATES)
To the Shareholders ofPetaquilla Minerals Ltd.
We have auditedPetaquilla Minerals Ltd.’s(the “Company”) internal control over financial reporting as at May 31, 2009 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control, based on the assessed risk and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) 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 (3) 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.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 85 |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, 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.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness was identified and included in management’s assessment: the Company’s policies and procedures relating to cash disbursements at one of its subsidiaries were not followed.
This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the May 31, 2009 consolidated financial statements and this report does not affect our report dated September 1, 2009 on those consolidated financial statements.
In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria,Petaquilla Minerals Ltd.has not maintained effective internal control over financial reporting as at May 31, 2009, based on the COSO criteria.
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Vancouver, Canada, September 1, 2009. | ![[auditrep004.jpg]](https://capedge.com/proxy/CORRESP/0001176256-09-001023/auditrep004.jpg)
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 86 |
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PETAQUILLA MINERALS LTD. |
CONSOLIDATED BALANCE SHEETS |
(in United States Dollars) (See Note 1 Nature of Operations and Going Concern Uncertainty) |
| | | | | | | |
| | May 31, | | | | May 31, | |
| | 2009 | | | | 2008 | |
| | | | | | (Notes 2 and 29) | |
ASSETS (Notes 14 and 15) | | | | | | | |
Current | | | | | | | |
Cash and cash equivalents (Notes 9 and 24) | $ | 3,575,168 | | | $ | 12,850,137 | |
Receivables | | 144,225 | | | | 450,885 | |
Inventory (Note 3) | | 1,038,999 | | | | - | |
Prepaid expenses | | 591,847 | | | | 310,255 | |
Total current assets | | 5,350,239 | | | | 13,611,277 | |
Restricted cash(Note 8) | | 707,480 | | | | 670,175 | |
Investment in Petaquilla Copper Ltd.(Note 7) | | - | | | | 2,408,443 | |
Deposit on equipment and construction materials | | 1,762,945 | | | | - | |
Property and equipment(Notes 4 and 13) | | 12,879,658 | | | | 16,779,149 | |
Mineral properties(Note 5) | | 60,843,501 | | | | 37,739,133 | |
Total assets | $ | 81,543,823 | | | $ | 71,208,177 | |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
Current | | | | | | | |
Bank overdraft (Note 9) | $ | - | | | $ | 2,100,000 | |
Operating credit line facility (Note 10) | | - | | | | 3,872,434 | |
Accounts payable and accrued liabilities | | 8,746,892 | | | | 8,493,460 | |
Current portion of deferred services and materials (Note 12) | | 120,000 | | | | 248,786 | |
Current portion of obligations under capital leases (Note 13) | | 5,054,987 | | | | 2,174,903 | |
Current portion of long-term debt (Note 11) | | 160,993 | | | | 436,151 | |
Current portion of senior secured notes (Note 14) | | 15,653,483 | | | | - | |
Total current liabilities | | 29,736,355 | | | | 17,325,734 | |
| | | | | | | |
Deferred services and materials(Note 12) | | 3,123,394 | | | | 4,003,423 | |
Asset retirement obligation(Note 25) | | 4,664,720 | | | | 4,333,216 | |
Senior secured notes(Note 14) | | 13,754,019 | | | | 26,785,359 | |
Convertible senior secured notes(Note 15) | | 34,794,455 | | | | - | |
Long-term debt(Note 11) | | - | | | | 162,568 | |
Obligations under capital leases(Note 13) | | 4,391,168 | | | | 3,991,743 | |
Total liabilities | | 90,464,111 | | | | 56,602,043 | |
Commitments and contingencies(Notes 22 and 26) | | | | | | | |
Shareholders' (deficit) equity | | | | | | | |
Share capital | | | | | | | |
Authorized | | | | | | | |
Unlimited common shares and preferred shares without par value (Note 16) | | | | | | | |
Issued and outstanding 96,040,121 (May 31, 2008 – 95,958,641) common shares | | 89,208,668 | | | | 89,002,273 | |
Treasury shares, at cost44,200 (May 31, 2008 – 44,200) common shares | | (122,193 | ) | | | (122,193 | ) |
Warrants (Notes 16 and 18) | | 14,109,097 | | | | 11,771,374 | |
Contributed surplus (Note 16) | | 13,897,197 | | | | 14,714,276 | |
Equity component of convertible senior secured notes (Note 15) | | 495,121 | | | | - | |
Accumulated comprehensive income (Note 2) | | (6,733,242 | ) | | | (2,084,526 | ) |
Deficit | | (119,774,936 | ) | | | (98,675,070 | ) |
Total shareholders’ (deficit) equity | | (8,920,288 | ) | | | 14,606,134 | |
Total liabilities and shareholders’ (deficit) equity | $ | 81,543,823 | | | $ | 71,208,177 | |
| | | |
On behalf of the Board: | | | |
| | | |
“Richard Fifer” | -Director | “John Cook” | -Director |
The accompanying notes are an integral part of these consolidated financial statements.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 87 |
PETAQUILLA MINERALS LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS AND DEFICIT
(in United StatesDollars)
| | | | | | | | | | | | | | | | | | | |
| | Twelve months | | | | One month | | | | Twelve months | | | | Three months | | | | Twelve months | |
| | ended May 31 | | | | ended May 31 | | | | ended April 30 | | | | ended April 30 | | | | ended January 31 | |
| | 2009 | | | | 2008 | | | | 2008 | | | | 2007 | | | | 2007 | |
| | | | | | (Notes 2 and 29) | | | | (Note 2) | | | | (Note 2) | | | | (Notes 2 and 29) | |
| | | | | | | | | | | | | | | | | | | |
EXPENSES | | | | | | | | | | | | | | | | | | | |
Accounting and legal (Note 19) | $ | 1,944,302 | | | $ | 15,536 | | | $ | 1,306,921 | | | $ | 204,246 | | | $ | 433,266 | |
Accretion of asset retirement obligation (Note25) | | 331,504 | | | | 52,098 | | | | 305,692 | | | | - | | | | - | |
Consulting fees (Note 19) | | 370,248 | | | | 21,170 | | | | 943,250 | | | | 277,051 | | | | 667,788 | |
Amortization | | 336,602 | | | | 35,511 | | | | 344,968 | | | | 116,893 | | | | 296,442 | |
Filing fees | | 115,295 | | | | 280 | | | | 87,005 | | | | 5,473 | | | | 67,027 | |
Investor relations and shareholder information | | 1,121,895 | | | | 54,595 | | | | 1,012,822 | | | | 132,438 | | | | 979,155 | |
Office administration | | 2,152,886 | | | | 177,657 | | | | 2,366,940 | | | | 152,031 | | | | 700,350 | |
Rent | | 240,693 | | | | 1,630 | | | | 122,495 | | | | 33,074 | | | | 124,344 | |
Exploration and development costs (Note 6) | | 7,761,862 | | | | 562,237 | | | | 11,690,204 | | | | 2,167,355 | | | | 10,930,276 | |
Stock-based compensation (Note 17) | | 898,454 | | | | 77,890 | | | | 5,561,247 | | | | 2,915,884 | | | | 14,962,731 | |
Travel | | 1,014,530 | | | | 121,849 | | | | 857,907 | | | | 230,293 | | | | 1,248,787 | |
Debt issuance costs (Notes 14 and 15) | | 6,398,825 | | | | 3,894,873 | | | | - | | | | - | | | | - | |
Wages and benefits (Note 19) | | 2,916,615 | | | | 177,329 | | | | 1,668,455 | | | | 154,811 | | | | 1,591,959 | |
Total expenses | | (25,603,711 | ) | | | (5,192,655 | ) | | | (26,267,906 | ) | | | (6,389,549 | ) | | | (32,002,125 | ) |
OTHER INCOME (EXPENSE) | | | | | | | | | | | | | | | | | | | |
Foreign exchange (loss) gain | | (8,157,720 | ) | | | 295,059 | | | | 1,342,442 | | | | (757,632 | ) | | | 23,723 | |
Gain on sale of marketable securities | | - | | | | - | | | | - | | | | - | | | | 18,584 | |
Interest income | | 169,366 | | | | 78,658 | | | | 51,926 | | | | 49,080 | | | | 260,393 | |
Interest on long-term debt | | (37,382 | ) | | | (15,613 | ) | | | (68,465 | ) | | | (59,845 | ) | | | - | |
Asset usage fees | | (4,155 | ) | | | (695 | ) | | | 126,775 | | | | 90,635 | | | | - | |
Gain on sale of equity investment (Note 7) | | 40,604,938 | | | | - | | | | 4,347,077 | | | | - | | | | - | |
Power and drilling services | | 156,597 | | | | 70,094 | | | | 76,430 | | | | - | | | | - | |
Loss from equity investment (Note 7) | | (2,396,011 | ) | | | (779,846 | ) | | | (8,301,371 | ) | | | (2,057,724 | ) | | | (714,756 | ) |
Gain on dilution of equity investment (Note 7) | | 2,238,492 | | | | - | | | | 12,582,085 | | | | 632,396 | | | | 1,701,589 | |
Redemption loss on senior secured notes | | (13,130,982 | ) | | | - | | | | - | | | | - | | | | - | |
Mark-to-market loss on senior secured notesand convertible senior secured notes | | (14,939,298 | ) | | | - | | | | - | | | | - | | | | - | |
Total other income (expenses) | | 4,503,845 | | | | (352,343 | ) | | | 10,156,899 | | | | (2,103,090 | ) | | | 1,289,533 | |
| | | | | | | | | | | | | | | | | | | |
Net loss for the period | | (21,099,866 | ) | | | (5,544,998 | ) | | | (16,111,007 | ) | | | (8,492,639 | ) | | | (30,712,592 | ) |
Other comprehensive (loss) gain: | | | | | | | | | | | | | | | | | | | |
Unrealized (loss) gain on translating financialstatements to U.S. reporting currency (Note 2) | | (4,648,716 | ) | | | 487,574 | | | | 716,555 | | | | 923,990 | | | | (598,731 | ) |
| | | | | | | | | | | | | | | | | | | |
Comprehensive loss for the year | $ | (25,748,582 | ) | | $ | (5,057,424 | ) | | $ | (15,394,452 | ) | | $ | (7,568,649 | ) | | $ | (31,311,323 | ) |
| | | | | | | | | | | | | | | | | | | |
Basic and diluted loss per share | $ | (0.22 | ) | | $ | (0.06 | ) | | $ | (0.17 | ) | | $ | (0.09 | ) | | $ | (0.40 | ) |
| | | | | | | | | | | | | | | | | | | |
Weighted average number of common sharesoutstanding | | 96,019,488 | | | | 93,131,030 | | | | 93,131,030 | | | | 89,615,924 | | | | 77,695,782 | |
The accompanying notes are an integral part of these consolidated financial statements.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 88 |
PETAQUILLA MINERALS LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in United States dollars)
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | |
| Number | | Amount of | | | Contributed | | | | | | Other | | | Retained Earnings | |
| of Common | | Common Shares | | | Surplus | | | Warrants | | | Comprehensive | | | (Accumulated | |
| Shares | | (Note 2) | | | (Note 2) | | | (Note 2) | | | Income (Note 2) | | | Deficit) (Note 2) | |
Balance as at January 31, 2006 | 70,246,303 | $ | 48,567,732 | | $ | 762,248 | | $ | 1,018,052 | | $ | (3,613,914 | ) | $ | (37,813,834 | ) |
Non-brokered private placement, net of finders’ fees | 9,400,000 | | 10,296,327 | | | - | | | 8,687,152 | | | - | | | - | |
Exercise of stock options | 4,737,893 | | 9,904,961 | | | (7,618,555 | ) | | - | | | - | | | - | |
Exercise of warrants | 4,982,835 | | 6,368,665 | | | - | | | (1,018,052 | ) | | - | | | - | |
Stock-based compensation | - | | - | | | 15,066,563 | | | - | | | - | | | - | |
Share issuance costs | - | | (1,247,623 | ) | | - | | | 721,018 | | | - | | | - | |
Net loss | - | | - | | | - | | | - | | | - | | | (30,712,592 | ) |
Exchange difference from translation of financial statements to US reporting currency | - | | - | | | - | | | - | | | (598,731 | ) | | - | |
Balance as at January 31, 2007 | 89,367,031 | $ | 73,890,062 | | $ | 8,210,256 | | $ | 9,408,170 | | $ | (4,212,645 | ) | $ | (68,526,426 | ) |
Exercise of stock options | 509,920 | | 904,299 | | | (658,177 | ) | | - | | | - | | | - | |
Stock-based compensation | - | | - | | | 2,915,884 | | | - | | | - | | | - | |
Net loss | - | | - | | | - | | | - | | | - | | | (8,492,639 | ) |
Exchange difference from translation of financial statements to US reporting currency | - | | - | | | - | | | - | | | 923,990 | | | - | |
| | | | | | | | | | | | | | | | |
Balance as at April 30, 2007 | 89,876,951 | $ | 74,794,361 | | $ | 10,467,963 | | $ | 9,408,170 | | $ | (3,288,655 | ) | $ | (77,019,065 | ) |
Non-brokered private placement, net of finders’ fees | 4,552,412 | | 10,953,460 | | | - | | | 1,335,817 | | | - | | | - | |
Exercise of stock options | 1,055,883 | | 3,047,984 | | | (1,986,003 | ) | | - | | | - | | | - | |
Exercise of warrants | 373,395 | | 1,142,295 | | | - | | | (517,130 | ) | | - | | | - | |
Share issue relating to legal settlement | 100,000 | | 264,438 | | | - | | | - | | | - | | | - | |
Stock-based compensation | - | | - | | | 6,154,426 | | | - | | | - | | | - | |
Share issuance costs | - | | (561,911 | ) | | - | | | 86,439 | | | - | | | - | |
Net loss | - | | - | | | - | | | - | | | - | | | (16,111,007 | ) |
Exchange difference from translation of financial statements to US reporting currency | - | | - | | | - | | | - | | | 716,555 | | | - | |
| | | | | | | | | | | | | | | | |
Balance as at April 30, 2008 | 95,958,641 | $ | 89,640,627 | | $ | 14,636,386 | | $ | 10,313,296 | | $ | (2,572,100 | ) | $ | (93,130,072 | ) |
Stock-based compensation | - | | - | | | 77,890 | | | - | | | - | | | - | |
Senior secured notes warrants | - | | - | | | - | | | 819,724 | | | - | | | - | |
Share issuance costs | - | | (638,354 | ) | | - | | | 638,354 | | | - | | | - | |
Net loss | - | | - | | | - | | | - | | | - | | | (5,544,998 | ) |
Exchange difference from translation of financial statements to US reporting currency | - | | - | | | - | | | - | | | 487,574 | | | - | |
| | | | | | | | | | | | | | | | |
Balance as at May 31, 2008 | 95,958,641 | $ | 89,002,273 | | $ | 14,714,276 | | $ | 11,771,374 | | $ | (2,084,526 | ) | $ | (98,675,070 | ) |
Exercise of stock options | 81,480 | | 206,395 | | | (168,732 | ) | | - | | | - | | | - | |
Stock-based compensation | - | | - | | | 869,890 | | | - | | | - | | | - | |
Senior secured notes finders warrants | - | | - | | | - | | | 215,230 | | | - | | | - | |
Senior secured notes warrants | - | | - | | | - | | | 706,802 | | | - | | | - | |
Expiration of warrants | - | | - | | | 263,263 | | | (263,263 | ) | | - | | | - | |
Warrant issue costs | | | | | | | | | (102,546 | ) | | - | | | - | |
Repricing of senior secured notes warrants | - | | - | | | (1,781,500 | ) | | 1,781,500 | | | - | | | - | |
Net loss | - | | - | | | - | | | - | | | - | | | (21,099,866 | ) |
Exchange difference from translation of financial statements to US reporting currency | - | | - | | | - | | | - | | | (4,648,716 | ) | | - | |
Balance as at May 31, 2009 | 96,040,121 | $ | 89,208,668 | | $ | 13,897,197 | | $ | 14,109,097 | | $ | (6,733,242 | ) | $ | (119,774,936 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 89 |
|
PETAQUILLA MINERALS LTD. |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(in United States Dollars) |
| | | | | | | | | | | | | | | |
| | Twelve months | | | One | | | Twelve | | | Three | | | Twelve | |
| | ended May | | | month ended | | | months ended | | | months ended | | | months ended | |
| | 31,2009 | | | May 31, 2008 | | | April 30, 2008 | | | April 30, 2007 | | | January 31, 2007 | |
| | | | | (Note 2) | | | (Note 2) | | | (Note 2) | | | (Notes 2 and 29) | |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | | | | | | | |
Loss for the period | $ | (21,099,866 | ) | $ | (5,544,998 | ) | $ | (16,111,007 | ) | $ | (8,492,639 | ) | $ | (30,712,592 | ) |
Items not affecting cash: | | | | | | | | | | | | | | | |
Accretion of asset retirement obligation | | 331,504 | | | 52,098 | | | 305,692 | | | - | | | - | |
Amortization | | 336,602 | | | 35,511 | | | 344,968 | | | 116,893 | | | 296,442 | |
Gain on dilution of equity investment | | (2,238,492 | ) | | - | | | (12,582,085 | ) | | (632,396 | ) | | (1,701,589 | ) |
Gain on sale of equity investment | | (40,604,938 | ) | | - | | | (4,347,077 | ) | | - | | | - | |
Loss from equity investment | | 2,396,011 | | | 779,846 | | | 8,301,371 | | | 2,057,724 | | | 714,756 | |
Stock-based compensation | | 898,454 | | | 77,890 | | | 5,561,247 | | | 2,915,884 | | | 14,962,731 | |
Stock-based compensation included in exploration and development expenses | | (28,564 | ) | | 12,113 | | | 581,068 | | | - | | | 103,832 | |
Amortization included in exploration and development expenses | | 4,033,720 | | | 368,809 | | | 2,901,942 | | | 104,346 | | | 422,985 | |
Debt issuance costs | | 6,398,825 | | | 3,894,872 | | | - | | | - | | | - | |
Redemption loss on senior securednotes | | 13,130,982 | | | - | | | - | | | - | | | - | |
Mark-to-market loss on senior secured notes and convertible senior secured notes | | 14,939,298 | | | - | | | - | | | - | | | - | |
Gain on sale of marketable securities | | - | | | - | | | - | | | - | | | (18,584 | ) |
Unrealized foreign exchange (gain) loss | | 8,648,330 | | | - | | | - | | | - | | | - | |
Unrealized loss on restricted cash | | 2,695 | | | - | | | 90,696 | | | 48,822 | | | (24,240 | ) |
Unrealized foreign exchange loss on asset retirement obligation | | - | | | (81,014 | ) | | (366,857 | ) | | - | | | - | |
Unrealized foreign exchange loss on capital leases and lease credit facility | | - | | | (155,700 | ) | | 98,636 | | | - | | | - | |
Unrealized foreign exchange loss onsenior secured notes | | - | | | (155,332 | ) | | 3,080 | | | - | | | - | |
Unrealized foreign exchange loss onlong-term debt | | - | | | (5,707 | ) | | (60,303 | ) | | 67,137 | | | (37,149 | ) |
Changes in non-cash working capitalitems: | | | | | | | | | | | | | | | |
Decrease (increase) in receivables | | 306,660 | | | (187,614 | ) | | (153,297 | ) | | 6,827 | | | (67,022 | ) |
(Increase) decrease in prepaid expenses | | (281,592 | ) | | 343,861 | | | (202,481 | ) | | 204,092 | | | (574,406 | ) |
(Increase) in inventory | | (1,038,999 | ) | | - | | | - | | | - | | | - | |
Deferred services andmaterials | | (156,597 | ) | | (70,094 | ) | | (76,430 | ) | | - | | | - | |
(Decrease) increase in accounts payable andaccrued liabilities | | (1,984,118 | ) | | (9,498,857 | ) | | 9,042,977 | | | (77,780 | ) | | 2,127,961 | |
Net cash used in operatingactivities | | (16,010,085 | ) | | (10,134,316 | ) | | (6,667,860 | ) | | (3,681,090 | ) | | (14,506,875 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | | | | |
Net proceeds from exercise of warrants andoptions | | 37,662 | | | - | | | 1,625,520 | | | 172,358 | | | 7,641,542 | |
Proceeds from shares subscribed | | - | | | - | | | 12,142,274 | | | 129,500 | | | 19,782,532 | |
Share issuance costs | | - | | | - | | | (458,397 | ) | | - | | | (1,359,473 | ) |
Advances from (to) Petaquilla Copper Ltd. | | - | | | - | | | 17,682,808 | | | (2,105,813 | ) | | (1,887,290 | ) |
(Repayment of) proceeds from bankoverdraft | | (2,100,000 | ) | | (32,125 | ) | | 896,935 | | | 1,040,648 | | | - | |
Proceeds of long term debt | | - | | | - | | | - | | | - | | | 1,277,230 | |
Proceeds from senior secured notes | | 40,587,300 | | | 27,412,500 | | | - | | | - | | | - | |
Repayment of senior secured notes | | (64,238,852 | ) | | - | | | - | | | - | | | - | |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 90 |
| | | | | | | | | | | | | | | |
Proceeds from convertible senior secured | | 34,000,000 | | | - | | | - | | | - | | | - | |
Payment of capital lease obligations | | (2,824,140 | ) | | (60,390 | ) | | (700,022 | ) | | - | | | - | |
Debt issuance costs | | (6,286,138 | ) | | (3,894,872 | ) | | - | | | - | | | - | |
Repayment of long-term debt | | (436,230 | ) | | (45,005 | ) | | (534,993 | ) | | (92,202 | ) | | (105,331 | ) |
Net cash provided by financing activities | | (1,260,198 | ) | | 23,380,108 | | | 30,654,125 | | | (855,509 | ) | | 25,349,210 | |
| | | | | | | | | | | | | | | |
CASH FLOWS FROM INVESTINGACTIVITIES | | | | | | | | | | | | | | | |
Acquisition of property and equipment | | (1,631,883 | ) | | - | | | (6,579,011 | ) | | (109,962 | ) | | (5,064,168 | ) |
Deposit on equipment | | (1,762,945 | ) | | - | | | - | | | - | | | - | |
Investment in mineral properties | | (31,679,647 | ) | | (1,289,902 | ) | | (13,909,888 | ) | | - | | | (6,130,457 | ) |
Redemption (purchase) of performancebond and restricted cash | | - | | | - | | | 511,315 | | | 334,456 | | | (780,000 | ) |
Proceeds from sale of marketable securities | | - | | | - | | | - | | | - | | | 18,656 | |
Proceeds (purchase) from sale of equityinvestment | | 43,238,852 | | | - | | | - | | | - | | | (439,986 | ) |
Net cash used in investing activities | | 8,164,377 | | | (1,289,902 | ) | | (19,977,584 | ) | | 224,494 | | | (12,395,955 | ) |
Impact of exchange rate changes on cashand cash equivalents | | (169,063 | ) | | (872,009 | ) | | (3,849,118 | ) | | 31,097 | | | (610,758 | ) |
Change in cash and cash equivalents | | (9,274,969 | ) | | 11,083,881 | | | 159,563 | | | (4,281,008 | ) | | (2,164,378 | ) |
Cash and cash equivalents, beginning ofperiod | | 12,850,137 | | | 1,766,256 | | | 1,606,693 | | | 5,887,701 | | | 8,052,079 | |
Cash and cash equivalents, end of period | $ | 3,575,168 | | $ | 12,850,137 | | $ | 1,766,256 | | $ | 1,606,693 | | $ | 5,887,701 | |
Supplemental disclosure with respect to cashflows(Note 24) | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 91 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
1.
NATURE OF OPERATIONS AND GOING CONCERN UNCERTAINTY
Petaquilla Minerals Ltd. (“the Company”) was incorporated in the Province of British Columbia.
The Company is engaged in mine development and mineral exploration activities of gold-bearing mineral properties in Panama. The Company operates under the rules and regulations of Ley Petaquilla No. 9 and accordingly requires approval from the Ministry of Industry and Commerce in Panama before commercial production may commence. The Company’s main focus has been the development of the Molejon Gold Project which is expected to be in commercial production in fiscal 2010. Exploration activities have centered on the Company’s 659 square kilometre concessions surrounding the Petaquilla concession located in the Province of Colon, Panama.
These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has not generated any operating revenues to date, has experienced recurring operating losses and has accumulated an operating deficit of $119,774,936 as at May 31, 2009 (May 31, 2008 - $98,675,070) and a shareholders’ deficit of $8,920,288 at May 31, 2009 (May 31, 2008 – shareholders’ equity of $14,606,134). Also the Company had a working capital deficiency of $24,386,116 at May 31, 2009 (May 31, 2008 - $3,714,457). Working capital is defined as current assets less current liabilities and provides a measure of the Company’s ability to settle liabilities that are due within one year with assets that are also expec ted to be converted to cash within one year.
The Company has a scheduled senior secured notes repayment of $6,000,000 on September 15, 2009. Management’s plan in this regard is to raise equity, debt financing and cash from forward gold sales as required. There are no assurances that the Company will be successful in achieving these goals.
These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s continued operations, as intended, are dependent upon its ability to raise additional funding to meet its obligations and to attain profitable operations. These consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
The operating cash flow and profitability of the Company are also affected by various factors, including the amount of gold produced and sold, the market price of gold, operating costs, interest rates, environmental costs, the level of exploration activity, labour risk, environmentalist risk and political risk. The Company seeks to manage the risks associated with its business; however, many of the factors affecting these risks are beyond the Company’s control.
Change in fiscal year ends
In 2007, the Company changed its fiscal year end from January 31 to April 30. This change resulted from the fact that the Company wanted to change its audit firm to an international company due to the increased complexity of its organization. Because the operations of Petaquilla Copper Ltd. were intertwined with that of the Company, due to the fact that their properties were contiguous with those of the Company, the sharing of resources and the fact that development costs would likely be shared in the future, it was decided that the two companies should have the same audit firm. It was not possible to obtain acceptance of the audit engagement for both companies by an international firm in time to meet the filing deadline for the January 31 year end and, therefore, the fiscal year end was changed to April 30.
In 2008, the Company changed its fiscal year end from April 30 to May 31. This change occurred because the Company was in the midst of obtaining financing to complete mine construction and did not want to show a cash shortfall in its April 30 financial balance sheet for fear of jeopardizing the mine development agreement with the Government of Panama. Financing was obtained May 22, 2008, and the decision was therefore made to change the fiscal year end to May 31.
2.
SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements and accompanying notes have been prepared in conformity with Canadian Generally Accepted Accounting Principles (“GAAP”). For a description of the differences between Canadian GAAP and United States GAAP for the Company, see note 29.
These consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries Adrian Resources (BVI) Ltd. (a British Virgin Island corporation), Petaquilla Minerals, S.A. (a Panama corporation), Instituto Petaquilla, S.A. (a Panama corporation), Petaquilla Gold, S.A. (a Panama corporation), Brigadas Verdes, S.A. (a Panama corporation), Aqua Azure, S.A. (a Panama corporation), Petaquilla Infrastructure Ltd. (a Canadian corporation), Petaquilla Infraestructura Ltd. (a British Virgin Island corporation), Petaquilla Hidro, S.A. (a Panama corporation), Panama Central Electrica, S.A. (a Panama corporation) and a 51% interest in Petaquilla Infraestructura, S.A. (a Panama corporation). The Company proportionately consolidates its 69% interest in a joint venture investment, Compania Minera Belencillo, S.A. (“Belencillo”) (a Panama corporation).
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 92 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
2.
SIGNIFICANT ACCOUNTING POLICIES(continued)
All inter-company transactions and balances have been eliminated upon consolidation.
Use of estimates
The preparation of consolidated financial statements in accordance with Canadian GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the amount of revenues and expenses reported during the period. Actual results could differ from these estimates.
Significant estimates used in the preparation of the consolidated financial statements include, but are not limited to, recoverability of accounts receivable and investments, estimates of the useful life of properties and equipment, the future cost of asset retirement obligations, the amount and likelihood of contingencies, the discount rate used for valuation of senior secured and convertible senior secured notes, the valuation allowance for future income tax assets and the accounting for stock-based compensation and warrants.
Cash and cash equivalents
Cash and cash equivalents are classified as held for trading and include short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. The Company places its deposits with financial institutions with high credit standings. The Company regularly maintains cash balances in financial institutions in excess of insured limits.
Inventory
Materials and supplies inventory are valued at the lower of cost and net realizable value. Net realizable value is determined based on current replacement cost.
Property and equipment
Equipment is recorded at cost less accumulated amortization, which is provided on the declining balance basis at rates as follows:
| | |
| Furniture and fixtures | 20% |
| Office equipment | 20% |
| Computer equipment | 30% |
| Equipment under capital lease | 30% |
| Equipment | 30% |
| Vehicles | 30% |
| Computer software | 50% |
| Buildings | 4% |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 93 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
2.
SIGNIFICANT ACCOUNTING POLICIES(continued)
Mineral properties
Exploration and development costs are expensed until such time as reserves are proven and financing to complete development has been obtained. Acquisition costs of mineral properties and tangible development costs incurred thereon, are deferred until the property to which they relate is placed into production, sold or abandoned. The carrying values of mineral properties are, where necessary, written down to fair value if carrying value is not recoverable. Costs relating to properties abandoned are written off when the decision to abandon is made. Capitalized costs are depleted using a unit-of-sale method over the estimated economic life of the mine to which they relate.
The Company follows the cost reduction method of accounting for the receipt of property option and similar payments. Cash and other property payments received from the Company’s exploration partners are credited to the respective property until all capitalized costs are recovered; thereafter, such payments are included in income. Option payments are exercisable at the discretion of the optionee and are only recognized when received.
Restricted cash
The Company has elected to classify restricted cash as held for trading.
Receivables
Receivables are classified as loans and receivables and are measured at amortized costs. Receivables consist of refundable government value added taxes and travel advances.
Asset retirement obligation
An asset retirement obligation is a legal obligation associated with the retirement of tangible long-lived assets that the Company is required to settle. The Company recognizes the fair value of a liability for an asset retirement obligation in the period in which it is incurred when a reasonable estimate of fair value can be made. The carrying amount of the related long-lived asset is increased by the same amount as the liability. Subsequently, these capitalized asset retirement costs will be amortized to expense over the life of the related assets using the unit-of-sale method. At the end of each period, the liability is increased to reflect the passage of time (accretion expense) and adjusted for changes in the estimated future cash flows underlying any initial fair value measurements (an increase or decrease in asset retirement costs).
Impairment of long-lived assets
A long-lived asset which includes property and related costs and equipment is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. An impairment loss is recognized when the carrying amount of a long-lived asset exceeds its fair value. For purposes of recognition and measurement of an impairment loss, a long-lived asset is grouped with other assets and liabilities to form an asset group, at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Estimates of future cash flows used to test recoverability of a long-lived asset include only the future cash flows that are directly associated with, and that are expected to arise as a direct result of, its use and eventual disposition.
Foreign currency translation
Prior to March 1, 2009, the Canadian dollar was determined to be the measurement currency of the Company’s operations and these operations have been translated into United States dollars up until this date using the current rate method as follows: all assets and liabilities are translated into United States dollars at
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 94 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
2.
SIGNIFICANT ACCOUNTING POLICIES(continued)
the exchange rate prevailing at the balance sheet date; all revenue and expense items are translated at the average rate of exchange for the period; and the resulting translation adjustment is recorded as accumulated other comprehensive income (“AOCI”), a separate component of shareholders’ equity. Subsequent to the change in measurement currency described below, the AOCI balance will remain the same until the entities which gave rise to the AOCI balance are disposed of. In addition, unrealized gains and losses due to movements in exchange rates on balances held in foreign currencies are shown separately on the Consolidated Statement of Cash Flows.
Due to several financings in U.S. dollars, the most recent in March 2009, as well as the commencement of startup operations in Panama and expected revenue generation in U.S. dollars, it has been determined that as of March 1, 2009, the United States dollar is the reporting and measurement currency of the Company’s operations and therefore these operations have been translated using the temporal method from that date onward. Under this method, foreign currency monetary assets and liabilities are translated into United States dollars at the exchange rates prevailing at the balance sheet date; non-monetary assets denominated in foreign currencies are translated using the rate of exchange at the transaction date; and foreign exchange gains and losses are included in the determination of earnings.
Revenue Recognition
Revenue from the sale of metals is recognized in the accounts when persuasive evidence of an arrangement exists, title and risk passes to the buyer, collection is reasonably assured and the price is reasonably determinable. During the pre-operating period, revenues and related expenses are recognized as a reduction / increase to mineral properties.
Debt issuance costs
Debt issuance costs, which include legal fees, trustee fees, due diligence fees, finders’ fees, and finders’ warrants, are expensed in the year that they are incurred.
Interest expense
Interest expense on financing related to project development, construction and mill equipment is capitalized to mineral properties to be amortized over the recoverable reserves on a unit-of-sale basis. Interest on operating long-term debt is expensed to operations as it is incurred since it relates to the acquisition of equipment used for general corporate purposes rather than for production.
Loss per share
The Company uses the treasury stock method to compute the dilutive effect of options, warrants and similar instruments. Under this method, the dilutive effect on loss per share is recognized as a result of the use of the proceeds that could be obtained upon exercise of options, warrants and similar instruments. It assumes that the proceeds would be used to purchase common shares at the average market price during the period. For all periods presented, all outstanding options and warrants were anti-dilutive since the proceeds to be received would be below the market value of the Company’s shares.
Stock-based compensation
The Company accounts for all stock-based payments and awards using the fair value-based method.
Under the fair value-based method, stock-based payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable. The fair value of stock-based payments to non-employees is periodically remeasured until counterparty performance is complete, and any change therein is recognized
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 95 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
2.
SIGNIFICANT ACCOUNTING POLICIES(continued)
over the vesting period of the award and in the same manner as if the Company had paid cash instead of paying with or using equity instruments. The cost of stock-based payments to non-employees that are fully vested and non-forfeitable at the grant date is measured and recognized at that date. Compensation cost attributable to awards to employees is measured at fair value at the grant date and recognized over the vesting period.
Income taxes
Future income taxes are recorded using the liability method under which future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing 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 or loss 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.
Adoption of new accounting policies
On June 1, 2008, the Company adopted new accounting standards related to general standards of financial statement presentation, capital disclosure and financial instruments that were issued by the Canadian Institute of Chartered Accountants (“CICA”). The new CICA standards are as follows:
Section 1400, General Standards of Financial Statement Presentation
This Section specifies the requirements for assessing an entity’s ability to continue as a going concern and disclosing any material uncertainties that cast doubt on its ability to continue as a going concern. The Company’s disclosure reflects such assessment.
Section 1535, Capital Disclosures
This Section specifies the disclosure of information that enables users of an entity’s financial statements to evaluate its objectives, policies and processes for managing capital such as qualitative information about these objectives, policies and processes for managing capital, summary quantitative data about what the entity manages as capital, whether it has complied with any capital requirements and, if it has not complied, the consequences of non-compliance. Disclosure requirements pertaining to this Section are contained in Note 23.
Section 3862, Financial Instruments – Disclosures
Section 3863, Financial Instruments – Presentation
These Sections replace Section 3861, Financial Instruments – Disclosure and Presentation, revising and enhancing disclosure requirements while carrying forward its presentation requirements. These new sections place increased emphasis on disclosure about the nature and extent of risk arising from financial instruments and how the entity manages those risks. Disclosure requirements pertaining to this section are contained in Note 23.
In January 2009, the CICA issued Emerging Issues Committee (“EIC”) Abstract 173 - Credit Risk and the Fair Value of Financial Assets and Financial Liabilities (“EIC-173”). EIC-173 provides guidance on how to take into account credit risk of an entity and counterparty when determining the fair value of financial assets and financial liabilities, including derivative instruments. EIC-173 is applicable for the Company’s annual consolidated financial statements for its fiscal year ending May 31, 2009, with retroactive application. The adoption of EIC-173 did not result in a material impact on the Company’s consolidated financial statements.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 96 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
2.
SIGNIFICANT ACCOUNTING POLICIES(continued)
In March 2009, the CICA issued EIC Abstract 174 - Mining Exploration Costs (“EIC-174”) which supercedes EIC Abstract 126 -Accounting by Mining Enterprises for Exploration Costs (“EIC-126”), to provide additional guidance for mining exploration enterprises on the accounting for capitalization of exploration costs and when an impairment test of these costs is required. EIC 174 is applicable for the Company’s annual consolidated financial statements for its fiscal year ending May 31, 2009, with retroactive application. The adoption of EIC – 174 did not result in a material impact on the Company’s consolidated financial statements.
Accounting Policies to be Implemented Effective June 1, 2009
In February 2008, the CICA issued a new Handbook Section 3064 - Goodwill and Intangible Assets(“Section 3064”), which replaces CICA Handbook Sections 3062 - Goodwill and Other Intangible Assets(“Section 3062”) and 3450 - Research and Development Costs. Various changes have been made to other sections of the CICA Handbook for consistency purposes. Section 3064 establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets. Standards concerning goodwill are unchanged from the standards included in Section 3062. The new Section is applicable to the Company’s financial statements for its fiscal year beginning June 1, 2009. The adoption of this section in fiscal 2010 will not have a material impact on the Company’s consolidated financial statements.
Accounting Policies to be Implemented Effective June 1, 2011
In January 2009, the CICA issued Handbook Sections 1582 – Business Combinations (“Section 1582”), 1601 – Consolidated Financial Statements (“Section 1601”) and 1602 – Non-controlling Interests (“Section 1602”) which replaces CICA Handbook Sections 1581 – Business Combinations and 1600 – Consolidated Financial Statements. Section 1582 establishes standards for the accounting for business combinations that is equivalent to the business combination accounting standard under International Financial Reporting Standards (“IFRS”). Section 1582 is applicable for the Company’s business combinations with acquisition dates on or after January 1, 2011. Early adoption of this Section is permitted. Section 1601, together with Section 1602, establishes standards for the preparation of consolidated financial statements. Section 1601 is applicable for the Company’s interim and an nual consolidated financial statements for its fiscal year beginning June 1, 2011. Early adoption of this Section is permitted. If the Company chooses to early adopt any one of these Sections, the other two sections must also be adopted at the same time.
Convergence with International Financial Reporting Standards (IFRS)
In February 2008, Canada’s Accounting Standards Board ratified a strategic plan that will result in Canadian GAAP, as used by public companies, being evolved and converged with International Financial Reporting Standards (IFRS) over a transitional period to be complete by 2011. The Company will be required to report using the converged standards effective for interim and annual financial statements relating to fiscal years beginning on or after June 1, 2011.
Canadian GAAP will be converged with IFRS through a combination of two methods: as current joint-convergence projects of the United States’ Financial Accounting Standards Board and the International Accounting Standards Board are agreed upon, they will be adopted by Canada’s Accounting Standards Board and may be introduced in Canada before the complete changeover to IFRS; and standards not subject to a joint-convergence project will be exposed in an omnibus manner for introduction at the time of the complete changeover to IFRS. Also the United States’ Financial Accounting Standards Board and the International Accounting Standards Board have completed a joint-project on business combinations and non-controlling interests.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 97 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
2.
SIGNIFICANT ACCOUNTING POLICIES(continued)
The conversion to IFRS will impact the Company’s accounting policies, information technology and data systems, internal control over financial reporting and disclosure controls and procedures. The transition may also impact business activities such as certain contractual arrangements, capital requirements and compensation arrangements.
Changes in Accounting Policies
(a)
Change in Reporting Currency
Effective March 1, 2009, the Company changed its reporting currency to the U.S. Dollar (USD). The change in reporting currency increases transparency of the financial results of the Company and provides better visibility for the stakeholders.
Prior to March 1, 2009, the Company reported its annual and quarterly consolidated balance sheets and the related consolidated statements of operations, deficit, comprehensive income, accumulated other comprehensive income and cash flows in Canadian dollars (CAD). In making the change in reporting currency, the Company followed the recommendations of the Emerging Issues Committee (EIC) of the Canadian Institute of Chartered Accountants (CICA), set out in EIC-130 – “Translation Method when the Reporting Currency Differs from the Measurement Currency or there is a Change in the Reporting Currency.”
In accordance with EIC-130, the financial statements for all the years and periods presented have been translated to the new reporting currency (USD) using the current rate method. Under this method, the statements of operations, deficit and comprehensive (loss) income and cash flows statement items for each year and period have been translated into the reporting currency using the average exchange rates prevailing during each reporting period. All assets and liabilities have been translated using the exchange rate prevailing at the consolidated balance sheets dates. Shareholders’ equity transactions have been translated using the rates of exchange in effect as at the date of the various capital transactions.
All resulting exchange differences arising from the translation are included as a separate component of other comprehensive income. All comparative financial information has been restated to reflect the Company’s results as if they had been historically reported in US dollars.
(b)
Mineral Properties
During the current fiscal year, as a result of the initiation of a new exploration program, the Company commenced its review of the impact of International Financial Reporting Standards (“IFRS”) on its accounting policies including an examination of the Company’s current accounting policies. Due to this review, the Company determined that it was appropriate to change its accounting policy for mineral properties whereby exploration and development costs are to be expensed until such time as reserves are proven and financing to complete development has been obtained. Previously, the Company capitalized its exploration and development expenditures as incurred, which is permitted under Canadian generally accepting accounting principles (“Canadian GAAP”). Under the new accounting policy, the Company capitalizes only costs relating to plant, plant equipment, camp, asset retirement obligation, and interest ex pense as mineral properties. This change in accounting policy has also been applied to the calculation of dilution gains and equity losses from the Company's equity investment in Petaquilla Copper Ltd.
Management believes that this revised accounting policy will provide a more relevant and reliable basis of accounting. Among other benefits, the revised accounting policy aligns the accounting treatment of mineral property expenditures with standards used by producing mining companies in the resource sector and with global accounting standards. The change in accounting policy has been applied retrospectively, and the comparative statements for May 31, 2008, April 30, 2008, April 30, 2007 and January 31, 2007 have been restated.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 98 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
2.
SIGNIFICANT ACCOUNTING POLICIES(continued)
The effect of the adjustment on the financial statements is summarized in the tables below.
| | | | | | | | | | | | |
| Consolidated balance Sheet | | May 31, 2008 as | | Restatement | | | Change in | | | | |
| | | previously | | Adjustment | | | Accounting Policy | | | May 31, 2008 | |
| | | reported | | (Note 28) | | | Adjustment | | | restated | |
| Mineral properties | $ | 67,541,355 | | - | | $ | (29,802,222 | ) | $ | 37,739,133 | |
| Investment in Petaquilla Copper Ltd. | | 9,507,564 | | (1,207,000 | ) | | (5,892,121 | ) | | 2,408,443 | |
| | | | | | | | | | | | |
| Consolidated Statement of | | May 31, 2008 as | | Restatement | | | Change in | | | | |
| Operations and Comprehensive | | previously | | Adjustment | | | Accounting Policy | | | May 31, 2008 | |
| Loss and Deficit | | reported | | (Note 28) | | | Adjustment | | | restated | |
| Exploration and development costs | $ | - | | - | | $ | (562,237 | ) | $ | (562,237 | ) |
| Loss from equity investment | | (230,752 | ) | - | | | (549,094 | ) | | (779,846 | ) |
| Net loss/comprehensive loss for theperiod | | (4,433,667 | ) | - | | | (1,111,331 | ) | | (5,544,998 | ) |
| Loss per share – basic and diluted | | (0.05 | ) | - | | | (0.01 | ) | | (0.06 | ) |
| | | | | | | | | | | | |
| Consolidated Statement of Cash | | | | Restatement | | | Change in | | | | |
| Flows | | May 31, 2008 as | | Adjustment | | | Accounting Policy | | | May 31, 2008 | |
| | | previously reported | | (Note 28) | | | Adjustment | | | restated | |
| Operating activities | $ | (9,953,001 | ) | - | | $ | (181,315 | ) | $ | (10,134,316 | ) |
| Investing activities | | (1,471,217 | ) | - | | | 181,315 | | | (1,289,902 | ) |
| | | | | | | | | | | | |
| Consolidated Statement of | | April 30, 2008 as | | Restatement | | | Change in | | | | |
| Operations and Comprehensive | | previously | | Adjustment | | | Accounting Policy | | | April 30, 2008 | |
| Loss and Deficit | | reported | | (Note 28) | | | Adjustment | | | restated | |
| Exploration and development costs | $ | - | | - | | $ | (11,690,204 | ) | $ | (11,690,204 | ) |
| Gain on dilution of equity investment | | 13,011,861 | | (529,212 | ) | | 99,436 | | | 12,582,085 | |
| Loss from equity investment | | (4,390,462 | ) | - | | | (3,910,909 | ) | | (8,301,371 | ) |
| Gain on sale of equity investment | | 4,603,347 | | (646,815 | ) | | 390,545 | | | 4,347,077 | |
| Net loss/comprehensive loss for theperiod | | 176,152 | | (1,176,027 | ) | | (15,111,132 | ) | | (16,111,007 | ) |
| Loss per share – basic and diluted | | (0.00 | ) | (0.01 | ) | | (0.16 | ) | | (0.17 | ) |
| | | | | | | | | | | | |
| Consolidated Statement of Cash | | | | Restatement | | | Change in | | | | |
| Flows | | April 30, 2008 as | | Adjustment | | | Accounting Policy | | | April 30, 2008 | |
| | | previously reported | | (Note 28) | | | Adjustment | | | restated | |
| Operating activities | $ | 1,539,335 | | - | | $ | (8,207,195 | ) | $ | (6,667,860 | ) |
| Investing activities | | (28,184,779 | ) | - | | | 8,207,195 | | | (19,977,584 | ) |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 99 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
2.
SIGNIFICANT ACCOUNTING POLICIES(continued)
| | | | | | | | | | |
| Consolidated Statement of | | | | | | | | | |
| Operations and Comprehensive | | April 30, 2007 as | | | Change in Accounting | | | | |
| Loss and Deficit | | previously reported | | | Policy Adjustment | | | April 30, 2007 restated | |
| Exploration and development costs | $ | - | | $ | (2,167,355 | ) | $ | (2,167,355 | ) |
| Gain on dilution of equity investment | | 700,626 | | | (68,230 | ) | | 632,396 | |
| Loss from equity investment | | (1,363,509 | ) | | (694,215 | ) | | (2,057,724 | ) |
| Net loss/comprehensive loss for theperiod | | (5,562,839 | ) | | (2,929,800 | ) | | (8,492,639 | ) |
| Loss per share – basic and diluted | | (0.06 | ) | | (0.03 | ) | | (0.09 | ) |
| | | | | | | | | | |
| Consolidated Statement of Cash Flows | | | | | Change in | | | | |
| | | April 30, 2007 as | | | Accounting Policy | | | | |
| | | previously reported | | | Adjustment | | | April 30, 2007 restated | |
| Operating activities | $ | (1,618,081 | ) | $ | (2,063,009 | ) | $ | (3,681,090 | ) |
| Investing activities | | (1,838,515 | ) | | 2,063,009 | | | 224,494 | |
| | | | | | | | | | | | | |
| Consolidated Statement of | | January 31, 2007 | | | Restatement | | | Change in | | | | |
| Operations and Comprehensive | | as previously | | | Adjustment | | | Accounting Policy | | | January 31, 2007 | |
| Loss and Deficit | | reported | | | (Note 28) | | | Adjustment | | | restated | |
| Exploration and development costs | $ | - | | $ | - | | $ | (10,930,276 | ) | $ | (10,930,276 | ) |
| Gain on dilution of equity investment | | - | | | 2,000,514 | | | (298,925 | ) | | 1,701,589 | |
| Loss from equity investment | | - | | | (191,400 | ) | | (523,356 | ) | | (714,756 | ) |
| Stock-based compensation | | (8,805,950 | ) | | (6,156,781 | ) | | - | | | (14,962,731 | ) |
| Net loss/comprehensive loss for theperiod | | (14,612,368 | ) | | (4,347,667 | ) | | (11,752,557 | ) | | (30,712,592 | ) |
| Loss per share – basic and diluted | | (0.19 | ) | | (0.06 | ) | | (0.15 | ) | | (0.40 | ) |
| | | | | | | | | | |
| Consolidated Statement of Cash Flows | | | | | Change in | | | | |
| | | January 31, 2007 as | | | Accounting Policy | | | January 31, 2007 | |
| | | previously reported | | | Adjustment | | | restated | |
| Operating activities | $ | (4,103,416 | ) | $ | (10,403,459 | ) | $ | (14,506,875 | ) |
| Investing activities | | (22,799,414 | ) | | 10,403,459 | | | (12,395,955 | ) |
3.
INVENTORY
| | | | | |
| | | May 31, 2009 | | May 31, 2008 |
| Raw materials and supplies | $ | 1,038,999 | $ | - |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 100 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
4.
PROPERTY AND EQUIPMENT
| | | | | | | | | | | | | |
| | | | | May 31, | | | | | | May 31, | | |
| | | | | 2009 | | | | | | 2008 (Note 2) | | |
| |
| | | Cost | | Accumulated Amortization | | Book Value | | Cost | | Accumulated Amortization | | Net Book Value |
| |
| Computer equipment | $ | 221,489 | $ | 69,909 | $ | 151,580 | $ | 59,776 | $ | 40,850 | $ | 18,926 |
| Computer software | | 201,187 | | 129,915 | | 71,272 | | 168,826 | | 112,481 | | 56,345 |
| Equipment under capitalleases | | 10,808,072 | | 3,956,113 | | 6,851,959 | | 10,988,907 | | 1,648,336 | | 9,340,571 |
| Equipment | | 7,922,073 | | 3,421,173 | | 4,500,900 | | 9,450,318 | | 2,601,201 | | 6,849,117 |
| Furniture and fixtures | | 822,714 | | 316,311 | | 506,403 | | 21,123 | | 7,227 | | 13,896 |
| Vehicles | | 25,016 | | 8,752 | | 16,264 | | - | | - | | - |
| Office equipment | | 167,499 | | 27,257 | | 140,242 | | - | | - | | - |
| Land | | 189,353 | | - | | 189,353 | | 126,172 | | - | | 126,172 |
| Buildings | | 472,783 | | 21,098 | | 451,685 | | 382,888 | | 8,766 | | 374,122 |
| | $ | 20,830,186 | $ | 7,950,528 | $ | 12,879,658 | $ | 21,198,010 | $ | 4,418,861 | $ | 16,779,149 |
5.
MINERAL PROPERTIES
The Company has capitalized $60,843,501 in mineral property costs, net of revenue of $653,941 as at May 31, 2009 and $37,739,133 as at May 31, 2008:
| | | | | |
| | | May 31, 2009 | | May 31, 2008 (Note 2) |
| Plant | $ | 47,610,795 | $ | 22,402,691 |
| Plant equipment | | 2,973,133 | | 3,950,618 |
| Camp | | 5,252,168 | | 6,189,910 |
| Asset retirement obligation (Note 25) | | 3,458,304 | | 4,425,669 |
| Capitalized interest expense | | 1,549,101 | | 770,245 |
| | $ | 60,843,501 | $ | 37,739,133 |
Molejon Property – Panama
The Molejon Property is located in the District of Donoso, Province of Colon, Panama. The project forms part of the Petaquilla Concession. The Company, through Petaquilla Gold, S.A., owns a 100% interest in the Molejon gold deposit, as well as all other gold and precious metal mineral deposits that might be developed within the Petaquilla Concession, subject to a graduated 5% - 7% net smelter return, based on the future gold price at the time of production.
A phased Mine Development Plan was approved by Ministerial Resolution of the Government of Panama in September 2005. The Company proceeded with the development of the property and construction of the processing mill commenced in July of 2007. Mill commissioning was initiated in November 2008 and the first gold pour occurred on April 7, 2009.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 101 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
6.
EXPLORATION AND DEVELOPMENT COSTS
Exploration and development costs incurred to develop the Company’s Molejon property and for exploration of other properties are detailed below:
| | | | | | | | | |
| | | Twelve months | | | One month ended | | Twelve months ended | |
| | | ended May 31, 2009 | | | May 31, 2008 | | April 30, 2008 | |
| Drilling costs | $ | 1,410,591 | | $ | 3,842 | $ | 4,992,578 | |
| Trenching | | 78,024 | | | 22,862 | | 370,845 | |
| Engineering and consulting | | 979,463 | | | 1,186 | | 640,722 | |
| Geologist | | 201,258 | | | 37,921 | | 417,351 | |
| Property permits | | - | | | 33,818 | | - | |
| Environment | | 162,859 | | | 8,153 | | 117,545 | |
| Logistics | | 153,229 | | | 7,921 | | 85,810 | |
| Indirect drilling costs | | 192,953 | | | 36,739 | | 852,446 | |
| Engineering and design | | 145,285 | | | 25,224 | | 335,193 | |
| Transportation | | - | | | - | | 102,686 | |
| Communications | | 49,396 | | | - | | 62,370 | |
| Topography | | 7,531 | | | 1,956 | | 37,797 | |
| Technical support | | 68 | | | - | | 9,824 | |
| Bridges | | 353,468 | | | - | | (12,810 | ) |
| Roads | | 22,581 | | | 1,693 | | 8,727 | |
| Amortization on operating equipment | | 4,033,720 | | | 368,809 | | 2,901,942 | |
| Stock-based compensation (Note 16) | | (28,564 | ) | | 12,113 | | 581,068 | |
| Capitalized interest expense | | - | | | - | | 186,110 | |
| | $ | 7,761,862 | | $ | 562,237 | $ | 11,690,204 | |
| | | | | | |
| | | Three months ended | | | Twelve months ended |
| | | April 30, 2007 | | | January 31, 2007 |
| Drilling costs | $ | 764,340 | | $ | 4,358,203 |
| Trenching | | 1,162,227 | | | 1,595,877 |
| Engineering and consulting | | 101,475 | | | 1,036,658 |
| Geologist | | 432,252 | | | 149,757 |
| Property permits | | 1,004 | | | 256,359 |
| Environment | | 13,958 | | | 265,305 |
| Logistics | | 112,109 | | | 150,935 |
| Indirect drilling costs | | 156,399 | | | 18,314 |
| Engineering and design | | 53,041 | | | 77,975 |
| Transportation | | 34,103 | | | 93,365 |
| Communications | | 11,000 | | | 107,314 |
| Topography | | 13,926 | | | 85,181 |
| Technical support | | 18,010 | | | 78,677 |
| Bridges | | 10,247 | | | 45,295 |
| Roads | | (821,082 | ) | | 2,084,244 |
| Amortization on operating equipment | | 104,346 | | | 422,985 |
| Stock-based compensation (Note 16) | | - | | | 103,832 |
| | $ | 2,167,355 | | $ | 10,930,276 |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 102 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
7.
INVESTMENT IN PETAQUILLA COPPER LTD.
The Company initially owned 22,233,634 of the issued shares of Copper at a cost of $439,367 (CAD$ 500,000). Subsequent to the spin out of Copper, the Company accounted for Copper on an equity basis. Under the equity method, the Company recorded the percentage of net income (loss) that would be attributed to the investment by adjusting the carrying value of the investment. If the percentage of loss from the investee was greater than the carrying cost, the amount was not reduced below zero. Dilution gains arose whenever Copper issued equity at a price greater than the carrying value of the equity investment.
On September 19, 2008, the Company disposed of its 20,418,565 common shares of Copper to a wholly-owned subsidiary of Inmet Mining Corporation at a price of CAD$ 2.20 per common share, for proceeds of $43,238,852 (CAD$ 44,920,843). The Company did not incur any transaction costs in disposing of the shares.
8.
RESTRICTED CASH
The Company has $707,480 in term deposits (May 31, 2008 - $670,175) which are being held to guarantee debt financings and a performance bond for compliance with environmental laws in Panama. Interest rates on these deposits range from 0.05% to 4.875%.
9.
BANK OVERDRAFT
The Company had a bank overdraft facility with one of its financial institutions. The balance was $nil at May 31, 2009 (May 31, 2008 - $2,100,000). The overdraft bore fixed interest of 7.5% per annum and was secured by one of the Company’s savings accounts up to $1,175,098. This facility was terminated in June 2008 at the Company’s request.
10.
OPERATING CREDIT LINE FACILITY
The Company has an operating credit line facility with Banco Bilbao Vizcaya Argentaria (Panama) S.A. (“BBVA”) up to a maximum of $13,379,554. The facility is converted to capital leases when the asset purchases are completed. The facility has a fixed rate of 9% on $11,018,456 and 6% on $2,361,098, is secured by the assets purchased and is registered with the Public Registry of the Republic of Panama. At May 31, 2009 there is a remaining credit line balance of $332,511 available upon which the Company may draw.
11.
LONG-TERM DEBT
During the fiscal year ended April 30, 2007, the Company arranged bank loans totalling $1,277,230 for the purchase of equipment and vehicles. The loans are secured by the purchased assets plus term deposits in the amount of $400,000.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 103 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
11.
LONG-TERM DEBT(continued)
The following table summarizes the loans outstanding as at May 31, 2009 and May 31, 2008:
| | | | | | | |
| | | May 31, 2009 | | | May 31, 2008 (Note 2 | ) |
| |
| Equipment loan #1, repaid May 2009 | $ | - | | $ | 125,783 | |
| Vehicle loan #1, repaid May 2009 | | - | | | 28,141 | |
| Equipment loan #2, repayable at $7,445 per monthincluding interest at 9.0%, maturing October 2009 | | 29,891 | | | 111,631 | |
| Equipment loan #3, repayable at $18,095 per monthincluding interest at 9.25%, maturing January 2010 | | 125,575 | | | 319,176 | |
| Vehicle loan #2, repayable at $793 per month, includinginterest at 9.25%, maturing January 2010 | | 5,527 | | | 13,988 | |
| | | 160,993 | | | 598,719 | |
| Less: current portion | | (160,993 | ) | | (436,151 | ) |
| | $ | - | | $ | 162,568 | |
12.
DEFERRED SERVICES AND MATERIALS TO BE PROVIDED TO IMN RESOURCES INC.
On September 30,2007, Petaquilla Gold S.A. (“Gold”), a subsidiary of the Company entered into a Service Agreement with Minera Panama S.A. (“MPSA”) (formerly Petaquilla Copper S.A.) to provide electric generation, aggregate for construction and the rental of a drill machine (collectively, the “services”) for a 3-year period. In return for receiving certain benefits and assurances, payment for services was assumed and prepaid by IMN Resources Inc. (“IMN”) (formerly Petaquilla Copper Ltd.), a wholly owned subsidiary of Inmet Mining Corporation, in the amount of $4,404,000. Services provided to date include the rental of a drill and the generation of electricity.
| | | | | |
| | | May 31, 2009 | | May 31, 2008 (Note 2) |
| | $ | 3,243,394 | $ | 4,252,209 |
| Current portion | | 120,000 | | 248,786 |
| Non-current portion | $ | 3,123,394 | $ | 4,003,423 |
13.
CAPITAL LEASE OBLIGATIONS
The Company entered into four capital lease arrangements with Banco Bilbao Vizcaya Argentaria (Panama) S.A. (“BBVA”) for the purchase of equipment to advance the Molejon project into production.
The equipment includes but is not restricted to: ball mills, a Metso crushing plant, cranes and an aggregate crushing plant.
As a condition of the leases, the equipment will serve as collateral throughout the amortization period and will be registered with the Public Registry of the Republic of Panama. Further, IMN has pledged a term deposit in the amount of $2,361,098 (May 31, 2008 - $2,361,098) as additional security.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 104 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
13.
CAPITAL LEASE OBLIGATIONS(continued)
Future minimum lease payments on the capital lease obligations are as follows:
| | | | | | | |
| | | | | | May 31, 2008 | |
| | | May 31, 2009 | | | (Note 2) | |
| 2010 | $ | 5,741,567 | | $ | 2,663,569 | |
| 2011 | | 4,164,972 | | | 2,663,569 | |
| 2012 | | 461,907 | | | 1,684,045 | |
| | | 10,368,446 | | | 7,011,183 | |
| Less imputed interest of 9% | | (922,291 | ) | | (844,537 | ) |
| Total | | 9,446,155 | | | 6,166,646 | |
| Current obligation | | 5,054,987 | | | 2,174,903 | |
| Long- term obligation | $ | 4,391,168 | | $ | 3,991,743 | |
14.
SENIOR SECURED NOTES
| | | | | |
| | | May 31, 2009 | | May 31, 2008 |
| | | | | (Note 2) |
| Senior secured notes | $ | 29,407,502 | $ | 26,785,359 |
| Less estimated current portion based on a projected gold pricefrom $900 to $1,000 as noted below and earliest redemption dates | | 15,653,483 | | - |
| | $ | 13,754,019 | $ | 26,785,359 |
At May 31, 2009, there are 26,467.624 senior secured notes (“Notes”) outstanding (May 31, 2008 – 32,250). The Notes bear interest at an annual rate of 15%. Semi-annual principal repayments on the Notes range from $nil to $8,000,000 depending upon the weighted average market price of gold during the six months prior to the payment date as follows:
| | | |
| Weighted Average Market Gold Price | | Aggregate Pro Rata Principal Payment |
| | | |
| |
| Over $1,000 | $ | 8,000,000 |
| $900 to $1,000 | $ | 6,000,000 |
| $800 to $900 | $ | 4,000,000 |
| Less than $800 | | - |
The Notes will mature five years from date of issuance at 120% of principal. The Company has the right to redeem the Notes at any time at 120% of the principal amount plus any accrued or unpaid interest on the Notes. If the Notes are redeemed within one year of issuance, all prepaid interest of $12,000,000 is forfeited. After 18 or 24 months from the date of issuance of the Notes, depending upon the agreement reached with the Note holders, the holders of the Notes can give six months notice to cause the Company to purchase all of the Notes then outstanding at a price equal to the sum of (a) 120% of the principal amount of such Notes to be purchased and (b) accrued and unpaid interest on the principal amount of the Notes. On an annual basis, the Note holders can cause the Company to redeem Notes equal to 35% of Distributable Cash.
Distributable Cash is defined as cash available after:
a)
satisfaction of the Company’s debt obligations (principal and interest);
b)
satisfaction of the Company’s general and administrative expenses, capital expenditures and other expense obligations;
c)
deduction for income tax obligations; and
d)
retaining reasonable working capital or other reserves.
Reasonable working capital and other reserves are to be defined mutually between the Company and the Note holders. As of May 31, 2009 neither of these has been defined.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 105 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
14.
SENIOR SECURED NOTES(continued)
The Company initially issued 60,000 Notes. Each Note was issued with 382 share purchase warrants. Each warrant entitled the holder to purchase one common share at CAD$ 2.30 for a period of five years from the date of purchase. On April 17, 2009 the Company repriced these warrants to entitle the holder to purchase one common share at CAD $0.65 for the remainder of the warrant period with the provision that, ifthe closing trading price of the Company’s common shares on the TSX is CAD$ 1.00 or more for a period of 30 consecutive trading days, the Company has the option to require the earlier exercise of the warrants. The effect of repricing the warrants was an increase in the value of the warrants of$1,781,500 and a decrease in contributed surplus for the same amount.
On September 30, 2008 the Company redeemed 36,032.376 Notes at 120% of their principal value for a total payment of $43,238,852, resulting in a loss of $10,983,735.
On October 1, 2008, the Company issued an additional 20,000 Notes under the $60 million senior secured notes indenture for net proceeds of $15,874,958. These Notes contain the same terms and conditions as the previous issue under the indenture with the exception of the 382 share purchase warrants. These Notes did not include any warrants.
On March 25, 2009, the Company redeemed 17,500 Notes at 120% of their principal value for a total payment of $21,000,000, resulting in a loss of $2,147,247.
The Notes have been accounted for in accordance with HB 3855 “Financial Instruments – Recognition and Measurement”, HB 3862 “Financial Instruments – Disclosure” and HB 3863 “Financial Instruments – Presentation”. Under this guidance, the Company valued the liability component of the Notes and assigned the difference to the warrants. On the valuation dates, the value of the Notes was calculated to be $58,474,937 and the amount allocated to the warrants was $1,525,063. Prepaid interest of $9,000,000 was applied as a reduction of the Notes. The liability component was calculated using a discount rate of 26.65% and a maturity date of two years from date of issue. The senior secured notes contain an embedded derivative as a result of the call and put options. The Company is unable to fair value the embedded derivative component separately and thus has classified the combined contract as a financial liability that is held for trading. On February 28, 2009 the discount rate on the Notes was reduced to 20.58% from 26.65% due to mark-to-market accounting. This resulted in a loss of $3,863,189. At May 31, 2009, the Notes have been adjusted to their fair market value of $29,407,502
During the fiscal year ended May 31, 2009 the Company incurred $3,931,861 (thirteen months ended May 31, 2008 – $3,894,873) in financing costs related to the Notes. These costs were expensed in the period in which they were incurred in accordance with the Company’s accounting policy.
The Notes are guaranteed, on a joint and several basis, by all of the assets of the Company and of the Company’s subsidiaries.
Estimated principal repayments, assuming a future gold price from $900 to $1,000 and earliest redemption dates, are as follows:
| | | |
| 2010 | $ | 15,653,483 |
| 2011 | | 16,107,666 |
| | $ | 31,761,149 |
15.
CONVERTIBLE SENIOR SECURED NOTES
| | | | | | |
| | | May 31, 2009 | | | May 31, 2008 |
| Convertible senior secured notes | $ | 34,794,455 | | $ | - |
| Less estimated current portion | | - | | | - |
| | $ | 34,794,455 | | $ | - |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 106 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
15.
CONVERTIBLE SENIOR SECURED NOTES(continued)
On March 25, 2009 the Company closed $40,000,000 of a convertible senior secured note (“Convertible Notes”) financing. The Convertible Notes bear interest at an annual rate of 15%, of which the first year is prepaid. The Convertible Notes mature two years from the date of issuance at 110% of the principal. The Company has the right to redeem the notes at any time at 110% of the principal amount plus any accrued or unpaid interest. If the Convertible Notes are redeemed within one year of issuance, all prepaid interest is forfeited. Each Convertible Note in the principal amount of $1,000 is convertible into common shares at CAD$ 2.25 per share.
On an annual basis, the Convertible Note holders can cause the Company to redeem Convertible Notes equal to 35% of Distributable Cash. Distributable Cash is defined as cash available after:
a)
satisfaction of the Company’s debt obligations (principal and interest);
b)
satisfaction of the Company’s general and administrative expenses, capital expenditures and other expense obligations;
c)
deduction for income tax obligations; and
d)
retaining reasonable working capital or other reserves.
Reasonable working capital and other reserves are to be defined mutually between the Company and the Note holders. As of May 31, 2009 neither of these has been defined.
On a semi annual basis, commencing September 15, 2010, the Company shall make principal payments under each holder’s Convertible Notes ranging from $nil to $8,000,000 depending upon the weighted average market price of gold for the six months prior to the payment date as follows:
| | | |
| Weighted Average Market Gold Price | | Aggregate Pro Rata Principal Payment |
| |
| Over $1,000 | $ | 8,000,000 |
| $900 to $1,000 | $ | 6,000,000 |
| $800 to $900 | $ | 4,000,000 |
| Less than $800 | | - |
The Convertible Notes have been accounted for in accordance with HB 3855 “Financial Instruments – Recognition and Measurement,” HB 3862 “Financial Instruments – Disclosure,” HB 3863 “Financial Instruments – Presentation” and EIC 164 “Convertible and Other Debt Instruments with Embedded Derivatives”. Under this guidance, the Company valued the liability component of the Convertible Notes and assigned the difference to the conversion feature. On the valuation date, the value of the liability component of the Convertible Notes was calculated to be $39,504,879. The conversion feature was valued at $495,121. Prepaid interest of $6,000,000 was applied as a reduction of the Convertible Notes. The liability component was calculated using a discount rate of 20.58%. The convertible senior secured notes contained an embedded derivate as a result of the call option. The Company is unable to fair value the embedded derivative component separately and thus has classified the combined contract as a financial liability that is held for trading.
The Company incurred $2,466,964 in financing costs related to the Convertible Notes. These costs have been expensed in the period in which they were incurred in accordance with the Company’s accounting policy.
The Convertible Notes are guaranteed, on a joint and several basis, by all of the assets of the Company and of the Company’s subsidiaries. The indebtedness represented by the Convertible Notes is senior to all other indebtedness of the Company and ranks pari passu with the previously issued senior secured notes.
Estimated principal payments are as follows:
| | | |
| 2010 | $ | - |
| 2011 | | 44,000,000 |
| | $ | 44,000,000 |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 107 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
16.
SHARE CAPITAL, WARRANTS AND CONTRIBUTED SURPLUS
At May 31, 2009, the Company had unlimited authorized common shares without par value and unlimited authorized preference shares without par value. The Board of Directors will assign the rights and privileges to each series of preference shares upon issue.
In May 2007, the Company closed a non-brokered private placement comprising 1,387,879 units at CAD$ 2.00 per unit and 24,033 units at CAD$ 2.02 per unit for gross proceeds of $2,552,698. Each unit consisted of one common share and one-half of one common share purchase warrant, with each whole warrant exercisable into a common share at a price of CAD$ 3.50 per share for a period of two years following the close of the private placement. The fair value of the warrants issued on this private placement was $263,263.
In October 2007, the Company closed the first tranche of a non-brokered private placement comprising 2,093,500 units at CAD$ 3.00 per unit for gross proceeds of $6,611,749. Each unit consisted of one common share and one-half of one common share purchase warrant, with each whole warrant exercisable into a common share at a price of CAD$ 3.50 per share for a period of two years following the close of the private placement. The Company paid $234,104 and agreed to issue 74,125 share purchase warrants as finders’ fees in connection with part of the private placement. The fair value of the finders’ warrants was $55,357.
In December 2007, the Company closed the second tranche of the non-brokered private placement announced in October 2007 comprising 339,000 units at CAD$ 3.00 per unit for gross proceeds of $1,018,732. Each unit consisted of one common share and one-half of one common share purchase warrant, with each whole warrant exercisable into a common share at a price of CAD$ 3.50 per share for a period of two years following the close of the private placement.
The Company paid $43,574 and agreed to issue 12,500 share purchase warrants as finders’ fees in connection with part of the private placement. The fair value of the finders’ warrants was $8,318.
In January 2008, the Company closed the third tranche of the non-brokered private placement announced in October 2007 comprising 708,000 units at CAD$ 3.00 per unit for gross proceeds of $2,106,098. Each unit consisted of one common share and one-half of one common share purchase warrant, with each whole warrant exercisable into a common share at a price of CAD$ 3.50 per share for a period of two years following the close of the private placement. The Company paid $104,115 and agreed to issue 35,000 share purchase warrants as finders’ fees in connection with part of the private placement. The fair value of the finders’ warrants was $22,764.
In May 2008, the Company closed the first tranche of its senior secured notes issuing 32,250 units for gross proceeds of $32,250,000. Each unit of $1,000 consisted of one Note and a warrant to purchase 382 common shares. Each warrant entitled the holder to purchase one common share at CAD$ 2.30 for a period of five years from the date of purchase. The Company agreed to issue 492,780 share purchase warrants as finders’ fees in connection with this tranche of the private placement. The fair value of the finders’ warrants was $638,354.
In June 2008, the Company closed the second tranche of its senior secured notes issuing 10,000 units for gross proceeds of $10,000,000. Each unit of $1,000 consisted of one Note and a warrant to purchase 382 common shares. Each warrant entitled the holder to purchase one common share at CAD$ 2.30 for a period of five years from the date of purchase. The Company agreed to issue 152,800 share purchase warrants as finders’ fees in connection with this tranche of the private placement. The fair value of the finders’ warrants was $104,496.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 108 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
16.
SHARE CAPITAL, WARRANTS AND CONTRIBUTED SURPLUS(continued)
In July 2008, the Company closed the third tranche of its senior secured notes issuing 17,750 units for gross proceeds of $17,750,000. Each unit of $1,000 consisted of one Note and a warrant to purchase 382 common shares. Each warrant entitled the holder to purchase one common share at CAD$ 2.30 for a period of five years from the date of purchase. The Company agreed to issue 271,220 share purchase warrants as finders’ fees in connection with this tranche of the private placement. The fair value of the finders’ warrants was $110,736.
On April 17, 2009 the Company repriced the warrants issued with the Notes to allow the holder to purchase one common share at CAD $0.65 for the remainder of the warrant period with the provision that, ifthe closing trading price of the Company’s common shares on the TSX is CAD$ 1.00 or more for a period of 30 consecutive trading days, the Company has the option to require the earlier exercise of the warrants. The effect of repricing the warrants was an increase in the value of the warrants by$1,781,500 and a decrease in contributed surplus by the same amount.
17.
STOCK OPTIONS
During the twelve months ended January 31, 2007, the Company received approval for its stock option plan (the “New Plan”) which authorizes the board of directors to grant incentive stock options to directors, officers and employees. The maximum number of shares reserved for issuance under the Company’s Plan is 10,000,000.
The aggregate number of common shares reserved for issuance to any person may not exceed 5% of the number of outstanding common shares. The exercise price of the options will be determined by the five day volume weighted average price of the Company’s shares prior to the date of the grant. Options granted must be exercised no later than 10 years after the date of grant or such lesser period as may be determined by the Board. The Board may at its discretion in any granting of an option set a vesting period whereby the option may only be exercisable in pre-determined instalments.
Stock option transactions are summarized as follows:
| | | | |
| | | | |
| | Number | | Weighted Average |
| | of Shares | | Exercise Price (CAD$) |
| Balance at April 30, 2007 | 8,115,767 | | 1.76 |
| Granted | 1,375,000 | | 2.41 |
| Exercised | (1,055,883 | ) | 0.53 |
| Expired | (319,750 | ) | 2.42 |
| Balance at May 31, 2008 | 8,115,134 | | 1.83 |
| Granted | 1,370,000 | | 0.85 |
| Exercised | (81,480 | ) | 0.50 |
| Expired | (909,676 | ) | 2.17 |
| Forfeited | (58,125 | ) | 2.32 |
| Balance at May 31, 2009 | 8,435,853 | | 1.64 |
| |
| Number of stock options exercisable | 7,592,103 | | 1.72 |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 109 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
17.
STOCK OPTIONS (continued)
As at May 31, 2009, the following stock options were outstanding as follows:
| | | |
| Number of Shares | Exercise Price | |
| Outstanding | (CAD$) | Expiry Date |
| 30,000 | 0.26 | April 25, 2010 |
| 193,800 | 0.26 | July 11, 2010 |
| 919,200 | 0.54 | February 1, 2011 |
| 96,000 | 0.89 | April 27, 2011 |
| 4,826,853 | 2.01 | January 15, 2012 |
| 200,000 | 2.22 | June 12, 2012 |
| 500,000 | 2.25 | June 20, 2012 |
| 50,000 | 2.49 | July 12, 2012 |
| 50,000 | 2.54 | July 23, 2012 |
| 100,000 | 2.80 | February 11, 2013 |
| 400.000 | 1.96 | May 5, 2013 |
| 60,000 | 1.25 | September 1, 2013 |
| 410,000 | 0.56 | November 18, 2013 |
| 300,000 | 0.52 | December 1, 2013 |
| 200,000 | 0.39 | January 5, 2014 |
| 100,000 | 0.39 | March 1, 2014 |
| |
| 8,435,853 | | |
Subsequent to year end, 3,245,080 stock options were cancelled (see note 27).
Total stock options granted during the twelve months ended May 31, 2009 were 1,370,000 (one month ended May 31, 2008 – 130,000, twelve months ended April 30, 2008 – 1,245,000, three months ended April 30, 2007 – 150,000 and twelve months ended January 31, 2007 – 9,719,543), of which nil (one month ended May 31, 2008 – nil, twelve months ended April 30, 2008 – nil, three months ended April 30, 2007 – nil and twelve months ended January 31, 2007 – 400,000) were expired and nil (one month ended May 31, 2008 – nil, twelve months ended April 30, 2008 – nil, three months ended April 30, 2007 – nil and twelve months ended January 31, 2007 – 155,200) were forfeited during the period. Stock options granted that are not vested have been excluded from the calculation of stock-based compensation. Total stock-based compensation recognized for the fair value of stock options granted, vested and approved by the shareholders during the twelve months ended May 31, 2009 was $898,454 (one month ended May 31, 2008 - $77,890, twelve months ended April 30, 2008 - $5,561,247, three months ended April 30, 2007 - $2,915,884 and twelve months ended January 31, 2007 - $14,962,731). Stock-based compensation charged to exploration costs amounted to $(28,564) for the twelve months ended May 31, 2009 (one month ended May 31, 2008 -$12,113, twelve months ended April 30, 2008 - $581,068, three months ended April 30, 2007 - $nil and twelve months ended January 31, 2007 - $103,832).
The weighted average fair value of stock options granted is estimated to be approximately CAD$ 0.22, CAD$ 1.18, CAD$ 1.65, CAD$ 0.32 and CAD$ 1.21 for the twelve months ended May 31, 2009, the one month ended May 31, 2008, the twelve months ended April 30, 2008, the three months ended April 30, 2007 and the twelve months ended January 31, 2007 respectively, by using the Black-Scholes options pricing model with the following weighted average assumptions:
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 110 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
17.
STOCK OPTIONS (continued)
| | | | |
| | | | |
| | Twelve Months Ended | One Month Ended May | Twelve Months Ended |
| | May 31, 2009 | 31, 2008 | April 30, 2008 |
| |
| Risk-free interest | 2.45% | 3.05% | 4.44% |
| Expected dividend yield | - | - | - |
| Expected stock price volatility | 64% | 74% | 87% |
| Expected option life in years | 4.90 | 5.00 | 5.00 |
| | | |
| | | |
| | Three Months Ended | Twelve Months Ended |
| | April 30, 2007 | January 31, 2007 |
| |
| Risk-free interest | 4.16% | 4.04% |
| Expected dividend yield | - | - |
| Expected stock price volatility | 39% | 106% |
| Expected option life in years | 1.00 | 5.00 |
18.
SHARE PURCHASE WARRANTS
Share purchase warrant transactions are summarized as follows:
| | | | |
| | | | Weighted |
| | | | Average |
| | Number | | Exercise |
| | of Shares | | Price (CAD$) |
| |
| Balance at April 30, 2007 | 9,798,000 | | 1.54 |
| Issued | 15,210,110 | | 3.50 |
| Exercised | (373,395) | | 1.54 |
| Balance at April 30, 2008 | 24,634,715 | | 1.94 |
| Issued | 12,812,280 | | 2.30 |
| Balance at May 31, 2008 | 24,634,715 | | 2.13 |
| Issued | 11,024,520 | | 0.65 |
| Expired | (705,955) | | 3.50 |
| Balance at May 31, 2009 | 34,953,280 | | 1.03 |
On May 10, 2007, the Company closed a non-brokered private placement comprising 1,387,879 units at CAD$ 2.00 per unit, and 24,033 units at CAD$ 2.02 per unit for gross proceeds of $2,552,698. Each unit consisted of one common share and one-half of one common share purchase warrant, with each whole warrant exercisable into a common share at a price of CAD$ 3.50 per share for a period of two years following the close of the private placement (See Note 14). The fair value of the warrants issued on this private placement was $263,263.
In October 2007, the Company closed a non-brokered private placement comprising 2,093,500 units at CAD$ 3.00 per unit for gross proceeds of $6,611,749. Each unit consisted of one common share and one-half of one common share purchase warrant, with each whole warrant exercisable into a common share at a price of CAD$ 3.50 per share for a period of two years following the close of the private placement. The Company paid $234,104 and agreed to issue 74,125 share purchase warrants as finders’ fees in connection with part of the private placement. The fair value of the warrants issued on this tranche of the private placement was $758,116. The fair value of the finders’ warrants was $55,357.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 111 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
18.
SHARE PURCHASE WARRANTS(continued)
In December 2007, the Company closed the second tranche of the non-brokered private placement announced in October 2007 comprising 339,000 units at CAD$ 3.00 per unit for gross proceeds of $1,018,732. Each unit consisted of one common share and one-half of one common share purchase warrant, with each whole warrant exercisable into a common share at a price of CAD$ 3.50 per share for a period of two years following the close of the private placement. The Company paid $43,574 and agreed to issue 12,500 share purchase warrants as finders’ fees in connection with part of the private placement. The fair value of the warrants issued on this tranche of the private placement was $103,725. The fair value of the finders’ warrants was $8,318.
In January 2008, the Company closed the third tranche of the non-brokered private placement announced in October 2007 comprising 708,000 units at CAD$ 3.00 per unit for gross proceeds of $2,106,098. Each unit consisted of one common share and one-half of one common share purchase warrant, with each whole warrant exercisable into a common share at a price of CAD$ 3.50 per share for a period of two years following the close of the private placement. The Company paid $104,115 and agreed to issue 35,000 share purchase warrants as finders’ fees in connection with part of the private placement. The fair value of the warrants issued on this tranche of the private placement was $210,713. The fair value of the finders’ warrants was $22,764.
In May 2008, the Company closed the first tranche of its senior secured notes financing issuing 32,250 units for gross proceeds of $32,250,000. Each unit of $1,000 consisted of one Note and a warrant to purchase 382 Common shares. Each warrant entitled the holder to purchase one common share at CAD$ 2.30 for a period of five years from the date of purchase. The Notes mature at 120% of the principal amount and carry 15% interest of which the first year’s interest was prepaid at the date the funds were received. The Company paid $1,635,230 and agreed to issue 492,780 share purchase warrants as finders’ fees in connection with this tranche of the private placement. The fair value of the finders’ warrants was $638,354.
In June 2008, the Company closed the second tranche of its senior secured notes financing issuing 10,000 units for gross proceeds of $10,000,000. Each unit of $1,000 consisted of one Note and a warrant to purchase 382 common shares. Each warrant entitled the holder to purchase one common share at CAD$ 2.30 for a period of five years from the date of purchase. The Notes mature at 120% of the principal amount and carry 15% interest of which the first year’s interest was prepaid at the date the funds were received. The Company agreed to issue 152,800 share purchase warrants as finders’ fees in connection with this tranche of the private placement. The fair value of the finders’ warrants was $104,196.
In July 2008, the Company closed the third tranche of its senior secured notes financing issuing 17,750 units for gross proceeds of $17,750,000. Each unit of $1,000 consisted of one Note and a warrant to purchase 382 common shares. Each warrant entitled the holder to purchase one common share at CAD$ 2.30 for a period of five years from the date of purchase. The Notes mature at 120% of the principal amount and carry 15% interest of which the first year’s interest was prepaid at the date the funds were received. The Company agreed to issue 271,220 share purchase warrants as finders’ fees in connection with this tranche of the private placement. The fair value of the finders’ warrants was $110,734.
On April 17, 2009 the Company repriced the warrants issued with the Notes to entitle the holder to purchase one common share at CAD$ 0.65 for the remainder of the warrant period. Under the revised terms of the warrants, if the common shares of the Company trade at a weighted average trading price of CAD$ 1.00 or more per share for 30 consecutive trading days, the holders of the warrants must exercise the warrants within 30 days. The repricing of the warrants resulted in an increase in the value of the warrants by $1,781,500 and a decrease in contributed surplus by the same amount.
The weighted average fair value of the finders’ warrants issued is estimated to be approximately CAD$ 0.54, CAD$ 1.28, CAD$ 0.69, $nil, and CAD$ 2.06 for the twelve months ended May 31, 2009, the one month ended May 31, 2008, the twelve months ended April 30, 2008, the three months ended April 30, 2007 and the twelve months ended January 31, 2007 respectively, by using the Black-Scholes options pricing model with the following assumptions:
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 112 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
18.
SHARE PURCHASE WARRANTS(continued)
| | | | | | |
| | | | | | |
| | | | | Three | |
| | Twelve Months | One Month | Twelve Months | Months | Twelve Months |
| | Ended May 31, | Ended May | Ended April 30, | Ended April | Ended January 31, |
| | 2009 | 31, 2008 | 2008 | 30, 2007 | 2007 |
| |
| Risk-free interest | 3.29% | 3.18% | 4.00% | - | 4.04% |
| Expected dividend yield | - | - | - | - | - |
| Expected stock price volatility | 43% | 74% | 47% | - | 108% |
| Expected warrant life in years | 5.00 | 5.00 | 2.00 | - | 5.00 |
As at May 31, 2009, the following warrants were outstanding as follows:
| | | | | |
| Number of | | | | |
| Warrants | | Exercise | | |
| Outstanding | | Price (CAD$) | | Expiry Date |
| 1,120,875 | | $3.50 | | October 31, 2009 |
| 182,000 | | $3.50 | | December 20, 2009 |
| 389,000 | | $3.50 | | May 9, 2010 |
| 9,424,605 | | $1.54 | | October 17, 2011 |
| 12,812,280 | | $0.65 | | May 21, 2013 |
| 3,972,800 | | $0.65 | | June 4, 2013 |
| 7,051,720 | | $0.65 | | July 8, 2013 |
| 34,953,280 | | | | |
19.
RELATED PARTY TRANSACTIONS
During the twelve months ended May 31, 2009:
a)
The Company paid consulting fees of $4,234 (one month ended May 31, 2008 - $1,890, twelve months ended April 30, 2008 - $103,965, three months ended April 30, 2007 - $13,421 and twelve months ended January 31, 2007 - $361,985) to related companies controlled by a director and a former officer.
b)
The Company paid consulting fees and wages of $252,334 (one month ended May 31, 2008 - $9,051, twelve months ended April 30, 2008 - $140,535, three months ended April 30, 2007 - $nil and twelve months ended January 31, 2007 - $nil) to companies controlled by directors and an officer.
c)
The Company paid legal fees of $269,526 (one month ended May 31, 2008 – $nil, twelve months ended April 30, 2008 - $107,329, three months ended April 30, 2007 - $38,438 and twelve months ended January 31, 2007 - $202,536), share issue costs of $nil (one month ended May 31, 2008 – $nil, twelve months ended April 30, 2008 - $162,523, three months ended April 30, 2007 - $nil and twelve months ended January 31, 2007 - $99,566) and financing costs of $104,272 (one month ended May 31, 2008 - $95,257, twelve months ended April 30, 2008 – $nil, three months ended April 30, 2007 - $nil and twelve months ended January 31, 2007 - $nil) to a law firm controlled by an officer. The Company paid for goods and services of $155,805 (one month ended May 31, 2008 – $nil, twelve months ended April 30, 2008 - $127,326, three months ended April 30, 2007 - $23,110 and twelve months ended January 31, 2007 - $94,514) to a company controll ed by an officer.
d)
The Company sold dore bars containing 256 ounces to a director and officer for net proceeds of $220,060 (thirteen months ended May 31, 2008 – $nil). The sale was completed using the London Gold Market PM fix price.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 113 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
19.
RELATED PARTY TRANSACTIONS(continued)
e)
At May 31, 2009, $25,925 was owed to an officer of the Company.
20.
INCOME TAXES
A reconciliation of income taxes at statutory rates with the reported taxes is as follows:
| | | | | | | | | | | | | | | | |
| | | Twelve months | | | One month | | | Twelve months | | | Three months | | | Twelve months | |
| | | ended May 31, | | | ended May 31, | | | ended | | | ended | | | ended January 31, | |
| | | 2009 | | | 2008 | | | April 30, 2008 | | | April 30, 2007 | | | 2007 | |
| |
| Statutory tax rate | | 30.38 | % | | 30.67 | % | | 33.08 | % | | 34.12 | % | | 34.12 | % |
| (Loss) for the period | $ | (21,099,866 | ) | $ | (5,544,998 | ) | $ | (16,111,008 | ) | $ | (8,492,637 | ) | $ | (30,712,592 | ) |
| Income tax recovery | | (6,409,084 | ) | | (1,700,651 | ) | | (5,329,521 | ) | | (2,897,688 | ) | | (10,479,136 | ) |
| Permanent differences | | (4,746,965 | ) | | (145,691 | ) | | 508,419 | | | 807,187 | | | 4,956,888 | |
| Income tax rate change and differential | | 5,551,802 | | | 630,937 | | | 4,933,488 | | | 1,548,509 | | | 4,413,448 | |
| Foreign exchange | | (1,131,760 | ) | | - | | | - | | | - | | | - | |
| Cost of previously unrecognized tax pools | | 1,480,781 | | | - | | | - | | | - | | | - | |
| Change in functional currency foreign exchange impact | | 4,010,847 | | | - | | | - | | | - | | | - | |
| Change in valuation allowance | | 1,244,379 | | | 1,215,405 | | | (112,386 | ) | | 541,992 | | | 1,108,800 | |
| |
| Income tax recovery | | - | | | - | | | - | | | - | | | - | |
The significant components of the Company’s future income tax assets (liabilities) are as follows:
| | | | | | | |
| | | | | | May 31, 2008 | |
| | | May 31, 2009 | | | (Note 2) | |
| |
| Future income tax assets (liabilities) | | | | | | |
| Non-capital and other loss carry-forwards | $ | 4,573,299 | | $ | 3,268,748 | |
| Equipment and exploration properties | | 48,335 | | | 55,198 | |
| Deferred financing costs | | 2,261,949 | | | 1,633,312 | |
| Future income tax on investment | | - | | | (290,579 | ) |
| Foreign exchange gain on notes | | (556,181 | ) | | - | |
| Senior secured notes | | (442,636 | ) | | | |
| Other | | 12,285 | | | 13,136 | |
| Total future income tax assets | $ | 5,897,051 | | $ | 4,679,815 | |
| Valuation allowance | | (5,897,051 | ) | | (4,679,815 | ) |
| Net future income tax assets | | - | | | - | |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 114 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
20.
INCOME TAXES(continued)
The Company has non-capital losses of $18,293,198 available for deduction against future years’ taxable income in Canada. These losses, if unutilized, will expire beginning in 2010 as follows:
| | | |
| 2010 | $ | 121,909 |
| 2014 | | 384,966 |
| 2015 | | 807,972 |
| 2026 | | 1,770,096 |
| 2027 | | 4,738,720 |
| 2028 | | 3,188,007 |
| 2029 | | 7,281,528 |
| | $ | 18,293,198 |
The Company will not be subject to any income taxes in Panama until all of the debts incurred by all of the affiliated / subsidiary companies have been repaid in full, the timing of which cannot be estimated due to the uncertainty inherent in the future price of gold. At that time the Company will be able to claim accelerated write-offs for all Panamanian subsidiaries.
21.
SEGMENT INFORMATION
The Company has one operating segment which is the exploration of resource properties. Details of geographic information are as follows:
| | | | | | | |
| May 31, 2009 | | Canada | | Panama | | Total |
| Interest income | $ | 120,735 | $ | 48,631 | $ | 169,366 |
| Property and equipment | | - | $ | 12,879,658 | $ | 12,879,658 |
| Mineral properties | | - | $ | 60,843,501 | $ | 60,843,501 |
| May 31, 2008 | | | | | | |
| Interest income | $ | 2,825 | $ | 75,833 | $ | 78,658 |
| Property and equipment | | - | $ | 16,779,149 | $ | 16,779,149 |
| Mineral properties | | - | $ | 37,739,133 | $ | 37,739,133 |
| April 30, 2008 | | | | | | |
| Interest income | $ | 39,627 | $ | 12,299 | $ | 51,926 |
| Property and equipment | | - | $ | 16,862,789 | $ | 16,862,789 |
| Mineral properties | | - | $ | 35,394,279 | $ | 35,394,279 |
| April 30, 2007 | | | | | | |
| Interest income | $ | 41,115 | $ | 7,965 | $ | 49,080 |
| Property and equipment | $ | 57,183 | $ | 4,770,816 | $ | 4,827,999 |
| Mineral properties | | | $ | 12,748,966 | $ | 12,748,966 |
| January 31, 2007 | | | | | | |
| Interest income | $ | 232,599 | $ | 27,794 | $ | 260,393 |
| Property and equipment | $ | 73,157 | $ | 4,362,739 | $ | 4,435,896 |
| Mineral properties | | | $ | 7,034,686 | $ | 7,034,686 |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 115 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
22.
COMMITMENTS
| | | | | | | | | | |
| | | | | | | | | | |
| | | Less than 1 | | | | | | | More than |
| | | Year | | 2 Years | | 3 Years | 4-5 Years | | 5 Years |
| Office lease | $ | 60,676 | $ | 60,676 | $ | 15,168 | Nil | | Nil |
| Capital expenditure commitment | $ | 950,013 | | Nil | | Nil | Nil | | Nil |
| Equipment lease | $ | 5,741,567 | $ | 4,164,972 | $ | 461,907 | Nil | | Nil |
| Senior secured notes | $ | 18,811,500 | $ | 16,800,010 | | Nil | Nil | | Nil |
| Convertible senior secured notes | | Nil | $ | 49,616,537 | | Nil | Nil | | Nil |
| Long-term debt | $ | 178,760 | | Nil | | Nil | Nil | | Nil |
| Asset retirement obligation | | Nil | | Nil | | Nil | Nil | $ | 6,701,000 |
23.
FINANCIAL INSTRUMENTS AND CAPITAL MANAGEMENT
The Company thoroughly examines the various financial instrument risks to which it is exposed and assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, currency risk, and interest rate risk. Where material, these risks are reviewed and monitored by the Board of Directors.
(a) Fair Values
The Company's financial instruments consist of cash and cash equivalents, receivables, restricted cash, accounts payable and long-term debt. The fair value of these financial instruments approximates their carrying values due to the immediate or short-term maturity of these financial instruments.
The Company’s senior secured notes and convertible senior secured notes are measured on initial recognition using the residual method (see Notes 14 and 15). Subsequent fair value measurement is based on a discounted cash flow model using a discount rate of 20.58% and a maturity date of two years from date of issue based on the ability of the Note holders to demand repayment after two years and the expectation that Note holders will make this demand.
(b) Financial Instrument Risk Exposure
Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, restricted cash, and accounts receivable. The Company has reduced its credit risk by investing its cash and cash equivalents and restricted cash in term deposits with financial institutions that operate globally. Also, as the majority of its receivables are with the governments of Canada in the form of sales tax the credit risk is minimal. Therefore, the Company is not exposed to significant credit risk and overall the Company’s credit risk has not changed significantly from the prior year.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 116 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
23.
FINANCIAL INSTRUMENTS AND CAPITAL MANAGEMENT(continued)
Liquidity risk
Liquidity risk is the risk that the company will not be able to meet its financial obligations as they fall due. The Company has in place a planning and budgeting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating and growth objectives. The Company has historically relied on issuance of shares, senior secured debt, convertible senior secured debt and leasing arrangements to develop the Molejon gold project and may require doing so again in the future. On an annual basis the Company may be required to pay 35% of its distributable cash as defined in its senior secured notes and convertible senior secured notes indenture (Notes 14and 15).
Market risk
(i)
Currency risk
Financial instruments that impact the Company’s net earnings or other comprehensive income due to currency fluctuations include: Canadian dollar denominated cash and cash equivalents, restricted cash, accounts receivable and accounts payable. The sensitivity of the Company’s net earnings and other comprehensive income to changes in the exchange rate between the Canadian dollar and the United States dollar is summarized in the table below:
| | | | | | |
| | | As at May 31, 2009 | |
| | | 10% Increase in the | | 10% decrease in the | |
| | | Canadian Dollar | | Canadian Dollar | |
| (Decrease) increase in net earnings | $ | 61,184 | $ | (61,184 | ) |
| (Decrease) increase in other comprehensive (loss) income | | - | | - | |
| Comprehensive (loss) income | $ | 61,184 | $ | (61,184 | ) |
(ii)
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market interest rates. Cash and cash equivalents and restricted cash bear interest at fixed rates.
Other current financial assets and liabilities are not exposed to interest rate risk because they are non-interest bearing.
The operating credit line facility, leases, and long-term debt bear interest at a fixed rate and are also not exposed to interest rate risk.
(c) Capital Management
The Company’s objectives of capital management are intended to safeguard the entity's ability to support the Company’s normal operating requirements on an ongoing basis, continue the development and exploration of its mineral properties and support any expansionary plans.
The capital structure of the Company consists of long-term debt (Note 11), leases (Note 13), senior secured notes (Note 14), convertible senior secured notes (Note 15) and equity attributable to common shareholders, comprised of issued capital, contributed surplus and deficit. The Company manages the capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the Company’s assets.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 117 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
23.
FINANCIAL INSTRUMENTS AND CAPITAL MANAGEMENT(continued)
To effectively manage the entity’s capital requirements, the Company has in place a planning and budgeting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating and growth objectives. The Company has historically relied on issuance of shares, senior secured debt, convertible senior secured debt and leasing arrangements to develop the project and may require doing so again in the future.
The Company is monitoring market conditions to secure funding at the lowest cost of capital. The Company is exposed to various funding and market risks which could curtail its access to funds.
24.
SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | Twelve Months | | | | | | Twelve months | | | Three months | | Twelve | |
| | | ended May 31, | | | One month ended | | | ended April 30, | | | ended April 30, | | months ended | |
| | | 2009 | | | May 31, 2008 | | | 2008 | | | 2007 | | January 31, 2007 | |
| Non-cash investing and financing activities | | | | | | | | | | | | | | |
| Finder’s fees | $ | - | | $ | 638,354 | | $ | 86,439 | | $ | - | $ | 721,018 | |
| Share issue costs | | - | | | (638,354 | ) | | (86,439 | ) | | | | (721,018 | ) |
| Debt issuance costs | | 112,686 | | | | | | | | | | | | |
| Warrants | | (112,686 | ) | | | | | | | | | | | |
| Settlement of advances for deferred services | | - | | | - | | | (4,404,000 | ) | | - | | - | |
| Settlement of advances for property and equipment and mineral properties | | - | | | | | | (3,394,847 | ) | | - | | - | |
| Shares issued for legal settlement | | - | | | - | | | 264,438 | | | - | | - | |
| Property and equipment acquired through credit line facility and capital leases | | 2,058,197 | | | - | | | 10,541,877 | | | - | | - | |
| |
| Mineral properties incurred through payables | | 5,147,462 | | | 1,441,668 | | | 2,539,496 | | | 3,304,493 | | 450,353 | |
| Property and equipment incurred through payables | | 1,071,255 | | | - | | | - | | | 162,637 | | - | |
| Deferred services and materials financed by a reduction in amounts payable to Petaquilla Copper Ltd. | | 156,597 | | | 11,271 | | | 135,252 | | | - | | - | |
| Asset retirement obligation capitalized to mineral properties | | - | | | - | | | - | | | 4,000,000 | | - | |
| |
| Interest paid in cash | $ | 14,224,440 | | $ | 5,751,180 | | $ | 68,618 | | $ | 58,990 | $ | - | |
| Income taxes paid in cash | | - | | | - | | | - | | | - | | - | |
| | | | | |
| | | May 31, 2009 | | May 31, 2008 |
| Cash and cash equivalents consist of: | | | | |
| Cash | $ | 3,440,168 | $ | 6,394,962 |
| Term deposits | | 135,000 | | 6,455,175 |
| | $ | 3,575,168 | $ | 12,850,137 |
| | | | | |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 118 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
25.
ASSET RETIREMENT OBLIGATION
The Company’s asset retirement obligation relates to site restoration and cleanup costs for its Molejon gold project located in Panama.
A reconciliation of the provision for asset retirement obligation is as follows (Note 2):
| | | | |
| Balance at April 30, 2008 | $ | 4,306,000 | |
| Accretion | | 52,098 | |
| Foreign exchange translation difference | | (24,882 | ) |
| Balance at May 31, 2008 | $ | 4,333,216 | |
| Accretion | | 331,504 | |
| Balance at May 31, 2009 | $ | 4,664,720 | |
The provision for asset retirement obligation is based upon the following assumptions:
a)
The total undiscounted cash flow required to settle the obligation is approximately $6,701,000;
b)
Asset retirement obligation payments are expected to occur during fiscal years 2014 and 2015;
c)
A credit adjusted risk-free rate of 7.65% has been used to discount cash flows.
26.
CONTINGENCIES
1)
On November 13, 2008 the Autoridad Nacional del Ambiente (“ANAM”), the environmental agency of the Government of the Republic of Panama, issued a Resolution purporting to fine the Company and its present and former affiliates US$ 1,000,000 for alleged violations of environmental laws that took place on the main Petaquilla Copper Concession in 2005 and an additional US$ 934,695 for damages. On November 26, 2008, ANAM, by Resolution, approved the Company’s Environmental Impact Study (“EIS”) Category III submitted in July 2007 for the Molejon Gold Project. The Resolution sets out a number of conditions to be satisfied before the Company can attain full commercial production. Based on the approval of the EIS, the Company filed for reconsideration by ANAM to have the fines reduced to nil. In January 2009, the Company was advised that ANAM had not accepted the Company’s request for reconsideration that the amount of the financial sanctions purportedly levied against the Company and its present and former affiliates be reduced to nil. On March 10, 2009, the Supreme Court of the Republic of Panama suspended the imposition of ANAM’s fine until the matter of the Company’s appeal is resolved. Consequently, the amount, if any, that may ultimately be payable by the Company cannot be determined.
2)
The Company is engaged in certain other legal actions in the ordinary course of business and believes that the ultimate outcome of these actions will not have a material adverse effect on our operating results, liquidity or financial position.
27.
SUBSEQUENT EVENTS
Subsequent to May 31, 2009 the following events took place:
1)
The Company’s wholly-owned subsidiary Panama Central Electrica, S.A. (“PCE”) entered into a Memorandum of Understanding (“MOU”) with Generadora Hidroelectrica Santa María, S.A. (¨Santa Maria¨) for the development of a 25MW hydroelectric plant (the ¨Hydro Project¨) in the Province of Veraguas, Panama.
2)
The Company granted 150,000 stock options, 60,000 options expired and 3,245,080 options were cancelled. The Company is currently reviewing the accounting impact of the option cancellations.
3)
The Company is currently conducting an internal investigation, under the oversight of its Audit Committee and with the assistance of independent counsel, of certain of its international operations, focusing on the material weakness identified during the Company’s assessment of internal controls as at May 31, 2009.
4)
The Company’s management conducted an assessment of the Molejon Gold Mine resulting in the identification of several deficiencies in the plant construction and operation. These deficiencies have led to several areas of the plant not operating to design specifications resulting in additional future costs to mitigate construction deficiencies. A process for estimating costs of mitigation is in the identification stage thus no amounts can be quantified at this time.
5)
The Company entered into a forward sale agreement for 7,000 ounces of gold to be delivered in October and November 2009. Disruption of plant operations from any cause may result in delivery default and result in additional cost being incurred.
6)
In September 2009, the Company made a principal, premium and interest payment of $6,208,844 on its senior secured notes pursuant to the provisions of the debt agreement (Note 12).
7)
As a result of operational issues, the Company has been unable to meet its current production targets and requires additional funding in order to continue operations. Management is currently in substantive negotiations with lenders to secure additional financing; however, there is no guarantee that management will be successful in its efforts.
8)
On November 5, 2009, Gaston Araya, Robert Baxter, John Cook and John Resing resigned from the Company’s board of directors, Christopher Davie resigned as President and Chief Executive Officer and Graham H. Scott resigned as Corporate Secretary.
9)
On November 6, 2009, Raul Ferrer, David Kaplan, David Levy and Daniel Small joined the Company’s board of directors. In addition, Richard Fifer was appointed Non-Executive Chairman of the board of directors and Joao Manuel was appointed President and Chief Executive Officer.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 119 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
28.
RESTATEMENT OF JANUARY 31, 2007 INTERIM FINANCIAL STATEMENTS AND MAY 31, 2008 BALANCE SHEET
During the fourth quarter of fiscal 2009, the Company concluded that:
·
The accounting for the spin-out of Petaquilla Copper Ltd. was not properly recorded in the financial statements for the period ended January 31, 2007.
·
Stock-based compensation relating to the options issued prior to the Plan of Arrangement was not properly recorded in the financial statements for the period ended January 31, 2007.
·
Certain capital assets were recorded as mineral properties in the financial statements as at January 31, 2007.
·
Dilution gains and equity losses for the equity investment in Petaquilla Copper Ltd. which were applicable to the twelve months ended January 31, 2007 were not recorded in that period.
·
The carrying value of the Investment in Petaquilla Copper Ltd. was not correctly recorded during the period ended May 31, 2008.
The Plan of Arrangement, whereby each holder of the common shares of the Company on October 17, 2006 was entitled to receive one common share of Copper for each common share of the Company held, was accounted for, in the twelve months ended January 31, 2007, based on a tentative plan. According to the terms of the initial plan, Copper was to receive $4,833,040 (CAD$ 5,500,000). The plan was later revised and this amount was no longer required to be transferred to Copper. The effect of this change to the January 31, 2007 financial statements was to decrease the amount payable to a related company by $2,426,701, increase the amount receivable from a related company by $1,821,387, decrease other comprehensive income by $584,952 and decrease the amount distributed to Petaquilla Copper Ltd. by $4,833,040.
Incorrect accounting was applied to options issued prior to the Plan of Arrangement. The effect of the adjustment to the January 31, 2007 financial statements was to increase stock-based compensation by $6,141,087, increase contributed surplus by $3,723,515, increase share capital by $2,497,743 and increase mineral properties by $103,832.
Certain capital assets acquired during the twelve months ending January 31, 2007 were incorrectly recorded as mineral properties. As a result, equipment was understated by $3,411,215, accumulated amortization on production equipment was understated by $408,182 and mineral properties were overstated by $3,003,033. The effect of the adjustment to the January 31, 2007 financial statements is an increase in property and equipment of $3,003,033 and a decrease in mineral properties of $3,003,033.
The Company was required to record the investment in Copper using the equity method commencing October 18, 2006, the date of the Plan of Arrangement. Dilution gains resulting from the issue of additional shares by Copper as well as the Company’s proportionate share of losses incurred by Copper were required to be recorded by the Company in the period in which these transactions occurred. Due to the inability of Copper to provide information on a timely basis, the dilution gain and equity loss for the twelve months ended January 31, 2007 were not recorded until the period ending April 30, 2007. The result of the adjustment required to the January 31, 2007 financial statements was to increase the investment in Petaquilla Copper Ltd. by $2,187, 611, increase the gain on dilution of equity investment by $1,989,882 and increase the loss from equity investment by $169,866. In the current year the Company has adopted a change in accounting policy which affects the measurement of dilution gains and equity losses on a retroactive basis and therefore this error has been corrected as part of this change.
The proceeds used in the calculation of dilution gains did not include transaction costs and the gain on sale of Petaquilla Copper Ltd. shares did not exclude the gain attributable to Petaquilla Minerals Ltd.’s equity interest in Petaquilla Copper Ltd. As a result, the investment in Petaquilla Copper Ltd. was overstated at May 31, 2008 by $1,207,000. The impact of this adjustment is reflected in the 12 month period ended April 30, 2008 which was previously presented as part of the 13 month period ended May 31, 2008. In the current year the Company has adopted a change in accounting policy which affects the measurement of
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 120 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
28.
RESTATEMENT OF JANUARY 31, 2007 INTERIM FINANCIAL STATEMENTS AND MAY 31, 2008 BALANCE SHEET (continued)
dilution gains and equity losses on a retroactive basis and therefore this error has been corrected as part of this change.
29.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). Material variations in the accounting principles, practices and methods used in preparing these financial statements from United States Generally Accepted Accounting Principles (“U.S. GAAP”) are described and quantified below.
Loss for the periods
| | | | | | | | | | |
| | | Twelve months ended | | | One month ended | | | Twelve months ended | |
| | | May 31, 2009 | | | May 31, | | | April 30, | |
| | | | | | 2008 | | | 2008 | |
| | | | | | (Note 2) | | | (Note 2) | |
| (Loss) for the period – Canadian GAAP | $ | (21,099,866 | ) | $ | (5,544,998 | ) | $ | (16,111,007 | ) |
| Gain on dilution of equity investment (b) | | (2,238,492 | ) | | - | | | (12,582,085 | ) |
| Mineral properties expensed under U.S. GAAP (c) | | (17,562,548 | ) | | (1,884,160 | ) | | (22,680,970 | ) |
| Revenue recognized (k) | | 653,941 | | | - | | | - | |
| Cost of goods sold (k) | | (1,260,127 | ) | | - | | | - | |
| Amortization (k) | | (640,425 | ) | | - | | | - | |
| Write down of inventory in finished goods and work in progress | | (2,404,695 | ) | | - | | | - | |
| Change in fair value of warrants denominated in Canadian dollars under U.S. GAAP (l) | | 22,871,582 | | | - | | | - | |
| Foreign exchange on difference in mineral properties expensed under U.S. GAAP | | (9,639,262 | ) | | - | | | 1,622,000 | |
| Foreign exchange on difference in senior secured notes under U.S. GAAP | | 3,180,313 | | | - | | | - | |
| Additional loss relating to redemption and modification of senior secured note agreement under U.S. GAAP (h) | | (18,712,488 | ) | | 3,831,931 | | | - | |
| Net loss – U.S. GAAP | $ | (46,852,067 | ) | $ | (3,597,227 | ) | $ | (49,752,062 | ) |
| Other comprehensive (loss) gain | | | | | | | | | |
| Unrealized (loss) gain on translating financial statements to U.S. reporting currency | | (4,648,716 | ) | | 487,574 | | | 716,555 | |
| Foreign exchange on difference in mineral properties expensed under U.S. GAAP | | 9,639,262 | | | - | | | (1,622,000 | ) |
| Foreign exchange on difference in senior secured notes under U.S. GAAP | | (3,180,313 | ) | | - | | | - | |
| Comprehensive loss for the year | $ | (45,041,834 | ) | $ | (3,106,653 | ) | $ | (50,657,507 | ) |
| Basic and diluted loss per share – U.S. GAAP | $ | (0.49 | ) | $ | (0.04 | ) | $ | (0.53 | ) |
| | | | | | | |
| | | Three months ended April 30, | | | Twelve months ended January | |
| | | 2007 | | | 31, 2007 | |
| |
| | | (Note 2) | | | (Note 2) | |
| |
| (Loss) for the period – Canadian GAAP | $ | (8,492,639 | ) | $ | (30,712,592 | ) |
| Gain on dilution of equity investment(b) | | (632,396 | ) | | (1,701,589 | ) |
| Mineral properties expensed under U.S. GAAP (c) | | (5,510,801 | ) | | (3,540,104 | ) |
| Foreign exchange on difference in mineral properties under U.S. GAAP | | - | | | 272,000 | |
| Net loss – U.S. GAAP | $ | (14,635,836 | ) | $ | (35,682,285 | ) |
| Other comprehensive (loss) gain | | | | | | |
| Unrealized (loss) gain on translating financial statements to U.S. reporting currency | | 923,990 | | | (598,731 | ) |
| Foreign exchange on difference in mineral properties expensed under U.S. GAAP | | - | | | (272,000 | ) |
| Comprehensive loss for the year | $ | (13,711,846 | ) | $ | (36,553,016 | ) |
| Basic and diluted loss per share – U.S. GAAP | $ | (0.16 | ) | $ | (0.46 | ) |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 121 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
29.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued)
| | | | | | | |
| Balance Sheets | | May 31 2009 | | | May 31, 2008 | |
| | | | | | (Note 2) | |
| Total assets – Canadian GAAP | $ | 81,543,823 | | $ | 71,208,177 | |
| Mineral properties expensed or charged to cost of sales and revenue under U.S. GAAP (c)(k) | | (55,001,369 | ) | | (33,788,515 | ) |
| Total assets – U.S. GAAP | $ | 26,542,454 | | $ | 37,419,662 | |
| Liabilities – Canadian GAAP | $ | 90,464,111 | | $ | 56,602,043 | |
| Allocation of fair value of senior notes under U.S. GAAP (h) | | - | | | (13,636,333 | ) |
| Derivative liability – warrants (l) | | 6,292,830 | | | - | |
| Equity component of convertible debt treated as a liability under U.S. GAAP (i) | | 495,121 | | | - | |
| Liabilities – U.S. GAAP | $ | 97,252,062 | | $ | 42,965,710 | |
| |
| Shareholder’ s equity (deficit) - Canadian GAAP | $ | (8,920,288 | ) | $ | 14,606,134 | |
| | | | | | | |
| Mineral properties expensed or charged to cost of sales and revenue under U.S. GAAP (c)(k) | | (55,001,369 | ) | | (33,788,515 | ) |
| (Decrease) increase in retained earnings due to translation of prior year mineral property expenses and senior secured notes | | (4,564,949 | ) | | 1,622,000 | |
| Difference in accumulated other comprehensive income | | 4,564,949 | | | (1,622,000 | ) |
| Increase in net income due to the change in fair value of warrants denominated in Canadian dollars under U.S. GAAP (l) | | 22,871,582 | | | - | |
| Decrease in warrants due to fair value of warrants denominated in Canadian dollars under U.S. GAAP (l) | | (29,164,412 | ) | | - | |
| Additional loss relating to redemption and modification of senior secured note agreement under U.S. GAAP (h) | | (14,903,816 | ) | | 3,831,931 | |
| Allocation of fair value of senior secured notes under U.S. GAAP (h) | | 14,903,816 | | | 9,804,402 | |
| Equity component of convertible debenture treated as a liability under U.S. GAAP (i) | | (495,121 | ) | | - | |
| Shareholders’ equity (deficit) – U.S. GAAP | $ | (70,709,608 | ) | $ | (5,546,048 | ) |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 122 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
29.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued)
| | | | | | | |
| Mineral Properties | | May 31, 2009 | | | May 31 , 2008 | |
| |
| | | | | | (Notes 2 and 28 (a)) | |
| | | | | | | |
| Mineral properties – Canadian GAAP | $ | 60,843,501 | | $ | 37,739,133 | |
| Amortization (k) | | (640,425 | ) | | - | |
| Revenue recognized under U.S. GAAP (k) | | 653,941 | | | - | |
| Cost of goods sold (k) | | (1,260,127 | ) | | - | |
| Inventory write-down (k) | | (2,404,695 | ) | | - | |
| Reclassification of work-in-progress and finished goods to current assets | | (2,868,999 | ) | | - | |
| Mineral properties expensed under U.S. GAAP (c) | | (51,350,063 | ) | | (33,788,515 | ) |
| Mineral properties – U.S. GAAP | $ | 2,973,133 | | $ | 3,950,618 | |
| | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Statement of Cash Flows | | | | | | | | | |
| | | Twelve months | | | One month ended | | | Twelve months ended | |
| | | ended May 31, 2009 | | | May 31, 2008 | | | April 30, 2008 | |
| | | | | | (Note 2) | | | (Notes 2 and 28 (a)) | |
| | | | | | | | | | |
| Cash (used in) provided by operating activities –Canadian GAAP | $ | (16,010,085 | ) | $ | (10,134,316 | ) | $ | (6,667,860 | ) |
| Expenditures on mineral properties | | (27,201,810 | ) | | (1,884,160 | ) | | (21,058,970 | ) |
| Cash used in operating activities – U.S. GAAP | $ | (43,211,895 | ) | $ | (12,018,476 | ) | $ | (27,726,830 | ) |
| Cash from (used in) financing activities – Canadian | $ | (1,260,198 | ) | $ | 23,380,108 | | $ | 30,654,125 | |
| Cash from (used in) financing activities – U.S. GAAP | $ | (1,260,198 | ) | $ | 23,380,108 | | $ | 30,654,125 | |
| Cash from (used in) investing activities – Canadian GAAP | $ | 8,164,377 | | $ | (1,289,902 | ) | $ | (19,977,584 | ) |
| |
| Expenditures on mineral properties | | 27,201,810 | | | 1,884,160 | | | 21,058,970 | |
| Cash from investing activities – U.S. GAAP | $ | 35,366,187 | | $ | 594,258 | | $ | 1,081,386 | |
| Cash and cash equivalents, end of period – CanadianGAAP | $ | 3,575,168 | | $ | 12,850,137 | | $ | 1,766,256 | |
| Cash and cash equivalents, end of period – U.S. GAAP | $ | 3,575,168 | | $ | 12,850,137 | | $ | 1,766,256 | |
| | | | | | | |
| | | | | | | |
| Statement of Cash Flows | | Three months ended | | | Twelve months ended | |
| | | April 30, 2007 | | | January 31, 2007 | |
| |
| |
| Cash (used in) provided by operating activities – Canadian GAAP | $ | (3,681,090 | ) | $ | (14,506,875 | ) |
| Expenditures on mineral properties | | (5,510,801 | | | (3,268,104 | ) |
| Cash used in operating activities – U.S. GAAP | $ | (9,191,891 | ) | $ | (18,046,979 | ) |
| Cash from (used in) financing activities – Canadian GAAP | $ | (855,509 | ) | $ | 25,349,210 | |
| Cash from (used in) financing activities – U.S. GAAP | $ | (855,509 | ) | $ | 25,349,210 | |
| Cash from (used in) investing activities – Canadian GAAP | $ | 224,494 | | $ | (12,395,955 | ) |
| Expenditures on mineral properties | | 5,510,801 | | | 3,268,104 | |
| Cash from investing activities – U.S. GAAP | $ | 5,735,295 | | $ | (9,127,851 | ) |
| |
| Cash and cash equivalents, end of period – Canadian GAAP | $ | 1,606,693 | | $ | 5,887,701 | |
| Cash and cash equivalents, end of period – U.S. GAAP | $ | 1,606,693 | | $ | 5,887,701 | |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 123 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
29.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued)
a)
Restatement
Certain capital assets purchased in the twelve months ended January 31, 2007 were included in mineral properties and were incorrectly expensed for accounting purposes under U.S. GAAP. The effect of the restatement is to decrease mineral properties expensed by $3,950,618, increase total assets by $3,950,618 and increase shareholders’ equity by $3,950,618 at May 31, 2008 and decrease mineral properties expensed by $3,525,581, increase total assets by $3,525,581 and increase shareholders’ equity by $3,525,581 at April 30, 2007.
As a result of a review of the accounting for the investment in Petaquilla Copper Ltd. under U.S. GAAP, the presentation of the investment balance and the dilution gains and equity losses have been adjusted. The effect of these adjustments is to increase the investment in Petaquilla Copper Ltd. at May 31, 2008 by $2,432,220, and increase shareholders’ equity by $2,432,220. In the current year the Company has adopted a change in accounting policy which affects the measurement of dilution gains and equity losses and is applied on a retroactive basis. This change in accounting policy harmonizes the U.S. and Canadian GAAP treatment of the dilution gains and equity losses. This error has therefore been eliminated as part of this change.
Debt issuance costs of $3,831,931 were written off during the month ending May 31, 2008 rather than being capitalized. The effect of this restatement is to decrease the senior secured notes under U.S. GAAP by $3,831,931, decrease debt issuance costs expensed under U.S. GAAP by $3,831,931 and increase shareholders' equity under U.S. GAAP by $3,831,931.
b)
Equity investment in Petaquilla Copper Ltd.
Under U.S. GAAP, changes in the parent company’s proportionate share of equity resulting from the additional equity raised by an entity subject to significant influence in the development stage are accounted for as an equity transaction on consolidation. Under Canadian GAAP, these gains have been credited to income.
c)
Mineral properties and deferred costs
Mineral property costs and related exploration expenditures are accounted for in accordance with Canadian GAAP as disclosed in Note 2. For U.S. GAAP purposes, the Company expenses, as incurred, the exploration costs relating to unproven mineral properties which includes plant and camp costs as these assets have no alternative use and cannot be transferred to another mine site. The ball mills, which could be moved to another site in the event that the Company’s property is not economically feasible, are the only mineral properties that have been capitalized. When proven and probable reserves are determined for a property and a feasibility study is prepared, then subsequent development costs of the property would be capitalized.
d)
Marketable securities
Under Canadian GAAP, the marketable securities held by the Company were recorded at the lower of cost and net realizable value. Under U.S. GAAP, these investments are classified as “available-for-sale” securities and recorded at market value. The accumulated difference between cost and market value is recorded as part of comprehensive income. Effective May 1, 2007 Canadian and U.S. GAAP relating to accounting for investments has converged and no differences exist for the period ended May 31, 2008 and May 31, 2009.
e)
Development stage company
Pursuant to U.S. GAAP, the Company would be subject to the disclosure requirements applicable to a development stage enterprise as the Company is devoting its efforts to establishing commercially viable mineral properties. However, the identification of the Company as such for accounting purposes does not impact the measurement principles applied to these consolidated financial statements.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 124 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
29.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued)
f)
Income taxes
Under Canadian GAAP, future tax assets and liabilities are recorded at substantively enacted tax rates. Under U.S. GAAP, deferred tax assets and liabilities are recorded at enacted rates. There were no significant differences between enacted and substantively enacted rates for the periods presented.
g)
Accounting for uncertainty in income taxes
In July 2006, the Financial Accounting Standards Board issued FIN 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 ("FIN 48"). This interpretation provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 prescribes a recognition threshold and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
Effective May 1, 2007 the Company adopted FIN 48. The adoption did not result in any adjustment to opening retained earnings under U.S. GAAP. As a result of the implementation of FIN 48, the Company did not recognize any liabilities for unrecognized tax benefits. In the event that the Company recognizes accrued interest related to unrecognized tax benefits, it will be recorded in interest expense. Any penalties will be recorded in general and administrative expenses.
The Company is subject to taxation in Canada and various other foreign jurisdictions. The Company is currently open to audit under the statute of limitations by the Canada Revenue Agency for years ended January 31, 2005 through May 31, 2009.
h)
Senior secured notes
Under Canadian GAAP, compound financial instruments can be accounted for using the residual method when allocating between the liability and the equity component of the instrument. Under U.S. GAAP, compound financial instruments are accounted for using the fair value method when allocating between the liability and the equity component. On the modification of the senior secured note agreement on March 25, 2009, the senior secured notes were required to be marked to market and the Company recognized additional losses relating to redemption and inception losses in the amount of $14,903,816. This resulted in harmonizing both Canadian GAAP and U.S. GAAP with no differences going forward.
i)
Convertible senior secured notes
Under U.S. GAAP, convertible debt instruments are classified as debt until converted to equity, whereas under Canadian GAAP, the proceeds of the convertible debt instrument are allocated to both debt and equity components, with the debt component being accreted over time to its face value and accretion charged to earnings. Under U.S. GAAP, a value is assigned to the conversion feature only if the effective conversion rate is less than the market price of the common stock at the commitment date. No value would be assigned under U.S. GAAP to the conversion feature and thus, the entire value of the convertible notes is classified as debt. This difference resulted in liabilities being increased by $495,121 and shareholders’ equity being decreased by $495,121.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 125 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
29.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued)
j)
Deferred financing costs
Accounting Principles Board Opinion No. 21, “Interest on Receivables and Payables” requires that debt issue costs be reported in the balance sheet as deferred charges and amortized over the term of the debt. Upon issuance, the Company reduced the carrying value of the senior secured notes by debt issuance costs. On modification of the senior secured note agreement as stated above in (h), an inception loss wrote off all deferred financing costs. No differences exist for the period ended May 31, 2009.
k)
Commencement of mill commissioning
The Company is in the pre-operating phase and therefore in accordance with EIC 27,Revenues and Expenses during the pre-operating period, pre-operating expenditures are deferred and all revenues are recognized as a reduction of deferred expenditures. Under U.S. GAAP, in accordance with SOP 98-5,Reporting on the Costs of Start-Up Activites,all start up costs are expensed as incurred and revenues are recognized in the statement of operations with their corresponding costs of production.
For U.S. GAAP purposes, the impact of this difference for the year ended May 31, 2009 was to increase revenues by $653,941, increase cost of sales by $1,260,127, increase amortization by $640,425, increase inventory write-down by $2,404,695 and decrease mineral properties expensed by $3,651,306.
l)
Inventory Write Down
The $2,404,695 write-down of inventory arose from the excess of unit cost per ounce over net realizable value. Costs totaled $1,793.13 per ounce for the year ended May 31, 2009. Amounts greater than the net realizable value of $975.50 were applied to inventory on hand to calculate the total inventory write-down.
m)
Warrants
Warrants that are issued with an exercise price denominated in a currency other than the Company’s functional currency are required to be classified and accounted for as financial liabilities and re-measured under the Black-Scholes model at each period end. For the year ended May 31, 2009, under U.S. GAAP, other income was increased by $22,871,582 arising from a decrease in fair value of the warrants granted in which the exercise price denominated currency is different from the Company’s functional currency. As of May 31, 2009, the liability relating to warrants granted for which the exercise price denominated currency is different from the Company’s functional currency was $6,292,830 and the warrant account was reduced by $29,164,412 as a result of the reclassification of the warrants to liabilities pursuant to U.S. GAAP.
n)
Adoption of new accounting policies
Statement of Financial Accounting Standards No. 157 (“SFAS 157”), Fair Value Measurements, defines fair value, establishes a framework for measuring value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, SFAS 157 does not require any new fair value measurements. The adoption of SFAS 157 is not expected to have an impact on the Company’s consolidated financial statements. SFAS 157-2 defers the Statement’s effective date for certain nonfinancial assets and liabilities to fiscal years beginning after November 15, 2008, and interim periods within those years. The adoption of SFAS 157-2 is not expected to have an impact on the Company’s consolidated financial statements.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 126 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
29.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued)
Statement of Financial Accounting Standards No. 159 (“SFAS 159”), The Fair Value Option for Financial Assets and Liabilities, provides companies with an option to report selected assets and liabilities (principally financial assets and liabilities) at fair value. The objective of SFAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 requires entities to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. SFAS 15 9 does not eliminate disclosure requirements included in other accounting standards.
o)
Recent Account Pronouncements
SFAS-160, “Non-controlling Interests in Consolidated Financial Statements”
In December 2007, FASB issued SFAS-160, “Non-controlling Interests in Consolidated Financial Statements” (“SFAS-160”), which specifies that non-controlling interests are to be treated as a separate component of equity, not as a liability or other item outside of equity. Because non-controlling interests are an element of equity, increases and decreases in the parent’s ownership interest that leave control intact are accounted for as capital transactions. The Statement is effective for business combinations entered into on or after December 15, 2008, and is to be applied prospectively to all non-controlling interests, including any that arose before the effective date. The Company is evaluating the impact of this new standard on the Company’s consolidated financial statements.
SFAS 141R, “Business Combinations”
In December 2007, the FASB issued a revised standard on accounting for business combinations, SFAS-141R. The Statement is effective for periods beginning on or after December 15, 2008. SFAS-141R requires fair value measurement for all business acquisitions including pre-acquisition contingencies. The standard also expands the existing definition of a business and removes certain acquisition related costs from the purchase price consideration. The Company is evaluating the impact of this new standard on the Company’s consolidated financial statements.
FSP APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion”
In May 2008, FASB issued FASB Staff Position Accounting Principles Board 14-1 (“APB 14-1”), which revises the accounting treatment for convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement. APB 14-1 requires the issuer to separately account for the liability and equity components of convertible debt instruments. The value assigned to the liability component would be the estimated fair value, as of the date of issuance, of similar debt without the conversion option, but including any other embedded features. The difference between the proceeds of the debt and the value allocated to the liability component would be recorded in equity. The standard is effective for periods beginning on or after December 15, 2008, and is to be applied retrospectively. The Company is evaluating the impact of APB 14-1 on the Company’s consolidated financial statements.
EITF 07-5, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock”
In June 2008, FASB Task Force reached a consensus on EITF Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock” (“EITF 07-5”). The standard provides that an equity-linked financial instrument (or embedded feature) would not be considered indexed to the entity’s own stock if the strike price is denominated in a currency other than the issuer’s functional currency. EITF 07-5 is effective for periods beginning on or after December 15, 2008. The Company is evaluating the impact of EITF 07-5 on the Company’s consolidated financial statements.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 127 |
PETAQUILLA MINERALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
Twelve Months Ended May 31, 2009, One Month Ended May 31, 2008, Twelve Months Ended April 30, 2008, Three Months Ended April 30, 2007 and Twelve Months Ended January 31, 2007
29.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued)
EITF 08-4, “Transition Guidance for Conforming Changes to EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”
In June 2008, FASB Task Force provided transition guidance for conforming changes made to EITF 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustment Conversion Ratios that resulted from Issue 00-27 and Statement 150. EITF 08-4 is effective for fiscal years ending after December 15, 2008. The Company is evaluating the impact of EITF 08-4 on the Company’s consolidated financial statements.
EITF 08-6, “Equity Method Investment Accounting Considerations”
In November 2008, FASB Task Force clarified the accounting for certain transactions and impairment considerations involving equity method investments. Topics related to equity method investments include the initial carrying value of an equity method investment, impairment assessment of an investee’s intangibles and an equity investee’s issuance of shares. EITF 08-6 is effective for fiscal years beginning on or after December 15, 2008. The Company is evaluating the impact of EITF 08-6 on the Company’s consolidated financial statements.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 128 |
ITEM 18. FINANCIAL STATEMENTS
Please refer to “Item 17 — Financial Statements”.
ITEM 19. EXHIBITS
(a) Financial Statements
|
Description of Document |
|
Cover Sheet |
Management Report on Internal Controls over Financial Reporting |
Independent Auditors’ Report on Financial Statements dated September 1, 2009 |
Independent Auditors’ Report on Internal Controls dated September 1, 2009 |
Balance Sheets as at May 31, 2009 and May 31 2008 |
Consolidated Statements of Operations and Deficit for 12 Months Ended May 31, 2009, One Month Ended May 31, 2008, 12 Months Ended April 30, 2008, Three Months Ended April 30, 2007, and Twelve Months Ended January 31, 2007 |
Consolidated Statements of Shareholders’ Equity for 12 Months Ended May 31, 2009, One Month Ended May 31, 2008, 12 Months Ended April 30, 2008, Three Months Ended April 30, 2007, and Twelve Months Ended January 31, 2007 |
Consolidated Statements of Cash Flows for 12 Months Ended May 31, 2009, One Month Ended May 31, 2008, 12 Months Ended April 30, 2008, Three Months Ended April 30, 2007, and Twelve Months Ended January 31, 2007 |
Notes to the Consolidated Financial Statements |
(b) Exhibits
ExhibitNumber | Description of Document |
*1.A. | Memorandum of Incorporation and Articles of Petaquilla Minerals Ltd. |
*2.A. | Shareholder Rights Plan |
2.B. | Amended and Restated Senior Secured Notes Indenture between Petaquilla Minerals Ltd. and Computershare Trust Company of Canada made as of March 25, 2009 |
*3.B. | Special Resolution dated June 8, 1995, increasing the authorized share capital of Petaquilla Minerals Ltd. |
*4.F. | Option Agreement dated August 10, 1993, between Petaquilla Minerals, S.A., Madison Enterprises Corp. and Madison Enterprises (Latin America), S.A. with respect to the Belencillo Property. |
*4.G. | Association Agreement dated September 23, 1994, as amended, between Petaquilla Minerals, S.A. and Madison Enterprises (Latin America), S.A., with respect to the Belencillo Property |
*4.I. | Option Agreement dated February 17, 1994, between Petaquilla Minerals, S.A. and Arlo Resources Ltd. with respect to the Oro del Norte Property |
*4.J. | Option Agreement dated February 17, 1994, between Petaquilla Minerals, S.A. and Arlo Resources Ltd. with respect to the Santa Lucia Property |
*4.K. | Option Agreement dated January 27, 1994, between Petaquilla Minerals, S.A. and Silverstone Resources Ltd. with respect to the La Esperanza Property |
*4.L. | Option Agreement dated November 7, 1994, between Petaquilla Minerals, S.A., Arlo Resources Ltd. and Arlo Resources (Panama), S.A. with respect to the Iglesias Property |
*4.O. | Petaquilla Shareholders Agreement dated February 21, 1997, between Petaquilla Minerals Ltd., Teck Corporation, Inmet Mining Corporation, Georecursos Internacional, S.A. and Minera Petaquilla, S.A. |
*4.S. | Assignment dated May 23, 2000, between Adrian Resources (Colorado) Ltd. And Hyperion Resources (Colorado) Ltd. respecting the Baca Ranch Property |
*4.T. | Molejon Gold Project Agreement dated June 2, 2005, among Petaquilla Minerals Ltd., Teck Cominco Limited, Inmet Mining Corporation and Minera Petaquilla, S.A. |
*4.U. | Employment agreement dated February 11, 2008, between Petaquilla Minerals Ltd. and Bassam Moubarak |
*4.V. | Law No. 9, dated February 26, 1997, of the Legislative Assembly of Panama(original Spanish version) |
4.W. | Law No. 9, dated February 26, 1997, of the Legislative Assembly of Panama (English translation of original Spanish version) |
*8. | Subsidiaries of Petaquilla Minerals Ltd. |
*11.A | Code of Business Ethics and Conduct dated May 31, 2008 |
*11.B | Whistle-Blower Policy dated May 31, 2008 |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 129 |
ExhibitNumber | Description of Document |
12.A | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act 2002 |
12.B | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act 2002 |
13.A | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
13.B | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* | These exhibits were previously filed with Petaquilla Minerals Ltd.'s Registration Statement or a previous Annual Report on Form 20-F (file no. 000-26296). |
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 130 |
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all of the requirements for filing on amended Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, hereunto duly authorized.
Dated at Vancouver, British Columbia, this 6th day of November, 2009.
PETAQUILLA MINERALS LTD.
| | | | |
By: | /s/ Joao Manuel | | By: | /s/ Bassam Moubarak |
| Joao Manuel , President and Chief Executive Officer (principal executive officer) | | | Bassam Moubarak, Chief Financial Officer (principal financial and accounting officer) |
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 131 |
Exhibit 2.B
EXECUTION COPY
AMENDED AND RESTATED SENIOR SECURED NOTE INDENTURE
between
PETAQUILLA MINERALS LTD.
and
COMPUTERSHARE TRUST COMPANY OF CANADA
PROVIDING FOR THE ISSUE OF
Senior SecuredNotes
of Petaquilla Minerals Ltd.
Made as of March 25, 2009
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 132 |
TABLE OF CONTENTS
| | | |
| | | Page |
|
1. | DEFINITIONS | 2 |
| | |
| 1.1 | Definitions and Interpretation | 2 |
| 1.2 | Meaning of "outstanding" for Certain Purposes | 9 |
|
2. | THE NOTES | 10 |
|
| 2.1 | Designation, Terms and Form of Notes | 10 |
| 2.2 | Payment of Principal | 11 |
| 2.3 | Interest | 11 |
| 2.4 | Prescription | 11 |
| 2.5 | Issue of Notes | 12 |
| 2.6 | Trustee’s Reliance | 12 |
| 2.7 | Execution of Notes | 12 |
| 2.8 | Certification by the Trustee | 13 |
| 2.9 | Registration of Notes | 13 |
| 2.10 | Person Entitled to Payment | 14 |
| 2.11 | Replacement of Notes | 15 |
| 2.12 | Exchange of Notes | 15 |
| 2.13 | Payment of Interest and Principal | 16 |
| 2.14 | Rank | 16 |
| 2.15 | Taxes | 16 |
| 2.16 | Redemption and Prepayment | 17 |
| 2.17 | Cash Flow Payment | 18 |
| 2.18 | Transfer | 19 |
| 2.19 | Weighted Average Market Gold Price Semi-Annual Repayment | 21 |
|
3. | PUT RIGHTS AND CONVERSION RIGHTS | 23 |
|
| 3.1 | Put Rights | 23 |
| 3.2 | Notes Due on Put Closing Date | 23 |
| 3.3 | Delivery of Put Purchase Price | 23 |
| 3.4 | Surrender of Notes for Cancellation | 23 |
| 3.5 | Cancellation of Notes | 24 |
| 3.6 | Conversion Rights | 24 |
|
4. | SECURITY | 24 |
|
| 4.1 | Security | 24 |
| 4.2 | Title to Charged Premises | 24 |
| 4.3 | Further Assurances | 24 |
| 4.4 | Registration | 25 |
| 4.5 | Security Valid Irrespective of Advance | 26 |
| 4.6 | Final Discharge | 26 |
| 4.7 | Attachment | 27 |
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 133 |
(ii)
| | | |
5. | SENIORITY | 27 |
|
| 5.1 | Seniority | 27 |
|
6. | COVENANTS OF PTQ | 27 |
|
| 6.1 | General Covenants | 27 |
| 6.2 | Trustee’s Remuneration and Expenses | 30 |
| 6.3 | Trustee to Give Notice of Default | 30 |
| 6.4 | Performance of Covenants by Trustee | 30 |
|
7. | DEFAULT AND ENFORCEMENT | 30 |
|
| 7.1 | Events of Default | 30 |
| 7.2 | Acceleration on Default | 31 |
| 7.3 | Waiver of Default or Breach | 32 |
| 7.4 | Proceedings by the Trustee | 32 |
| 7.5 | Suits by Noteholders | 33 |
| 7.6 | Application of Moneys Received by Trustee | 33 |
| 7.7 | Distribution of Proceeds | 34 |
| 7.8 | Trustee Appointed Attorney | 34 |
| 7.9 | Remedies Cumulative | 34 |
| 7.10 | Judgment Against PTQ | 34 |
|
8. | SATISFACTION AND DISCHARGE | 35 |
|
| 8.1 | Cancellation and Destruction | 35 |
| 8.2 | Non-Presentation of Notes | 35 |
| 8.3 | Repayment of Unclaimed Moneys to PTQ | 35 |
| 8.4 | Release from Covenants | 35 |
|
9. | CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER | 36 |
|
| 9.1 | Certain Requirements in Respect of Merger, etc | 36 |
| 9.2 | Vesting of Powers in Successor | 36 |
| 9.3 | Execution of Supplemental Indenture | 37 |
|
10. | MEETINGS OF NOTEHOLDERS | 37 |
|
| 10.1 | Right to Convene Meeting | 37 |
| 10.2 | Notice of Meeting of Noteholders | 38 |
| 10.3 | Quorum | 38 |
| 10.4 | Chairman | 38 |
| 10.5 | Power to Adjourn | 38 |
| 10.6 | Show of Hands | 39 |
| 10.7 | Poll | 39 |
| 10.8 | Voting | 39 |
| 10.9 | Record Dates | 39 |
| 10.10 | Proxies | 39 |
| 10.11 | Resolution in Lieu of Meeting | 40 |
| 10.12 | PTQ and Trustee may be Represented | 40 |
| 10.13 | Powers Exercisable by Special Resolution | 40 |
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 134 |
(iii)
| | | |
| 10.14 | Meaning of "Special Resolution" | 42 |
| 10.15 | Minutes | 42 |
| 10.16 | Effect of Resolutions | 42 |
|
11. | SUPPLEMENTAL INDENTURES | 43 |
|
| 11.1 | Provision for Supplemental Indentures for Certain Purposes | 43 |
| 11.2 | Binding Effect of Modifications | 43 |
|
12. | CONCERNING THE TRUSTEE | 44 |
|
| 12.1 | Conditions Precedent to Trustee’s Obligation to Act | 44 |
| 12.2 | Requirement for Funds and Indemnity | 44 |
| 12.3 | Evidence | 44 |
| 12.4 | Experts and Advisers | 45 |
| 12.5 | Documents, Moneys, etc. Held by Trustee | 45 |
| 12.6 | Action by Trustee to Protect Interests | 45 |
| 12.7 | Trustee not Required to give Security | 46 |
| 12.8 | Protection of Trustee | 46 |
| 12.9 | Replacement of Trustee | 48 |
| 12.10 | Trustee Not Bound to Act | 49 |
| 12.11 | Conflict of Interest | 49 |
| 12.12 | Delegation of Powers | 49 |
| 12.13 | Acceptance of Trust | 50 |
| 12.14 | Privacy Issues | 50 |
| 12.15 | Third Party Interests | 50 |
| 12.16 | Environmental Indemnity | 50 |
|
13. | GUARANTEE | 51 |
|
| 13.1 | Guarantee | 51 |
| 13.2 | Subordination of Claims and Postponement of Subordination | 54 |
|
14. | MISCELLANEOUS | 55 |
|
| 14.1 | Manner of Giving Notice | 55 |
| 14.2 | Day not a Business Day | 56 |
| 14.3 | Execution and Effect of Restated Indenture | 56 |
| 14.4 | Consolidations | 56 |
| 14.5 | Counterparts | 56 |
| 14.6 | Severability | 57 |
| 14.7 | Headings for Reference Only and Preamble | 57 |
| 14.8 | Successors and Assigns | 57 |
| 14.9 | Time of the Essence | 57 |
| 14.10 | Governing Law | 57 |
| 14.11 | Force Majeure | 57 |
| 14.12 | Entire Agreement | 58 |
|
APPENDIX “I” | 1 |
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 135 |
(iv)
| | | |
1. | CONVERSION RIGHTS | 1 |
| |
| 1.1 | Conversion Privilege of the Series D Noteholder | 1 |
| 1.2 | Manner of Exercise of Right to Convert | 1 |
| 1.3 | Adjustment of Conversion Price | 2 |
| 1.4 | No Requirement to Issue Fractional Shares | 5 |
| 1.5 | Corporation to Reserve Common Shares | 6 |
| 1.6 | Taxes and Charges on Conversion | 6 |
| 1.7 | Cancellation of Converted Series D Notes | 6 |
| 1.8 | Certificate as to Adjustment | 6 |
| 1.9 | Notice of Special Matters | 7 |
| 1.10 | Obligations of PTQ Regarding Calculations | 7 |
| 1.11 | Protection of Trustee | 7 |
Schedule "A" – Form of Notes (other than Series D Notes)
Schedule "B" – Form of Series D Notes
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 136 |
PETAQUILLA MINERALS LTD.
Senior Secured Note Indenture
THIS INDENTURE is made as of the 25th day of March, 2009,
| |
BETWEEN: | PETAQUILLA MINERALS LTD. ("PTQ") ;
|
AND:
AND: | ADRIAN RESOURCES (BVI) LTD., PETAQUILLA MINERALS, S.A., PETAQUILLA GOLD, S.A., COMPANIA MINERA BELENCILLO, S.A., PETAQUILLA INFRAESTRUCTURA, S.A. AND AQUA AZURE, S.A.(collectively, the"GUARANTORS");
COMPUTERSHARE TRUST COMPANY OF CANADA,a trust corporation existing under the laws of Canada (the"Trustee"). |
WITNESSETH THAT:
WHEREASPTQ is authorized to create and issue the Notes as herein provided to be issued in one or more series as herein provided;
AND WHEREASall necessary resolutions of the directors of PTQ have been duly passed and other proceedings taken and conditions complied with to make the creation and issuance of the Notes and this Indenture and the execution thereof and hereof legal, valid and effective;
AND WHEREASthe Trustee has full power and authority to execute this Indenture and to accept and execute the rights, powers, duties, obligations and responsibilities and any trusts herein imposed upon it;
AND WHEREASall necessary resolutions of the directors of the Guarantors have been duly passed and other proceedings taken and conditions complied with to make the creation and issuance of this Indenture and the execution thereof and hereof legal, valid and effective.
NOW THEREFORE THIS SECURED NOTE INDENTURE WITNESSETH FOR GOOD AND VALUABLE CONSIDERATION GIVEN AND ACKNOWLEDGED THATthe parties hereto hereby agree and declare as follows:
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 137 |
-2-
1.
DEFINITIONS
1.1
Definitions and Interpretation
In this Indenture, words in the singular number include the plural and words in the plural number include the singular, and the masculine includes the feminine and neuter. In this Indenture, except where the context otherwise requires:
"Affiliate"of any specified Person means any other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by,” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise;
"Bankruptcy Act"has the meaning ascribed thereto in subsection 7.1(e);
"Business Day"means any day other than a Saturday, Sunday or a day on which the principal chartered banks located at Vancouver, British Columbia are not open for business during normal banking hours;
“Change of Control”means the occurrence of any of the following:
(1)
the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of PTQ and its Subsidiaries, taken as a whole, to any person; or
(2)
the adoption of a plan relating to the liquidation or dissolution of PTQ; or
(3)
any person or group, becomes the owner, directly or indirectly, of 50% or more of the voting power of voting securities of PTQ; or
(4)
PTQ amalgamates or consolidates with, or merges with or into, any person, or any person consolidates with, or merges with or into PTQ, in any such event pursuant to a transaction in which any of the outstanding voting securities of PTQ or such other person is converted into or exchanged for cash, securities or other property, other than any such transaction where the voting securities of PTQ outstanding immediately prior to such transaction is converted into or exchanged for voting securities (other than Disqualified Capital Stock) of the surviving or transferee person constituting a majority of the outstanding shares of such voting securities of such surviving or transferee person (immediately after giving effect to such issuance).
“Common Shares” means the common shares in the capital of PTQ; provided that in the event of a subdivision, redivision, reduction, combination or consolidation thereof, or such subdivisions, redivisions, reductions, combinations or consolidations, then, subject to adjustments, if any, having been made in accordance with the provisions of Appendix I below,"Common Share"shall thereafter mean the shares resulting from such subdivision, redivision, reduction, combination or consolidation;
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 138 |
-3-
"Conversion Price"means CDN$2.25 per Common Share as adjusted as provided herein, in each case issuable from time to time upon the conversion of the Notes in accordance with the provisions of Appendix I;
"Counsel"means the firm of legal counsel retained by the Trustee or retained by PTQ and acceptable to the Trustee;
“Determination Date”has the meaning assigned thereto in Section 2.19.
"Dollar"and"$"unless otherwise specified, mean lawful money of the United States;
“Disqualified Capital Stock”means any capital shares of PTQ or a Subsidiary thereof which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the maturity date of the Notes, for cash or securities constituting Indebtedness. Without limitation of the foregoing, Disqualified Capital Stock shall be deemed to include (i) any preferred shares of a Subsidiary of PTQ and (ii) any preferred shares of PTQ, with respect to either of which, under the terms of such preferred shares, by agreement or otherwise, such Subsidiary or PTQ is obligated to pay current dividends or di stributions in cash during the period prior to the maturity date of the Notes.
“Distributable Cash”means all of the PTQ’s available cash, after:
(a)
satisfaction of its debt obligations (principal and interest) as contemplated by or permitted under this Indenture;
(b)
satisfaction of its general and administration expenses, capital expenditures and other expense obligations, subject to the terms and conditions set forth in this Indenture;
(c)
deduction for income tax obligations; and
(d)
retaining reasonable working capital or other reserves, as contemplated by or permitted under this Indenture;
all as calculated without duplication.
"Event of Default"has the meaning ascribed thereto in section 7.1;
“Excluded Taxes”means taxes, levies, imposts, deductions, charges or withholdings, including interest, penalties or additions thereto, and all related liabilities, imposed on or measured by net income or net profits of the relevant Holder, capital taxes or franchise taxes imposed pursuant to the Laws of Canada, the United States or by the jurisdiction under the laws of which the Holder is organized, in which such person is resident for tax purposes or in which the principal office or applicable lending office of such Holder is located or in which it is otherwise deemed to be engaged in a trade or business for Tax purposes or any subdivision thereof or therein, and any branch profits taxes imposed by the United States or any similar tax imposed by any jurisdiction on the Holder;
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 139 |
-4-
"GAAP"means generally accepted accounting principles in effect from time to time in Canada;
“Guarantor”means (i) Adrian Resources (BVI) Ltd. a corporation incorporated in the British Virgin Islands, (ii) Petaquilla Minerals, S.A. a corporation incorporated in the Republic of Panama (iii) Petaquilla Gold, S.A. a corporation incorporated in the Republic of Panama, (iv) Compania Minera Belencillo, S.A. a corporation incorporated in the Republic of Panama, (v) Petaquilla Infraestructura, S.A. a corporation incorporated in the Republic of Panama (vi) Aqua Azure, S.A. a corporation incorporated in the Republic of Panama and (iv) each Subsidiary of PTQ that hereafter becomes a Guarantor pursuant to Section 6.1(j) and“Guarantors”means such entities, collectively;
"Indebtedness"means any liability of PTQ and its Affiliates and Subsidiaries;
“Indemnified Taxes”means Taxes (including Other Taxes) other than Excluded Taxes;
"Indenture", "herein", "hereby", "hereof"and similar expressions mean or refer to this Secured Note Indenture and any indenture, deed or instrument supplemental or ancillary hereto; and the expressions"Article", "section", "subsection", "paragraph"and"clause"followed by numbers or letters mean and refer to the specified Article, section, subsection, paragraph or clause of this Indenture; the whole as same may be amended, supplemented, restated or replaced from time to time;
"Interest Payment Date"means initially the date of issuance of the Notes and after the First Anniversary (as defined below), the 15th day of the months of May and November of each year, provided that, if any Interest Payment Date would otherwise fall on a day which is not a Business Day, it shall be postponed to the next following Business Day ;
“Investments”means, directly or indirectly, any advance, account receivable (other than an account receivable arising in the ordinary course of business), loan or capital contribution to (by means of transfers of property to others, payments for property or services for the account or use of others or otherwise), the purchase of any stock, bonds, notes, debentures, partnership or joint venture interests or other securities of, the acquisition, by purchase or otherwise, of all or substantially all of the business or assets or stock or other evidence of beneficial ownership of, any Person or the making of any investment in any Person. Investments shall exclude (i) extensions of trade credit on commercially reasonable terms in accordance with normal trade practices and (ii) the repurchase of securities of any Person by such Person;
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 140 |
-5-
"Lien"shall mean any hypothec, mortgage, charge, pledge, lien (statutory or otherwise), security interest or other encumbrance of any nature however arising, or any other security agreement or arrangement creating in favour of any creditor a right in respect of any asset that is prior to the right of any other creditor in respect of such asset;
"Maturity Date"means the date on which the Notes are to mature pursuant to subsection 2.1(d);
"Noteholder(s)"or"Holder(s)"means the registered holder(s) of Notes;
"Noteholders’ Request"means an instrument, signed in one or more counterparts by the Holders of at least 25% in the aggregate principal amount of Notes then outstanding, requesting the Trustee to take some action or proceeding specified therein;
"Notes"means collectively the 15% senior secured notes of PTQ authorized to be issued hereunder each in principal amount denominations of US$1,000 and any integral multiple thereof;
"PTQ"means Petaquilla Minerals Ltd., a corporation under the laws of the British Columbia;
"PTQ Charged Property"shall have the meaning ascribed thereto in section 4.1;
"PTQ GSA"means the general security agreement, as applicable, granted by PTQ in favour of the Trustee, for and on behalf of the Noteholders, on the PTQ Charged Property, in a form and content acceptable to PTQ and the Trustee, to secure the Secured Obligations, the whole as described in section 4.1, the whole as same may be amended, supplemented, restated or replaced from time to time;
"PTQ Security Interests"means, collectively, all of the Liens on the property of PTQ created or granted under the PTQ GSA or any other security document delivered from time to time under section 4.3;
"Officer’s Certificate"means a certificate signed in the name of PTQ by any of the Chairman, the President, an Executive Vice-President, Senior Vice-President, Vice-President or any other officer of PTQ;
“Other Taxes”means any present or future transfer, mortgage, stamp or documentary taxes or any other excise or property taxes, charges, financial institutions duties, debits taxes or similar levies imposed by Canada, or any province or territory thereof, the United States or any other jurisdiction that arise from any payment under this Agreement or under the Notes or from the execution, delivery, enforcement or registration of, or otherwise with respect to, this Agreement or the Notes;
“Permitted Investments”means, for any Person, investments made on or after the date of this Indenture consisting of:
(i)
Investments by PTQ, or by a Subsidiary thereof, in PTQ or a Subsidiary of PTQ;
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 141 |
-6-
(ii)
Temporary Cash Investments;
(iii)
any Investment by PTQ, or by a Subsidiary thereof to (a) acquire control (as defined below) of a Person by way of an offer to acquire outstanding shares of the Person; (b) purchase of all or substantially all of the Person’s assets, or all or substantially all of, any interest in, the assets of the Person, or of any right to all or substantially all of the revenues or income of the Person, by way of a negotiated purchase, lease, license, exchange transaction or other means; (c) effect any merger, amalgamation, plan of arrangement, consolidation, reorganization or other business combination pursuant to which the assets and business of the Person are combined with the assets of PTQ or a Subsidiary thereof; (d) effect the issuance by PTQ or a subsidiary thereof to one or more Persons of shares of PTQ or a Subsidiary thereof in numbers sufficient to constitute an acquisition of control (as defined below) of the Person; and (e) effect any acquisition of control (as defined below) of the Person, directly or indirectly, otherwise than as contemplated by any of the foregoing paragraphs (a) to (d) inclusive, if as a result of such (a) –(e) Investments: (I) such Person becomes a Subsidiary of PTQ; (II) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, PTQ or a Subsidiary thereof; or (II) such business or assets are owned by PTQ or a Subsidiary. For the purposes of this sub-section (iii). For the purposes of this definition, acquisition of “control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise;
(iv)
reasonable and customary loans made to employees not to exceed US$500,000 in the aggregate at any one time outstanding; and
(v)
accounts receivable of PTQ and its Subsidiaries generated in the ordinary course of business;
"Permitted Liens"means, at any time, the following Liens:
(vi)
Liens for taxes, assessments or governmental levies not yet due or which are being contested if adequate reserves with respect thereto are maintained in accordance with generally accepted accounting principles, so long as the same do not involve any imminent danger of the sale, forfeiture or loss of any of the material property of PTQ or any interest therein;
(vii)
undetermined or inchoate Liens arising in the ordinary course of business, a claim for which has not been filed or registered pursuant to law or of which notice shall not have been given or become known to PTQ or the Trustee;
(viii)
carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other similar Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested;
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(ix)
servitudes, rights-of-way, restrictions and other similar encumbrances which, in the aggregate, do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of PTQ;
(x)
statutory Liens incurred or deposits made in the ordinary course of business of PTQ in connection with worker’s compensation, employment insurance and other social security legislation;
(xi)
the reservations and exceptions contained in, or implied by statute in, original dispositions of property from the Crown and grants made by the Crown of interests so reserved or excepted;
(xii)
Liens given to a public utility or similar operating authority when ordinarily required as part of the normal operating practices of such utility or operating authority but only to the extent that the same provide security to such utility or operating authority for payments required to be made by PTQ in the ordinary course of business for services provided to PTQ by such utility or operating authority in the normal course of its business;
(xiii)
Purchase Money Obligations not exceeding in the aggregate CDN$500,000;
"person"means and includes individuals, corporations, limited partnerships, general partnerships, joint stock companies, unlimited liability companies, limited liability corporations, joint ventures, associations, companies, trusts, banks, trust companies, pension funds, business trusts or other organizations, whether or not legal entities and governments and agencies and political subdivisions thereof;
"Prevailing Exchange Rate"means the noon (New York City time) buying rate on the Business Day immediately prior to the Date of Conversion for Canadian dollars for cable transfers quoted in New York City as certified for customs purposes by HSBC Bank USA; such Holder shall confirm in writing to PTQ and the Trustee the Prevailing Exchange Rate to use for the conversion;
"Purchase Money Obligations"means:
(a)
any Lien created, issued or assumed after the date of this Indenture to secure Indebtedness not in excess of the value of the underlying property assumed as a part of, or issued or incurred to provide funds to pay, the purchase price of any movable property; and
(b)
any renewal, refunding or extension of any such Lien securing Indebtedness in a principal amount not in excess of the unpaid principal amount of the indebtedness secured thereby immediately prior to such renewal, refunding or extension;
“Redemption Date”when used with respect to any Note to be redeemed means the date fixed for such redemption by or pursuant to this Indenture;
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"Regulation S"means Regulation S promulgated by the SEC under the U.S. Securities Act;
“Restricted Payment”means any of the following: (i) the declaration or payment of any dividend or any other distribution or payment on capital of PTQ or any Subsidiary of PTQ or any payment made to the direct or indirect holders (in their capacities as such) of capital of PTQ or any Subsidiary of PTQ (other than (x) dividends or distributions payable solely in capital shares (other than Disqualified Capital Stock) or in options, warrants or other rights to purchase capital shares (other than Disqualified Capital Stock), and (y) in the case of Subsidiaries of PTQ, dividends or distributions payable to PTQ or to a Wholly-Owned Subsidiary of PTQ), (ii) the purchase, redemption or other acquisition or retirement for value of any capital shares of PTQ or any of its Subsidiaries (other than capital shares owned by PTQ or a Wholly-Owned Subsidiary of PTQ, exc luding Disqualified Capital Stock), (iii) the making of any principal payment on, or the purchase, defeasance, repurchase, redemption or other acquisition or retirement for value, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, of any Indebtedness other than Indebtedness acquired in anticipation of satisfying final maturity of the Notes, in each case due within one year of the date of acquisition), (iv) the making of any Investment or guarantee of any Investment in any Person other than a Permitted Investment and (v) forgiveness of any Indebtedness of an Affiliate of PTQ to PTQ or a Subsidiary. For purposes of determining the amount expended for Restricted Payments, cash distributed or invested shall be valued at the face amount thereof and property other than cash shall be valued at its fair market value;
"SEC"means the United States Securities and Exchange Commission;
"Special Resolution"has the meaning ascribed thereto at section 10.14;
“Subsidiary”of any specified Person means any corporation, partnership, joint venture, association or other business entity, whether now existing or hereafter organized or acquired, (i) in the case of a corporation, of which more than 50% of the total voting power of the capital shares entitled (without regard to the occurrence of any contingency) to vote in the election of directors, officers or trustees thereof is held by such first-named Person or any of its Subsidiaries; or (ii) in the case of a partnership, joint venture, association or other business entity, with respect to which such first named Person or any of its Subsidiaries has the power to direct or cause the direction of the management and policies of such entity by contract or otherwise or if in accordance with generally accepted accounting principles such entity is consolidated with the first- named Person for financial statement purposes;
"Successor"has the meaning ascribed thereto in section 9.1;
“Taxes”means all taxes, levies, imposts, deductions, charges or withholdings and all related liabilities;
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“Temporary Cash Investments”means (i) Investments in marketable, direct obligations issued or guaranteed by the federal government of Canada or any provincial government of Canada or the United States, or of any governmental agency or political subdivision thereof, maturing within 365 days of the date of purchase; (ii) Investments in certificates of deposit issued by a Canadian chartered bank or bank organized under the laws of the United States or any state thereof or the District of Columbia, in each case having capital, surplus and undivided profits at the time of investment totaling more than US$1,000,000,000 and rated at the time of investment at least A by S&P and A-2 by Moody’s, maturing within 365 days of purchase; or (iii) Investments not exceeding 365 days in duration in money market funds that invest substantially all of such funds’ a ssets in the Investments described in the preceding clauses (i) and (ii);
"Trustee"means Computershare Trust Company of Canada and its successors hereunder;
"United States"means the United States of America, its territories and possessions, any state of the United States and the District of Columbia;
“U.S. Person”means a “U.S. person” as defined in Regulation S;
"U.S. Securities Act"means the United States Securities Act of 1933, as amended;
“Weighted Average Market Gold Price”means the average closing price of an ounce of gold in US dollars as reported on Bloomberg under the symbol GOLDS Comdty for the six month period immediately prior to a Determination Date.
“Wholly-Owned Subsidiary”means any Subsidiary, all of the outstanding voting, securities (other than directors’ qualifying shares) of which are owned, directly or indirectly, by PTQ; and
"Written Order"or"Written Request"means a written order or request, respectively, signed in the name of PTQ or any of the Chairman, the President, an Executive Vice-President, Senior Vice-President, Vice-President or any other officer of PTQ.
1.2
Meaning of "outstanding" for Certain Purposes
Every Note shall be deemed to be outstanding until it shall be cancelled or delivered to the Trustee for cancellation, or until moneys for the payment thereof shall be set aside under Article 8, or until it shall have become void pursuant to section 2.4. Where a new Note has been issued in substitution for a Note which has been lost, stolen or destroyed, only one of such Notes shall be counted for all purposes, including, without limitation, the purpose of determining the aggregate principal amount of Notes outstanding. Notes owned, directly or indirectly, legally or beneficially by PTQ or any Affiliate of PTQ shall be disregarded for the purpose of any provision of this Indenture entitling Holders of outstanding Notes to vote, constitute a quorum for the purpose of voting, sign consents, requisitions or other instruments or take any other action under this Indenture, except th at (a) for the purpose of determining whether the Trustee shall be protected in relying on any vote, constitution of a quorum, consent, requisition or other action, only those Notes which the Trustee knows are so owned shall be disregarded and (b) Notes so owned which have been pledged in good faith other than to PTQ or any Affiliate of PTQ shall not be so disregarded if the pledgee shall establish to the
satisfaction of the Trustee the pledgee’s right to vote such Notes in his discretion, free from the control of PTQ or any Affiliate of PTQ.
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2.
THE NOTES
2.1
Designation, Terms and Form of Notes
The aggregate principal amount of Notes authorized to be issued under this Indenture and outstanding at any one time shall consist of and be limited to US$67,000,000. For clarity, PTQ may issue further Notes up to the aforementioned limited amount for any principal amount of Notes redeemed in part or in whole. Each Note authorized to be issued under this Indenture shall:
(a)
consist of and be limited to an aggregate principal amount denominations of US$1,000 and any integral multiple thereof;
(b)
with respect to Notes issued on May 21, 2008, be designated Senior Secured Notes – Series 1, with respect to Notes issued on March 25, 2009, be designated Convertible Senior Secured Notes – Series D (each a“Series D Note”)limited to an aggregate principal amount of US $40,000,000 and, if any future series are issued in accordance with section 2.5, such other series designation as directed by PTQ in writing;
(c)
with respect to Senior Secured Notes – Series 1 dated May 21, 2008, with respect to Senior Secured Notes – Series D dated March 25, 2009 and, if any future series are issued in accordance with section 2.5, such later issue date as directed by PTQ in writing (such issue date, a“Future Series Issue Date”);
(d)
with respect to Senior Secured Notes – Series 1 mature on May 21, 2013, with respect to Senior Secured Notes – Series D mature on March 25, 2011 and, if any future series are issued in accordance with section 2.5, five years after such later Future Series Issue Date;
(e)
bear interest at 15% per annum (after as well as before maturity, default and judgment, with interest on overdue interest at such rate), the first twelve month’s worth of which shall be prepaid in full upon issuance of the Notes and thereafter which shall be paid on each Interest Payment Date;
(f)
be substantially in the form set out in Schedule "A" hereto (provided however that Series D shall be substantially in the form set out in Schedule "B" hereto) with such appropriate insertions, deletions, substitutions and variations as may be required or permitted by the terms of this Indenture, as may be required to comply with any law or the rules of any securities exchange or as may be not inconsistent with the terms hereof and as the officers of PTQ executing any Notes may deem necessary or desirable, in their sole discretion; and
(g)
bear such distinguishing letters and numbers as the Trustee may approve.
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2.2
Payment of Principal
An amount equal to 120% of the principal of each Note (other than the Series D Note) will be payable on the Maturity Date of such Note in lawful money of the United States against the surrender of such Note by the registered Holder thereof at any of the places at which a register (including any branch register) is maintained pursuant to section 2.9. An amount equal to 110% of the principal of each Series D Note will be payable on the Maturity Date of such Note in lawful money of the United States against the surrender of such Series D Note by the registered Holder thereof at any of the places at which a register (including any branch register) is maintained pursuant to section 2.9. PTQ will deposit with the Trustee or any paying agent to the order of the Trustee, on or before 11:00 a.m. Vancouver time on the Business Day immediately prior to the Maturity Date, such sums suffici ent to pay an amount equal to 120% of the principal amount of Notes, or 110% of the principal amount of a Series D Note, as applicable, plus accrued interest owing thereon.
2.3
Interest
Each Note issued hereunder, whether issued originally or in exchange for another Note, shall bear interest at a rate equal to 15% per annum from and including the date of issuance thereof to the Maturity Date, the first twelve month’s worth of which shall be prepaid in full upon issuance of the Notes and thereafter which shall be paid on each Interest Payment Date. After the first twelve months of the issuance of the Notes (the“Twelve Month Anniversary”),interest shall be calculated semi-annually and payable on each Interest Payment Date, from and including the Twelve Month Anniversary or from and including the last Interest Payment Date on which interest shall have been paid or made available for payment with respect to the outstanding Notes up to and including the day preceding the Interest Payment Date or Maturity Date, as the case may be. Interest wi ll be computed on the basis of a 360-day year of twelve 30-day months.
Wherever in this Indenture the payment of interest is referred to, such reference shall be deemed to include the payment of interest on amounts in default to the extent that, in such context, such interest is, was or would be payable, and express mention of interest on amounts in default in any provisions hereof shall not be construed as excluding such interest in those provisions hereof where such express mention is not made.
2.4
Prescription
Provided that the Trustee receives all monies due and owing under the Notes (principal, interest, etc.), the right of a Noteholder to exercise his rights under this Indenture with respect to a Note shall become void unless the Note is presented for payment within a period of three (3) years from the Maturity Date thereof, after which payment with respect to such Note shall be governed by the provisions of Article 8. PTQ shall have satisfied its obligations under each Note upon remittance to the Trustee for the account of the Holder of such Note upon redemption or at the Maturity Date thereof of any and all considerations due hereunder in cash with respect to such Note, subject to and in accordance with the provisions of this Indenture. Such remittance shall for all purposes be deemed a payment to the Noteholder, and to such extent such Note shall thereafter not be considered as outstanding and the Noteholder shall
have no right with respect to such Note, except to receive payment out of the moneys so paid and deposited upon surrender of the Note.
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2.5
Issue of Notes
Notes may be issued in one or more series (which shall be identical in all respects hereunder save and except for the issue date and Maturity Date which shall confirm to the requirements of sections 2.1(b) and (c)) in the aggregate principal amount in denominations of US$1,000 (or any integral multiple thereof) shall be executed by PTQ and, immediately after such execution, shall be delivered to the Trustee and shall be certified by the Trustee and delivered by the Trustee to or to the order of PTQ upon receipt by the Trustee of the following:
(a)
a Written Order for the certification and delivery of such Notes;
(b)
an opinion of Counsel in favour of the Trustee substantially in form satisfactory to the Trustee;
(c)
an Officer’s Certificate certifying that, so far as is known to the persons signing the same, PTQ is not in default in the performance of any of its covenants contained herein and in all documents relating hereto and that PTQ has complied with the requirements of this Indenture in connection with the issue of the Notes; and
(d)
such Officer’s Certificate, as confirmed by Counsel, if any, as may be required by any provision of applicable indenture legislation in connection with the issue, certification and delivery of the Notes.
2.6
Trustee’s Reliance
The Trustee, prior to the certification of the Notes, shall not be bound to make any enquiry or investigation as to the correctness of the matters set forth in any of the opinions, certificates or other documents required by the provisions hereof. The Trustee may rely and shall be protected in acting upon any such opinions, certificates or other documents, but may in its discretion require additional evidence before acting or relying thereon. The Trustee shall have no duty or responsibility with respect to the use or application of any of the Notes so certified and delivered or of the proceeds thereof.
2.7
Execution of Notes
Notes shall be signed by at least one officer of PTQ holding office at the time of signing. The signatures of officers of PTQ required on Notes may be printed or otherwise mechanically reproduced thereon and Notes so signed are as valid as if they had been signed manually. If a Note contains a printed or mechanically reproduced signature of a person, then PTQ may issue the Note even though the person has ceased to be an officer of PTQ and such Note is as valid as if the person were an officer of PTQ at the date of its issue.
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2.8
Certification by the Trustee
No Note shall be issued or, if issued, shall be obligatory or entitle the Holder to the benefit hereof, until it has been certified by or on behalf of the Trustee substantially in the form of the certificate set out in Schedule "A" hereto or in the case of a Series D Note, in the form of the certificate set out in Schedule “B” hereto, or in some other form approved by the Trustee. Such certification by the Trustee upon any Note shall be conclusive evidence that the Note has been duly issued hereunder, is a valid obligation of PTQ and that the Holder is entitled to the benefit hereof.
The certificate of the Trustee on Notes issued hereunder shall not be construed as a representation or warranty by the Trustee as to the validity of this Indenture or of the Notes (except the due certification thereof) and the Trustee shall in no respect be liable or answerable for the use made of the Notes or any of them or of the proceeds thereof.
2.9
Registration of Notes
PTQ shall cause to be kept by and at the principal corporate trust office of the Trustee in the City of Vancouver and Toronto, a central Notes register, and by and at the principal corporate trust office of the Trustee (or by such other registrar or registrars, if any, as PTQ with the approval of the Trustee may designate) and in such other place or places as PTQ with the approval of the Trustee may designate, branch registers in which shall be entered the names and latest known addresses of the Holders of Notes and the other particulars, prescribed by law, of the Notes held by them respectively and of all transfers of Notes. Such name registration shall be noted on the Notes by the Trustee or other registrar. No transfer of a Note shall be effective as against PTQ unless made on one of the appropriate registers and made by the registered Holder or his executors or administrato rs or other legal representatives or his or their attorney duly appointed by an instrument in writing in form and execution satisfactory to the Trustee, upon compliance with such requirements as the Trustee or other registrar may prescribe, and unless such transfer shall have been duly noted on such Note by the Trustee or other registrar.
The registers referred to in this section shall at all reasonable times during regular business hours be open for inspection by PTQ, by the Trustee and by any Noteholder.
The Holder of a Note may at any time and from time to time have such Note transferred at any of the places at which a register is kept pursuant to the provisions of this section and in accordance with such reasonable regulations as the Trustee may prescribe.
The Holder of a Note may at any time and from time to time have the registration of such Note transferred from the register in which the registration thereof appears to another register maintained in another place authorized for that purpose under the provisions of this Indenture upon payment of a reasonable fee to be fixed by the Trustee.
None of the Trustee or any registrar for any of the Notes or PTQ shall be charged with notice of or be bound to see to the execution of any trust, whether express, implied or constructive, in respect of any Note and may transfer any Note on the direction of the Holder thereof, whether named as trustee or otherwise, as though that person were the beneficial owner thereof.
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Except in the case of the central register required to be kept at the City of Vancouver, PTQ shall have the power at any time to close, with the prior approval of the Trustee, any branch register upon which the registration of any Notes appears and in that event it shall transfer the records thereof to another existing register or to a new register and thereafter such Notes shall be deemed to be registered on such existing or new register, as the case may be. In the event that the register in any place is closed and the records transferred to a register kept in another place, notice of such change shall be given, in the manner provided in section 14.1, to the Holders of the Notes registered in the register so closed and in addition the particulars of such change shall be recorded in the central register required to be kept in the City of Vancouver and Toronto.
Every registrar shall, when requested to do so by PTQ or the Trustee, furnish PTQ or the Trustee, as the case may be, with a list of the names and addresses of the Holders of Notes showing the principal amounts and serial numbers of such Notes held by each Holder.
2.10
Person Entitled to Payment
The person in whose name any Notes shall be registered shall be deemed the owner thereof for all purposes of this Indenture and payment of or on account of the principal and accrued interest on such Notes shall be made only to or upon the order in writing of such Holder thereof and such payment shall be a good and sufficient discharge to the Trustee and any registrar and to PTQ and any paying agent for the amount so paid.
As the interest on the Notes becomes payable, PTQ, at least three (3) days before such interest payment date, shall forward or cause to be forwarded by prepaid post (or in the event of mail service interruption by such other means as the Trustee and PTQ shall determine to be appropriate), to the Holder for the time being of each such Note, at his address appearing on the appropriate register hereinbefore mentioned, or in the case of joint Holders, to the one whose name appears first on such register, a cheque for such interest (and any additional amounts payable under section 2.15) payable to the order of such Holder or Holders and negotiable at par at each of the places at which interest upon such Notes is payable. The forwarding of such cheque shall satisfy and discharge the liability for the interest on the Notes to the extent of the sums represented thereby, unless such cheque be not paid on presentation; provided that, in the event of the non-receipt of such cheque by the Holder, or the loss or destruction thereof, PTQ, on being furnished with reasonable evidence of such non-receipt, loss or destruction and indemnity reasonably satisfactory to it shall issue to such Holder a replacement cheque for the amount of such cheque.
Unless PTQ has caused the cheques for the interest payments due on any Interest Payment Date to be sent by the Trustee to the Holders pursuant to this section 2.10, PTQ will send to the Trustee in the manner provided in section 14.1 within seven (7) Business Days of such Interest Payment Date a Certificate of PTQ confirming the making of such interest payments by PTQ together with particulars of such interest payments, including the names of the Persons to whom such interest payments were made and the amount of such interest payments.
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The registered Holder for the time being of any Note shall be entitled to the principal and interest, if any, evidenced by such Note, free from all equities or rights of set-off, compensation or counterclaim between PTQ and the original or any intermediate Holder thereof and all persons may act accordingly, and a transferee of a Note shall, after the appropriate form of transfer is lodged with the Trustee or other registrar and upon compliance with all other conditions in such respect required by this Indenture or by any conditions contained in such Note or by law, be entitled to be entered on the appropriate register or on any one of the appropriate registers as the owner of such Note, free from all equities or rights of set-off, compensation or counterclaim between PTQ and his transferor or any previous Holder thereof, save in respect of equities of which PTQ is required to take notice by statu te or by order of a court of competent jurisdiction.
Where Notes are registered in more than one name, the principal and interest, if any, from time to time payable in respect thereof in accordance with this section 2.10 may be paid by cheque payable to the order of all such Holders, failing written instructions from them to the contrary, and such payment shall be a valid discharge to the Trustee and any registrar and to PTQ and any paying agent for the amount so paid.
2.11
Replacement of Notes
If any of the Notes shall become mutilated or defaced, or be lost, stolen or destroyed and in the absence of notice that such Notes have been acquired by a bona fide purchaser for value, PTQ shall issue and thereupon the Trustee shall certify and deliver a new Note of like date and tenor as the one mutilated, defaced, lost, stolen or destroyed in exchange for, in place of and upon cancellation of such mutilated or defaced Note or in lieu of and in substitution for such lost, stolen or destroyed Note and the new Note shall be in a form approved by the Trustee. The new Note shall be entitled to the benefit hereof and shall rank equally in accordance with its terms with all other Notes issued hereunder.
The applicant for the issue of a new Note shall bear the cost of the issue thereof and in case of loss, destruction or theft shall, as a condition precedent to the issue thereof, furnish to PTQ and the Trustee such evidence of ownership and of the loss, destruction or theft of the Note so lost, destroyed or stolen as shall be satisfactory to PTQ and the Trustee in their respective discretion and such applicant will also be required to furnish indemnity and surety bond in amount and form satisfactory to PTQ and the Trustee in their respective discretion, and shall pay the reasonable charges of PTQ and the Trustee in connection therewith.
2.12
Exchange of Notes
Notes in any denomination may be exchanged at any time for Notes of the same aggregate principal amount in any other authorized denomination. Notes may be so exchanged at any of the places at which a register (including any branch register) is maintained pursuant to section 2.9.
PTQ shall execute and the Trustee shall certify all Notes necessary to carry out exchanges pursuant to this section 2.12. All Notes surrendered for exchange shall be cancelled.
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The party requesting any exchange pursuant to this section 2.12 shall, as a condition precedent to such exchange, reimburse the Trustee for any stamp or other security transfer tax or governmental charge required to be paid in respect of such exchange or the related issue of Notes and in addition a reasonable charge for its services for each Note exchanged or transferred and a reasonable charge for every Note issued upon such exchange or transfer, and payment of the said charges shall be made by the party requesting such exchange or transfer as a condition precedent thereto.
2.13
Payment of Interest and Principal
Except as herein otherwise provided, all sums which may at any time become payable, whether at maturity or otherwise, on account of any Note or any interest thereon, if any, shall be payable at the option of the Holder at any of the places at which the principal and interest, if any, of such Note are payable.
Whenever any payment of principal or interest to be made hereunder shall be stated to be due on a day which is not a business day in the place in which a Note is presented for payment, then the Noteholder shall not be entitled to payment of the amount due in such place until the next succeeding business day in that place and will not be entitled to interest or other payment in respect of such delay.
2.14
Rank
The Notes certified and issued under this Indenture rank prior to any other Indebtedness. The Notes certified and issued under this Indenture rank pari passu with one another, in accordance to their tenor without discrimination, preference or priority.
2.15
Taxes
All payments to a Holder (or any successor or assignee thereof) by PTQ under this Agreement or under the Notes shall be made free and clear of and without deduction or withholding for any and all Indemnified Taxes unless required by law. If PTQ shall be required by law or the interpretation thereof by the relevant governmental authority to deduct or withhold any such Indemnified Taxes from or in respect of any sum payable under this Agreement or under the Notes: (i) the amount payable shall be increased by such additional amount as may be necessary so that after making all required deductions or withholdings (including, without limitation, deductions or withholdings applicable to additional amounts paid under this section 2.15), the Holder receives a net amount equal to the full amount it would have received if no deduction or withholding had been made; (ii) PTQ shall make such required deductions or withholdings; (iii) PTQ shall immediately pay the full amount deducted or withheld to the relevant governmental authority in accordance with applicable law; and (iv) PTQ shall deliver to the Holder as soon as practicable after it has made such payment to the applicable governmental authority (x) a copy of any receipt issued by such governmental authority evidencing the payment of all amounts required to be deducted or withheld from the sum payable hereunder or (y) if such a receipt is not available from such governmental authority, notice of the payment of such amount deducted or withheld. In addition, PTQ shall immediately pay any and all Other Taxes.
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PTQ shall indemnify and hold harmless each Holder of Notes for the full amount of Indemnified Taxes imposed on or paid by such Holder and any liability (including penalties, interest and expenses payable or incurred in connection therewith) arising from or with respect to such Indemnified Taxes, whether or not they were correctly or legally asserted. In addition, PTQ shall indemnify the Holder for any Taxes based on or measured by the overall net income of the Holder imposed by any jurisdiction on or with respect to any additional amount payable by PTQ under this section 2.15. Payment under this indemnification shall be made within 30 days from the date the Holder makes written demand for it. A certificate of the Holder containing reasonable detail as to the amounts required to be indemnified under this section 2.15(b) submitted to PTQ shall be conclusive evidence, absent manif est error, of the amount due from PTQ to the Holder.
Without prejudice to the survival of any other agreement contained herein, the agreements and obligations contained in this section 2.15 shall survive the termination of this Agreement and the payment in full of principal, interest, fees and any other amounts payable under this Agreement and under the Notes.
Trustee shall have no duty or responsibility to determine any applicable taxes and shall rely on written confirmation by PTQ.
2.16
Redemption and Prepayment
The Notes may be prepaid prior to maturity at PTQ's option, in whole at any time, on not more than sixty (60) and not less than thirty (30) days' prior written notice, for an amount equal to the sum of the following (i) 120% of the principal amount of the Note or 110% of the principal amount of the Series D Notes, as applicable and (ii) accrued and unpaid interest to the Redemption Date (the sum of (i) and (ii), the“Redemption Amount”,it being understood that any and all prepaid interest on such Notes shall be forfeited by PTQ to the respective Noteholders as a “make whole” premium). The election of PTQ to redeem any Notes shall be evidenced by a resolution of the board of director’s of PTQ.
All notices of redemption shall be sent to each Noteholder to be redeemed not less than thirty (30) days prior to the Redemption Date and shall state:
(a)
the Redemption Date and the Redemption Amount, and
(b)
the place where such Notes are to be surrendered for payment of the Redemption Amount thereof.
Notice of redemption of Notes to be redeemed at the election of PTQ shall be given by PTQ to the Noteholders and the Trustee or, at PTQ's written request, by the Trustee to the Noteholders in the name of and at the expense of PTQ.
Except as may otherwise be provided in any supplemental indenture, upon Notes being called for redemption, PTQ will deposit with the Trustee or any paying agent to the order of the Trustee, on or before 11:00 a.m. Vancouver time on the Business Day immediately prior to the Redemption Date specified in such notice, such sums of money as may be sufficient to pay the Redemption Amount of all the Notes. At the request of the Trustee, PTQ shall also deposit with the Trustee a sum of money sufficient to pay any charges or expenses which may be reasonably incurred by the Trustee in connection with such redemption. Every such deposit shall be irrevocable. From the sums so deposited, the Trustee shall pay or cause to be paid, or issue or cause to be issued, to the holders of such Notes so called for redemption, upon surrender of such Notes, the Redemption Amount to which they are respec tively entitled on redemption.
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Notice of redemption having been given as aforesaid, the Notes so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Amount thereof and on and after such date such Notes shall only bear interest if PTQ shall default in the payment of the principal amount. Upon surrender of any such Note for redemption in accordance with such notice, such Note shall be paid by PTQ.
If any Note called for redemption shall not be so paid upon surrender thereof for redemption, the principal shall, until paid, bear interest from the Redemption Date at a rate equal to 20% per annum.
2.17
Cash Flow Payment
On an annual basis from October 1st up to and including November 1st in any given year (each such date a“Noteholders Notice Expiry Date”),any Noteholder may, upon written request to PTQ (each notice a“Notice of Cash Flow Prepayment”)together with surrender of the Note Certificate, all delivered to the Trustee, require PTQ to make a principal payment under such Holder’s Notes in an amount equal to the product of (i) 35% of the Distributable Cash multiplied by (ii) the quotient of (A) the principal amount of such Holder’s Notes divided by (B) the then total aggregate principal amount of outstanding Notes hereunder (such product of (i) and (ii), the“Pro Rata Cash Flow Payment”).The Pro Rata Cash Flow Payment shall be applied to reduce the outstanding principal amount owing from time to time an d due under such Holder’s Notes and shall be made and applied by PTQ in the manner contemplated by section 2.10. PTQ shall pay the Pro Rata Cash Flow Payments to the Noteholders on November 15 of such year (such date“Cash Flow Payment Date”)and shall deposit sufficient funds to the Trustee before the Cash Flow Payment Date. Subject to sufficient funds received by the Trustee, payments will be sent as contemplated in section 2.10. The Cash Flow Payment shall not be subject to any prepayment penalty (including, without limitation, the prepayment penalty outlined in section 2.16 hereof); provided however that all prepaid interest on such Notes shall be forfeited by PTQ to the respective Noteholders as a “make whole” premium irrespective of any reduction of the outstanding principal amount by any Pro Rata Cash Flow Payment. Trustee shall advise PTQ of all Notices of Cash Flow Prepayment received by the Noteholders Notice Expiry Date. If PTQ has no Distributable Cash, the Notehol ders shall not be entitled to any Pro Rata Cash Flow Payment.
The Pro Rata Cash Flow Payment shall be calculated based upon the annual consolidated financial statements of PTQ for such fiscal year just ended, provided that any such Pro Rata Cash Flow Payment does not result in a default under or breach of any term or condition of this Indenture, as confirmed in writing in an Officer’s Certificate by PTQ. The Trustee shall have no duty or responsibility to calculate or verify the Pro Rata Cash Flow Payment and is to rely on an Officer’s Certificate to be provided by PTQ confirming the calculated Pro Rata Cash Flow Payment without further investigation.
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2.18
Transfer
The Notes may only be transferred on the register kept at the office of the Trustee in accordance with applicable laws (including, without limitation, the fact that in Canada the Notes are subject to a hold period of four (4) months and one day from the date of issuance, such period the“Hold Period”)and upon compliance with the conditions hereof by the Noteholder or his legal representatives or his attorney duly appointed by an instrument in writing in form and substance satisfactory to the Trustee and upon due execution by the Noteholder and its transferee of the transfer and acknowledgement in the form set forth in the Note and delivery of the same to the Trustee and compliance with such other reasonable requirements as PTQ and the Trustee may prescribe, such transfer shall be duly noted on the register by the Trustee. The reasonable transfer charges of the Trustee with respect to the transfer of Notes shall be payable by the applicable Noteholders.
Neither PTQ nor the Trustee shall be required to transfer or exchange any Notes during the ten (10) Business Days preceding an Interest Payment Date or Redemption Date.
The Trustee understands and acknowledges that the Series D Notes are not transferable in the United States or to U.S. Persons unless an exemption from registration is available under the U.S. Securities Act and any applicable state securities laws, and the Corporation and the Trustee receive an opinion of counsel of recognized standing or other evidence to such effect in form and substance reasonably satisfactory to the Corporation and the Trustee.
The Trustee also understands and acknowledges that the Notes, the Series D Notes, the Common Shares issuable upon conversion of the Series D Notes and any other securities issuable related to the Series D Notes have not been and will not be registered under the U.S. Securities Act or applicable state securities laws. Therefore, each Note, Series D Note, Common Share issuable upon conversion of a Series D Note or any other securities issuable related to the Series D Note delivered to a person in the United States or a U.S. Person, and all certificates issued in exchange therefor or in substitution thereof, shall bear the following legend, other than for the Series D Notes, the Common Shares issuable upon conversion of a Series D Note and any other securities issuable related to the Series D Notes, which shall bear the U.S. legend in substantially the form set out in Schedule 47;B” hereto, until such time as it is no longer required under the requirements of applicable United States federal and state securities laws:
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE <INSERT DATE THAT IS FOUR (4) MONTHS AND ONE (1) DAY AFTER CLOSING DATE>.
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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE 1933 ACT, OR ANY STATE SECURITIES LAWS OF THE UNITED STATES. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES INACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT, IF AVAILABLE, AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS, (C) IN ACCORDANCE WITH THE EXEMPTIONS FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULES 144 OR 144A THEREUNDER, IF APPLICABLE, AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (D) WITH THE PRIOR WRITTEN CONSENT OF THE CORPORATION (WHICH WILL BE DELIVERED PROMPTLY AND WILL NOT BE UNREASONABLY WITHHELD, BUT WHICH MAY BE CONDITIONA L ON DELIVERY OF A LEGAL OPINION OF COUNSEL OF RECOGNIZED STANDING OR OTHER EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION AND THE TRUSTEE), PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS.
DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA. PROVIDED THAT THE CORPORATION IS A "FOREIGN ISSUER" WITHIN THE MEANING OF REGULATION S UNDER THE 1933 ACT AT THE TIME OF SALE, A NEW CERTIFICATE BEARING NO LEGEND MAY BE OBTAINED FROM THE CORPORATION'S REGISTRAR AND TRANSFER AGENT UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE REGISTRAR AND TRANSFER AGENT AND THE CORPORATION, TO THE EFFECT THAT SUCH SALE IS BEING MADE IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE 1933 ACT.
provided, that if any of the Notes, the Series D Notes, the Common Shares issuable upon conversion of the Series D Notes or any other securities issuable related to the Series D Notes are being sold under clause (B) in the legend above or the legend set out in Schedule “B” hereto, as applicable, at a time when PTQ and each of the Guarantors, as applicable, are each a “foreign issuer” as defined in Rule 902 under Regulation S, such legend may be removed by providing a declaration to PTQ and its transfer agent in the form PTQ may from time to time prescribe, together with any other evidence, which may, without limitation, include an opinion of counsel of recognized standing reasonably satisfactory to PTQ and the Trustee, required by the Trustee to be delivered; and provided further, that if any such securities are being sold pursuant to Rule 144 of the U.S. Securities Act, such legend may be removed by delivery to the Trustee of an opinion of counsel of recognized standing in form and substance satisfactory to PTQ and the Trustee to the effect that the legend is no longer required under applicable requirements of the U.S. Securities Act or state securities laws.
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If a certificate representing Notes, Series D Notes, Common Shares issuable upon conversion of Series D Notes or any other securities issuable related to Series D Notes is tendered for transfer and bears the legend set forth in above or in Schedule “B” hereto, as applicable, and the holder has not obtained the prior written consent of PTQ, the Trustee shall not register such transfer unless the transferor has provided the certificate representing such securities, and the transfer is being made (i) to PTQ, (ii) outside the United States in compliance with the requirements of Rule 904 of Regulation S, if available, and in compliance with applicable local laws and regulations of the jurisdiction(s) where such sale is made, (iii) pursuant to the exemption from the registration requirements under the U.S. Securities Act provided by Rule 144 or Rule 144A thereunder, if avai lable, and in accordance with applicable state securities laws, or (iv) with the prior written consent of PTQ (which will be delivered promptly and will not be unreasonably withheld, but which may be conditional on delivery of a legal opinion of counsel of recognized standing or other evidence in form and substance satisfactory to PTQ and the Trustee), pursuant to another exemption from registration under the U.S. Securities Act and applicable state securities laws.
The Trustee will process all transfers in good faith upon the presumption that such transfer is permissible pursuant to all applicable legislation and the terms of this Indenture. The transferor and transferee are solely responsible for ensuring compliance with any applicable securities laws, and the Trustee will have no obligations to ensure compliance with any laws applicable to the issue, transfer of the Notes.
The Trustee shall be entitled to rely on the registered address of the Noteholder as the residency of such Noteholder.
2.19
Weighted Average Market Gold Price Semi-Annual Repayment
Subject to section 14.11, on a semi-annual basis beginning September 1, 2009 (and continuing each March 1 and September 1 thereafter) (each a“Determination Date”,PTQ shall provide an Officer’s Certificate to the Trustee and the Holders of the Notes calculating the then applicable Weighted Average Market Gold Price (each such Officer’s Certificate, the“Notification Certificate”).To the extent the Weighted Average Market Gold Price exceeds or meets the relevant thresholds as set out in the table below, PTQ shall make (if applicable) (I) a principal payment under each Holder’s Notes (other than the Series D Notes of such Holder, who will not be able to participate in the Pro Rata Amortization Payment until September ______, 2010) in an amount equal to the product of (i) the applicable “Aggregate Pro Rata Principal Payment 148; identified in the column below by (ii) the quotient of (A) the principal amount of a Holder’s Notes (other than the Series D Notes of such Holder, which will only be able to participate in the Pro Rata Amortization Payment from September 15, 2010 forward) divided by (B) the then total aggregate principal amount of outstanding Notes (other than the Series D Notes for any calculation done prior to September 15, 2010) hereunder (such product of (i) and (ii), the“Pro Rata Amortization Payment”)and (II) an additional payment of accrued and unpaid interest on the principal balance of a Holder’s Note being repaid for the period from the last Interest Payment Date to the relevant Amortization Payment Date (such amount the“Additional Interest Payment”).The Aggregate Pro Rata Principal Payment shall be determined in the amounts set forth below:
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Weighted Average Market Gold Price | Aggregate Pro Rata Principal Payment |
Over U.S. $1000 | U.S. $8,000,000 |
U.S. $900 - $1000 | U.S. $6,000,000 |
U.S. $800 - $900 | U.S. $4,000,000 |
Less than U.S. $800 | $0 (no principal payment required) |
The Pro Rata Amortization Payment shall be applied to reduce the outstanding principal amount owing from time to time and due under such Holder’s Notes and shall be made and applied by PTQ in the manner contemplated by section 2.10. PTQ shall pay the Pro Rata Amortization Payments to the Noteholders semi-annually on September 15 and March 15 of each year (such date“Amortization Payment Date”)and shall deposit sufficient funds to the Trustee three (3) Business Days before the Amortization Payment Date. To the extent that PTQ shall be required to make a Pro Rata Amortization Payment under each Note, PTQ shall provide notice in the Notification Certificate to each Holder (other than a Holder of only the Series D Notes; provided however that from the September 1, 2010 Determination Date a Holder of only the Series D Notes shall receive such Notification Certificate) to surrender their Notes (other than the Series D Notes; provided however from the September 1, 2010 Determination Date a Holder of Series D Notes shall surrender their Series D Notes) to the Trustee so that PTQ can cause the Trustee to issue a new Note reflecting the updated balance after the Pro Rata Amortization Payment has been made.
For clarity, where we assume the Pro Rata Amortization Payment is equal to US$200, the Amortization Payment Date is September [15], 2009 and the last Interest Payment Date was May 15, 2009, then US$200 would be applied to reduce the outstanding principal amount owing from time to time and due under such Holder’s Notes. Therefore the new balance of the US$1,000 Series 1 Note would be US$1,000 multiplied by 120% = US$1200 minus US$200 = US$1,000 divided by 1.2 = US$833.33. For clarity, the Additional Interest Amount shall be equal to US$166.67 multiplied by 15% divided by 360 days multiplied by 30 days multiplied by 4 (number of months of 30 days between May 15, 2009 and September 15, 2009) which shall equal US$8.33.
Subject to sufficient funds received by the Trustee, payments will be sent as contemplated in section 2.10. The Pro Rata Amortization Payment shall not be subject to any prepayment penalty (including, without limitation, the prepayment penalty outlined in section 2.16 hereof); provided however that all prepaid interest on such Notes shall be forfeited by PTQ to the respective Noteholders as a “make whole” premium irrespective of any reduction of the outstanding principal amount by any Pro Rata Amortization Payment.
The Weighted Average Market Gold Price shall be confirmed in writing in an Officer’s Certificate by PTQ together with a schedule of the Holder’s Pro Rata Amortization Payment and Additional Interest Payment amounts, delivered to the Trustee within three (3) Business Days after the Determination Date. The Trustee shall have no duty or responsibility to calculate or verify the Weighted Average Market Gold Price, Pro Rata Amortization Payment or the Additional Interest Payment amounts and is to rely on an Officer’s Certificate to be provided by PTQ confirming the Weighted Average Market Gold Price, Pro Rata Amortization Payment and Additional Interest Payment amounts without further investigation.
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3.
PUT RIGHTS AND CONVERSION RIGHTS
3.1
Put Rights
At any such time that any of the Notes remain outstanding, but in any event no earlier than eighteen (18) months following the initial issuance of a Note or a Future Series Issue Date, the Holder of such Note shall have the right to cause PTQ to purchase all of its Notes (with the exception of the Series D Notes) then outstanding by delivering to PTQ written notice (the"Put Notice")of such demand in the manner provided in section 14.1. The Noteholder shall specify in such Put Notice a date for the purchase of the outstanding Notes (the"Put Closing Date"),such Put Closing Date not to be less than six (6) months from the date of delivery of the Put Notice. Notes specified in the Put Notice shall be purchased at a price equal to 120% of the principal amount of such Notes to be purchased, together with accrued and unpaid interest on the princip al amount of the Notes, or part thereof, to be purchased, to but not including the Put Closing Date (such price at which the Notes may be purchased is referred to herein as the "Put Purchase Price"). The closing of the transaction contemplated by the Put Notice shall occur at 10:00 a.m. (British Columbia time) on the Put Closing Date at the office of counsel to the PTQ. For greater certainty, a Holder shall not be permitted to exercise its rights under the Section 3.1 with respect to its Series D Notes.
3.2
Notes Due on Put Closing Date
Upon the Put Notice having been delivered as provided in section 3.1, all of the Notes referenced therein shall thereupon be and become due and payable on the Put Closing Date, in the same manner and with the same effect as if it were the Maturity Date, anything therein or herein to the contrary notwithstanding, and from and after such Put Closing Date, if the Put Purchase Price necessary to purchase such Notes shall have been delivered to the Noteholders as provided for herein, such Notes shall not be considered as outstanding hereunder and interest upon such Notes shall cease to accrue after such Put Closing Date.
3.3
Delivery of Put Purchase Price
Upon the Notes having been called for purchase as provided in this Article 3, PTQ shall pay or cause to be paid to the Noteholders on the Put Closing Date such sums as shall be sufficient in immediately available funds to pay the Put Purchase Price of the Notes.
3.4
Surrender of Notes for Cancellation
Holders of any such Notes required to be purchased as provided for in this Article 3 shall, on the Put Closing Date, surrender for cancellation the Notes to PTQ upon receipt of the Put Purchase Price.
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3.5
Cancellation of Notes
All Notes purchased by PTQ under this Article 3 shall forthwith be cancelled by PTQ and no Notes shall be issued in substitution therefor.
3.6
Conversion Rights
The Holder of each Series D Note shall have the right, at its option, to convert the whole or any part of such Series D Note into fully paid and non-assessable Common Shares as more specifically described inAppendix I.
4.
SECURITY
4.1
Security
As general and continuing security for the due and punctual payment of all of the principal of and interest on the Notes, all other amounts from time to time payable to the Trustee and the Noteholders under or in respect of this Indenture and the performance of PTQ’s obligations contained in the Notes and this Indenture, (the“Secured Obligations”)forthwith after the execution hereof, PTQ shall execute and deliver the PTQ GSA in favour of the Trustee for and on behalf of the Noteholders and, pursuant to such PTQ GSA, PTQ shall grant a security interest, lien, mortgage and hypothec on the universality of all of the property of PTQ, movable and immovable (personal and real), present and future, corporeal and incorporeal (tangible and intangible) (the"PTQ Charged Property"),which security interest, lien, mortgage and hypothec shall be in p riority to all Liens created or to be created to secure the repayment of any other Indebtedness.
4.2
Title to Charged Premises
PTQ represents, warrants and covenants with the Trustee and the Noteholders that (a) PTQ has authority to grant the PTQ Security Interests on the PTQ Charged Property; and (b) such PTQ Charged Property is and will be and remain free and clear of any Liens thereon other than the PTQ Security Interests and other than Permitted Liens.
4.3
Further Assurances
Each of PTQ and the Guarantors acknowledges to and covenants with the Trustee that:
(a)
it shall from time to time execute and deliver all such agreements, documents and other instruments, and do all such things and give all such assurances as, in the opinion of Counsel, are necessary or of advantage for validly granting to the Trustee the PTQ Security Interests intended to be created by the PTQ GSA upon the PTQ Charged Property or the security interests granted by the Guarantors as further described in Section 13, as applicable, whether now owned or hereafter acquired by PTQ or by the Guarantors, as applicable, subject to Permitted Liens;
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(b)
it shall from time to time, after the PTQ Security Interests or the security interests granted by the Guarantors as further described in Section 13, as applicable, shall have become enforceable and the Trustee shall have been directed by the Noteholders to enforce the same after the occurrence and during the continuance of an event of default thereunder, execute and deliver all such agreements, documents and other instruments, and do all such things and give all such assurances as the Trustee may reasonably require for facilitating the enforcement of the PTQ Security Interests and the realization of the PTQ Charged Property or the security interests granted by the Guarantors as further described in Section 13, as applicable, and for exercising all of the powers, authorities and discretions conferred upon the Trustee by the PTQ GSA or the security interests granted by the Guarantors as further de scribed in Section 13, as applicable, and for transferring to any purchaser of any such property, whether sold by the Trustee under the PTQ GSA or the security interests granted by the Guarantors as further described in Section 13, as applicable, or by judicial proceedings, the title to the assets so sold and PTQ or the Guarantors, as applicable, shall give all such notices and which the Trustee may consider expedient; and
(c)
it will, and shall upon request from the Trustee from time to time, deliver to the Trustee such additional security documents and amend or supplement the PTQ GSA or the security interests granted by the Guarantors as further described in Section 13, as applicable:
(i)
to reflect any changes in laws, whether arising as a result of statutory amendments, court decisions or otherwise; or
(ii)
to facilitate the registration of appropriate forms of security documents against all property subject to, or intended to be subject to, the PTQ Security Interests created or intended to be created by the PTQ GSA or the security interests granted by the Guarantors as further described in Section 13, as applicable; or
(iii)
to facilitate the registration of the PTQ Security Interests or the security interests granted by the Guarantors as further described in Section 13, as applicable in all applicable jurisdictions; or
(iv)
if PTQ or a Guarantors, as applicable, merges with or enters into a reorganization with any person;
(v)
in each case in order to confer upon the Trustee such PTQ Security Interests with such priority as is intended to be created by the PTQ GSA or the security interests granted by the Guarantors as further described in Section 13, as applicable.
4.4
Registration
PTQ covenants with the Trustee that immediately after the execution of the PTQ GSA, PTQ shall register, file or record the PTQ GSA in all registry offices in all registration divisions where, in the opinion of the Trustee, Counsel or Noteholders representing a majority in principal amount of the Notes, such registration, filing or recording is necessary or of advantage to the PTQ Security Interests. PTQ shall deliver to the Trustee certificates establishing each such registration, filing or recording, and shall do, observe and perform all matters and things including renewals of such registrations, filings or recordings necessary or expedient to be done, observed and performed for the purpose of creating, perfecting, setting up, rendering opposable, protecting and maintaining the PTQ Security Interests as valid and effective Liens with the priority intended to be created and ma intained by the PTQ GSA. PTQ will pay or indemnify the Trustee and the Noteholders against any and all stamp duties, registration fees and similar taxes or charges which may be payable or determined to be payable in connection with the execution, delivery, performance, registration or enforcement of any of the PTQ GSA or any of the transactions contemplated by the PTQ GSA.
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Each Guarantor covenants with the Trustee that immediately after the execution of the chattel mortgage or pledge of assets as further described in Section 13, as applicable, each Guarantor shall register, file or record such documents in all registry offices in all registration divisions where, in the opinion of the Trustee, Counsel or Noteholders representing a majority in principal amount of the Notes, such registration, filing or recording is necessary or of advantage to the security interests created by such documents. Each Guarantor shall deliver to the Trustee certificates establishing each such registration, filing or recording, and shall do, observe and perform all matters and things including renewals of such registrations, filings or recordings necessary or expedient to be done, observed and performed for the purpose of creating, perfecting, setting up, rendering oppo sable, protecting and maintaining such security interests as valid and effective Liens with the priority intended to be created and maintained by the chattel mortgage or pledge of assets. Each Guarantor will pay or indemnify the Trustee and the Noteholders against any and all stamp duties, registration fees and similar taxes or charges which may be payable or determined to be payable in connection with the execution, delivery, performance, registration or enforcement of any of the chattel mortgage or pledge of assets or any of the transactions contemplated by the chattel mortgage or pledge of assets.
4.5
Security Valid Irrespective of Advance
The PTQ Security Interests shall be effective whether the consideration in respect of which the Notes are issued or any part of such consideration shall be made or given before or after or at the same time as the execution and delivery of this Indenture or the issue of any of the Notes. The PTQ Security Interests shall be effective notwithstanding that from time to time no Notes may be outstanding and the obligations of PTQ shall not be deemed extinguished until PTQ shall have been released from its covenants under this Indenture, the Notes and the PTQ GSA in accordance with section 8.4.
4.6
Final Discharge
Upon proof being given to the satisfaction of the Trustee that:
(a)
all of the principal of and interest on, if any, the Notes have been paid and satisfied in full; and
(b)
all other amounts owing under this Indenture and the PTQ GSA have been paid and satisfied in full.
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the Trustee shall, at the request and at the expense of PTQ, execute and deliver to PTQ such deeds or other instruments as shall be requisite to evidence the satisfaction and discharge of the PTQ Security Interests and to release or reconvey to PTQ all PTQ Charged Property freed and discharged from the PTQ Security Interests.
4.7
Attachment
PTQ shall promptly inform the Trustee in writing of the acquisition by PTQ of any immovable or real property which is not described in the PTQ GSA, and PTQ agrees to execute and deliver at its own expense from time to time amendments or supplements to this Indenture, the PTQ GSA or such other instruments as may be required in the opinion of Counsel in order that the PTQ Security Interests shall attach to such after-acquired immovable or real property, together with all present and future works, constructions and appurtenances related thereto or in order to perfect, set up, render opposable or protect the PTQ Security Interests with respect to such property.
5.
SECURITY
5.1
Security
Except for Permitted Liens, PTQ owns each item of the PTQ Charged Property free and clear of any and all Liens or claims of others. No security agreement, financing statement or other public notice with respect to all or any part of the PTQ Charged Property that evidences a Lien securing any material Indebtedness is on file or of record in any public office, except such as have been filed in favor of Trustee for the ratable benefit of the Noteholders pursuant to this Indenture. PTQ shall maintain each of the PTQ Security Interests as a perfected, set up, opposable and protected Lien having at least the priority described in this section 5.1 and shall defend such security interest against the claims and demands of all Persons whomsoever. All Notes issued pursuant to the provisions of this Indenture shall rank pari passu and be secured equally and ratably without discrimination o r preference, whatever may be the actual date thereof or of the certification thereof respectively.
6.
COVENANTS OF PTQ
6.1
General Covenants
PTQ covenants with the Trustee that so long as any of the Notes remain outstanding:
(a)
it will well, duly and punctually pay or cause to be paid to every Noteholder, or to the Trustee on behalf of every Noteholder, all principal thereof and accrued interest, if any, on the Notes, at the dates and places, in the currency and in the manner mentioned herein and in the Notes;
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(b)
it will carry on and conduct, and will cause to be carried on and conducted, its business in a proper and efficient manner and do or cause to be done all things necessary to preserve and keep in full force and effect its existence and all consents, rights, franchises, licences, approvals, permits and qualifications necessary to own their respective properties and assets and perform their respective obligations under this Indenture; but PTQ may not cease to operate or dispose of all or substantially all of its undertaking or assets, except in accordance with Article 9, and it will keep or cause to be kept proper books of account, and will if and whenever required in writing by the Trustee on request by the Noteholders, forthwith file with the Trustee copies of all annual and periodic reports of PTQ furnished to its shareholders after the date hereof, and at all reasonable times it will furnish or cause to be furnished to the Trustee or its duly authorized agent or attorney such information relating to its business as the Trustee on request by the Noteholders, may reasonably require. No obligation shall rest with the Trustee to analyze such statements, or evaluate the performance of the Company as indicated therein in any manner whatsoever;
(c)
it will, immediately upon obtaining knowledge thereof, provide, or cause to be provided, prompt notice in writing to the Trustee of any Event of Default;
(d)
it shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all taxes, assessments and governmental charges levied or imposed upon its or its Subsidiaries’ income, profits or property and (b) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon its property;provided that PTQ shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate negotiations or proceedings and for which disputed amounts any reserves required in accordance with GAAP have been made;
(e)
it shall, and shall cause each of its Subsidiaries to, at all times cause all properties used or useful in the conduct of its business to be maintained and kept in good condition, repair and working order (reasonable wear and tear excepted) and supplied with all necessary equipment, and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereto;
(f)
it shall, and shall cause each of its Subsidiaries to, maintain insurance in such amounts and covering such risks as are usually and customarily carried with respect to similar facilities according to their respective locations;
(g)
it shall not make, and shall not permit any of its Subsidiaries to, directly or indirectly, make, any Restricted Payment;
(h)
it shall not, and shall not permit any of its Subsidiaries to, make any Investment other than a Permitted Investment;
(i)
it shall, and shall cause each of its Subsidiaries to, in the event of any equity offering (other than any equity offering undertaken in respect of (A) a transaction that is a Permitted Investment as defined in (iii) of the definition of Permitted Investment or (B) a Permitted Investment as defined in (i) of the definition of Permitted Investment in Petaquilla Infraestructura, S.A.) of PTQ or the Guarantors, to apply 50% of the gross proceeds of such equity offering to the redemption of the Notes pursuant to section 2.16;
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(j)
it shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate (including entities in which PTQ or any of its Subsidiaries own a minority interest) or holder of 10% or more of PTQ’s capital shares (an“Affiliate Transaction”)or extend, renew, waive or otherwise modify the terms of any Affiliate Transaction entered into prior the date hereof unless (i) such Affiliate Transaction is between or among PTQ and its Wholly-Owned Subsidiaries; such Affiliate Transaction is solely between or among Wholly-Owned Subsidiaries of PTQ; or (ii) the terms of such Affiliate Transaction are fair and reasonable to PTQ or such Subsidiary, as the case may be, and the term s of such Affiliate Transaction are at least as favorable as the terms which could be obtained by PTQ or such Subsidiary, as the case may be, in a comparable transaction made on an arm’s-length basis between unaffiliated parties. In any Affiliate Transaction involving an amount or having a value in excess of CDN$3 million which is not permitted under clause (i) above, PTQ must obtain a resolution of the Board of Directors certifying that such Affiliate Transaction complies with clause (ii) above. In transactions with a value in excess of CDN$5 million which are not permitted under clause (i) above, PTQ must obtain a written opinion as to the fairness of such a transaction from an independent investment banking firm of national standing in the United States or Canada;
(k)
it shall not create or acquire, nor permit any of its Subsidiaries to create or acquire, any Subsidiary other than (i) a Subsidiary existing as of the date of the Indenture, or (ii) a Subsidiary conducting a business similar or reasonably related to the business of PTQ and its Subsidiaries on the date hereof;provided,however, that each Subsidiary acquired or created pursuant to clause (ii), which Subsidiary has total assets in excess of CDN$2,500,000, shall have become a Guarantor hereunder and evidenced its guarantee with such documentation satisfactory in form and substance as determined by Counsel shall be required, including, without limitation, a supplement or amendment to the Indenture and opinions of counsel as to the enforceability of such guarantee pursuant to which such Subsidiary shall become a Guarantor and shall have executed appropriate documentat ion. Neither PTQ nor any of the Guarantors will transfer any assets to a Subsidiary which is not a Guarantor unless such Subsidiary simultaneously with such transfer executes a guarantee satisfactory in form and substance to Counsel (together with the documentation referred to in the preceding sentence) pursuant to which such Subsidiary shall become a Guarantor;
(l)
it will annually, within 140 days of the end of each fiscal year of PTQ, deliver to the Trustee (i) an Officer’s Certificate confirming that it has complied with all requirements contained in this Indenture that, if not complied with, would, with the giving of notice, lapse of time or otherwise, constitute an Event of Default, or, if there has been any failure to comply, giving particulars thereof and (ii) audited consolidated financial statements for the previous fiscal year;
(m)
each of PTQ and the Guarantors will use or cause to be used the proceeds of the Notes exclusively at the Molejon gold deposit project in the Republic of Panama; and
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(n)
generally, it will well, duly and punctually perform and carry out all of the acts or things to be done by it as provided in this Indenture.
6.2
Trustee’s Remuneration and Expenses
PTQ will pay to the Trustee from time to time such reasonable remuneration for its services hereunder as shall be negotiated by PTQ and the Trustee, and PTQ will pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in the execution of its rights, powers, duties and obligations hereunder and in the administration or execution of the trusts hereby created (including the reasonable compensation and the disbursements of its Counsel and all other advisers and assistants not regularly in its employ), both before any default hereunder and thereafter until all duties of the Trustee hereunder shall be finally and fully performed, except any such expense, disbursement or advance as may arise from the gross negligence or fraud of the Trustee. Any amount due under this section and unpaid 30 days after a reques t for such payment shall bear interest at the then current rate charged by the Trustee. After default, all amounts so payable and the interest thereon shall be payable out of any funds coming into the possession of the Trustee in priority to the principal of and interest on, if any, the Notes.
6.3
Trustee to Give Notice of Default
The Trustee shall give to the Noteholders in the manner provided in section 14.1 promptly after the Trustee receives written notice of any Event of Default from PTQ per section 6.1(c). The Trustee shall assume no Event of Default until written notice is received.
6.4
Performance of Covenants by Trustee
If PTQ shall fail to perform any of its covenants contained in this Indenture, the Trustee may itself perform any of such covenants capable of being performed by it, but shall be under no obligation to do so. All sums so expended or advanced by the Trustee shall be repayable as provided in section 6.2. No such performance or advance by the Trustee shall be deemed to relieve PTQ of a default hereunder.
7.
DEFAULT AND ENFORCEMENT
7.1
Events of Default
Each of the following events is herein referred to as an"Event of Default":
(a)
if default is made in the payment of any principal due on any of the Notes when the same becomes due under any provision hereof or of the Notes as required hereunder; or
(b)
if default is made in the payment of any interest due on any of the Notes; or
(c)
if default is made in the performance or breach by PTQ or any Guarantor of any other covenant or agreement under the provisions of the Notes, this Indenture or any document relating hereto or thereto, including the PTQ GSA, and continues for a period
of 10 days after written notice specifying such default and requiring such default to be remedied has been given to PTQ or any Guarantor, as the case may be, by the Trustee; or
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(d)
if there occurs with respect to any Indebtedness of PTQ or any Guarantor having an outstanding principal amount of $500,000 or more an event of default that has caused the holder thereof to declare such Indebtedness to be due and payable prior to its maturity and such Indebtedness has not been discharged in full or such acceleration has not been rescinded or annulled within 30 days of such acceleration; or
(e)
if a proceeding or case shall be commenced against PTQ or any Guarantor, except in the course of carrying out, or pursuant to, a transaction which is permitted by Article 9, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, termination or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, liquidator or the like of PTQ or any Guarantor or all or any substantial part of its respective property, or (iii) similar relief in respect of PTQ or any Guarantor under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days, or an or der for relief against PTQ or any Guarantor shall be entered in an involuntary case under theBankruptcy and Insolvency Act(Canada) (as amended, the"Bankruptcy Act");or
(f)
if PTQ or any Guarantor shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, examiner, liquidator or the like of itself or of all or any substantial part of its property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Act or any other similar foreign statute, (iv) institute any proceeding or file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, termination, winding-up or composition or readjustment of debts, (v) fail to contest in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Act or any other similar foreign statute, or (vi) take any action for the purpose of effecting any of the foregoing; or
(g)
the occurrence of the public announcement of a Change of Control.
7.2
Acceleration on Default
In case of any Event of Default that has occurred and is continuing, the Trustee may in its discretion and shall, if so directed by a Special Resolution, subject to the provisions of section 7.3, declare an amount equal to 120% of the principal of all Notes (other than the Series D Notes) and 110% of the Series D Notes then outstanding and all other moneys payable hereunder to be due and payable and the same shall forthwith become immediately due and payable to the Trustee on written demand, anything therein or herein to the contrary notwithstanding. PTQ shall in either case forthwith pay to the Trustee for the benefit of the Noteholders the principal of such Notes and all other moneys payable hereunder, together with subsequent interest thereon at the rate of 17% per annum from the date of such declaration (subject to the proviso below) until the date payment is received by th e Trustee, such subsequent interest to be payable at the times and places and according to the tenor of the Notes. Such payment when made shall be deemed to have been made in discharge of PTQ’s obligations hereunder and any moneys so received by the Trustee shall be applied in the manner provided in section 7.6. Provided that, for greater certainty, in the event of an acceleration of payment, if PTQ has prepaid interest on the principal amount of the Notes through to the Maturity Date, the interest on such principal amount outstanding shall only accrue and be payable after the Maturity Date.
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7.3
Waiver of Default or Breach
In case any Event of Default hereunder has occurred, the Holders of not less than 66 2/3% in principal amount of the Notes then outstanding shall have the power (in addition to and subject to the powers exercisable by Special Resolution) by instrument in writing to instruct the Trustee to waive the default and/or to annul any declaration and/or demand made by the Trustee pursuant to section 7.2 and the Trustee shall thereupon waive the default and/or annul such declaration and/or demand upon such terms and conditions as such Noteholders may prescribe; however, that no act or omission of the Trustee or the Noteholders shall extend to or be taken in any manner whatsoever to affect any subsequent default or the rights resulting therefrom.
7.4
Proceedings by the Trustee
Whenever any Event of Default hereunder has occurred and is continuing, but subject to section 7.3 and to the provisions of any Special Resolution:
(a)
the Trustee, in the exercise of its discretion and without further notice, may proceed to enforce the rights of the Trustee and the Noteholders by any action, suit, remedy, including, but not limited to, appointing a receiver, or proceeding authorized or permitted by law or by equity and may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the Holders lodged in any bankruptcy, termination or other proceedings relative to PTQ; and
(b)
if so directed by a Special Resolution and, upon being indemnified and funded to its satisfaction as provided in section 12.2, the Trustee shall exercise or take such one or more of such remedies as the Special Resolution may direct or, if such Special Resolution contains no direction, as the Trustee may deem expedient.
Notwithstanding any other provision of this Indenture, neither the Trustee nor any Person related to the Trustee shall be appointed a receiver or receiver and manager or liquidator of any part of the property or assets of PTQ or the Guarantors.
No delay or omission of the Trustee or of the Noteholders to exercise any remedy referred to in this paragraph shall impair any such remedy or shall be construed to be a waiver of any default hereunder or acquiescence therein.
PTQ shall be liable to the Trustee for all costs incurred by the Trustee in connection with the enforcement of rights under this Indenture.
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No such remedy for the enforcement of the rights of the Trustee or of the Noteholders shall be exclusive of or dependent on any other such remedy but any one or more of such remedies may from time to time be exercised independently or in combination.
Upon the exercise or taking by the Trustee of any such remedies, whether or not a declaration and demand have been made pursuant to section 7.2, the principal and interest on, if any, all Notes and other moneys payable under section 7.2 shall forthwith become due and payable to the Trustee as though such a declaration and a demand therefor had actually been made.
All rights of action hereunder may be enforced by the Trustee, without the possession of any of the Notes or the production thereof on the trial or other proceedings relative thereto.
7.5
Suits by Noteholders
No Holder of any Note shall have the right to institute any action or proceedings or to exercise any other remedy authorized by this Indenture for the purpose of enforcing any right hereunder or under any Note or for the execution of any trust or power hereunder or for the appointment of a liquidator or receiver or for a receiving order under any bankruptcy legislation or to have PTQ terminated or to file or prove a claim in any liquidation or bankruptcy proceedings, unless a Special Resolution and indemnity referred to in section 12.2 have been tendered to the Trustee and the Trustee shall have failed to act within a reasonable time thereafter. In such case, but not otherwise, any Noteholder acting on behalf of himself and all other Noteholders shall be entitled to take proceedings in any court of competent jurisdiction such as the Trustee might have taken under section 7.4. N o one or more Noteholders shall have any right in any manner whatsoever to affect, disturb or prejudice the rights hereby created by his or their action, or to enforce any right hereunder or under any Note, except subject to the conditions and in the manner herein provided, and all powers and trusts hereunder shall be exercised and all proceedings at law shall be instituted, had and maintained by the Trustee, except only as herein provided, and in any event for the equal benefit of all Noteholders.
7.6
Application of Moneys Received by Trustee
Except as otherwise herein provided, the moneys arising from any enforcement hereof shall be held in trust by the Trustee and by it applied, together with any other moneys then or thereafter in the hands of the Trustee available for the purpose, as follows:
(a)
first, in payment or reimbursement to the Trustee of the reasonable remuneration, expenses, disbursements and advances of the Trustee earned, incurred or made in the execution of its obligations and responsibilities hereunder and in the administration or execution of any trusts hereunder or otherwise in relation to this Indenture with interest thereon as herein provided;
(b)
thereafter, in or towards payment rateably and proportionately firstly of the principal of the Notes, secondly of the accrued and unpaid interest on the Notes and thirdly of the other moneys payable hereunder, unless the order or priority of payment shall be otherwise directed by Special Resolution and, in that case, in such order or priority as between such principal and interest as may be directed by such Special Resolution; and
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(c)
lastly, the surplus (if any) of such moneys shall be paid to PTQ or its assigns, unless otherwise required by law.
7.7
Distribution of Proceeds
Payments to Holders pursuant to section 7.6 shall be made as follows:
(a)
at least 10 days’ notice of every such payment shall be given in the manner provided in section 14.1 specifying the time when and the place or places where the Notes are to be presented and the amount of the payment and the application thereof as between principal, interest and any other moneys payable hereunder;
(b)
payment of any Note shall be made upon presentation thereof at any one of the places specified in such notice, any such Note thereby paid in full shall be surrendered and otherwise such payment shall be recorded by endorsement thereon;
(c)
from and after the date of payment specified in the notice, interest shall accrue only on the amount owing on each Note after giving credit for the amount of the payment specified in such notice, unless such Note be duly presented on or after the date so specified and payment of such amount be not made; and
(d)
the Trustee shall not be required to make any interim payment to Noteholders, unless the moneys in its hands, after reserving therefrom such amount as the Trustee may think necessary to provide for the payments mentioned in subsections 7.6(a), exceed 5% of the principal amount of the Notes.
7.8
Trustee Appointed Attorney
PTQ hereby irrevocably appoints the Trustee to be the attorney of PTQ for and in the name and on behalf of PTQ to execute any instrument and do any acts and things which PTQ ought to sign, execute and do hereunder and generally to use the name of PTQ in the exercise of all or any of the powers hereby conferred on the Trustee, with full powers of substitution and revocation.
7.9
Remedies Cumulative
Each and every remedy herein conferred upon or reserved to the Trustee, or upon or to the Noteholders, shall, to the extent permitted by law, be cumulative and shall be in addition to every other remedy given hereunder or now existing or hereafter to exist by law or by statute.
7.10
Judgment Against PTQ
PTQ covenants and agrees with the Trustee that, in case of any proceedings to obtain judgment for the principal of or interest on, if any, the Notes, judgment may be rendered against it in favour of the Noteholders hereunder, or in favour of the Trustee, asfondé de pouvoir(holder of the power of attorney) for all the Noteholders, for any amount which may remain due in respect of the Notes and interest thereon and any other moneys payable by PTQ hereunder and under all documents relating hereto.
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8.
SATISFACTION AND DISCHARGE
8.1
Cancellation and Destruction
All Notes shall forthwith after full payment thereof be delivered to the Trustee or to a person appointed by it or by PTQ with the approval of the Trustee and cancelled. The Trustee shall prepare and retain a certificate of such cancellation and deliver a duplicate thereof to PTQ.
8.2
Non-Presentation of Notes
In case the Holder of any Note should fail to present the same for payment on the date on which the principal thereof and the interest thereon or represented thereby becomes payable at maturity or otherwise or should fail to accept payment on account thereof or give such receipt therefor, as may be required by the Trustee:
(a)
PTQ shall be entitled to pay to the Trustee and direct it to set aside; or
(b)
in respect of moneys in the hands of the Trustee which may or should be applied to the payment of the Notes, PTQ shall be entitled to direct the Trustee to set aside,
the principal and such interest in trust to be paid without interest to the Holder of such Note, upon due presentation or surrender thereof in accordance with the provisions of this Indenture; and thereupon the principal and interest payable on or represented by each Note in respect whereof such moneys have been set aside shall be deemed to have been paid and the Holder thereof shall thereafter have no right in respect thereof, except that of receiving payment of the moneys so set aside by the Trustee upon due presentation and surrender thereof, subject always to the provisions of section 8.3.
8.3
Repayment of Unclaimed Moneys to PTQ
Any moneys in the hands of the Trustee and set aside under section 8.2 and not claimed by and paid or delivered as provided in section 8.2 to Holders of Notes within three (3) years after the date of such setting aside shall be repaid to PTQ by the Trustee on demand or otherwise as required by the provisions of applicable laws of public order, and thereupon the Trustee shall be released from all further liability with respect to such moneys and thereafter the Holders of the Notes in respect of which such moneys were so repaid or delivered to PTQ shall have no rights in respect thereof, except to obtain payment of the moneys due thereon from PTQ up to the fifth anniversary of the date hereof.
8.4
Release from Covenants
Upon Written Request and proof being given to the reasonable satisfaction of the Trustee that the principal of all the Notes and interest thereon, if any, and other moneys payable hereunder have been paid or satisfied, or that all the outstanding Notes having matured, such payments have been duly and effectually provided for by payment to the Trustee or otherwise and upon payment of all costs, charges and expenses properly incurred by the Trustee in relation to these presents and all documents relating hereto, and all interest thereon, and the remuneration of the Trustee, or upon provision satisfactory to the Trustee being made therefor, the Trustee shall, at the request and at the expense of PTQ, execute and deliver to PTQ such deeds or other instruments as shall be requisite to release PTQ from the terms of the Indenture, the Notes and the PTQ GSA, except those terms of the I ndenture relating to the indemnification of the Trustee.
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9.
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
9.1
Certain Requirements in Respect of Merger, etc.
PTQ shall not enter into any transaction (whether by way of merger, consolidation, reorganization, lease, sale, conveyance, transfer, or otherwise) whereby all or substantially all of its undertaking or assets would become the property of any other person as long as any Notes are outstanding, unless:
(a)
such other person (herein called the"Successor")is a trust, partnership or corporation constituted under the laws of a province of Canada or the laws of Canada;
(b)
the Successor executes, prior to the consummation of such transaction, such indenture supplemental hereto and other instruments (if any) as are satisfactory to the Trustee and in the opinion of Counsel necessary or advisable to evidence the assumption by the Successor of the liability for the due and punctual payment of all the Notes and the interest thereon, if any, and all other moneys payable hereunder and the covenant of such Successor to pay the same and its agreement to observe and perform all the covenants and obligations of PTQ under this Indenture, the Notes and the PTQ GSA;
(c)
such transaction is to the satisfaction of the Trustee and in the opinion of Counsel upon such terms as substantially to preserve and not to impair any of the rights and powers of the Trustee and of the Noteholders hereunder;
(d)
at the time of or immediately after the consummation of such transaction, no condition or event shall exist which constitutes or which would, after the lapse of time or giving of notice or both, constitute an Event of Default hereunder; and
(e)
an Officer’s Certificate is delivered to the Trustee together with an Opinion of Counsel to the Trustee confirming satisfaction of all foregoing conditions and legal requirements.
9.2
Vesting of Powers in Successor
Upon satisfaction of the conditions of section 9.1, the Successor shall succeed to and be substituted for PTQ with the same effect as if the Successor had been named herein and the Successor shall possess and from time to time may exercise each and every right and power of PTQ under this Indenture in the name of PTQ or otherwise and any act or proceeding by any provisions of this Indenture required to be done or performed by any trustees or officers of PTQ may be done and performed with like force and effect by the like trustees (if any), directors (if any) or officers of such Successor.
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9.3
Execution of Supplemental Indenture
Upon being satisfied that the conditions of section 9.1 have been duly observed and performed, the Trustee shall execute any supplemental indenture required, as provided in Article 11.
10.
MEETINGS OF NOTEHOLDERS
10.1
Right to Convene Meeting
The Trustee shall have power at any time to call meetings of the Noteholders at such time and place as the Trustee may determine. Noteholders may, by Noteholders’ Request or Written Request, respectively, requisition the Trustee to call a meeting of the Noteholders for the purposes stated in the requisition. The requisition shall state in reasonable detail the business to be transacted at the meeting and shall be sent to the Trustee. Upon receiving the requisition and upon receiving sufficient evidence that it is being indemnified to its reasonable satisfaction by the Noteholders or PTQ, the Trustee shall call a meeting of Noteholders to transact the business referred to in the requisition, unless:
(a)
a record date for a meeting of the Noteholders has been fixed;
(b)
the Trustee has called a meeting of the Noteholders and has given notice thereof pursuant to section 10.2; or
(c)
in connection with the business as stated in the requisition:
(i)
the requisition is not submitted to the Trustee at least ninety (90) days before the date of the next scheduled meeting, if any, of the Noteholders;
(ii)
it clearly appears that the matter covered by the requisition is submitted by the Noteholders primarily for the purpose of enforcing a personal claim or redressing a personal grievance against PTQ, the Trustee or the officers of PTQ, or primarily for the purpose of promoting general economic, political, religious, social or similar causes;
(iii)
the Trustee, at one or more Noteholders’ Request, included a matter covered by a requisition on an order of business relating to a meeting of Noteholders held within two years preceding the receipt of such request and such Noteholders failed to present the matter, in person or by proxy, at the meeting;
(iv)
substantially the same matter covered by the requisition was submitted to Noteholders at a meeting of Noteholders held within two years preceding the receipt of the Noteholders’ Request and the matter covered by the requisition was defeated; or
(v)
the rights conferred by this section 10.1 are being abused to secure publicity.
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If the Trustee does not within 21 days after receiving the requisition call a meeting, any Noteholders who signed the requisition may call the meeting in accordance with the provisions of sections 10.2 and 10.9,mutatis mutandis.If there shall be no Trustee, PTQ shall promptly appoint a successor Trustee in the manner provided in section 12.9.
10.2
Notice of Meeting of Noteholders
Notice of all meetings of the Noteholders shall be mailed or delivered to each Noteholder with a copy to the Trustee and PTQ in the manner provided in section 14.1 and to the auditors of PTQ not less than 21 nor more than 50 days (or within such other delays as required by law) before the meeting but may be waived in writing by any Noteholders either before or after such meeting. The attendance of a Noteholder at a meeting shall constitute a waiver of notice of such meeting except where a Noteholder attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting has not been lawfully called or convened. Notice of any meeting of the Noteholders shall state the purposes of the meeting.
10.3
Quorum
A quorum for any meeting of Noteholders shall be individuals present not being less than two in number and being Noteholders or representing by proxy Noteholders who hold in the aggregate not less than 25% in principal amount of the Notes then outstanding.
If a quorum of the Noteholders shall not be present within 30 minutes from the time fixed for holding any meeting, the meeting, if convened by the Noteholders on a Noteholders’ Request, shall be dissolved; but in any other case the meeting shall be adjourned to the same day in the next week (unless such day is not a business day in the place where the meeting is to be held, in which case it shall be adjourned to the next following business day in such place) at the same time and place. At the adjourned meeting, the Noteholders present in person or represented by proxy shall form a quorum and may transact the business for which the meeting was originally convened, notwithstanding that they may not represent 25% of the principal amount of the Notes then outstanding.
10.4
Chairman
An individual, who need not be a Noteholder, nominated in writing by the Trustee shall be chairman of the meeting and if no individual is so nominated, or if the individual so nominated is not present within 15 minutes from the time fixed for the holding of the meeting, the Noteholders present in person or by proxy shall choose an individual present to be chairman.
10.5
Power to Adjourn
The chairman of any meeting at which a quorum of the Noteholders is present may with the consent of the Holders of a majority in principal amount of Notes represented thereat and voting thereon adjourn any such meeting and no notice of such adjournment need be given, except such notice (if any) as the meeting may prescribe.
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10.6
Show of Hands
Every question submitted to a meeting shall be decided in the first place by a majority of the votes given on a show of hands, except that a vote on any Special Resolution shall be given in the manner hereinafter provided. At any such meeting, unless a poll is required or duly demanded as herein provided, a declaration by the chairman that a resolution has been carried or carried unanimously or by a particular majority or lost or not carried by a particular majority shall be conclusive evidence of the fact.
10.7
Poll
On every Special Resolution, and on any other question submitted to a meeting when demanded, after a vote by a show of hands, by the chairman or by one or more of the Noteholders acting in person or by proxy and holding at least 5% of the principal amount of the Notes then outstanding, a poll shall be taken in such manner as the chairman shall direct. Questions other than Special Resolutions shall be decided by the votes of the Holders of a majority of the principal amount of the Notes represented at the meeting who voted on the poll.
10.8
Voting
Holders of Notes may attend and vote at all meetings of the Noteholders either in person or by proxy. On a show of hands every individual who is present and entitled to vote, whether as a Noteholder or as proxy for one or more absent Noteholders, or both, shall have one vote. On a poll, each Noteholder present in person or represented by proxy shall be entitled to one vote in respect of each US$1,000 principal amount of Notes of which he shall be a Holder. The chairman of any such meeting shall not have a second or casting vote.
10.9
Record Dates
For the purpose of determining the Noteholders who are entitled to receive notice of and vote at any meeting or any adjournment thereof, or for the purpose of any other action, the Trustee may from time to time, without notice to Noteholders, close the transfer books for such period, not exceeding 30 days, as the Trustee may determine; or with or without closing the transfer books the Trustee may fix a date not more than 60 days prior to the date of any meeting of the Noteholders or other action as a record date for the determination of Noteholders entitled to receive notice of and to vote at such meeting or any adjournment thereof or to be treated as Noteholders of record for purposes of such other action, as the case may be, and any Noteholder who was a Noteholder at the time so fixed shall be entitled to receive notice of and vote at such meeting or any adjournment thereof, even though he has since that date disposed of his Notes, and no person who becomes a Noteholder after that date shall be entitled to receive notice of and vote at such meeting or any adjournment thereof or to be treated as a Noteholder of record for purposes of such other action.
10.10
Proxies
Whenever the vote or consent of Noteholders is required or permitted under this Indenture, such vote or consent may be given either directly by the Noteholder or by a proxy in such form as is acceptable to the Trustee acting reasonably. A Noteholder may appoint a maximum of five proxyholders to act singly, jointly, unanimously, in succession or in the alternative. A proxyholder need not be a Noteholder. The Trustee may solicit such proxies from the Noteholders or any of them in any matter requiring or permitting the Noteholders’ vote, approval or consent in such manner as may be required by applicable law.
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The Trustee may adopt, amend or repeal such rules relating to the appointment of proxyholders and the solicitation, execution, validity, revocation and deposit of proxies, as it in its discretion from time to time determines.
10.11
Resolution in Lieu of Meeting
A resolution signed in writing by Noteholders holding a proportion of the principal amount of the aggregate principal amount of all outstanding Notes equal to the proportion of the principal amount of Notes required to vote in favour thereof at a meeting of Noteholders to approve that resolution, being not less than 66 2/3% of the principal amount of Notes outstanding, is as valid as if it had been passed at a duly called meeting of Noteholders.
10.12
PTQ and Trustee may be Represented
The officers of PTQ and the Trustee, by their respective representatives, and with their respective advisers, may attend any meeting of the Noteholders but shall have no vote as such.
10.13
Powers Exercisable by Special Resolution
In addition to all other powers stated in this Indenture to be exercisable by Special Resolution and all other powers conferred by law, a meeting of the Noteholders shall have the following powers exercisable from time to time by Special Resolution:
(a)
power to agree to any modification, abrogation, alteration, compromise or arrangement of the rights of Noteholders or the Trustee (subject to the approval of the Trustee) against PTQ, whether such rights arise under this Indenture, the Notes, the PTQ GSA or otherwise and to authorize the Trustee to concur in and to execute any deed or instrument supplemental hereto or thereto embodying any such modification, abrogation, alteration, compromise or arrangement, provided that any such modification, abrogation, alteration, compromise or arrangement shall have been agreed to by PTQ;
(b)
power to direct or authorize the Trustee to exercise any power, right, remedy or authority given to it by this Indenture, the Notes, the PTQ GSA or otherwise in any manner specified in such Special Resolution or to refrain from exercising any such power, right, remedy or authority;
(c)
power to waive and direct the Trustee to waive any default on the part of PTQ in complying with any provision of this Indenture, the Notes, the PTQ GSA or any other document relating hereto or thereto, or to annul and to direct the Trustee to annul any declaration in respect of such default made by the Trustee pursuant to section (f) either unconditionally or upon any conditions specified in such Special Resolution;
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(d)
power, with the approval of PTQ, to sanction the exchange of Notes for any other securities or obligations of PTQ or any other person;
(e)
power to restrain any Noteholder from taking or instituting any suit, action or proceeding for the purpose of enforcing payment by PTQ of principal or interest or for the execution of any trust or power under this Indenture, the Notes, the PTQ GSA or any other document relating hereto or thereto or for the appointment of a liquidator or a receiver or a trustee in bankruptcy or for any other remedy hereunder or thereunder;
(f)
power to direct any Noteholder who, as such, has brought any suit, action or proceeding, to stay or discontinue or otherwise deal with the same upon payment, if the taking of such suit, action or proceeding shall have been permitted by section 7.5, of the costs, charges and expenses reasonably and properly incurred by such Noteholder in connection therewith;
(g)
power to sanction any scheme for the reconstruction or reorganization of PTQ or for the consolidation or merger of PTQ with any other person or for the sale, leasing, transfer or other disposition of the undertaking, property and assets of PTQ or any part thereof, provided that no such sanction shall be necessary in respect of any such transaction if the provisions of section 9.1 shall have been complied with;
(h)
power to assent to any compromise or arrangement with any creditor or creditors or any class or classes of creditors, whether secured or otherwise, and with holders of any PTQ Units or other securities of PTQ;
(i)
power to amend, alter or repeal any Special Resolution previously passed or sanctioned by the Noteholders;
(j)
power to appoint and remove a committee to consult with the Trustee and to delegate to such committee (subject to such limitations, if any, as may be prescribed in such Special Resolution) all or any of the powers which the Noteholders could exercise by Special Resolution under this section 10.13. The Special Resolution making such appointment may provide for payment of the expenses and disbursements of and compensation to such committee. Such committee shall consist of such number of persons as shall be prescribed in the Special Resolution appointing it, and the members need not be themselves Noteholders. Subject to the Special Resolution appointing it, every such committee may elect its chairman and may make regulations respecting its quorum, the calling of its meetings, the filling of vacancies occurring in its number, the manner in which it may act and its procedure genera lly and such regulations may provide that the committee may act at a meeting at which a quorum is present or may act by minutes signed by a majority of the members thereof or the number of members thereof necessary to constitute a quorum, whichever is the greater. All acts of any such committee within the authority delegated to it shall be binding upon all Noteholders. Neither such committee nor any member thereof shall be liable for any loss arising from or in connection with any action taken or omitted to be taken in good faith;
(k)
power to remove the Trustee and appoint a new Trustee; and
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(l)
power to authorize the Trustee to grant extensions of time for payment of any principal or interest on the Notes, whether or not the principal or interest, the payment of which is extended, is at the time due or overdue.
Notwithstanding paragraphs (a) to (l) above, no resolution shall modify, abrogate, alter, compromise, arrange or otherwise affect the rights of the Trustee hereunder without the Trustee’s written consent, such consent not to be unreasonably withheld.
10.14
Meaning of "Special Resolution"
The expression"Special Resolution"when used in this Indenture means, subject to section 10.11 provided, a resolution proposed at a meeting of Noteholders duly convened for the purpose of passing a Special Resolution and held in accordance with the provisions in this Article 10 at which, subject as hereinafter provided, the Holders of at least 51% of the principal amount of the Notes then outstanding are present in person or represented by proxy and passed by the favourable votes of the Holders of not less than 66 2/3% of the principal amount of Notes represented at the meeting and voted on a poll upon such resolution.
10.15
Minutes
Minutes of all resolutions and proceedings at every such meeting as aforesaid shall be made and duly entered in books to be from time to time provided for that purpose by the Trustee at the expense of PTQ, and any such minutes as aforesaid, if signed by the chairman of the meeting at which such resolutions were passed or proceedings had, shall constituteprima facieevidence of the matters therein stated and, until the contrary is proved, every such meeting, in respect of the proceedings of which minutes shall have been made and signed as aforesaid, shall be deemed to have been duly held and convened and all resolutions passed or proceedings had thereat to have been duly passed and had.
10.16
Effect of Resolutions
Every resolution and every Special Resolution passed in accordance with the provisions of this Article 10 at a meeting of Noteholders shall be binding upon all the Noteholders, whether present at or absent from such meeting, and every instrument in writing signed by the Noteholders in accordance with section 10.11 shall be binding upon all the Noteholders, whether signatories thereto or not, and each and every Noteholder and the Trustee (subject to any provisions for its indemnity herein contained) shall be bound to give effect accordingly to every such resolution, Special Resolution and instrument in writing. Notwithstanding anything contained herein to the contrary, no Special Resolution may: (i) reduce in any manner the amount of, or delay the timing of the distributions required to be made on a Note without the consent of 100% of the Noteholders; (iii) adversely affect in a ny material respect the interests of the Noteholders without the consent of 100% of the Noteholders based on the opinion of counsel; and (iv) modify the provisions of this Section 10.16 without the consent of 100% of the Noteholders. Unless the Trustee agrees otherwise, notice of the passing of every resolution and every Special Resolution shall be given to the Noteholders in the manner provided in section 14.1.
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11.
SUPPLEMENTAL INDENTURES
11.1
Provision for Supplemental Indentures for Certain Purposes
From time to time PTQ and the Trustee may, without any further approval or consent of the Noteholders (subject to the provisions of this Indenture), and they shall, when so directed by the provisions hereof, execute and deliver indentures or instruments supplemental hereto, which thereafter shall form part hereof, for any one or more or all of the following purposes:
(a)
evidencing the succession of Successors and the covenants of and obligations assumed by such Successors in accordance with the provisions of Article 9;
(b)
giving effect to any Special Resolution passed as provided in Article 10;
(c)
adding to the provisions hereof such additional covenants, enforcement provisions, release provisions and other provisions as, in the opinion of Counsel, are necessary or advisable, provided that, in the opinion of the Trustee, the same are not prejudicial to the legal rights of the Noteholders;
(d)
making any modification of any of the provisions of this Indenture or the Notes which is of a formal, minor or technical nature;
(e)
making any additions to, deletions from or alterations of the provisions of this Indenture (including any of the terms and conditions of the Notes) which in the opinion of the Trustee based on the opinion of Counsel are not prejudicial to the interests of the Noteholders and which are necessary or advisable in order to incorporate, reflect or comply with any legislation the provisions of which apply to this Indenture;
(f)
adding to or altering the provisions hereof in respect of the transfer of Notes, including provision for the exchange of Notes of different denominations and making any modification in the form of the Notes which does not affect the substance thereof and which, in the opinion of the Trustee, based on the opinion of Counsel, is not prejudicial to the interests of the Noteholders;
(g)
correcting or rectifying any ambiguities, defective provisions, errors or omissions herein, provided that, in the opinion of the Trustee, based on the opinion of Counsel, the rights of the Trustee and the Noteholders are not materially prejudiced thereby; and
(h)
any other purpose not inconsistent with the terms of this Indenture provided that, in the opinion of the Trustee, based on the opinion of Counsel, the rights of the Trustee and of the Noteholders are not materially prejudiced thereby.
11.2
Binding Effect of Modifications
Every modification, addition, deletion, alteration, correction or rectification to, from or of the provisions hereof shall bind the Noteholders and notice thereof shall be given as soon as practicable in accordance with section 14.1, unless the Trustee agrees otherwise.
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12.
CONCERNING THE TRUSTEE
12.1
Conditions Precedent to Trustee’s Obligation to Act
The Trustee shall not be bound to give any notice or do or take any act, action or proceeding in virtue of the powers conferred on it hereby unless and until it shall have been required so to do under the terms hereof. Nor, subject to any default which may come to the attention of the Trustee by virtue of PTQ’s compliance with subsection 6.1(c), shall the Trustee be required to take notice of any default hereunder, unless and until notified in writing of such default, which notice shall distinctly specify the default desired to be brought to the attention of the Trustee, and in the absence of any such notice the Trustee may for all purposes of this Indenture conclusively assume that PTQ is not in default hereunder and that no default has been made with respect to the payment of principal or interest on the Notes or in the observance or performance of any of the covenants, agreements or conditions contained herein.
Any such notice or requisition shall in no way limit any discretion herein given to the Trustee to determine whether or not the Trustee shall take action with respect to any default or take action without any such requisition.
12.2
Requirement for Funds and Indemnity
The obligation of the Trustee to commence or continue any act, action or proceeding for the purpose of enforcing any right of the Trustee or the Noteholders hereunder shall be conditional upon the Noteholders furnishing, when required by notice in writing by the Trustee, sufficient funds to commence or continue such act, action or proceeding and an indemnity reasonably satisfactory to the Trustee to protect and hold harmless the Trustee and its officers directors and employees against the costs, charges and expenses and liabilities to be incurred thereby and any loss and damage it may suffer by reason thereof. None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties or in the exercise of any of its rights or powers.
The Trustee may, before commencing or at any time during the continuance of any such act, action or proceeding, require the Noteholders at whose instance it is acting to deposit with the Trustee the Notes held by them, for which Notes the Trustee shall issue receipts.
12.3
Evidence
Whenever it is provided in this Indenture, with reference to any application to the Trustee for the certification and delivery of Notes or other action hereunder, that PTQ shall deposit with the Trustee resolutions, certificates, opinions, requests, orders or other documents,
it is intended that the truth, accuracy and good faith at the time of the granting of such application (or on the effective date of any such certificate or report, as the case may be) of the facts and opinions stated in all documents so deposited shall, in each and every such case, be conditions precedent to the right of PTQ to have such application granted. The Trustee may rely and shall be protected in acting upon any such documents deposited with it in purported compliance with any such provision or of any other purpose hereof, but may in its discretion require further evidence before acting or relying thereon.
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The Trustee may rely and shall be protected in acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, letter, or other paper or document believed by it to be genuine without the need for independent investigation and to have been signed, sent or presented by or on behalf of the proper party or parties.
12.4
Experts and Advisers
The Trustee may employ or retain such Counsel, accountants, appraisers or other experts or advisers as it may reasonably require for the purpose of discharging its duties hereunder and may pay reasonable remuneration for all services so performed by any of them, and shall not be responsible for any misconduct on the part of any of them.
The cost of such services shall be added to and be part of the Trustee’s expenses hereunder.
The Trustee may act, or not act, and shall incur no liability and shall be protected in acting, or not acting, in good faith on the opinion or advice of or information obtained from any counsel, accountant, appraiser or other expert or adviser, whether retained or employed by PTQ or by the Trustee, in relation to any matter arising in the administration of the trusts hereunder and the fulfilment of its obligations and the exercise of its rights hereunder.
12.5
Documents, Moneys, etc. Held by Trustee
Any securities, documents of title or other instruments that may at any time be held by the Trustee subject to the trusts hereof may be placed in the deposit vaults of the Trustee or of any Canadian chartered bank or deposited for safe-keeping in the Province of British Columbia with any such bank. Unless herein otherwise expressly provided, any moneys so held, pending the application or withdrawal thereof under any provisions of this Indenture, may be deposited in the name of the Trustee in any Canadian chartered bank at the rate of interest (if any) then current on similar deposits or, with the consent of PTQ, may be (a) deposited in the deposit department of the Trustee or any other loan or trust corporation authorized to accept deposits under the laws of Canada or a province thereof, or (b) invested in securities issued or guaranteed by the government of Canada or of any pr ovince thereof, maturing not more than 90 days from the date of investment. All interest or other income received by the Trustee in respect of such deposits and investments shall belong to PTQ and be remitted to PTQ or in accordance with the provisions of applicable laws of public order, unless an Event of Default shall have occurred and be continuing, in which case all such interest and income shall be held by the Trustee and applied in accordance with section 7.6.
12.6
Action by Trustee to Protect Interests
The Trustee shall have power to institute and to maintain such actions and proceedings as it may consider necessary or expedient to preserve, protect and enforce its interests and the interests of the Noteholders.
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12.7
Trustee not Required to give Security
The Trustee shall not be required to give any bond or security in respect of the execution of the trusts and powers of this Indenture or otherwise in respect of this Indenture.
12.8
Protection of Trustee
By way of supplement to the provisions of any law for the time being relating to trustees:
(a)
the Trustee shall not be liable for or by reason of any statements of fact or recitals in this Indenture, in the Notes, in the PTQ GSA or in any other document relating hereto or thereto (except the representation contained in section 12.11 and in the certificate of the Trustee on the Notes) or required to verify the same, but any such statements or recitals are and shall be deemed to be made by PTQ;
(b)
nothing herein contained shall impose any obligation on the Trustee to see to or require evidence of the registration or filing (or renewal thereof) of this Indenture or the PTQ GSA or any instrument ancillary, including but not limited to security documents relating to the Guarantors, or supplemental hereto or thereto;
(c)
the Trustee is not a party to, nor is bound by, any provisions which may be evidenced by, or arise out of, any agreement other than as therein set forth under the express provisions of this Agreement;
(d)
the Trustee shall not be answerable for the default or misconduct of any adviser, agent or legal counsel employed or appointed, at its discretion, by it if such adviser, agent or legal counsel shall have been selected with reasonable care;
(e)
the Trustee shall not be liable for any error of judgement, or for any act done or omitted by it in good faith, or for any mistake of fact or law, or for anything which it may do or omit from doing in connection herewith, except its own fraud and gross negligence;
(f)
the Trustee shall not be bound to give to any person notice of the execution hereof;
(g)
the Trustee shall not incur any liability or responsibility whatever or be in any way responsible for the consequence of any breach on the part of PTQ of any of the covenants contained in this Indenture, in the PTQ GSA or in any other document relating hereto or thereto or of any acts of the agents or servants of PTQ;
(h)
PTQ and every party to this Agreement hereby agrees to jointly and severally indemnify and save harmless the Trustee and its officers, directors, employees and agents from and against any and all liabilities, losses, costs, claims, actions or demands whatsoever which may be brought against the Trustee or which it may suffer or incur as a result or arising out of the performance of its duties and obligations hereunder (including without limitation the fees and disbursements of any advisers and legal counsel it may retain), save only in the event of gross negligence or fraud of the Trustee or any of its officers, directors, employees or agents. This indemnification shall survive the termination of this Indenture or the resignation or removal of the Trustee;
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(i)
every party to this Agreement agrees that its liability hereunder shall be absolute and unconditional regardless of the correctness of any representations of any third parties and regardless of any liability of third parties to the Indemnified Parties, and shall accrue and become enforceable without prior demand or any other precedent action or proceeding. The Trustee shall not be under any obligation to prosecute or to defend any action or suit in respect of the relationship which, in the opinion of its counsel, may involve it in expense or liability, unless the parties hereto shall, so often as required, furnish the Trustee with satisfactory indemnity and funding against such expense or liability;
(j)
the forwarding of a cheque by the Trustee will satisfy and discharge the liability for any amounts due to the extent of the sum or sums represented thereby (plus the amount of any tax deducted or withheld as required by law) unless such cheque is not honoured on presentation; provided that in the event of the non-receipt of such cheque by the payee, or the loss or destruction thereof, the Trustee, upon being furnished with reasonable evidence of such non-receipt, loss or destruction and indemnity reasonably satisfactory to it, will issue to such payee a replacement cheque for the amount of such cheque;
(k)
the Trustee shall exercise that degree of care, diligence and skill that a reasonably prudent trustee would exercise in comparable circumstances;
(l)
the Trustee will disburse monies according to this Agreement only to the extent that monies have been deposited with it;
(m)
the Trustee shall not be bound by any notice, claim or demand with respect to, or any waiver, modification, amendment, termination or rescission of this Agreement, unless received by it in writing, and signed by the parties hereto and if its duties herein are affected, unless it shall have given its prior written consent thereto;
(n)
the Trustee shall have no duties except those which are expressly set forth herein, and the Trustee shall not be liable except for the performance of such duties and obligations as shall specifically be set forth in this Agreement and no implied covenants or obligations shall be read into this Agreement against the Trustee;
(o)
the Trustee shall not be responsible or liable in any manner whatsoever for the sufficiency, correctness, genuineness or validity of any security deposited with it;
(p)
the Trustee shall not be responsible for assessing the validity or advisability of any directions or instructions received by it. The Trustee shall under no circumstances be deemed to provide legal, investment, tax or trading advice or counselling;
(q)
the Trustee shall incur no liability with respect to the delivery or non-delivery of any certificate or certificates whether delivered by hand, mail or any other means;
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(r)
nothing herein shall be deemed to hold the Trustee responsible for failure by PTQ or the Guarantors to maintain insurance coverage or for any loss arising out of any want, defect or insufficiency in any insurance policy, or because of failure of any insurer to pay the full amount of any loss or damage insured against. The Trustee shall be entitled to request and rely absolutely upon an Officers' Certificate of PTQ stating that each of PTQ and the Guarantors are in compliance with their covenant to maintain adequate insurance coverage. No duty with respect to effecting or maintaining insurance coverage shall rest with the Trustee;
(s)
given that the Guarantors have created certain security documents to secure all obligations created under this Indenture which are joint and several with as amongst PTQ and the other Guarantors and given that such security documents state that the rights, duties and obligations of the Trustee under such documents shall be governed by and construed in accordance with laws other than those of British Columbia and Canada, PTQ agrees to indemnify and hold harmless the Trustee for any duties, obligations or standards imposed on the Trustee under any laws which are not Canadian which are more stringent, than the duties, obligations and standards to which the Trustee would be held as the Trustee under such security agreements by the laws of British Columbia and Canada; and
(t)
the Trustee shall not be liable for or by reason of:
a.
any failure or defect of title to, or encumbrance upon, the PTQ Charged Property or any security pledged hereunder;
b.
any failure of or defect in the registration, filing or recording of this Indenture or any other deed or writing delivered hereunder by way of mortgage or charge upon the PTQ Charged Property or any security pledged hereunder or any part thereof, or any notice, caveat or financing statement with respect to the foregoing; or
c.
any failure to do any act necessary to constitute, perfect and maintain the priority of the security hereby created.
12.9
Replacement of Trustee
The Trustee may resign and be discharged from all further duties and liabilities hereunder by giving to PTQ not less than 60 days’ notice in writing or such shorter notice as PTQ may accept as sufficient. The Noteholders, by Special Resolution, shall have power at any time to remove the Trustee and to appoint a new trustee. In the event of the Trustee resigning or being removed as aforesaid or being dissolved, becoming bankrupt, going into liquidation or otherwise becoming incapable of acting hereunder, PTQ shall forthwith appoint a new trustee unless a new trustee has already been appointed by the Noteholders; failing such appointment by PTQ, the retiring Trustee or any Noteholder may apply to the Court, on such notice as the Court may direct, for the appointment of a new trustee; but any new trustee so appointed by PTQ or by the Court shall be subject to removal as afore said by the Noteholders. Any new trustee appointed under these provisions must be a corporation authorized to carry on the business of a trust company in the Province of British Columbia. On any new appointment, the new trustee shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as Trustee without any further assurance, conveyance, act or deed, but there shall be immediately executed, at the expense of PTQ, all such conveyances or other instruments as may, in the opinion of Counsel, be necessary or advisable for the purpose of assuring the same to the new trustee. At the request of PTQ or the new trustee, the retiring Trustee, upon payment of the amounts, if any, due to it pursuant to section 6.2, shall duly assign, transfer and deliver to the new trustee all property and money held and all records kept by the retiring Trustee hereunder or in connection herewith.
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Any corporation into which the Trustee may be merged or with which it may be consolidated or amalgamated or any corporation resulting from any merger, consolidation or amalgamation to which the Trustee shall be a party, shall be the successor trustee under this Indenture without the execution of any instrument or any further act.
12.10
Trustee Not Bound to Act
The Trustee shall retain the right not to act and shall not be liable for refusing to act if, due to a lack of information or for any other reason whatsoever, the Trustee, in its sole judgment, determines that such act might cause it to be in non-compliance with any applicable anti-money laundering or anti-terrorist legislation, regulation or guideline. Further, should the Trustee, in its sole judgment, determine at any time that its acting under this Agreement has resulted in its being in non-compliance with any applicable anti-money laundering or anti-terrorist legislation, regulation or guideline, then it shall have the right to resign on 10 Business Days’ written notice to PTQ, or any shorter period of time as agreed to by the parties, notwithstanding the provisions of Section 11.9 of this Indenture, provided that (i) the Trustee’s written notice shall describe th e circumstances of such non-compliance; and (ii) if such circumstances are rectified to the Trustee’s satisfaction within such notification period, then such resignation shall not be effective.
12.11
Conflict of Interest
The Trustee represents to PTQ that at the time of the execution and delivery hereof no material conflict of interest exists in the Trustee’s role as a fiduciary hereunder and agrees that in the event of a material conflict of interest arising hereafter it will, within 90 days after ascertaining that it has such material conflict of interest, either eliminate same or resign its trust hereunder.
Subject to the preceding paragraph, the Trustee, in its personal or any other capacity, may buy, lend upon and deal in securities of PTQ and generally may contract and enter into business transactions with PTQ or any of its Affiliates without being liable to account for any profit made thereby.
12.12
Delegation of Powers
The Trustee may delegate to any person the performance of any of the trusts and powers vested in it by this Indenture and any such delegation may be made upon such terms and conditions and subject to such regulations as the Trustee may think to be in the interests of the Noteholders.
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12.13
Acceptance of Trust
The Trustee hereby accepts any and all trusts created or constituted for the purposes of such sections, agrees to perform the same upon the terms and conditions herein set forth and in acting as Trustee hereunder shall not be subject to any personal liability for any debts, liabilities, obligations, claims, demands, judgments, costs, charges or expenses against or with respect to this Indenture and the trusts established hereunder.
12.14
Privacy Issues
The parties acknowledge that the Trustee may, in the course of providing services hereunder, collect or receive financial and other personal information about such parties and/or their representatives, as individuals, or about other individuals related to the subject matter hereof, and use such information for the following purposes:
(a)
to provide the services required under this agreement and other services that may be requested from time to time;
(b)
to help the Trustee manage its servicing relationships with such individuals
(c)
to meet the Trustee’s legal and regulatory requirements; and
(d)
if Social Insurance Numbers or Social Security Numbers are collected by the Trustee, to perform tax reporting and to assist in verification of an individual’s identity for security purposes.
Each party acknowledges and agrees that the Trustee may receive, collect, use and disclose personal information provided to it or acquired by it in the course of this Indenture for the purposes described above and, generally, in the manner and on the terms described in its privacy code, which the Trustee shall make available on its website or upon request, including revisions thereto. Further, each party agrees that it shall not provide or cause to be provided to the Trustee any personal information relating to an individual who is not a party to this Indenture unless that party has assured itself that such individual understands and has consented to the aforementioned uses and disclosures.
12.15
Third Party Interests
PTQ hereby represents to the Trustee that any account to be opened by, or interest to be held by, the Trustee in connection with this Indenture, for or to the credit of the PTQ, is not intended to be used by or on behalf of any third party.
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12.16
Environmental Indemnity
PTQ and the Guarantors jointly and severally shall indemnify the Trustee, its directors, officers, employees, and agents, and all of their successors and assigns (collectively the “Indemnified Parties”) against any loss (other than a loss of profit), expense, claim, liability or asserted liability (including strict liability) and including costs and expenses of abatement and remediation of spills or releases of contaminants and including liabilities of the Indemnified Parties to third parties (including governmental agencies) in respect of bodily injuries, property damage, damage to or impairment of the environment or any other injury or damage and including liabilities of the Indemnified Parties to third parties for the third parties' foreseeable and unforeseeable consequential damages incurred as a result of: (a) the administration of the trust created hereby; (b) t he exercise by the Trustee of any rights hereunder; which result from or relate, directly or indirectly, to: (i) the presence or release of any contaminants, by any means or for any reason, on the PTQ Charged Property and property charged by the Guarantors hereunder, whether or not release or presence of the contaminants was under control, care or management of PTQ or the Guarantors or of a previous owner, or of a tenant; (ii) any contaminant present on or released from any contiguous property to the PTQ Charged Property and property charged by the Guarantors hereunder; or (iii) the breach or alleged breach of any environmental laws by PTQ or the Guarantors. For the purposes of this Section 12.16, “liability” shall include (i) liability of an Indemnified Party for costs and expenses of abatement and remediation of spills and releases of contaminants, (ii) liability of an Indemnified Party to a third party to reimburse the third party for bodily injuries, property damages and other injuries or damag es which the third party suffers, including (to the extent, if any, that the Indemnified Party is liable therefor) foreseeable and unforeseeable consequential damages suffered by the third party and (iii) liability of the Indemnified Party for damage to or impairment of the environment; (iv) liability of an Indemnified Party for damage to or impairment of the environment and (v) liability of an Indemnified Party for court costs, expenses of alternative dispute resolution proceedings, and fees and disbursements of expert consultants and legal counsel on a solicitor and client basis.
13.
GUARANTEE
13.1
Guarantee
Each Guarantor hereby solidarily (jointly and severally), waiving any and all rights of guarantors under Sections 809, 810, 811 and 812 of the Panamanian Code of Commerce, absolutely, unconditionally and irrevocably guarantees (the“Guarantee”) to each Noteholder and to the Trustee and their respective successors, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of PTQ or any other Guarantors to the Noteholders or the Trustee hereunder or thereunder, that: (a) the principal of, interest on, and any additional amounts, if any, with respect to the Notes will be duly and punctually paid in full when due, whether at maturity, by acceleration or otherwise, and interest on the overdue principal and (to the extent permitted by law) interest on, or additional amounts, if any, with respect to the Notes, and (b) all other ob ligations of PTQ or the Guarantors to the Noteholders or the Trustee hereunder or under the Notes (including amounts due the Trustee) and all other obligations of PTQ to the Noteholders or the Trustee hereunder or under the Notes, the PTQ GSA or any other document relating hereto or thereto (including fees, expenses or other), will be promptly paid in full or performed, all in accordance with the terms hereof and thereof. Failing payment when due of any amount so guaranteed, or failing performance of any other obligation of PTQ to the Noteholders, for whatever reason, each Guarantor will be obligated to pay, or to perform or cause the performance of, the same immediately. This Guarantee is valid as of the date hereof without the need of the Noteholders or the Trustee expressly giving notice of their acceptance thereto.
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An Event of Default shall constitute an event of default under this Guarantee, and shall entitle the Noteholders or the Trustee to accelerate the obligations of the Guarantors hereunder in the same manner and to the same extent as the obligations of PTQ. Each Guarantor further agrees that, as between it, on the one hand, and the Noteholders and the Trustee, on the other hand, (a) subject to this Article 12, the maturity of the obligations guaranteed hereby may be accelerated as provided herein for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (b) in the event of any acceleration of such guaranteed obligations as provided herein, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Guarantee.
As general and continuing security for the due and punctual payment and performance of each Guarantor's obligations under this Indenture or this Guarantee, each Guarantor shall, forthwith after the execution hereof or its accession hereto, as applicable, execute and deliver a chattel mortgage and pledge of assets, as applicable as advised by Counsel, in favour of the Trustee for and on behalf of the Noteholders, in a form and content acceptable to such Guarantor and the Trustee as advised by Counsel, and pursuant to such chattel mortgage and pledge of assets, as applicable as advised by Counsel, each such Guarantor shall grant a security interest, lien, mortgage and hypothec on the universality of all of its property, movable and immovable (personal and real), present and future, corporeal and incorporeal (tangible and intangible), which security interest, lien, mortgage and hy pothec shall be in priority to all Liens created or to be created to secure the repayment of any other Indebtedness.
If there is any conflict between the terms of any security document entered into by a Guarantor and this Indenture, the terms of this Indenture shall govern.
Each of the Guarantors hereby agrees that its obligations hereunder shall be unconditional, irrespective of the loss or diminution of capacity of PTQ or any other Guarantor, any change in the name of PTQ, the acquisition of the business of PTQ by another person, any change whatsoever in the objects, capital structure or constitution of PTQ, the amalgamation of PTQ or its business with any other person or with the business of any such other person, the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, any release of any other Guarantor, the recovery of any judgment against PTQ, any action to enforce the same, whether or not a guarantee is affixed to any particular Note, or any other circumstance which might otherwi se constitute a legal or equitable discharge or defense of a guarantor. Each of the Guarantors hereby waives the benefit of diligence, presentment, demand for payment, filing of claims with a court in the event of insolvency or bankruptcy of PTQ, any right to require a proceeding first against PTQ, protest, notice and all demands whatsoever. This Guarantee is a guarantee of payment and not of collection. No settlement or discharge of the obligations guaranteed pursuant to this Guarantee shall be effective if any payment by PTQ or any Guarantor in respect of such guaranteed obligations is avoided, affected or reduced including by virtue of any provisions or enactments relating to bankruptcy, insolvency, liquidation or similar or other laws of general application from time to time, and if such payment is so avoided, affected or reduced, the Trustee and the Noteholders shall be entitled to recover the amount of such payment as if such settlement or discharge had not occurred and this Guarantee, to the extent th eretofore discharged, shall be reinstated in full force and effect.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 188 |
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The Trustee and the Noteholders, without thereby releasing any Guarantor, in whole or in part, under this Guarantee, may, in accordance with this Indenture, grant extensions of time, renewals, postponements and releases; they may also (i) take and give up Liens or guarantees or abandon same, in whole or in part, (ii) abstain from taking, perfecting, registering, publishing, renewing or enforcing any Lien or guarantee, (iii) accept arrangements or otherwise deal with the Company and others including any other guarantor, (iv) dispose of any Lien or guarantee and (v) amend, terminate, waive or otherwise modify any provision of this Indenture, the Notes or this Guarantee or any security granted hereunder.
The obligations of each Guarantor hereunder will constitute and be continuing obligations and will apply to and secure any ultimate balance due or remaining due in respect of the obligations guaranteed pursuant to this Guarantee and will not be considered as wholly or partially satisfied by the payment or liquidation at any time of any sum of money for the time being due or remaining unpaid. The only circumstance where a Guarantor will be automatically released from its obligations hereunder is the case where such Guarantor is no longer required by the terms of the Indenture to maintain its Guarantee hereunder.
This Guarantee shall remain in full force and effect and continue to be effective should any petition be filed by or against PTQ for liquidation or reorganization, should PTQ become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of PTQ’s assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment or performance of the Notes are, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee on the Notes, whether as a “voidable preference,” “fraudulent transfer” or otherwise, all as though such payment or performance had not been made. In the event that any such payment, or any part thereof, is rescinded, reduced, restored or re turned, the Notes shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.
All payments due to the Trustee or the Noteholders pursuant to the terms of this Guarantee or all other provisions, conditions, covenants and agreements to be observed and executed by the Guarantor shall be made, observed and executed by the Guarantor without any reduction whatsoever including all reductions resulting from any means of defence, right of action, right of set-off or compensation or from a reconventional demand of whatever nature, which the Guarantor has at any time against the Trustee or the Noteholders, in connection with this Guarantee, the Indenture, the Notes or otherwise.
Each Guarantor hereby binds itself with each and all of PTQ and the other Guarantors as solidary (joint and several) codebtor for the payment and performance of the obligations guaranteed pursuant to this Guarantee. The Trustee and the Noteholders shall not be bound to exhaust their recourse against PTQ or any Guarantor or under any other Lien or guarantee before being entitled to payment from any Guarantor under this Guarantee. Each Guarantor hereby irrevocably renounces to the benefits of discussion and division. Subject to the foregoing, the Guarantors shall have the right to seek contribution from any non-payingGuarantor so long as the exercise of such right does not impair the rights of the Trustee or the Noteholders under this Guarantee.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 189 |
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Notwithstanding anything contained herein to the contrary, each Guarantor shall, under this Guarantee, only be liable, directly or indirectly, for the maximum amount that can be guaranteed by such Guarantor without contravening the provisions of applicable law.
No shareholder, officer, director, employee or incorporator, past, present or future, of any Guarantor, as such, shall have any personal liability under this Guarantee by reason of his, her or its status as such shareholder, officer, director, employee or incorporator.
Each Guarantor agrees, at its expense, to do all such things and to execute and deliver to the Trustee and the Noteholders, from time to time, any such additional instruments or documents considered necessary to cause the Guarantee of such Guarantor to be, become or remain valid and effective in accordance with the terms of this Article 13.1, or to otherwise give full force and effect to the terms of this Article 13.1.
13.2
Subordination of Claims and Postponement of Subordination
Each Guarantor hereby subordinates all its claims, whether present or future, against PTQ to the obligations guaranteed pursuant to this Guarantee, so as to enable the Trustee and the Noteholders, in all circumstances, to be fully paid such guaranteed obligations in priority over such claims of each Guarantor.
Each Guarantor hereby absolutely, unconditionally and irrevocably agrees to refrain, until the obligations guaranteed pursuant to this Guarantee shall have been fully and indefeasibly paid and performed and until the Trustee and the Noteholders shall have received the entire amount of their claims in connection with such guaranteed obligations, from exercising any right which it may now or hereafter acquire against PTQ that arises from the existence, payment, performance or enforcement of such Guarantor’s obligations under this Guarantee and this Indenture, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Holder of Notes against PTQ, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitatio n, the right to take or receive from PTQ, directly or indirectly, in cash or other property or by set-off or compensation or in any other manner, payment or Lien on account of such claim or other rights.
If any amount shall be paid to any Guarantor in violation of any of the preceding subparagraphs of this section 13.2 and the obligations guaranteed pursuant to this Guarantee shall not have been fully and indefeasibly paid and performed, such amount shall be deemed to have been paid to such Guarantor for the benefit of, and shall be held in trust for the benefit of, the Noteholders, and shall forthwith be paid to the Trustee for the benefit of such Noteholders, to be credited and applied upon such guaranteed obligations, whether matured or unmatured, in accordance with the terms of this Indenture.
Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the subordination and postponement set forth in this section 13.2 are knowingly made in contemplation of such benefits.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 190 |
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14.
MISCELLANEOUS
14.1
Manner of Giving Notice
Any notice required or permitted by the provisions of this Indenture to be given to a Noteholder, the Trustee or PTQ shall be deemed conclusively to have been made if given either by hand delivery or by prepaid first class mail addressed:
(a)
in the case of the Noteholders, at their addresses shown on the register kept by the Trustee pursuant to section 2.9;
(b)
in the case of the Trustee, as follows:
COMPUTERSHARE TRUST COMPANY OF CANADA
510 Burrard Street, 3rd Floor
Vancouver, British Columbia V6C 3B9
Attention:
Manager, Corporate Trust
Telecopier:
(604) 661-9403
(c)
in the case of PTQ, as follows:
PETAQUILLA MINERALS LTD.
475 West Georgia Street, Suite 410
Vancouver, British Columbia V6B 4M9
Attention:
President and Chief Executive Officer
Telecopier:
(604) 694-0063
With a copy to:
VECTOR CORPORATE FINANCE LAWYERS
1040-999 West Hastings Street
Vancouver, B.C., V6C 2W2
Attention:
Mr. Graham H. Scott
Telecopier :
(604) 683-2643
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 191 |
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provided that if there is a general discontinuance of postal service due to strike, lockout or otherwise, such notice may be given by publication twice in the Report on Business section of the National Edition of The Globe and Mail or a similar section of any other newspaper having national circulation in Canada; provided further that if there is no such newspaper having national circulation, then by publishing twice in the business section or a newspaper in the city where the registers referred to in section 2.9 are maintained. Any notice so given shall be deemed to have been given on the day of hand delivery or on the day of courier or the day following that on which the notice was mailed or on the day that it was sent by facsimile if delivered prior to 5:00 p.m. (Van time) on a Business Day and otherwise on the next Business Day, in the case of notice being given by publication, after publish ing such notice twice in the designated newspaper or newspapers. In proving notice was mailed, it shall be sufficient to prove that such notice was properly addressed, stamped and mailed. Notice to any one of several joint Holders of Notes shall be deemed effective notice to the other joint Holders. Any notice sent by mail to or left at the address of a Noteholder pursuant to this section shall, notwithstanding the death or bankruptcy of such Noteholder, and whether or not the Trustee has notice of such death or bankruptcy, be deemed to have been fully given and shall be deemed sufficient notice to all persons having an interest in the Notes concerned.
14.2
Day not a Business Day
In the event that any day on which any action is required to be taken hereunder is not a Business Day, then such action shall be required to be taken at or before the requisite time on the next succeeding day that is a Business Day.
14.3
Execution and Effect of Restated Indenture
Subject to Article 11, a restated Indenture, setting forth the terms of this Indenture, as amended to the time of execution, may be executed at any time or from time to time by the Trustee and such restated Indenture as so executed shall thereafter be effective and may thereafter be referred to in lieu of the original Indenture as so amended; provided, however, that no such execution of a restated Indenture shall be deemed to constitute a termination of this Indenture or the trusts constituted hereunder.
14.4
Consolidations
The Trustee may prepare consolidated copies of this Indenture as it may from time to time be amended or amended and restated and may certify the same to be a true consolidated copy of this Indenture, as amended or amended and restated.
14.5
Counterparts
This Indenture may be executed in several counterparts, each of which when so executed shall be deemed to be an original and such counterparts together shall constitute one and the same instrument, which shall be sufficiently evidenced by any such original counterpart and notwithstanding their date of execution shall be deemed to be dated the date of this Indenture.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 192 |
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14.6
Severability
The provisions of this Indenture are severable and if any provisions are in conflict with any applicable law, the conflicting provisions shall be deemed never to have constituted a part of this Indenture and shall not affect or impair any of the remaining provisions thereof. If any provision of this Indenture shall be held invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall attach only to such provision in such jurisdiction and shall not in any manner affect or render invalid or unenforceable such provision in any other jurisdiction or any other provision of this Indenture in any jurisdiction.
14.7
Headings for Reference Only and Preamble
The headings preceding the Articles and sections hereof have been inserted for convenience and reference only and shall not be construed to affect the meaning, construction or effect of this Indenture. The preamble and recitals hereto (and all definitions therein contained) shall form an integral part of this Indenture.
14.8
Successors and Assigns
The provisions of this Indenture shall enure to the benefit of, and be binding upon, the parties and their respective successors and assigns.
14.9
Time of the Essence
Time shall be of the essence of this Indenture.
14.10
Governing Law
This Indenture and the Notes shall be interpreted and governed by, take effect and be construed exclusively in accordance with the laws of the Province of British Columbia and the laws of Canada applicable therein.
14.11
Force Majeure
To the extent that a Force Majeure Event occurs and is continuing for a period of 45 days or more such that PTQ cannot make the distribution contemplated by Section 2.19, PTQ shall be immediately notify the holders of the Notes in writing and no Event of Default shall arise under this Indenture by reason of any failure by PTQ to make such distribution to the extent that such failure to perform is caused by the occurrence of a Force Majeure Event; provided however if such Force Majeure Event continues for a maximum of 180 days, such failure to make distribution contemplated by Section 2.19 shall become an Event of Default. For purposes of this Indenture,“Force Majeure Event”means any event beyond the reasonable control of PTQ, whether or not foreseeable, including, without limitation fire, explosion, lightning, storm, tempest, hurricane, tornado, flood, earthquake, riot or civil commotion provided that, in each case, such event does not arise, directly or indirectly, as a result of any act or negligence on the part of PTQ or its Affiliates and such event, directly or indirectly, causes PTQ to be unable to comply with its obligations under section 2.19. Where PTQ is (or claims to be) affected by a Force Majeure Event, it shall take all commercially reasonable steps to mitigate the consequences of such an event upon the performance of its obligations under section 2.19.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 193 |
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14.12
Entire Agreement
This Indenture and all documents contemplated by or delivered under or in connection with this Indenture, constitute the entire agreement between the parties with respect to the subject matter and supersede all prior agreements, negotiations, discussions, undertakings, representations, warranties and undertakings, whether written or verbal.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 194 |
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IN WITNESS WHEREOF each of the parties has caused these presents to be executed as of the date indicated on the first page of this Indenture.
PETAQUILLA MINERALS LTD.
Per: /s/ Bassam Moubarak
Name: Bassam Moubarak
Title:
CFO
ADRIAN RESOURCES (BVI) LTD.
Per: /s/ Bassam Moubarak
Name: Bassam Moubarak
Title:
PETAQUILLA MINERALS, S.A.
Per: /s/ Richard Fifer
Name: Richard Fifer
Title:
PETAQUILLA GOLD, S.A.
Per: /s/ Richard Fifer
Name: Richard Fifer
Title:
COMPANIA MINERA BELENCILLO, S.A.
Per: /s/ Richard Fifer
Name: Richard Fifer
Title:
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 195 |
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PETAQUILLA INFRAESTRUCTURA, S.A.
Per: /s/ Richard Fifer
Name: Richard Fifer
Title:
AQUA AZURE, S.A.
Per: /s/ Richard Fifer
Name: Richard Fifer
Title:
COMPUTERSHARE TRUST COMPANY OF CANADA
Per: /s/ Alice Kollen
Name: Alice Kollen
Title:
Professional, Corporate Trust
COMPUTERSHARE TRUST COMPANY OF CANADA
Per: /s/ Garbriel Ducharme
Name: Gabriel Ducharme
Title:
Professional, Corporate Trust
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 196 |
APPENDIX "I"
1.
CONVERSION RIGHTS
1.1
Conversion Privilege of the Series D Noteholder
Upon and subject to the provisions and conditions hereof, the Holder of each Series D Note shall have the right, at its option, at any time prior to 5:00 p.m. (Eastern Standard Time) on the earlier of: (i) the Maturity Date and (ii) if such Series D Note has been previously called for redemption pursuant to section 2.16, the Business Day immediately preceding the Redemption Date (such time and date in this Article 3 being referred to as the "Time of Expiry"), to convert the whole or any part of the amount due on the Maturity Date of such Series D Note (for greater certainty being 110% of the principal amount of the Series D Note for conversion) into fully paid and non-assessable Common Shares of PTQ at the Conversion Price; provided however that the amount of such Series D Note to be converted shall be converted into Canadian currency using the Prevailing Excha nge Rate. For clarity, the calculation for US$1000 principal amount to convert is: US$1000 multiplied by 110% = US$1100 and assuming a Prevailing Exchange Rate of CDN$1.10 = CDN $1210.00 divided by Conversion Price (CDN $2.25) = 538 Common Shares (after adjustment pursuant to section 1.4). Such right of conversion shall extend only to the maximum number of whole Common Shares into which the aggregate principal amount of the Series D Note or Series D Notes surrendered for conversion at any one time by the Holder thereof may be converted in accordance with the foregoing provisions of this section 1.1. Fractional interests in Common Shares shall be adjusted for in the manner provided in section 1.4.
In addition, PTQ shall make an additional cash payment to any Holder who exercises their right to convert as described above in an amount equal to any and all accrued and unpaid interest on that portion of the note being converted to the Date of Conversion, it being understood that any and all prepaid interest in such Series D Notes shall be deemed fully paid and unrecoverable by PTQ to the respective Series D Noteholder as a “make whole” premium. PTQ shall pay such interest payment to the Noteholders exercising their right to convert on the Conversion Date and shall deposit sufficient funds to the Trustee before the Conversion Date. Subject to sufficient funds received by the Trustee, payments will be sent as contemplated in section 2.10.
1.2
Manner of Exercise of Right to Convert
The Holder of a Series D Note desiring to convert such Series D Note in whole or in part into Common Shares in accordance with section 1.1 shall surrender such Series D Note to the Trustee at the Corporate Trust office together with the Conversion Form on the back of such Series D Note or any other written notice, acceptable to the Company and Trustee, in either case duly executed by the Holder or its executors or administrators or other legal representatives or its or their attorney duly appointed by an instrument in writing in form and executed in a manner satisfactory to the Trustee and PTQ, and together with Holder’s written notice of the Prevailing Exchange Rate for such conversion, in each case acting reasonably, exercising its right to convert such Series D Note in accordance with the provisions of this Article 1.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 197 |
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Thereupon such Series D Noteholder and/or its nominee(s) or assignee(s) shall be entitled to be entered in the books of PTQ as at the Date of Conversion (as defined below) as the Holder of the number of Common Shares into which such Series D Note is convertible in accordance with the provisions of this Article 1 and, as soon as practicable thereafter and in any event within five (5) Business Days, PTQ shall deliver or cause to be delivered to such Series D Noteholder and/or, subject as aforesaid, its nominee(s) or assignee(s) a certificate or certificates for such Common Shares registered in the name of the Series D Noteholder or as otherwise directed by the Series D Noteholder.
If a Series D Note contains the U.S. restrictive legend set forth in Schedule “B” to the Indenture, the certificate representing the Common Shares underlying such Series D Note issuable upon conversion thereof shall also contain substantially the same form of U.S. restrictive legend set forth in Schedule “B” to the Indenture.
The deemed date of conversion (the "Date of Conversion") of a Series D Note shall be the date on which it is surrendered in accordance with this section 1.2. In the case of a Series D Note surrendered by post or other means of transmission, the Date of Conversion shall be the date on which it is received by the Trustee.
Any part, being US$1,000 or an integral multiple thereof, of a Series D Note may be converted as provided in this Article 1 and all references in this Indenture to conversion of Series D Notes shall be deemed to include conversion of such parts.
The Holder of any Series D Note of which part only is converted shall, upon the exercise of its right of conversion, surrender the said Series D Note to the Trustee, and the Trustee shall cancel the same and shall without charge forthwith deliver to the Holder a new Series D Note or Series D Notes in an aggregate principal amount equal to the unconverted part of the principal amount of the Series D Note so surrendered.
1.3
Adjustment of Conversion Price
The Conversion Price in effect at any date shall be subject to adjustment from time to time as follows:
(a)
intentionally deleted;
(b)
if and whenever at any time prior to the Time of Expiry PTQ shall: (i) subdivide or redivide the outstanding Common Shares into a greater number of Common Shares; (ii) reduce, combine or consolidate the outstanding Common Shares into a smaller number of Common Shares; or (iii) issue Common Shares to the Holders of all or substantially all of the outstanding Common Shares by way of a stock dividend (other than the issue of Common Shares pursuant to the exercise of options to receive dividends in the form of Common Shares in lieu of dividends paid in the ordinary course), the Conversion Price in effect on the effective date of such subdivision, redivision, reduction, combination or consolidation or on the record date for such issuance of Common Shares by way of a stock dividend, as the case may be, shall, in the case of the events referred to in clauses (i) and (iii) above, be d ecreased in proportion to the number of outstanding Common Shares resulting from such subdivision, redivision or dividend, or shall, in the case of the events referred to in clause (ii) above, be increased in proportion to the number of outstanding Common Shares resulting from such reduction, combination or consolidation. Such adjustment shall be made successively whenever any event referred to in this section 1.3(b) shall occur; any such issuance of Common Shares by way of a stock dividend shall be deemed to have been made on the record date for the stock dividend for the purpose of calculating the number of outstanding Common Shares under sections 1.3(c) and (d);
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 198 |
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(c)
if and whenever at any time prior to the Time of Expiry PTQ shall fix a record date for the issuance of rights or warrants to all or substantially all the Holders of its outstanding Common Shares entitling them, to subscribe for or purchase Common Shares (or securities convertible into Common Shares) at a price per Common Share (or having a conversion or exchange price per Common Share) less than 95% of the Current Market Price of a Common Share on such record date, the Conversion Price shall be adjusted immediately after such record date so that it shall equal the price determined by multiplying the Conversion Price in effect on such record date by a fraction, the numerator of which shall be the total number of Common Shares outstanding on such record date plus a number of Common Shares equal to the number arrived at by dividing the aggregate price of the total number of addi tional Common Shares offered for subscription or purchase (or the aggregate conversion or exchange price of the convertible securities so offered) by such Current Market Price per Common Share, and the denominator of which shall be the total number of Common Shares outstanding on such record date plus the total number of additional Common Shares offered for subscription or purchase (or into which the convertible securities so offered are convertible); any Common Shares owned by or held for the account of PTQ shall be deemed not to be outstanding for the purpose of any such computation; such adjustment shall be made successively whenever such a record date is fixed; to the extent that any such rights or warrants are not so issued or any such rights or warrants are not exercised prior to the expiration thereof, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect if such record date had not been fixed or to the Conversion Price which would then be in effect based upon the number of Common Shares (or securities convertible into Common Shares) actually issued upon the exercise of such rights or warrants, as the case may be;
(d)
if and whenever at any time prior to the Time of Expiry PTQ shall fix a record date for the making of a distribution to all or substantially all the holders of its outstanding Common Shares of: (i) shares of any class other than Common Shares; (ii) rights, options, warrants or securities convertible into or exchangeable for Common Shares (excluding those referred to in section 3.3(c)); (iii) evidence of its indebtedness; or (iv) assets (including cash, but excluding dividends paid in the ordinary course) then, in each such case, the Conversion Price shall be adjusted immediately after such record date so that it shall equal the price determined by multiplying the Conversion Price in effect on such record date by a fraction, the numerator of which shall be the total number of Common Shares outstanding on such record date multiplied by the Current Market Price per Common Share o n such record date, less the fair market value (as determined by the Board of Directors with the approval of the Series D Noteholders, and if the Common Shares are then listed on the Toronto Stock Exchange, the approval of the Toronto Stock Exchange, which determination shall be conclusive) of such shares or rights, options, warrants or securities convertible into or exchangeable for Common Shares or evidence of indebtedness or assets so distributed, and the denominator of which shall be the total number of Common Shares outstanding on such record date multiplied by such Current Market Price per Common Share; any Common Shares owned by or held for the account of PTQ shall be deemed not to be outstanding for the purpose of any such computation; such adjustment shall be made successively whenever such a record date is fixed; to the extent that such distribution is not so made, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect if such record date had not been fixed o r to the Conversion Price which would then be in effect based upon such shares, rights, options, warrants or securities convertible into or exchangeable for Common Shares or evidence of indebtedness or assets actually distributed, as the case may be;
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 199 |
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(e)
for the purpose of any computation under section 3.3(c) or (d), the"Current Market Price"per Common Share at any date shall be the weighted average price of the Common Shares for the 30 consecutive trading days ending three (3) trading days prior to such date on the Toronto Stock Exchange or, if the Common Shares are not listed on the Toronto Stock Exchange, on such national stock exchange on which the Common Shares are listed as may be selected for such purpose by the Board of Directors, or, if the Common Shares are not listed on a national stock exchange, then on the over-the-counter market (provided that an "active trading market" for the Common Shares exists on such over-the-counter market). An "active trading market" shall not be deemed to exist when the spread between the bid and ask prices per Common Shares exceeds 10%. If there is no active trading market, the "Current Market Price" shall be determined in the good faith and reasonable judgment of a nationally-recognized investment banking firm selected by PTQ and the Holders of a majority in principal amount of the outstanding Series D Notes;
(f)
if and whenever at any time after the date hereof and prior to the Time of Expiry, there is a consolidation, amalgamation or merger of PTQ with or into any other corporation or other entity (other than a vertical short-form amalgamation with one or more of its Subsidiaries), or a transfer of the undertaking or assets of PTQ as an entirety or substantially as an entirety to another corporation or other entity in which the holders of Common Shares are entitled to receive shares, other securities or other property (any of such events being called a"Capital Reorganization"),the holder upon conversion of the Series D Notes after the effective date of such Capital Reorganization will be entitled to receive upon conversion of the Series D Notes, and will accept for the same aggregate consideration in lieu of the number of Common Shares to which the holder was previ ously entitled upon such conversion, the aggregate number of shares, other securities or other property, including cash, which the holder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof, the holder had been the registered holder of the number of Common Shares to which the holder would have been entitled upon conversion of the Series D Notes;
(g)
in the case of any reclassification of, or other change in, the outstanding Common Shares of PTQ other than a subdivision, redivision, reduction, combination or consolidation, the Conversion Price shall be adjusted in such manner, if any, and at such time, as, the Board of Directors, in their sole discretion, may determine to be equitable in the circumstances and if the Common Shares are then listed on the Toronto Stock Exchange, with the approval of the Toronto Stock Exchange. Failure of the Board of Directors to provide for an adjustment on or prior to the effective date of any such reclassification of, or change in, the outstanding Common Shares of PTQ shall be conclusive evidence that the Board of Directors have determined that it is equitable to make no adjustment in the circumstances;
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 200 |
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(h)
subject to the prior written consent of the Toronto Stock Exchange, in any case in which this section 1.3 shall require that an adjustment shall become effective immediately after a record date for an event referred to herein, PTQ may defer, until the occurrence of such event, issuing to the Holder of any Series D Note converted after such record date and before the occurrence of such event the additional Common Shares issuable upon such conversion by reason of the adjustment required by such event before giving effect to such adjustment; provided, however, that PTQ shall deliver to such Holder an appropriate instrument evidencing such holder's right to receive such additional Common Shares upon the occurrence of the event requiring such adjustment and the right to receive any distributions made on such additional Common Shares declared in favour of holders of record of Common Shares on and after the Date of Conversion or such later date as such holder would, but for the provisions of this section 1.3, have become the holder of record of such additional Common Shares;
(i)
the adjustments provided for in this section 1.3 are cumulative and shall apply to successive subdivisions, redivisions, reductions, combinations, consolidations, distributions, issues or other events resulting in any adjustment under the provisions of this section 1.3; provided that, notwithstanding any other provision of this section 1.3, no adjustment of the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Conversion Price then in effect; provided, however, that any adjustments which by reason of this section 1.3(l) are not required to be made shall be carried forward and taken into account in any subsequent adjustment; and
(j)
in the event of any question arising with respect to the adjustments provided in this section 1.3, such question, subject to prior written consent of the Toronto Stock Exchange, shall be conclusively determined by a firm of chartered accountants appointed by PTQ and acceptable to the Series D Noteholders (who may be the auditors of PTQ); such accountants shall have access to all necessary records of PTQ and such determination shall be binding upon PTQ, the Series D Noteholders and the Trustee.
1.4
No Requirement to Issue Fractional Shares
PTQ shall not be required to issue fractional Common Shares upon the conversion of Series D Notes pursuant to this section 1. If more than one Series D Note shall be surrendered for conversion at one time by the same holder, the number of whole Common Shares issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of such Series D Notes to be converted. If any fractional interest in a Common Share would, except for the provisions of this section 1.4, be deliverable upon the conversion of any principal amount of Series D Notes, the number of Common Shares issuable shall be rounded up to the nearest whole number.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 201 |
-6-
1.5
Corporation to Reserve Common Shares
PTQ covenants with the Series D Noteholders that it will at all times reserve and keep available out of its authorized Common Shares, solely for the purpose of issue upon conversion of Series D Notes as in this Article 1 provided, and conditionally allot to Series D Noteholders who may exercise their conversion rights hereunder, such number of Common Shares as shall then be issuable upon the conversion of all outstanding Series D Notes. PTQ covenants with the Series D Noteholders that all Common Shares which shall be so issuable shall be duly and validly issued as fully paid and non-assessable Common Shares of PTQ. The Series D Noteholders hereby acknowledge and accept that in the event that the conversion of the Series D Notes into Common Shares requires the issuance of more than 24,000,000 Common Shares, PTQ, in order to comply with the policies of the Toronto Stock Exchange, will require the approval of the shareholders of PTQ. PTQ will be deemed to be in compliance with the provisions hereof for so long as it is diligently seeking to obtain such shareholder approval. PTQ shall confirm by Officer’s Certificate that any such shareholder approval has been obtained and the Trustee shall be entitled to rely on such Officer’s Certificate without further investigation.
1.6
Taxes and Charges on Conversion
The Trustee shall deliver Common Shares to the Holders of Series D Notes free and clear of all deductions and withholdings as confirmed applicable in a tax opinion to be provided by PTQ tax advisor. Trustee shall rely on such opinion and any written direction from PTQ and shall have no duty or responsibility to determine applicable withholding taxes. Common shares shall only be delivered to Holders upon payment of any applicable withholding taxes by the Holder required to be paid by the Trustee or PTQ. The Trustee shall be held harmless by the Holder entitled to the common shares for any damages caused due to the failure to release the shares including but not limited to price fluctuations of the common shares. Each Holder shall (severally, but not jointly and severally) indemnify and hold harmless the Trustee and PTQ for the full amount of Indemnified Taxes (including penaltie s, interest and expenses payable or incurred in connection therewith) imposed on or required to be paid by the Trustee or PTQ in connection with issuance and/or delivery to the Holder of Common Shares upon the exercise of the Holder's right of conversion pursuant to the terms of the Series D Notes and of this Indenture. Payment under this indemnification shall be made within 30 days from the date the Trustee or PTQ makes written demand for it to the Holder, provided that such demand is accompanied by an assessment, demand or similar document issued by a governmental authority having jurisdiction to tax.
1.7
Cancellation of Converted Series D Notes
All Series D Notes converted in whole or in part under the provisions of this Article 1 shall be forthwith delivered to and cancelled by the Trustee.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 202 |
-7-
1.8
Certificate as to Adjustment
PTQ shall from time to time, immediately after the occurrence of any event which requires an adjustment or readjustment as provided in section 1.3, deliver an Officers' Certificate to the Series D Noteholders and the Trustee specifying the nature of the event requiring the same and the amount of the adjustment necessitated thereby and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based, which certificate and the amount of the adjustment specified therein shall, subject to the provisions of section 1.3(j), be conclusive and binding on all parties in interest. PTQ shall, except in respect of any subdivision, redivision, reduction, combination or consolidation of the Common Shares, forthwith give notice to the Series D Noteholders and the Trustee in the manner provided herein specifying the event requiring such adjustment or readjustment and the results thereof, including the resulting Conversion Price.
1.9
Notice of Special Matters
PTQ covenants with the Series D Noteholders and the Trustee, that, at any such time that any Series D Notes remain outstanding, it will give notice to the Series D Noteholders in the manner provided in section 14.1 of the Indenture, of its intention to fix a record date for any event referred to in section 1.3(b), (c) or (d) which may give rise to an adjustment in the Conversion Price, and, in each case, such notice shall specify the particulars of such event and the record date and the effective date for such event; provided that PTQ shall only be required to specify in such notice such particulars of such event as shall have been fixed and determined on the date on which such notice is given. Such notice shall be given not less than 15 Business Days in each case prior to such applicable record date or effective date, whichever is earlier.
1.10
Obligations of PTQ Regarding Calculations
PTQ shall provide Trustee with all calculations pursuant to section 1.5 hereunder, and PTQ acknowledges and agrees that Trustee shall be permitted to rely on such calculations without further investigation, and shall not be liable for any errors or omissions associated with such calculations.
1.11
Protection of Trustee
The Trustee shall:
(a)
not at any time be under any duty or responsibility to any Series D Noteholder to determine whether any facts exist which may require any adjustment in the Conversion Price, or with respect to the nature or extent of any such adjustment when made when made, or with respect to the method employed in making the same;
(b)
not be accountable with respect to the validity or value (or kind or amount) of any Common Shares or other securities or property which may at any time be issued or delivered upon the conversion of any Series D Notes;
(c)
not be responsible for any failure of PTQ to make any cash payment or to issue, transfer or deliver Common Shares or certificates for the same upon the surrender of any Series D Notes for the purpose of conversion or to comply with any of the covenants contained in Article 1;
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 203 |
-8-
(d)
be under no responsibility in respect of the validity of this Indenture or the execution and delivery hereof by or on behalf PTQ or in respect of the validity or the execution of any Series D Notes by PTQ and issued hereunder, nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of Common Shares or any securities to be issued upon conversion of Series D Notes provided for in this Indenture and/or in any Series D Note certificate or as to whether any securities will when issued be duly authorized or be validly issued and fully paid and non-assessable; and
(e)
be entitled to act and rely on any adjustment calculation provided by PTQ or PTQ’s auditors and on any certificates and other documents filed by PTQ pursuant to this Article 1 for all purposes of the adjustment
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 204 |
SCHEDULE "A"
To the Secured Note Indenture between Petaquilla Minerals Ltd. and Computershare Trust Company of Canada providing for the issue of Senior Secured Notes of Petaquilla Minerals Ltd.
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE SEPTEMBER 21, 2008.
FOR SENIOR SECURED NOTES ISSUED IN THE UNITED STATES OR TO, OR FOR, THE ACCOUNT OR BENEFIT OF, “U.S. PERSONS”, AS SUCH TERM IS DEFINED IN REGULATION S UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, PLEASE INSERT THE FOLLOWING LEGEND:
[“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR ANY STATE SECURITIES LAWS OF THE UNITED STATES. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT, IF AVAILABLE, AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND RESTRICTIONS, (C) IN ACCORDANCE WITH THE EXEMPTIONS FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULES 144 OR 144A THEREUNDER, IF APPLICABLE, AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (D) WITH THE PRIOR WRITTEN CONSENT OF THE CORPORATION (WHICH WILL BE DELIVERE D PROMPTLY AND WILL NOT BE UNREASONABLY WITHHELD, BUT WHICH MAY BE CONDITIONAL ON DELIVERY OF A LEGAL OPINION OF COUNSEL OF RECOGNIZED STANDING OR OTHER EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION AND THE TRUSTEE), PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS.
DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA. PROVIDED THAT THE CORPORATION IS A "FOREIGN ISSUER" WITHIN THE MEANING OF REGULATION S UNDER THE 1933 ACT AT THE TIME OF SALE, A NEW CERTIFICATE BEARING NO LEGEND MAY BE OBTAINED FROM THE CORPORATION'S REGISTRAR AND TRANSFER AGENT UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE REGISTRAR AND TRANSFER AGENT AND THE CORPORATION, TO THE EFFECT THAT SUCH SALE IS BEING MADE IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE 1933 ACT.”]
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 205 |
-2-
FORM OF SENIOR SECURED NOTES
PETAQUILLA MINERALS LTD.
(A corporation incorporated under the laws of British Columbia)
SENIOR SECURED NOTE
DUE MAY 21, 2013
Petaquilla Minerals Ltd.("PTQ")for value received hereby promises to pay to the order of ____________________________ on May 21, 2013 (the"Maturity Date")or on such earlier date as the principal amount hereof may become due in accordance with the provisions of the Indenture hereinafter mentioned, the sum of 120% ofÅDOLLARS ($Å) in lawful money of the United States, on presentation and surrender of this Note at the principal office of the Trustee in the city of Vancouver and such other cities as the Trustee may keep branch registers for these Notes from time to time.
This Note is one of the Senior Secured Notes due May 21, 2013 in the aggregate principal amount denominations of $1,000 in lawful money of the United States issued under a Senior Secured Note Indenture (the"Indenture")made as of May 21, 2008 and made between PTQ and Computershare Trust Company of Canada, as trustee (the"Trustee").Reference is hereby made to the Indenture for a description of the rights of the holders of the said Notes, PTQ and the Trustee and of the terms and conditions upon which the Notes are issued and held, all to the same effect as if the provisions of the Indenture were herein set forth, to all of which provisions the holder of this Note, by acceptance hereof, assents. All capitalized terms used herein have the meaning ascribed thereto in the Indenture unless otherwise indicated.
The Notes are issuable as fully registered Notes in denominations of US$1,000 and integral multiples of US$1,000 and in other authorized denominations. The Notes of any authorized denomination may be exchanged, as provided in the Indenture, for Notes in an equal aggregate principal amount in some authorized denomination or denominations.
This Note and all other Notes certified and issued under the Indenture rankpari passuwith one another, in accordance to their tenor without discrimination, preference or priority. The Indenture does not restrict PTQ from incurring additional Indebtedness for borrowed money or from mortgaging, pledging or charging its properties to secure any Indebtedness.
Subject to regulatory requirements, Notes may be purchased by PTQ in the open market or by tender or private contract at any price. Notes purchased by PTQ shall be cancelled and shall not be reissued.
The Indenture contains provisions for the holding of meetings of Noteholders and rendering resolutions passed at such meetings and instruments in writing signed by the holders of 66 2/3% of the Notes outstanding binding upon all Noteholders, subject to the provisions of the Indenture.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 206 |
-3-
This Note may only be transferred upon compliance with the conditions precedent in the Indenture on one of the registers kept at the above-mentioned principal offices of the Trustee and at such other place or places, if any, and/or by such other registrar or registrars, if any, as PTQ with the approval of the Trustee may designate, and may be exchanged at any such place, by the registered holder hereof or his executors or administrators or other legal representatives or his or their attorney duly appointed by an instrument in writing in form and execution satisfactory to the Trustee, and upon compliance with such reasonable requirements as the Trustee and/or registrar may prescribe, and such transfer shall be duly noted thereon by the Trustee or other registrar.
This Note shall not become obligatory for any purpose until it shall have been certified by the Trustee for the time being under the Indenture.
The holder of this Note, by receiving and holding same, hereby accepts and agrees to be bound by the terms, and to be entitled to the benefits of this Note and of the Indenture and confirms and ratifies the appointment of the Trustee as thefondé de pouvoir(holder of the power of attorney) of the holder of this Note to the extent necessary for the purposes hereof and of the Indenture, the whole in accordance with and subject to the respective provisions thereof.
IN WITNESS WHEREOFPTQ has caused this Note to be signed by its duly authorized signing authorities.
DATEDas of the 21st day of May, 2008.
| | |
| PETAQUILLA MINERALS LTD
|
| By: | |
| | (Authorized Officer) |
| | |
| | |
| By: | |
| | (Authorized Officer) |
| | |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 207 |
TRUSTEE’S CERTIFICATE
This Note is one of the Senior Secured Notes referred to in the Indenture within mentioned.
| | |
| COMPUTERSHARE TRUST COMPANY OF CANADA
|
| By: | |
| | |
| | |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 208 |
-2-
FORM OF ASSIGNMENT
FOR VALUE RECEIVED,the undersigned hereby sells, assigns and transfers unto ____________________________________________, whose address and social insurance number, if applicable, are set forth below, this Note (or US$________________________ principal amount hereof) of Petaquilla Minerals Ltd. standing in the name(s) of the undersigned in the register maintained by or on behalf of Petaquilla Minerals Ltd. with respect to such Note and does hereby irrevocably authorize and direct _____________________ to transfer such Note in such register, with full power of substitution in the premises.
Dated: _________________________
| | |
Address of Transferee: | | |
| (Street | Address) |
| | |
| (City, Province and Postal Code) | |
| | |
Social Insurance Number of Transferee, if applicable: | | |
*
If less than the full principal amount of the within Note is to be transferred, indicate in the space provided the principal amount (which must be US$1,000 or an integral multiple thereof).
1.
The signature(s) to this assignment must correspond with the name(s) as written upon the face of this Note in every particular without alteration or any change whatsoever. The signature(s) must be guaranteed by an eligible guarantor institution with membership in an approved signature guarantee medallion program. Notarized or witnessed signatures are not acceptable as guaranteed signatures.
2.
The registered holder of this Note is responsible for the payment of any documentary, stamp or other transfer taxes that may be payable in respect of the transfer of this Note.
| | |
Signature of Guarantor: | | |
| | |
| | |
Authorized Officer | | Signature of transferring registered holder |
| | |
| | |
Name of Institution | | |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 209 |
SCHEDULE "B"
To the Indenture between Petaquilla Minerals Ltd. and Computershare Trust Company of Canada providing for the issue of Notes of Petaquilla Minerals Ltd.
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE JULY 27, 2009.
[FOR NOTES ISSUED IN THE UNITED STATES OR TO, OR FOR, THE ACCOUNT OR BENEFIT OF, “U.S. PERSONS”, AS SUCH TERM IS DEFINED IN REGULATION S UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, PLEASE INSERT THE FOLLOWING LEGEND:
[“THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES ISSUABLE UPON CONVERSION THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR ANY STATE SECURITIES LAWS OF THE UNITED STATES. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT, IF AVAILABLE, AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND RESTRICTIONS, (C) IN ACCORDANCE WITH THE EXEMPTIONS FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULES 144 OR 144A THEREUNDER, IF APPLICABLE, AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (D) WITH THE PRIOR WRITTE N CONSENT OF THE CORPORATION (WHICH WILL BE DELIVERED PROMPTLY AND WILL NOT BE UNREASONABLY WITHHELD, BUT WHICH MAY BE CONDITIONAL ON DELIVERY OF A LEGAL OPINION OF COUNSEL OF RECOGNIZED STANDING OR OTHER EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION AND THE TRUSTEE), PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS.
DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA. PROVIDED THAT THE CORPORATION IS A "FOREIGN ISSUER" WITHIN THE MEANING OF REGULATION S UNDER THE 1933 ACT AT THE TIME OF SALE, A NEW CERTIFICATE BEARING NO LEGEND MAY BE OBTAINED FROM THE CORPORATION'S REGISTRAR AND TRANSFER AGENT UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE REGISTRAR AND TRANSFER AGENT AND THE CORPORATION, TO THE EFFECT THAT SUCH SALE IS BEING MADE IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE 1933 ACT.”]
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 210 |
- 2-
FORM OFSERIESD NOTES
PETAQUILLA MINERALS LTD.
(A corporation incorporated under the laws of British Columbia)
CONVERTIBLE SENIOR SECURED NOTE – SERIES D
DUE MARCH 25, 2011
Petaquilla Minerals Ltd.("PTQ")for value received hereby promises to pay to the order of _____________________________ on March 25, 2011 (the"Maturity Date")or on such earlier date as the principal amount hereof may become due in accordance with the provisions of the Indenture hereinafter mentioned, the sum of 110%ofÅDOLLARS ($Å) in lawful money of the United States, on presentation and surrender of this Note at the principal office of the Trustee in the city of Vancouver and such other cities as the Trustee may keep branch registers for these Notes from time to time.
This Note is one of the Notes due March 25, 2011 in the aggregate principal amount denominations of $1,000 in lawful money of the United States issued under an Amended and Restated Note Indenture (the"Indenture")made as of March 25, 2009 and made between PTQ and Computershare Trust Company of Canada, as trustee (the"Trustee").Reference is hereby made to the Indenture for a description of the rights of the holders of the said Notes, PTQ and the Trustee and of the terms and conditions upon which the Notes are issued and held, all to the same effect as if the provisions of the Indenture were herein set forth, to all of which provisions the holder of this Note, by acceptance hereof, assents. All capitalized terms used herein have the meaning ascribed thereto in the Indenture unless otherwise indicated.
The Notes are issuable as fully registered Notes in denominations of US$1,000 and integral multiples of US$1,000 and in other authorized denominations. The Notes of any authorized denomination may be exchanged, as provided in the Indenture, for Notes in an equal aggregate principal amount in some authorized denomination or denominations.
This Note and all other Notes certified and issued under the Indenture rankpari passuwith one another, in accordance to their tenor without discrimination, preference or priority.
The Holder of a Note desiring to convert such Note in whole or in part into Common Shares in accordance with section 1.1 of Appendix “I” of the Indenture shall surrender such Note to the Trustee at the Corporate Trust office together with the Conversion Form on the back of such Note.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 212 |
- 3-
Upon and subject to the provisions and conditions hereof, the Holder of each Note shall have the right, at its option, at any time prior to 5:00 p.m. (Eastern Standard Time) on the earlier of: (i) the Maturity Date and (ii) if such Note has been previously called for redemption pursuant to section 2.16, the Business Day immediately preceding the Redemption Date (such time and date in this Article 3 being referred to as the "Time of Expiry"), to convert the whole or any part of the amount due on the Maturity Date of such Note (for greater certainty being 110% of the principal amount of the Note for conversion), plus any and all accrued and unpaid interest to the Date of Conversion, into fully paid and non-assessable Common Shares of PTQ at the Conversion Price, it being understood that any and all prepaid interest in such Notes shall be forfeited by PTQ to the respective Note holder as a “make whole” premium; provided however that the amount of such Note to be converted shall be converted into Canadian currency using a fixed exchange rate whereby each US$1.00 of such amount for conversion shall be converted into CDN$1.10.
Subject to regulatory requirements, Notes may be purchased by PTQ in the open market or by tender or private contract at any price. Notes purchased by PTQ shall be cancelled and shall not be reissued.
The Indenture contains provisions for the holding of meetings of Noteholders and rendering resolutions passed at such meetings and instruments in writing signed by the holders of 66 2/3% of the Notes outstanding binding upon all Noteholders, subject to the provisions of the Indenture.
This Note may only be transferred upon compliance with the conditions precedent in the Indenture on one of the registers kept at the above-mentioned principal offices of the Trustee and at such other place or places, if any, and/or by such other registrar or registrars, if any, as PTQ with the approval of the Trustee may designate, and may be exchanged at any such place, by the registered holder hereof or his executors or administrators or other legal representatives or his or their attorney duly appointed by an instrument in writing in form and execution satisfactory to the Trustee, and upon compliance with such reasonable requirements as the Trustee and/or registrar may prescribe, and such transfer shall be duly noted thereon by the Trustee or other registrar.
This Note is not transferable in the United States or to “U.S. persons,” as such term is defined in Regulation S under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), unless an exemption from registration is available under the U.S. Securities Act and any applicable state securities laws, and the Corporation and the Trustee have received an opinion of counsel of recognized standing or other evidence to such effect in form and substance reasonably satisfactory to the Corporation and the Trustee.
If this Note contains a legend restricting transfer under applicable United States federal and state securities laws, the Common Shares issuable upon conversion thereof shall also bear the same legend.
This Note shall not become obligatory for any purpose until it shall have been certified by the Trustee for the time being under the Indenture.
The holder of this Note, by receiving and holding same, hereby accepts and agrees to be bound by the terms, and to be entitled to the benefits of this Note and of the Indenture, the whole in accordance with and subject to the respective provisions thereof.
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 213 |
- 4-
IN WITNESS WHEREOFPTQ has caused this Note to be signed by its duly authorized signing authorities.
DATEDas of the 25th day of March, 2009.
| | |
| PETAQUILLA MINERALS LTD
|
| By: | |
| | (Authorized Officer) |
| | |
| | |
| By: | |
| | (Authorized Officer) |
| | |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 214 |
TRUSTEE’S CERTIFICATE
This Note is one of the Notes referred to in the Indenture within mentioned.
| | |
| COMPUTERSHARE TRUST COMPANY OF CANADA
|
| By: | |
| | |
| | |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 215 |
FORM OF ASSIGNMENT
FOR VALUE RECEIVED,the undersigned hereby sells, assigns and transfers unto ____________________________________________, whose address and social insurance number, if applicable, are set forth below, this Note (or US$________________________ principal amount hereof) of Petaquilla Minerals Ltd. standing in the name(s) of the undersigned in the register maintained by or on behalf of Petaquilla Minerals Ltd. with respect to such Note and does hereby irrevocably authorize and direct _____________________ to transfer such Note in such register, with full power of substitution in the premises.
Dated: _________________________
| | |
Address of Transferee: | | |
| (Street | Address) |
| | |
| (City, Province and Postal Code) | |
| | |
Social Insurance Number of Transferee, if applicable: | | |
*
If less than the full principal amount of the within Note is to be transferred, indicate in the space provided the principal amount (which must be US$1,000 or an integral multiple thereof).
3.
The signature(s) to this assignment must correspond with the name(s) as written upon the face of this Note in every particular without alteration or any change whatsoever. The signature(s) must be guaranteed by an eligible guarantor institution with membership in an approved signature guarantee medallion program. Notarized or witnessed signatures are not acceptable as guaranteed signatures.
4.
The registered holder of this Note is responsible for the payment of any documentary, stamp or other transfer taxes that may be payable in respect of the transfer of this Note.
| | |
Signature of Guarantor: | | |
| | |
| | |
Authorized Officer | | Signature of transferring registered holder |
| | |
| | |
Name of Institution | | |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 216 |
-3-
Representations of Transferee
The transferee represents, warrants and certifies as follows (only one of the following must be checked):
A.
£
The Transferee (a) is not in the United States and is not a “U.S. person” (a “U.S. Person”), as such term is defined in Regulation S under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), (b) is not acquiring this Note on behalf of a person in the United States or a U.S. Person, and (c) did not execute or deliver this Form of Assignment in the United States; or
B.
£
The Transferee has delivered to the Company and the Trustee a written opinion of counsel of recognized standing or such other evidence in form and substance reasonably satisfactory to the Company and the Trustee to the effect that an exemption from the registration requirements of the U.S. Securities Act and applicable state securities laws is available for the transfer of the Note to such Transferee.
The undersigned understands that if Box B above is checked, the certificate representing this Note will bear a legend restricting transfer without registration under the U.S. Securities Act and applicable state securities laws unless an exemption from registration is available.
If Box B is checked, any opinion or other evidence tendered must be in form and substance reasonably satisfactory to the Company and the Trustee. Holders planning to deliver an opinion of counsel or other evidence in connection with the transfer of Notes should contact the Company and the Trustee in advance to determine whether any opinions or other evidence to be tendered will be acceptable to the Company and the Trustee.
Dated: ____________________________
| |
| |
| (SIGNATURE OF TRANSFEREE) |
| |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 217 |
CONVERSION FORM
TO:
PETAQUILLA MINERALS LTD.
The undersigned registered holder of the within Note hereby irrevocably elects to convert US$ principal amount thereof into Common Shares of Petaquilla Minerals Ltd. in accordance with the terms of the Indenture referred to in such Note and directs that the Common Shares issuable and deliverable upon the conversion be issued and delivered to the Person indicated below.
* If less than the full principal amount of the within Note is to be converted, the principal amount indicated must be US$1,000 or integral multiples thereof to be converted.
Dated
Print name in which Common Shares issued on
conversion are to be issued, delivered and registered
Name
(ADDRESS)
(CITY AND PROVINCE)
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| SIGNATURE OF REGISTERED HOLDER |
| If shares are to be issued in the name of a Person other than the holder, the signature must be guaranteed by an eligible guarantor institution with membership in an approved medallion guarantee program. |
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 218 |
Exhibit 4.W
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OFFICIAL GAZETTE STATE AGENCY |
YEAR XCIII PANAMA, REPUBLIC OF PANAMA FRIDAY, FEBRUARY 28, 1997 No. 23,235 |
CONTENT
LEGISLATIVE ASSEMBLY
LAW NO. 9
(of February 26, 1997)
“ BY WHICH THE AGREEMENT SUBSCRIBED BETWEEN THE STATE AND THE CORPORATION MINERA PETAQUILLA, S.A., IS APPROVED”....................….. Page 1
NOTICES AND EDICTS
LAW NO. 9
(Of February 26, 1997)
By which the Agreement subscribed between the State
and the Corporation Minera Petaquilla, S.A. is approved.
THE LEGISLATIVE ASSEMBLY
DECREES
Article 1. The Agreement subscribed between THE STATE and the Corporation named MINERA PETAQUILLA, S.A., is approved, and reads as follows:
Between the undersigned, to wit, on the one part NITZIA RODRIGUEZ DE VILLAREAL, female Panamanian, of legal age, with personal identification card Item 8-207-2450 in her capacity as Minister of Commerce and Industries, on behalf of THE STATE, duly authorized by the Cabinet Council meeting held on February 13, 1996, by the authority conferred by Article 195, numeral three, of the Political Constitution of the Republic of Panama, hereinafter called “THE STATE”, and on the other, Richard Fifer, Engineer., male, Panamanian, of legal age, holder of personal Identification card Item 8-433-163 in his capacity as President and Legal Representative of MINERA PETAQUILLA, S.A. a corporation organized, and existing according to the laws of the Republic of Panama, and duly registered in the Microfilm Mercantile Section of the Public Registry, Microjacket 303869, Roll 46505, Frame 0096, duly authorized for this act by a Resolution of the Board of Director of said corporation, dated December 1, 1995, who hereinafter shall be called “THE COMPANY”, subscribe this mineral concession Agreement. Also present at this act and subscribing the present Agreement were the following persons for the following purposes: (a) GEORECURSOS INTERNACIONAL, S.A., corporation constituted and existing pursuant to the laws of the Republic of Panama, duly registered in the Microfilm Section Mercantile of the Public Registry at Microjacket 239116, Roll 30512, Frame 181, represented in this act by Engineer Richard Fifer, whose particulars have been previously presented, in his capacity as President and Legal Representative, duly authorized for this act by Resolution of the Board of Directors dated December 1, 1995, who hereinafter shall be called GEORECURSOS, with the purpose of terminating and substituting the existent concession in conformity with Agreement No. 27-A of August 7, 1991, as stipulated in Clause Twenty Eight of this Agreement and (b) ADR IAN RESOURCES, S.A., corporation constituted and existing pursuant to the laws of the Republic of Panama, duly registered in the microfilm Section Mercantile of the Public Registry at Microjacket 259118, Roll 35173, Frame 002, duly represented in this act by Engineer Richard Fifer, whose particulars have been previously presented, in his capacity as President and Legal Representative, duly authorized to enter into this act by means of a Resolution of the Board of Directors, dated December 1, 1995, who hereinafter shall be called ADRIAN with the purpose of recognizing certain reciprocal rights and obligations jointly with THE COMPANY in relation to certain mining concessions adjacent to the CONCESSION AREAS, according to Annex IV of this Agreement.
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THEREFORE, the parties have agreed to enter into this Agreement subject to the following Clauses:
CLAUSE ONE
Purpose
The main purpose of this Agreement is to grant THE COMPANY, as in fact it is granted with the subscription and approval of this Agreement, the concession of the rights hereinafter stipulated over the gold, copper and other mining deposits, located in the area known as “Cerro Petaquilla”, described in Annex 1 of this Agreement as the “Concession Area”, with the purposes of exploring, extracting, exploiting, benefiting, processing, refining, transporting, selling and marketing all the minerals, base or precious, located in the Concession Area and, for such purposes THE COMPANY may design, construct and operate all sorts of infrastructure work, including housing units, health, education and recreation centers, all types of air and land installations, electric power generation facilities to satisfy the needs of this Concession as well as for other uses expressly allowed, by this Agreement, water treatment plants, storage an d use of natural waters, and in general design, construct and operate all those installations and provide all those other services which are necessary or pertinent for the development of this Concession, all of which hereinafter shall be called “THE PROJECT”.
THE STATE recognizes that the development of THE PROJECT protected by the present Agreement represents a great benefit to stimulate the mining industry in the Republic of Panama, and therefore, THE STATE will consider it a priority and shall provide its assistance to THE COMPANY in order to achieve compliance and fulfillment of the objects and purposes of this Agreement.
CLAUSE TWO
Definitions
For the purposes of this Agreement, the following terms shall have the meaning indicated hereinafter.
AFFILIATE
For the purposes of this Agreement, AFFILIATE shall mean in regards to any natural person or body corporate, the natural person or body corporate that directly or indirectly, controls, is controlled by or is under the common control with said other natural person or body corporate through the holding of fifty percent (50%) or more of the issued and outstanding shares with the ordinary right to vote for the election of the directors of said other natural person or body corporate, or by means of any other method or manner that represents control of said natural person or body corporate. For the purposes of this Agreement it is also understood that TECK CORPORATION, INMET MINING CORPORATION and ADRIAN RESOURCES LTD.; and their affiliates or subsidiaries, shall be considered as Affiliates of THE COMPANY while they are its shareholders.
PROJECT AREA
Is the area that THE COMPANY appoints in the Concession Area to develop the exploitation of minerals and comprises all the installations, facilities and structures that are established on said area by THE COMPANY, its Affiliates, contractors or sub-contractors.
CERRO PETAQUILLA
Is the concession protected under the Agreement subscribed by and between the Ministry of Commerce and Industries and Geo-Recursos Internacional, S.A., identified as Agreement Item 27-A, August 7, 1991, with its renewals and extensions, and described in Annex 1 of the present Agreement.
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CONCESSION
The ensemble of rights granted by THE STATE due to this Agreement, which includes, among others, the right to explore, exploit, and usufruct the ore deposits located in the Cerro Petaquilla area described in Annex 1 of this Agreement, which is called the “Concession Area”.
ADJACENT CONCESSION
Refers to the concessions or requests for concessions, as the case may be, in favor of ADRIAN identified as: Agreement No. 41 of July 12, 1994, Agreement NO. 39-A of July 7, 1994, Agreement No. 39-B of July 7, 1994, Agreement No. 59 of December 29, 1994, all subscribed by and between the Ministry of Commerce and Industries and ADRIAN, and the requests for concessions Nos. 93-92, 93-93 and 94-39 according to the registries filed at the General Direction of Mineral Resources of the Ministry of Commerce and Industries of the Republic of Panama.
CONTRACTOR
Shall be those natural persons or body corporate that THE COMPANY, its Affiliates or Assignees appoint as Contractors for the effects of this Agreement, and it shall suffice that THE COMPANY notifies the Ministry of Commerce and Industries on such appointments for the same to have effect.
COMPANY
Refers to, through the contents of the present Agreement, to MINERA PETAQUILLA, S.A., as well as to its Affiliates and the cessionary entities of the Affiliates and Minera Petaquilla, S.A.
FEASIBILITY STUDY
Shall have the meaning given in Annex II of the present Agreement, which forms an integral part thereof.
FACILITY
Is any excavation, pit, hole, shaft, trench, channel, outlet, equipment, railroad, streets, highways, roads, shelters or rooms for the workers, piping, electric transmission lines, installations and equipment for the generation of any type of energy, accumulation or storage of materials and raw materials, slag heap or accumulation of waste or residues of any type, piers, docks, floaters or floating pads, waste ponds, sedimentation or settling ponds, and other improvements to the property, fixed accessories, mills, crushers, elution or floating installations, installation for the improvement or claiming of waters, trucking or transportation routes, in addition to any other improvements, accessories, installations or constructions that are, according to THE COMPANY, necessary or advisable for the exploration, development, extraction, benefit or transportation of minerals or products related to the Concession Area, which shall be execut ed in compliance with the pertinent environmental regulations.
NEGOTIABLE GROSS PRODUCTION
For the purposes of the present Agreement:
a)
when the ore or its derived concentrate are sold as ore or as concentrate, the gross amount received from the buyer as a result of the sale after deductions, if there were any, all foundry costs, fines and other deductions, and after the deduction of all transportation costs and the insurance of the ore or the concentrate, incurred in their transfer from the mine to the smelter or factory or other place where the final delivery to the buyer is carried out, or
b)
when the ore or the concentrate are processed in a smelter, and the metals recovered in said process are sold and delivered by THE COMPANY, the gross amount received from the buyer as a result of the sale of the metals so delivered, after the deduction of all the costs of smelting, fines and other deductions and after deducting all the costs of transportation and insurance of the ore or the concentrate incurred in their transportation from the mine to the smelter, and all costs of transportation and insurance of the metals, incurred in their transportation from the smelter to the place where its definite delivery to the buyer is carried out, or
c)
when the ore or the concentrate are processed in a smelter property of THE COMPANY or under the control
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thereof, the gross amount that is considered earned regarding the sale of the ore or the concentrate, shall not be less than the amount that may have been obtained from a smelter that was not property of, nor controlled by THE COMPANY in regards to the processing of ore or of concentrate of the same quality and amount.
COMMERCIAL PRODUCTON
Refers to the extraction and processing of the mineral with the purpose of selling a final product. The extraction and processing of mineral to perform tests and determine the metallurgical process to be employed shall not be considered Commercial Production. When seventy per cent (70%) of the designed production capability is achieved, as defined in the Feasibility Study, and this is maintained during ninety consecutive days, it shall be considered that Commercial Production has been attained.
SUBCONTRACTOR
Shall be those natural persons or body corporate that THE COMPANY, its Affiliates or assignees, appoint as Subcontractors for the effects of the present Agreement and it shall suffice that THE COMPANY notifies the Ministry of Commerce and Industries on such appointment forof the same to have effect.
INITIAL TERM
Is the twenty (20) year term following the date of the enactment of the law approving the present Agreement.
CLAUSE THREE
Rights and Obligations
A. RIGHTS OF THE COMPANY
During the life of this Agreement, THE STATE grants THE COMPANY, which it extends, for the effects of the development of THE PROJECT, to its Affiliates, to the contractors and subcontractors that it appoints, the following powers and rights:
1.
In the Concession Area, as described in Annex 1, to perform geological researches related to minerals found in said Concession Area before and during their extraction.
2.
Perform all types of mineral operations, including but not limited to exploration, extraction, exploitation, processing, refining, transportation, benefits, sale and commercialization, within the Concession Area, and carry out all the other necessary and adequate operations and activities for said mining operations inside and outside the Concession Area, always in compliance with the pertinent environmental regulations.
3.
Carry out the activities necessary to benefit the minerals extracted in the Areas of the Project in compliance with the stipulations of the present Agreement.
4.
Transport the extracted ore, concentrate and minerals, as well as any item, supply, materials or goods that THE COMPANY deems convenient for its operation, using any transportation means and security method acknowledged in the mining industry.
5.
Store inside and outside the Concession Area and export and commercialize the ore, concentrate and the minerals extracted in the Concession Area, in accordance with the legal and regulatory provisions in force.
6.
The right of way, when THE COMPANY considers it necessary for the development of THE PROJECT, through the surface and subsoil of all lands and waters property of THE STATE on the date on which the Agreement comes into force, subject to the stipulations of Annex IV of this Agreement, to the point where they do not violate the rights acquired by third parties to this Agreement, and the rights to build, install, maintain and use in the surface or the subsoil of such lands and waters those facilities and installations that THE COMPANY deems convenient for the development of THE PROJECT. In the event of using the right of way by the subsoil, THE COMPANY shall coordinate with the corresponding state entity, everything pertaining to the protection of the underground water in the fresh water reserves that might exist in the site of said right of way. The COMPANY shall enjoy this right of way and can use it withou t being subject to payment for any concept. When the lands property of THE STATE are transferred to private third parties after the enforcement of this Agreement, the rights of way of THE COMPANY shall prevail without detriment to the compensation corresponding to physical damages to crops or permanent improvements built there.
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In relation to the stipulations of Annex IV of this Agreement, THE COMPANY and ADRIAN declare that any conflict or controversy arising between them in the execution or compliance with what has been agreed in Annex IV shall not in any manner affect the respective obligations and commitments which bind THE COMPANY pursuant to this Agreement and ADRIAN with respect to the Adjacent Concessions with THE STATE, unless the respective conflict or controversy is motivated or caused by any act or omission by THE STATE.
7.
The right to make use of and deviate the waters coming form natural sources, when the activities of THE PROJECT so requires, without any charges, it being understood that if these uses damage or interfere with the rights or the properties of persons or private or state entities using such waters on the date that this Agreement comes into effect, these persons or entities shall receive from THE COMPANY fair compensation for the damaged caused pursuant to the standards in force. Likewise, THE COMPANY shall guarantee sufficient drinking water supply for the subsistence of those natural persons lawfully occupying the affected area at the time that this Agreement comes into force.
8.
The right to design and build access bridges, pipelines, canals, railroads, and other access facilities or transportation means, and any other installations and facilities that may be useful or necessary for the realization of THE PROJECT and use said installations or facilities without having to pay any liens, canons, royalties, taxes, nor any other type of charges to THE STATE, excepting the payment of surface canons, royalties and municipal taxes stipulated in this Agreement. It is understood that THE COMPANY is empowered to extract and use any minerals or materials needed to carry out infrastructure works, including but not limited to rock, sand and gravel, and shall have the right to exploit quarries for the same purpose subject to the stipulations of this Agreement and the legislation in force that rules or regulates the exploitation of non-metallic minerals used as construction materials.
9.
Generate electricity for the use of THE PROJECT and sell or commercialize any electricity surplus generated according to the legislation in force, as well as to establish, build and operate any communication installations that THE COMPANY deems necessary for THE PROJECT and the operations related thereto.
10.
The right to obtain without delay licenses, permits, approvals and other authorizations generally required from THE STATE or any of its departments or autonomous or semi-autonomous institutions, and that are necessary for the development of THE PROJECT. Subject to the other provisions of this Agreement, it is understood that all these licenses, approvals or authorizations shall be granted at the usual general application rate.
11.
To process, operate and structure, exempted from the payment of any type of duty, tax or fees from THE STATE, vehicles, helicopters, airplanes, barges, heavy equipment for the use on land or water or amphibian, towboats, ships of great draft, ships for the transportation of workers, and any other machinery or equipment necessary for the effective development of THE PROJECT, and provide air, maritime and land services, on the Panamanian territory as these services are required for the development of THE PROJECT.
12.
THE COMPANY shall have the right to acquire, lease or use, those STATE lands inside or outside the Concession Area that are necessary or useful for the development of THE PROJECT. The COMPANY may acquire these lands in property, lease or use through the Ministry of Finance and Treasury that shall give due course to such requests and will approve their direct concession, to THE COMPANY without the need of submitting such concession to the mechanisms of public biding, tendering or price requests established in the Fiscal Code, provided that said lands are available and inasmuch as the rights acquired by third parties to this Agreement are not violated due to other mining concessions, subject to the provisions of Annex IV of this Agreement. When related to lands acquired in use or in leasing, the amounts to be paid by THE COMPANY shall not be higher than the surface canons by hectare provided for in this Cla use. When it pertains to lands that THE COMPANY wishes to acquire in property, the price to be paid for such lands will be determined by the procedures stipulated by the legislation in force.
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In the event that THE COMPANY needs lands inside or outside the Concession Area that are private property, anything pertaining to its use, possession or acquisition, with the exception of the stipulations of Clause Seven (7) Sub-clause A herein, shall be transacted according to the provisions of the Mineral Resources Code and this Agreement
13.
The COMPANY will have the right to design, build and operate, directly or through third parties, and always under its own management, piers, docks, and other port installations and landing places that THE COMPANY requires in the Port Area as determined in the Feasibility Study, regarding activities anticipated in this Agreement, and it will be understood that such piers, docks and other port installations and landing places will be for the priority use of THE COMPANY. Port duties or fees which may be established for the use of said installations shall not be applied to THE COMPANY and its ships, nor to the ships belonging to or under the control of third parties rendering services for the purpose of the Agreement. As soon as this Agreement concludes its life term pursuant to Clause Five, the previously mentioned port installations shall become property of THE STATE, which is to assume the responsibility o f its operation.
Notwithstanding the provisions of the foregoing paragraph, THE STATE reserves the right to allow the use of such port installations to other ships for purposes different to those considered under this Agreement. In this event, THE COMPANY will reserve the right to collect from such ships the dockage rights it deems convenient and it can object the use of port installations by these ships if such use damages or interferes in any manner with the activities developed by THE COMPANY, its Affiliates, contactors or subcontractors. In any event THE COMPANY may also collect rights or reasonable rates, for the use of cranes, pipelines, storage deposits and other services, installations and facilities that THE COMPANY provides or supplies or puts at the disposition of said ships.
14.
To organize, establish and provide piloting, towing, and repair services, mobilization in boats and in general, services that assist navigation. It is understood that this capacity does not imply the obligation to do so, and therefore, its exercises is a discretionary liberty of THE COMPANY. These services shall be rendered by capable personnel selected by THE COMPANY, protected by the licenses that to that effect are granted by THE STATE to said personnel. The cost of these services shall be financed by the duties and tariffs that to the effect are established by THE STATE. No duties or tariffs in favor of THE STATE shall be applied when the ships are the property of THE COMPANY or ships rendering services to THE COMPANY, or ships providing services related to activities provided for in this Agreement. When THE COMPANY does not wish to continue providing any of the services referred to in this clause, it shall notify THE STATE, at least six (6) months in advance. In this event, THE STATE shall provide the service charging the general applicable rates established, and the same shall be applied to THE COMPANY as well as to those who render services to THE COMPANY in relation to the activities pertaining to this Agreement, in this Agreement always giving priority to THE COMPANY for the provision of such services and activities. Notwithstanding the foregoing, it is understood that THE STATE shall offer THE COMPANY the most favorable tariff which at the time is offered or may be offered to other users.
15.
To design, establish, build, maintain, renew and extend works, installations, annexes, works and auxiliary services that have to do with maritime, air or land activities and also to design, build maintain, renew and expand breakwaters, ports, helicopters, landing strips, communication towers, roads, bridges, highways, boulevards, dredges, canals and docks related to the activities taken into consideration in this Agreement or with the development of said activities and make use of similar installations without any costs, provided that this use complies with the stipulations of the law and the regulations related to construction, health, security, occupational hygiene and environment protection, that are in force and are of general application.
16.
It is understood that irremovable installations and transportation equipment in the Concession Area are included and are an integral part of THE PROJECT, and that THE COMPANY uses in relation to the activities established in the present Agreement, as well as pipelines, aqueducts, ducts, rails, terminals and other installations destined for the transportation of ore or minerals, cargo and goods in general, or activities pertaining to the operation of THE COMPANY, when they have been built or are to be built with the objective of exercising the right of way pertaining to THE COMPANY.
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17.
To manage and operate THE PROJECT and assign totally of partially the pertinent rights regarding a portion or stage or phase of the Project or its totality, according to the stipulations of Clause Nine of this Agreement.
18.
In addition to the aforementioned rights and authorizations, THE COMPANY shall have the right and the faculty to perform those acts or activities which it considers incidental or leading to the attainment of the objectives described in Clause One of this Agreement and to exercise the rights and powers provided by this Clause.
B. OBLIGATIONS OF THE COMPANY
1. The Preliminary Environmental Evaluation, Environment Examination and Environment Feasibility and its annexes, jointly named Environmental Report, required by the Environment Regulations of the Mining Sector, in force on the date of the enforcement of this Agreement, shall be an integral part of this Agreement and shall be of mandatory compliance to THE COMPANY. The General Direction of Mineral Resources shall evaluate the studies that form part of the Environmental Report in consultation with INRENARE.
2.
Before beginning the extraction period, THE COMPANY shall submit an Environment Feasibility Study specific to the Project Area in which the respective extradition will take place. Said study shall be elaborated or revised by experts on the subject, previously approved by the General Direction of Mineral Resources of the Ministry of Commerce and Industries. Said study shall be evaluated and its approval, modification or rejection shall be defined within a term of 45 days counted as of the date of its presentation to the General Direction of Mineral Resources. After the end of this term, if there is no statement from the General Direction of Mining Resources, the Environment Feasibility Study shall be considered approved so that THE COMPANY may proceed with the development of its activities according to the contents of said Study.
3.
At the beginning of each year, THE COMPANY shall submit a Work Plan comprising the projections and approximate costs for the respective year to the General Direction of Mineral Resources of the Ministry of Commerce and Industries.
4.
The COMPANY shall pay to THE STATE in cash, subject to the deductions established by Clause Thirteen of this Agreement, the following yearly surface canons per hectare on the Concession Area not defined as Area “ï” of the Project according to Clause Four of this Agreement.
Years
US$ per Hectare
1 to 2
0.50
3 to 4
1.00
5 and thereafter
1.50
5.
The COMPANY shall pay THE STATE in cash, subject to the deductions established by Clause Thirteen of this Agreement, surface canons per each hectare covering the zones identified as Areas(s) of the Project according to Clause Four of this Agreement, and annual royalties for extracted minerals according to the following table:
| | | | |
Type of | First 5 | From the | 11th year and | Royalty |
Mineral | years | 6th to the | thereafter | |
| | 10th year | | |
I | B/. 0.75 | B/. 1.25 | B/. 2.00 | 2% |
II | 1.00 | 2.00 | 3.00 | 2% |
III | 1.00 | 2.00 | 3.00 | 4% |
IV | 1.00 | 2.50 | 3.50 | 2% |
V | 0.50 | 1.00 | 1.00 | 2% |
VI | 1.50 | 3.00 | 4.00 | 2% |
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It is understood that the foregoing types of minerals shall have the following meanings:
Class
I:
Non-metallic minerals, excluding construction materials.
Class
II:
Metallic minerals except precious minerals.
Class
III:
Precious alluvial minerals
Class
IV:
Precious non-alluvial minerals
Class
V:
Energetic minerals, except hydrocarbons.
Class
VI:
Reserve minerals.
Surface canon payments shall be made in advanced annual payments and royalties at outstanding quarters in a sixty (60) day period started as of the outstanding date. Surface canons shall be estimated based on the total surface held at the beginning of each year.
In this Clause, the royalty to be paid by THE COMPANY is expressed as a percentage of the Negotiable Net Production as defined in Clause Two of this Agreement.
6.
The COMPANY undertakes to annually present to the Ministry of Commerce and Industries the following detailed reports, and said Ministry shall be in charge of informing other governmental institutions and, as deemed convenient, to provide information on the case:
a)
The Operation Report, shall be part of the annual report, unless, through a previous sixty (60) day prior notice to THE COMPANY, the Ministry of Commerce and Industries requests that it be provided otherwise. Said report shall include information regarding minerals extracted, transported and benefit rates applicable, the number and type of mining operations conducted during the period covered by the report, and the success of these operations, the procedures that have been applied to mining operations in accordance with good standards of operation, records of surveys, sampling, and topographical, geological and mineralogical data obtained, locations of drilling and study sites, maps, plans and geological sections and all other technical information obtained in the operation process, and data that has not been previously submitted, indicating whether minerals have been obtained in commercia l quantities, and if this is the case, an estimate of the date of commencement of extraction and magnitude of planned operations.
b)
Report on employment and training, which will form part of the annual report, unless THE STATE requires it be delivered in another form. This report shall consist of a statement covering the previous fiscal year regarding the employment of Panamanians and foreigners and the development of training programs.
Each report shall include an affidavit of THE COMPANY or of the person authorized to act on its behalf.
7.
THE COMPANY shall allow THE STATE to examine the technical reports related to THE PROJECT and to perform routine inspections of all Project Installations during working days and hours, it being understood that THE STATE assumes all expenses and risks that might be caused by the abovementioned inspections.
8.
THE COMPANY shall allow THE STATE to have access and use of port installations and the complementary installations that THE COMPANY sets up subject to the provisions of Clause Three, Point A, Items 13 and 14 of the Agreement.
9.
Before the beginning of extraction activities, THE COMPANY shall create and participate in the administration of a scholarship fund for the total amount of TWO HUNDRED AND FIFTY THOUSAND US DOLLARS (US$250,000.00) which will be used to finance studies and training courses or professional training for the inhabitants of the communities neighboring THE PROJECT, located in the Provinces of Cocle and Colon. Said inhabitants will be selected by a committee integrated by the communities and THE COMPANY.
10.
THE COMPANY undertakes to provide due maintenance to all the mining and infrastructure works and services of THE PROJECT, always complying with the standards and regulations of general application in force that pertain to occupational safety, health and construction. Likewise, THE COMPANY may abandon THE PROJECT, partially or totally, when it deemsit necessary provided that it complies with all the obligations stipulated in this Agreement.
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CLAUSE FOUR
Areas of the Project and Initial Investment
1.
Under the terms of this Agreement, THE COMPANY, its Affiliates, contractors and subcontractors may at any time perform works and evaluation studies, feasibility and mining exploration in all or in part of the Concession Area, seeking the commercial exploitation of THE PROJECT or any Area of the PROJECT.
2.
THE COMPANY and its Affiliates shall have the option to return to THE STATE any part, section or portion of the Concession Area, adjusting if necessary to the stipulations of Clause Seven of this Agreement on the protection of the environment. Furthermore THE COMPANY performs a mineralization evaluation of the Concession Area, and defines one or more “Areas of the Project”. Once the Area of the Project has been defined, THE COMPANY shall initiate a feasibility study (“Feasibility Study”) said Project Area, which shall be submitted to the Ministry of Commerce and Industries. THE COMPANY may divide the Concession Area into a plural Item of development zones as it deems convenient and may designate one or more of these zones as Project Area, it being understood that they may have any form or configuration. Anyhow, THE COMPANY must submit to the Ministry of Commerce and Industries a feasib ility study regarding any of the Areas of the Concession defined as Project Area, no later than 18 months following the date of enactment of the Law by which this Agreement is approved, and said study shall comply with the requirements established in Annex II which is an integral part of this Agreement.
3.
Within a period of no more than sixty (60) months after the enforcement of this Agreement, THE COMPANY shall invest in exploration, infrastructure, roads and a feasibility study no less than TEN MILLION US (US$10,000,000.00)
CLAUSE FIVE
Life of the Agreement
This Agreement shall have a twenty (20) year life term as of the date of the enforcement of the law of approval. If THE COMPANY has substantially and reasonably complied with the obligations undertaken in this Agreement, and if its termination by mutual agreement has not occurred before such term has elapsed, THE COMPANY can request and obtain up to two (2) consecutive renewals of the Agreement, it being understood that each one of these renewals shall have a term of twenty (20) years. Taking into consideration the request submitted to the Ministry of Commerce and Industries within one hundred and twenty (120) days prior to the subsequent twenty (20) days at the end of each twenty (20) years term, the Ministry of Commerce and Industries shall grant each one of the respective renewals related to this Clause, it being understood that these renewals are granted if the Ministry of Commerce and Industries does no t make a statement on them within a period or sixty (60) days after the mentioned request has been presented to the Ministry of Commerce and Industries.
At the end of this Agreement, including its renewals, THE COMPANY may leave at its properties or freely remove from them, but with the due adherence to this Agreement and of the legal provisions and regulations of the Republic of Panama that are enforceable on the subject of demolitions, development and sanitation, all articles of its property, installations, improvements, accessories, annexes, equipment and all other property of whichever nature, be it private property or totally or partially connected to the real estate of THE COMPANY, without THE COMPANY having to make any payment whatsoever to THE STATE due to such withdrawal or removal. Nevertheless, in the event of such occurrence, all docks, landfills, maritime and land works and installations built by THE COMPANY on lands or other assets property of THE STATE, shall become property of THE STATE at no cost.
CLAUSE SIX
Development and Investment Commitment
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In order for THE COMPANY to maintain the fiscal benefits that THE STATE grants through this Agreement and as a consideration of THE COMPANY towards THE STATE so that the latter will subscribe this Agreement, THE COMPANY undertakes the following:
1.
THE COMPANY, its AFFILIATES, Contractors or Subcontractors shall carry out a FEASIBILITY STUDY for the development of the copper mine in the CONCESSION AREA and for the processing of ore into concentrate. The cost of said FEASIBILITY STUDY shall not be less than SEVEN MILLION US DOLLARS (US$7,000,000.00), including the amounts that have been invested in said study before the date of this Agreement. The preparation of said FEASIBILITY STUDY must adjust to the guidelines provided in Annex II of this Agreement. THE COMPANY undertakes to deliver a copy of the FEASIBILITY STUDY to the Ministry of Commerce and Industries in 18 months following the date of enactment of the law approving the present Agreement. Likewise, THE COMPANY shall provide said Ministry with an Affidavit detailing the amounts invested in the preparation of said FEASIBILITY STUDY.
2.
In the three years following the date of delivery of the FEASIBILITY STUDY related to the foregoing numeral, to the Ministry of Commerce and Industries, THE COMPANY shall start the development of the copper mine and the construction of the necessary infrastructure for the operation of said mine pursuant to the program provided in Annex II of this Agreement. Notwithstanding the foregoing, THE COMPANY may delay the beginning of the development of the mine and of the construction of the corresponding infrastructure and, therefore, the period of time equivalent to the months elapsed since the delivery date of the aforementioned FEASIBILITY STUDY during which the average price of the pound of refined copper, according to quotes from London Metal Exchange is less than the amount resulting from the addition of (a) the price of copper used in the cited Feasibility Study showing a rate of return that will permit obtaining t he necessary financing in the international capital markets plus (b) five (5%) percent of this.
PARAGRAPH:
The delay due to the low prices mentioned in numeral 2 of this Clause may not be extended for more than five (5) years as of the date of the expiration of the original three (3) year term stipulated in this clause, without THE COMPANY notifying THE STATE of its decision to proceed with the corresponding investment for the development and construction of the aforementioned infrastructure and the initiation of said works. If the delay was to take more than five (5) years, this Agreement shall be annulled and the Concession expired. During the delay period, THE COMPANY can formulate proposals for the development of THE PROJECT in terms and conditions others than those agreed upon under this Agreement, and THE STATE agrees to consider in good faith said proposals. Nevertheless, for the two (2) years following the expiration of the abovementioned five (5) year term, THE COMPANY shall enjoy the first option for the development of THE PROJECT in the event that THE STATE receives from any third party (the “Third Bidder”) an offer (the “Offer”) for that purpose. If THE STATE receives an Offer that it considers accepting, it must inform and notify THE COMPANY in written, and the later will have ninety (90) days as of the date of the delivery of said communication to make us of its first option to perform the development of THE PROJET, in terms at least as advantageous for THE STATE as those proposed in said Offer. If THE COMPANY communicates to THE STATE its decision not to exercise said first option or ceases to exercise the same after the ninety (90) days of the aforementioned communication and notification in writing, THE STATE may negotiate the agreement or agreements of the concession with the respective Third Bidder, provided that it (they) do not reflect a set of rights and obligations that are more advantageous for the Third Bidder t han those contained in the respective offer. This first option procedure shall apply to any Offer presented by a Third Bidder during the aforementioned two year period, in which THE COMPANY has not waived or ceased to exercise its first option.
3.
Before the beginning of the commercial production of copper, THE COMPANY jointly with its Affiliates, contractors and sub-contractors shall comply with the following commitments:
(a)
Invest no less than FOUR HUNDRED MILLION US DOLLARS (USS$400,000,000.00) in the development and construction of the mine and infrastructure in agreement with the provisions of the Feasibility Study mentioned above in Item 1 of this Clause on in any other Feasibility Study which is prepared later on or its modifications, approved by THE COMPANY, provided that copies of said study or modifications have been delivered to the Ministry of Commerce and Industries.
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(b)
Hire no less than 700 Panamanian workers for the development and the construction of the mine, preferably using labor from the Municipality or Municipalities where the Concession Area is located.
4.
Once a sustained production of copper concentrate in the Concession Area at the rates forecasted in the Feasibility Study is obtained, THE COMPANY, its Affiliates, contractors and subcontractors shall hire for the operation of THE PROJECT no less than 300 permanent Panamanian workers, it being understood that the total Item of said workers may fluctuate as a result ofthe changes in the market conditions and technological innovations.
5.
For the effects of what is provided in Item 2 of this Clause, the average adjusted price of refined copper in the London Metal Exchange for a determined month shall be equal to the average of the closing prices for one pound of refined copper on each day of said month during which the Exchange is open for the performance of mercantile activities, derived from the quotes published by said Exchange.
6.
In addition to any delays occurring in the development of the mine, permitted by Clause Twenty of this Agreement, THE COMPANY, in consultation with the Ministry of Commerce and Industries, may delay the beginning of said development or the termination thereof during proven economic instability periods in the country or at the international level causing unforeseen increase in the cost of materials, supplies or labor greater than those foreseen in the Feasibility Study referred to in numeral one of this Clause, or when said proven instability periods does not permit obtainingof financing for THE PROJECT in the international financial markets under normal terms and conditions. THE COMPANY shall immediately notify the Ministry of Commerce and Industries in the event that any of these events occurs and shall consult with said Ministry while the respective instability period lasts, with the p urpose of determining if conditions have changed or if a modification to the Feasibility Study is necessary with the purpose of being able to start the development or the continuation of said development.
CLAUSE SEVEN
Environment Protection
The COMPANY undertakes to carry out its activities maintaining at all times an adequate protection of the environment in the Concession Area, complying with the legal dispositions and regulations of general application in force in the Republic of Panama.
The COMPANY shall be accountable for the damages caused to the environment due to its fault, fraud or negligence in the performance of its operations, and to that end THE COMPANY shall constitute a bond in favor of THE STATE in the amount of THREE MILLION US DOLLARS (US$3,000,000.00), in cash, cashiers check, insurance company policy, promissory note issued by a financial institution, letter of credit issued by a local bank, bank guaranties, or by any other means permitted by the laws in force. Said bond shall be constituted at the beginning of the construction of the mine, and its totality or the portion not claimed by THE STATE shall be canceled or returned to THE COMPANY, as the case may be, no later than one year after the end of this Agreement. The bond shall be issued to the order of the Ministry of Commerce and Industries and the Office of the General Comptroller of the Republic of Panama. The a mount of this bond does not purport to establish a limit to the liability of THE COMPANY.
In addition to the restoration obligations provided for in the Mineral Resources Code, THE COMPANY undertakes to finance a Reforestation Program for those areas of the concession in which THE COMPANY has caused any kind of deforestation, subject to the degree of deterioration caused to nature. The program shall be carried out using species of trees native to the zone neighboring the Concession Area in consultation with the respective authorities, and with the possibility
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of planting species of a greater advantage for the population and the environment.
CLAUSE EIGHT
Hiring of Experts
THE COMPANY, its Affiliates, contractors and sub-contractors shall give preference to hiring national labor. However, foreign personnel may be hired provided that the total Item of hired foreigners does not surpass twenty-five per cent (25%) of the total labor force of THE PROJECT.
Notwithstanding the foregoing, as from the enforcement of this Agreement and during the first five (5) years as ofthe beginning of the construction works referred to in this Agreement, a higher percentage of foreign specialists or technicians or workers with experience in the mining sector shall be allowed taking into consideration the requirements of THE COMPANY, its Affiliates, contractors and subcontractors, to whom THE STATE shall issue the working permits, licenses and visas required to that effect.
The COMPANY undertakes to comply with the transference of technology to Panamanian personnel in the event of hiring foreigners.
For the effects of the application of the aforementioned percentages, the totality of the labor force of THE PROJECT shall be taken into account, which will consist of the workers hired by THE COMPANY, its Affiliates, contractors and sub-contractors.
CLAUSE NINE
Contract Assignment
THE COMPANY can totally or partially assign or transfer this Agreement without any alteration of its terms or conditions, as well as the totality or part of its Concession Area, provided that the assignee counts with the technical and financial capability, which could be a Panamanian corporation or a foreign corporation duly registered and empowered to perform business in the Republic of Panama. Such assignment shall grant the assignee all the rights and obligations that THE COMPANY undertakes with this Agreement.
When the assignment or transfer mentioned in this Clause is on behalf of an Affiliate of THE COMPANY, the only requirement which THE COMPANY shall have to comply with to effect such assignment or transfer shall be to communicate it in written to the Ministry of Commerce and industries fifteen (15) days in advance. Once said notice has been provided the assignment or transfer shall be effective and the Ministry of Commerce and Industries shall issue an official recognition certifying such assignment or transfer within the next thirty (30) days.
When the assignment or transfer is to be made on behalf of third parties that are not Affiliates of THE COMPANY, prior authorization from the Ministry of Commerce and Industries is required, except in the cases referred to in the last paragraph of this Clause. In the event of assignments or transfers to third parties, THE COMPANY must notify the the Ministry of Commerce and Industries which should make a statement within the thirty (30) days following the date of the respective notice. If after the above mentioned thirty (30) days the Ministry of Commerce and Industries has not made a statement in relation to said assignment or transfer, it shall be considered that there is no objection to such assignment or transfer and that it has been approved, it being understood that the Ministry of Commerce and Industries shall certify said transfer or assignment.
In the event of total or partial assignment of the present Agreement, the assignee shall assume all the rights and obligations arising thereof, it being understood that THE COMPANY shall be free from any obligation resulting from facts or acts that take place after the date of the assignment with regards to the assigned, and in the case of partial assignment or transfer, the Assignee shall assume the corresponding proportion deriving from the contracting rights and obligations as stipulated in the respective assignment or transfer agreement.
The assignment or transfer, that it beit total or partial, shall not generate taxes, contributions, fees,nor liens of any nature, in favor of THE STATE.
It is understood that the mining concessions subject to this Contract may be totally or partially encumbered, with prior notification to the Ministry of Commerce and Industries, provided that the creditor is a financial institution of known and proved stability. Additionally, notwithstanding the foregoing, the mortgagee may totally or partially assume the encumbered concession, and may in turn transfer or assign it to a third party, as long as any such third party is a Panamanian corporation or a foreign corporation duly registered in the Republic of Panama directly or through a subsidiary, witha renown technical and financial capability with a net consolidated shareholder’s equity which shall not be lower than at least THREE HUNDRED MILLION US DOLLARS (US$300,000,000.00), including its Affiliates. Prior notification to the Ministry of Commerce and Industries will be satisfactory for t he said transfer or assignment to become effective.
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CLAUSE TEN
Energy
The COMPANY, directly or through third parties, may generate electric power for its own use and for that purposeit may build and operate hydroelectric installations and thermal plants, as well as other means of generating power both inside or outside the Concession Area, as THE COMPANY deems necessary, to develop the activities provided in this Agreement. It is understood that THE COMPANY may sell and commercialize any surplus electric energy, as long as it complies with the rules and provisions in force.
CLAUSE ELEVEN
Obligations of the State
The STATE shall have the following obligations:
A.
To grant and procure THE COMPANY with the full, uninterrupted and pacific use of the Concession Area which is defined and described in Clause Two and in Annex 1 which are an integral part of the present Agreement.
B.
If THE COMPANY so requires, to have inside or outside the Concession Area, the services of firemen, police, customs, migration, health and any other public service that are not provided by THE STATE. It is understood that the additional costs of these services as well as the necessary infrastructure to provide them shall be to the account of the THE COMPANY. It is also understood that the necessary private property necessary to provide these services for which costs are on the account of THE COMPANY shall be the property of THE COMPANY.
C.
To provide THE COMPANY the licenses or permits, approvals and authorizations required by THE STATE or any of its departments, autonomous or semi-autonomous institutions and political subdivisions, in relation to the activities developed by THE COMPANY in compliance with this Agreement, it being understood that such licenses, authorization and approvals shall be granted at the general application tariffs in force prior compliance with the corresponding requirements as established by law.
CLAUSE TWELVE
Fiscal Exemptions
The STATE confers THE COMPANY and its Affiliates (and in the cases expressly mentioned, to its contractors and subcontractors), the following fiscal exemptions during the life of this Agreement:
A.
Exemption for THE COMPANY, its Affiliates, contractors and subcontractors, of any rights, or import tax, contribution, charges, consular rights, lien, duties or any other tax or contribution, or any denomination or class that are imposed on the introduction and import of equipment, machinery, materials, parts, diesel and Bunker C and other petroleum by-products, it is understood that they shall cause, nevertheless, when applicable, the protection tariff stipulated in Clause Twenty-two of Agreement No. 35f of September 15, 1992, approved through Law No. 31 of December 31, 1992, and regulated by Cabinet Decree No. 38 of September 9, 1992; raw material, lubricants, necessary work vehicles used for the efficient and economic development of the operations covered by this Agreement, ships, airships, appliances, spare parts and accessories exclusively destined for the construction, development, operat ion, maintenance, infrastructure and activities of THE PROJECT. It is understood by the parties that the exempted goods pursuant to this numeral shall only be used for the development of THE PROJECT. Said goods shall not be sold or transferred to anybody without previous written authorization from THE STATE, but having elapsed at least two (2) years from the purchase date and always subject to the payment of the respective tax which shall be estimated based on their value at the time of the sale or transfer. It is understood, however, that the goods may be transferred to any Affiliate of THE COMPANY, or any other natural person or body corporate benefiting from the introduction tax exemption that THE COMPANY has, complying with the legal provisions in force.
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In order to be covered by the exemptions of the Import Tax mentioned in Point A of this Clause, THE COMPANY, it Affiliates, contractors and subcontractors shall notify the General Directorate of Mineral Resources of The Ministry of Commerce and Industries its intention of introducing the exonerated assets or product, and said Direction shall deliver, in a maximum period of thirty (30) days after receiving the notice, a document certifying the applicant is has the right to the respective exemption. Said certification shall be accepted by the General Customs Direction of the Ministry of Finance and Treasury which shall give speed to the proceedings of the corresponding introductionof or duly exempted import
B.
Total transfer tax exemption for THE COMPANY, its affiliates, contractors and sub-contractors of movable goods on minerals, equipment, machinery, material, parts, accessories, raw material, cranes, work vehicle, ships, airships, appliances, diesel and lubricants and other petroleum derivatives, cargo and containers, destined for the operation, construction or maintenance of THE PROJECT, as well as those that are necessary for the development of the activities performed by THE COMPANY, or carried out for its benefit, in the Concession Area pursuant to what is established in this Agreement.
The exempted goods shall be used in activities related to THE PROJECT, and cannot be soldnor transferred, until after two (2) years have elapsed as from the purchase date and always subject to the payment of the respective tax, which shall be estimated based at the value of the good at the moment of the sale or transfer.
It is understood that the goods may be transferred to an Affiliate of THE COMPANY, according to what is defined in this Agreement, or to any other natural person or body corporate that benefits from the introduction tax exemption that THE COMPANY has without any type of restrictions other than the previous notification of the transfer to the authorities of the Ministry of Commerce and Industries, and that these transfers shall not be subject to the payment of any type of tax or duties in favor of THE STATE.
C.
Tax exemption on income tax, applicable to remittances or transferences abroad, made to pay commissions, loans, royalties, returns, professional or administrative advice performed outside the national territory, discounts, payments referred to in Clause Sixteen of the Agreement, or for any other concept related to the activities of this Agreement.
D.
Exemption from the payment of duties pertaining to the cargo of mineral products and dockage of containers, stowage, break bulk, handling, sojourn operations, which may be applicable inside the port installations of THE COMPANY.
E.
Exemption from any tax, lien or contribution related to non-distributed profits of THE COMPANY and its Affiliates in any fiscal year.
F.
Exemption from the obligation to pay premiums and offers for exploitation rights of minerals in the Concession Area.
CLAUSE THIRTEEN
Fiscal Deductions
1.
The COMPANY and its Affiliates shall have the right to include as operation expenses those that are deductibles, pursuant to the Income Tax laws in force. Besides surface canons, royalties, taxes and depreciation charges, the following items may be deducted as operation expenses:
a)
Annual deduction in concept of exhaustion for each one of the mineral deposits pursuant to the stipulations of Point b, numeral 6 of this Clause.
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b)
The cost of excavations of subsidence, prospecting and galleries, open-cut excavations, perforation of wells and other similar operations, that have been performed without finding minerals in amounts that would merit a commercial exploitation.
c)
Expenses for services and supplies, as well as other expenses made in relation to preliminary geological investigations, mining explorations, pre-extraction operations, as well as expenses made for subsidence, prospecting and gallery excavations, open-cut excavations, perforation of wells and other similar operations performed with the purpose of extracting minerals.
Expenses for items for which deductions are allowed because of depreciation or for capital amortization cannot be included as operation costs.
2.
To determine operation deficits during a fiscal term, THE COMPANY shall deduct from the gross income attributable to mining operations all deductible amounts authorized by the Mineral Resources Code, this Agreement and other applicable laws, with the exception of deficits that have been differed from a previous fiscal year.
3.
Taxes, rights, duties, charges and other contributions and amounts paid to THE STATE, shall be considered as general deductible expenses, as well as inherent expenses, incurred in relation with the education or training of Panamanian citizens according to this Agreement. Likewise, municipal taxes payable by THE COMPANY to the municipalities of THE STATE shall be considered as deductible general expenses, to the point in which they have not been credited against the income tax payable by THE COMPANY, as stipulated in Point (L), numeral (I) of Clause Fourteen of this Agreement.
4.
THE COMPANY shall establish depreciation accounts for depreciated assets that it acquires during the life of this Agreement, which shall be segregated according to the following categories of assets:
CATEGORY A: Building and other permanent improvements built on lands, parking areas, railroads, tunnels, dams, bridges and roads, waste deposits, port installations, airport installations and landing strips.
CATEGORY B: Other fixed assets, including machinery and equipment located on any real estate for its better use and other real estate by destination (excluding mobile equipment, ships and barges), elevators, electrical and plumbing systems, fixed structures and installations for the generation and transmission of electric power.
CATEGORY C: Mobile equipment, ships and barges and mining equipment of any type or nature, including, but without limitation, tractors, buses, railroad engines and wagons, airplanes, loading and unloading facilities, cargo transportation equipment, any other type of equipment and mobile machinery not included in Category D below, telephone and general communication systems.
CATEGORY D: Laboratory equipment, drilling equipment, assets used for the test or sampling and other of technological nature, including computer equipment, accessories and programs.
CATEGORY E: Other capital assets that are not included in any other previously mentioned category.
The cost of each depreciated asset that the Company acquires, for which the Company will use the benefit of the depreciation, shall be included in the account corresponding to the Categorytowhere it belongs and, for each fiscal year, when calculating the respective taxable income,to THE COMPANY may use the depreciation for amounts equal to the percentages Itemed hereinafter, applied to the accumulated of (a) the original cost of the assets already included in the respective Categories at the beginning of the corresponding fiscal year and (b) fifty per cent (50%) of the cost of the assets added to said Categories during the referred fiscal year.
Category A:
7%
Category B:
15%
Category C:
25%
Category D:
33%
Category E:
20%
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However, it is understood that in regards to any of said Categories, amounts greater than the surplus resulting from subtracting the accumulated from the original acquisition cost of the assets included in the respective Category, the total amount of the depreciation previously deducted on said acquisition cost may not be deducted in concept of depreciation.
In any fiscal year in which the maximum deduction amount for permissible deduction in relation to assets under any Category is not used for determining the net accruable income corresponding to said fiscal year, the unused balance may be indefinitely deferred for its total or partial deduction in any future fiscal year, jointly with any other amount deductible in said future fiscal year, it being understood however that deductions for depreciation in a given fiscal year, in relation to assets under any Category, shall not exceed fifty per cent (50%) of the accumulated of the acquisition cost of the assets included in the respective Category at the end of the respective fiscal year, and it shall also be limited as stipulated in the paragraph immediately preceding this Item 4.
5.
Losses suffered by THE COMPANY in operations according to income tax estimates of the year in course and of previous years may be differed to the following terms, as long as they have not been deducted, but they shall not be deferred for more than five (5) years, counted as of the fiscal year during which they were originated. Once these five (5) years have elapsed, those losses cannot be deductible nor shall they cause any refund from the National Treasury.
6.
Among other deductions allowed the Mineral Resources Code at the date of the enforcement of this Agreement, THE COMPANY may make following deductions:
a)
Expenses proved as duly incurred during a fiscal year in mining explorations related to the concession may be deducted from the surface canons payable to the Nation for that fiscal term to a maximum of seventy-five percent (75%) of the total amount of said surface canons. When these have been paid before the deduction authorization, THE COMPANY shall be allowed to credit the amounts already paid to the payment of surface canons payable in the following fiscal term. There shall not be cash reimbursements for this concept.
b)
In the exploitation of mines, quarries and other non-renewable natural resource, THE COMPANY may include as operation expenses for calculation of taxable net income purposes of each fiscal year, deductions for depletion in function of the produced or extracted units. To that end, the probable content of such deposits as of the first day of the fiscal year shall be calculated and added to units produced in the said year. The relation of the previous amount and the units produced during the year, produce the rate of amortization for that year, and this rate shall be percentually applied to the value of the asset to obtain the deduction for depletion. This same operation shall bemade in the following years until the mineral deposit is totally depleted.
For the purpose of this point b), the preceding paragraph will be applied according to the following formula (as per their initials in Spanish):
DA
= Deduction due to Depletion
TA
= Depletion Percentage
RMI
= Mineral Reserves at Beginning of the Period
UP
= Units Extracted or Produced during the Period
RA
= Additional Units or Reserves during the Period
RMf
= Mineral Reserves at the End of Year
VA
= Asset Value
Pf
= Mean Value of the quarterly royalty statements
PR
= Recovery Percentage
TM
= Metric Tons
LEY (GRADE) = Metal contents of a rock or ore.
FORMULA TO BE APPLIED
Step 1:
TA = RMI + UP + RA
UP
Step 2:
RMf = RMI – UP + RA
Step 3:
VA = (RMf x UPf x RA) X PR
Step 4:
DA = TA x VA
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The value of the probable content of the deposit and the new confirmed referred to in this Point shall be certified by the General Direction of Mineral Resources of The Ministry of Commerce and Industries.
The deduction for mining amortization may not exceed fifty percent (50%) of the net income of THE COMPANY, after deducting all operation expenses from the gross income for the extraction, with the exception of the permitted mining amortization, it being understood that, for the calculation of net income to which this paragraph bears relation to, such operation expenses do not include the interests payable by THE COMPANY, nor the asset depreciation corresponding to the respective fiscal period. This limitation shall be applied separately to each place or deposit where minerals are extracted or jointly to all deposits which are exploited by THE COMPANY in the same mill or grinder, as THE COMPANY deems convenient, and the gross extraction income and operation expenses shall be assigned to each place or jointly, as the case may be, according to the accepted accounting standards.
c)
Deductions for mining amortization shall be estimated independently for each one of the places where the mineral is extracted and according to the type of mineral.
Together with the sworn income tax statement for each fiscal term THE COMPANY shall prepare and present a chart summarizing the calculations made for mining amortization for each one of the mentioned sites.
CLAUSE FOURTEEN
Contributions in favor of THE STATE
1.
Without detriment to the exemptions or privileges that THE STATE grantsto THE COMPANY and its Affiliates pursuant to the stipulations of this Agreement, THE COMPANY and its Affiliates shall payto THE STATE the following taxes, rights, duties, contributions, charges or impositions mentioned as follows:
A.
Income Tax derived from the profits obtained by THE COMPANY, subject to the provisions of this Agreement.
B.
The following taxes, rights and registration fees:
(1) fifty percent (50%) of taxes, rights or duties caused by the registration of property titles that THE COMPANY or its Affiliates may constitute on their assets or rights;
(2) fifty percent (50%) of taxes, rights or duties caused by the registration of encumbrances that THE COMPANY of its Affiliates may constitute on their assets or rights;
(3) fifty percent (50%) of taxes, rights or dutiescaused by the registration of financial leasing contracts that THE COMPANY or its Affiliates may subscribe;
(4) Other rights or registration fees caused at the Public Registry.
C.
Notary fees
D.
A five percent (5%) tax on the transference of movable goods applied to the import or transference of movable goods, according to the legislation in force at the date of the enforcement of this Agreement, when it does not pertain to those mentioned in in which this Contract become in force, when the same are not mentioned in (A) and (B) of Clause Twelve, which will always be exempted from said tax.
E.
Fifty percent (50%) of stamp taxes caused according to the legislation in force.
F.
Rights and duties for the use of public services provided that THE STATE or any of its subdivisions or dependencies provide to THE COMPANY and which are not those which THE COMPANY receives exoneration according to the stipulations of this Agreement. In any event, rights and duties shall be payable at the current rates of general application.
G.
Contributions and employer quotas to Social Security, professional risks premiums and others employer contributions of a social nature based on the employee payroll of THE COMPANY, which shall be payable at the current rates or tariffs of general application.
H.
Property Tax according to the legislation and tariffs of general application in force. Notwithstanding the foregoing, Property Tax shall be paid up to a maximum of ONE HUNDRED THOUSAND US DOLLARS (US$100,000.00) per year, provided that the assets acquired or built by THE COMPANY or its Affiliates are to be used for the development of THE PROJECT and are located in a province of the Republic where THE COMPANY or its Affiliates would have invested not less than TEN MILLION US DOLLARS (US$10,000,000.00) in mineral processing plants, ports or transport and cargo handling installations.
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I.
Industrial or commercial license tax up to maximum of TWENTY THOUSAND US DOLLARS (US$20,000.00) per year.
J.
Surface canons and royalties, subject to the stipulations of Clause Three, point B, what items 4 and 5 of this Agreement.
K.
Fifteen percent (15-%) of the benefits received by THE STATE in concept of surface canons and royalties which THE COMPANY has to pay hereunder shall correspond to the municipality(ies) within which the CONCESSION AREA is located, amount which shall be directly paid by THE COMPANY to the corresponding municipality or municipalities. THE STATE, through its pertinent entity, shall verify compliance with said obligation.
L.
Municipal Taxes. The total of Municipal Taxes that are paid to whichever municipalities shall not exceed the sum to ONE HUNDRED THOUSAND US DOLLARS (US$100,000.00) per year. Any additional amount which THE COMPANY must pay in concept of Municipal Taxes, above the aforementioned sums, shall be deductible by THE COMPANY as a fiscal credit against its Income Tax payment for the current year. The maximum amount of the payable sum in concept of Municipal Taxes shall be adjusted in proportion to the variations on the wholesale price index of the total manufactures of the Office of the Comptroller General of the Republic of Panama for two-year periods. The first adjustment shall be applied upon the fifth year of life of this Agreement, taking into account the changes occurred in the aforementioned price index during the two immediately previous years.
Thereafter, the successive adjustments shall be made at the end of each two-year period. In the event that said index was not available so that the adjustment provided in this Clause may not be made, THE STATE and THE COMPANY, by mutual agreement, shall apply another index or adjustment method.
M.
Any other taxes, rights, liens, duties, contributions, charges or impositions established or to be established in the future, and that are different to those for which THE COMPANY receives exemptions derived from this Agreement, and as long they are of general application, and that they are not contrary tonor exceed those established in the present Contract in this Agreement and in the legislation in force on the date on which this Agreement is enforced. It is understood that taxes, rights, liens, duties, contributions, charges and impositions that are only applied to a specific industry or to a determined activity shall not be considered as of general application.
II.
Without detriment to what is previously provided for in this Clause and in other provisions of this Agreement and with the sole exception of the respective surface canons and royalties, as long as THE COMPANY has either not finished repaying the debt which THE COMPANY or its Affiliates acquire for the construction and development of the project, THE COMPANY, and its Affiliates shall be totally exempted from the payment of any type of tax, rights, duties, charges, liens, contribution or tariff that may be caused due to any reason related to the development of THE PROJECT, with the exception of municipal taxes.
CLAUSE FIFTEEN
Direct Investment and Infrastructure
The COMPANY, its Affiliates, contractors and sub-contractors shall have the right to the use of a fiscal credit which may be used to pay to THE STATE those taxes , duties, charges, contributions and rights established by the law in force and this Agreement. Said fiscal credit shall be equal to the amounts invested by THE COMPANY its Affiliates, contractors and sub-contractors during the life of this Agreement in infrastructure pertaining to THE PROJECT of the following types or categories.
A.
Infrastructure and transportation equipment, including but without being limited to roads, railroads, bridges, energy generating plants, electric power transmission lines and telecommunication transmission lines.
B.
Facilities and installations for transportation, storage, treatment and removal of water, including, canals, dikes, aqueducts, sewage systems piping, tubing, dams, storage tanks and reservoir dams.
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C.
Maritime installations, ports, docks, piers, breakwaters, mobile and fixed installations for loading and unloading ships, facilities for loading of waste and cargo of barges.
D.
Housing or lodging for workers.
E.
Social type infrastructure, including hospitals and first aid stations, structures for social and recreational use of the community, streets, sidewalks, and ornamentation, built with prior authorization from THE STATE.
Paragraph 1: The fiscal credit due to direct investment may be used in various fiscal years until covering 100% of the investment.
Paragraph 2: In order to receive the benefit referred to in this Clause,, the corporation that has made an Investment shall present a request to the Ministry of Finance and Treasury, so that the later willto certify the investment in the corresponding fiscal year.
Adjoining this request should be, among others, the following documents::
1.
Copy of the work contracts, if any, regarding the pertinent investment.
2.
Payment vouchers of all costs and expenses performed.
3.
Copy of the plans of the work.
4.
Construction and occupation permits, and
5.
Certification issued by a Certified Public Accountant evidencing the amount of the investment.
Paragraph 3: The General Directorate of Revenues of the Ministry of Finance and Treasury, previous analysis of the documents submitted by the corporation that executed the investment and inspection of the works built, shall issue, with due celerity, the corresponding fiscal credit.
Paragraph 4: There is no possibility of receiving a credit in relation to cost of depreciable assets, in spite of the fact that they are part of the previously described infrastructure, if THE COMPANY or its AFFILIATES, contractors, or sub-contractors, according to the case, have decided to include the cost of said assets in the depreciation accounts established according to Clause Thirteen of this Agreement.
Paragraph 5: In any fiscal year THE COMPANY, its AFFILIATES, contractors or sub-contractors may use the portion that it determines of the balance of the credits derived from investments in infrastructure not used in previous years, as a credit for the payment of those taxes that THE COMPANY selects, it being understood that said credit shall not be applied with the purpose of decreasing the amounts to be paid in concept of taxes or royalties in any year to less than half of what the Company would be otherwise obliged to pay.
Paragraph 6: The General Direction of Revenues will maintain a registry of the amount of fiscal credits granted due to this Clause, as well as its use, assignment and favorable balances thereof.
CLAUSE SIXTEEN
Taxes on Moneylenders and Shareholders of THE COMPANY
Natural persons or body corporates and international agencies, that grant or guarantee financing in any manner or form acknowledged by THE COMPANY, or its Affiliates, contractors and subcontractors for the construction, operation and development of THE PROJECT, or any part thereof, shall be exempted from any type of taxes, rights, duties, charges, liens, contribution and imposition, including Income Tax, that might be caused by interest earned by said loans, discounts, commissions or other payable financial charges due to loans or guarantees, whatever the origin of the funds of those loans or guarantees, and whichever the development phase of THE PROJECT object of the respective credit or the manner in whichas said taxes are charged or collected, it being understood that THE COMPANY shall not be obliged to perform retentions of any nature regarding aforementioned financing. These credits shall no t be subject to the provisions established in Article 2 of Law 4, of 1935.
CLAUSE SEVENTEEN
Monetary Matters
The STATE shall allow THE COMPANY and its Affiliates to maintain amounts abroad in any currency and freely perform remittances of any nature including but without limited to remittances to repay advances and investments, to pay dividends, interests and profits coming from or related to THE PROJECT, exempted from any tax, and all retention impositions and obligations during the life of this Agreement. Likewise THE COMPANY and its Affiliates may keep bank accounts outside the Republic of Panama.
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CLAUSE EIGHTEEN
Registry of Concessions, Rights and Privileges
The STATE has issued and shall issue in favor of THE COMPANY, the adequate documents evidencing the specific concessions, rights and privileges arising from this Agreement and their assignments or transfers, of the same, and at all times shall comply with the administrative and legal requirements, in order for THE COMPANY to develop its activities, exercise its rights and enjoy its privileges, without the outcome of any interferencenor obstacles which would prevent its full enjoyment. Only for advertising purposes, but without this being understood as a requirement or formality that affects the life or the effectiveness of the Concession, THE COMPANY may register free of charges the Concession under this Agreement in the Mining Registry of the General Direction of Mineral Resources.
CLAUSE NINETEEN
Notices
Notices and additional communications established by the provisions of this Agreement, shall be done in writing andbe delivered personally at the following indicated addresses, according to the case, or sent to the address that the pertinent party indicates to the other by means of a written notice, with acknowledge of receipt, unless the parties agree otherwise.
1)
Ministry of Commerce and Industries
Edificio de la Loteria, Piso No. 21
Calle entre Avenida Cuba y Avenida Peru
Telephone:
227-4177
Fax:
227-5604
2)
Minera Petaquilla, S. A.
Swiss Bank Tower, Piso 13
Urbanizacion Marbella
Telephone: 223-5341
Fax:
223-3032
3)
Geo-Recursos Internacional, S. A.
Banco General Tower, Piso 45
Urbanización Marbella
Telephone: 223-5488
Fax:
223-8425
4)
Adrian Resources, S. A.
Banco General Tower, Piso 25
Urbanización Marbella
Telephone: 223-5488
Fax:
223-8425
CLAUSE TWENTY
Acts of God or Force Majeure
For the purposes of this Agreement, the following events or circumstances among others, shall be considered as Acts of God: epidemics, earthquakes, landslides, storms or other adverse meteorological conditions, explosions, fires, lightning, as well as any other cause, that they are or not of the nature described, that is unpredictable or that is beyond the control of the affected party, and that to the point that it delays, restricts or prevents the timely action of the affected party.
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For the purposes of this Agreement, the following events, acts or new circumstances, among others, shall be understood as force majeure, revolutions, insurrections, civil uprisings, blockages, commotions, embargoes, strikes and other labor conflicts which are not attributable to fault or negligence of the corresponding employer or of THE COMPANY or Affiliates or contractors or subcontractors, orders or instructions of any Government in law or in fact, or entity or subdivision of the same, the price of minerals in the international market to a degree such that it renders the exploitation of THE PROJECT economically non-profitable, delay in the delivery of machinery, faults of the installations or machinery, wherever they happen, not attributable to the affected party, that adversely affects the operation of THE PROJECT and, in general, any event, occurrence or circumstance that is unpredictable or that out of the control of the affected party and to the point that it delays, restricts or prevents its timely action and is not attributable to its fault or negligence.
It is understood that, as long as they are not obligations consisting in money payments, if one of the parties ceases to comply with any of the obligations undertaken pursuant to this Agreement, ,such non-compliance shall not be considered a violation or non-compliance when the same is originated due to an act of God or force majeure. If any activity, as long as it is not an activity pertaining to money payment, is delayed, restricted or precluded due to an Act of God or force majeure, both the established term to carry out the activity affected, as well as the terms of the present Agreement shall be extended for a term equal to the effective duration of the acts of God, force majeure or their causes. The investments that THE COMPANY undertakes to perform based on the Feasibility Study shall not be considered under any concept as obligations consisting in payment of money.
The party whose capacity to comply with its obligations is affected by an Act of God or force majeure shall notify, as soon as feasible, the other party in writing regarding the event, mentioning its causes and the parties will make all the reasonable possible efforts to overcome the event. Notwithstanding the foregoing, neither party shall be obliged to solve or end any conflict that it may have with third parties or with the labor force related to THE PROJECT, except in acceptable conditions or according to the decision of an arbitrator pronounced according to Clause Twenty three of this Agreement or an order from the competent judicial or administrative authority that has been duly executed or that in any other manner has a definite and coercive nature.
CLAUSE TWENTY ONE
Applicable Law
This Contract shall be the legal standard between the parties and shall be governed by the applicable laws that are currently in force in the Republic of Panama, except to the point that said laws or legal provisions that are contrary or inconsistent or incompatible with this Agreement are not of general application, it being understood that those laws that are only applicable to an industry or a determinate activity shall not be considered of general application. In the cases not foreseen in this Agreement, and as long as they are not inconsistent or incompatible with their provisions, the standards of the Mineral Resources Code shall apply to this Agreement in an auxiliary manner.
The COMPANY, its Affiliates, successors and assignees waiveany diplomatic claim in regards to the duties and rights deriving from this Agreement, except in the case of denial of justice. It is understood that it shall not be considered that denial of justice has occurred if THE COMPANY has not previously tried to make use of the arbitration right conferred by the present Agreement.
CLAUSE TWENTY TWO
Substantial Defaults
For the effects of the present Agreement, “Substantial Default” shall be understood as the default or delay in relation with the compliance with any of the obligations to which the parties are subject according to this Agreement when, if as a consequence of that default or delay, the value and the interests of the Agreement substantially decrease for the other party. While the Substantial Default situation exists, the party affected by said default may deliver to the responsible party a written notice of its decision to, end the Agreement and in this event this Agreement shall terminate one hundred and eighty (180) calendar days after the receipt of said notice, unless the default or delay is not corrected before the end of said term. In the event that said Substantial Default is of a nature that makes it necessary to have a term greater than one hundred and eighty (180) calendar days so it can be corrected, and the responsible party is diligently dedicated to correct the default or delay, there shall be no cause to end the Agreement at the end of the established term, unless later on further interruptions of those efforts, attributable to the party responsible for correcting the default or delay occur. The parties agree that the right of the party affected to end the Agreement shall be suspended while the parties are in the process of solving any conflict related to the alleged Substantial Default as provided in Clause Twenty two or by means of any other method allowed by the laws in force and this Agreement and for a term of sixty (60) days after the date on which the existence of Substantial Default alleged by the party affected is determined.
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The termination of this Agreement according to the stipulations of this Clause, shall not affect the following rights:
a)
The right of the damaged party to receive from the other party a monetary compensation for damages caused by the default or delay, and
b)
The rights of any of the parties issuing from and accrued according to the provisions of this agreement, until the date on which the termination comes into effect.
CLAUSE TWENTY THREE
Arbitration
The parties declare their firm purpose of examining in the most objective and friendly manner all discrepancies that may arise between them regarding the present Agreement, with the intent of solving said divergences. All conflicts that arise regarding the present Agreement, and that cannot be solved in the before mentioned manner, shall be finally resolved through arbitration, according to the Procedure Regulations of the Interamerican Commission on Commercial Arbitration, in force on the date this Agreement, unless at the time of submitting to arbitration, the parties expressly agree to be governed by the regulations that may than be in force.
Controversies arising between the parties regarding the objective, application, execution or interpretation or the present Agreement shall be susceptible to arbitration as established in this Clause, as well as those related with its validity, compliance or termination, except for those controversies referring to the respect of the integrity of the Constitution.
The Arbitration shall be limited to the subject matter subject of the controversy and pending on the resolution, shall not have the effect of suspending or delaying compliance with the obligations issuing from this Agreement, with the exception of the events of force majeure or acts of God described in Clause Twenty of this Agreement or that the stipulations of Clause Twenty Two be applied with DA = Deduction due to Depletion. TA comes before. The parties agree that the execution of the decisions of the arbitrators will be pronounced by the courts of justice of the Republic of Panama or, in the event that execution is needed abroad, by the courts of justice of any State that is a part to international treaties recognizing said arbitrage decisions of which Panama is also a party. To that effect said arbitration decisions shall be considered as if they had been pronounced by Panamanian arbitration courts pursuant to the l egal provisions now in force.
CLAUSE TWENTY FOUR
Abandonment
In the event that THE COMPANY decides to partially or totally abandon THE PROJECT during the life of the Agreement, or due to its termination or expiration, whichever the cause may be, it undertakes to notify said decision to Ministry of Commerce and Industries two years in advance. Jointly with such notice, a Restoration Plan for the affected area shall be submitted for the consideration and approval of the Ministry of Commerce and Industries. Once said Plan is approved, it shall be of mandatory compliance for THE COMPANY.
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CLAUSE TWENTY FIVE
Severability
In any Clause of the Agreement is annulled totally or partially, the validity of the rest of the Agreement shall not be affected.
CLAUSE TWENTY SIX
Compliance Guarantee
With the purpose of guaranteeing compliance with the present Agreement, THE COMPANY shall consign a guarantee of THREE MILLION US DOLLARS (US$3,000,000.00) in favor of THE STATE by means of cash, certified check, insurance policy from an insurance company, promissory note from a financial institution, letter of credit issued by a local bank, banking guarantees or by any means allowed by the laws in force. Said bond shall be consigned by THE COMPANY within the one hundred and eighty (180) days following the date on which the law approving this Agreement is published in the Official Gazette and for the term of the Agreement. The same shall be drawn in favor of the Ministry of Commerce and Industries and the Office of the Comptroller General of the Republic of Panama. Said bond shall be canceled and returned to THE COMPANY at the termination of this Agreement.
CLAUSE TWENTY SEVEN
Stamps Taxes
This Agreement shall be in force as of the date enactment of the law approving its subscription, and shall cause the payment o the amount of B/.1,000.00 in concept of stamp taxes.
CLAUSE TWENTY EIGHT
Subrogation
This Agreement, including its Annexes I, II, III and IV, constitutes the sole agreement between the parties in relation to its object matter. Effective as of the date of enactment of the law approving this Agreement, Agreement No. 27-A of August 7, 1991 subscribed by THE STATE and GEORECURSOS and whichever other contracts, amendment, agreement or understanding between THE STATE and GEORECURSOS in relation to the CONCESSION AREA, as well as whichever claim or proceeding which the parties may have pertaining to or with occasion of the subscription, compliance or termination of such previous contracts or agreements.
By the law approving this Agreement and its Annexes, it shall be understood that Cabinet Decree number 267, of August 21, 1969 is totally annulled.
This Agreement including its Annexes, requires the approval of the Legislative Assembly of the Republic of Panama. The minister of Commerce and Industries will submit to the Legislative Assembly of the Republic of Panama the draft bill whereby the present Agreement and its Annexes is approved within the fifteen (15) days following its subscription.
IN WITNESS WHEREOF, the parties subscribe the present, Agreement in two (2) copies, of the same tenor and effect, in the City of Panama, on the sixteenth day February of nineteen hundred ninety-six (1996)
For THE STATE:
For THE COMPANY:
/sgd/
/sgd/
NITZIA R. DE VILLARRAL
RICHARD FIFER
For GEORECURSOS:
For ADRIAN:
/sgd/
/sgd/
RICHARD FIFER
RICHARD FIFER
Countersignature:
GUSTAVO PERZ
Comptroller General of the Republic
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 241 |
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ANNEX I
Description of the Concession Area
The Concession, as defined in this, Agreement has a total area of 13,600 Hs. and its description is as follows:
Zone No. 1: Starting form Point No. 1, which geographical coordinates are 80°41’59,02” of western length and 8°51’25,11” of north latitude, a straight line is followed in eastern direction by a distance of 8,000 meters until finding Point No. 2, which geographical coordinates are 80°37’38.15” of western length and 8°51’25.11” north latitude; from there a straight line is followed in south direction by a distance of 5,000 meters until reaching Point No. 3, which geographical coordinates are 80°37’38.15” of west length and 8°48’42.07” of north latitude, from there a straight line is followed of west direction by a distance of 8,000 meters until reaching Point No. 4, which geographical coordinates are 80°41’59.02” of west length and 8°48’42.07”of north latitude; from there a straight line is followe d in north direction by a distance of 5,000 meters until finding the starting Point 1.
This zone has a total surface of four thousand (4,000) Hs. and it is located in the Jurisdiction of Northern Cocle and San Jose del General, Donoso District, Province of Colon.
Zone No. 2: Starting from Point No. 1, which geographical coordinates are 80°45’14.67” of west length and 8°54’40.76” of north latitude, a straight line is followed in east direction by a distance of 6,000 meters until finding Point No. 2, which geographical coordinates are 80°41’59.02” of west length an 8°54’40.76” of north latitude, from there a straight line is followed in south direction by a distance of 11,000 meters until reaching Point No. 3, which geographical coordinates are 80°41’59.02” of west length and 8°48’42.07” of north latitude, from there a straight line is followed in western direction by a distance of 6,000 meters until reaching Point No. 4, which geographical coordinates are 80°45’14.67” of western length and 8°48’42.07” of north latitude, from where a straight line is follow ed in north direction until reaching Point 1 which is the starting point. This zone has a total area of 6,000 Hs. It is located in the Jurisdiction of Northern Cocle, Donoso District, Province of Colon, and borders in the east with the Zone No. 1.
Zone No. 3: Starting from Point N. 1, which geographical coordinates are 80°40’53.8” of west length and 8°48’42.07” of north latitude a straight line is followed in east direction by a distance of 6,000 meters until finding Point No. 2, which geographical coordinates are 80°37’38.15 of west length and 8°48’42.07” of north latitude, from there a straight lie is followed in south direction by a distance of 2,000 meters until reaching Point No. 3, which geographical coordinates are 8°47’36.85” of north latitude, from there a straight line is followed in western direction by distance of 6,000 meters until reaching Point No. 4, which geographical coordinates are 80°45’53.8” of western length and 8°47’36.85” of northern latitude, from there a straight line is followed in northern direction until finding point 1, which is the starting point. This zone has a total area of 1,200 Hs., and it is located in the Jurisdiction of San Jose del General, Donoso District, Province of Colon, and adjoins on the north with the Zone No. 1 granted to GEO-RECURSOS INTERNACIONAL, S.A, according to Agreement No. 27-A of August 7, 1991.
Zone No. 4: Starting from Point No. 1., which geographical coordinates are 80°37’38.15” of west length and 8°50’52.55” of north latitude a straight line is followed in east direction by a distance of 3,000 meters until reaching Point No. 2, which geographical coordinates are 80°36’0.48” of west length and 8°50’52.55” of north latitude; from there a straight line is followed in south direction at a distance of 6,000 meters until finding Point No. 3, which geographical coordinates are 80°36’0.48” of west length and 8°47’36.85” of north latitude, from there a straight line is followed in west direction by a distance of 3,000 meters until finding Point No 3., which geographical coordinates are 80°37’38.15” of west length and 8°47’36.85” of north latitude, from where a straight line is followed in nor th direction by a distance of 6,000 meters until finding point 1, which is starting point. This zone has a total area of 1,800 Hs. It is located in the Jurisdiction of San Jose del General, Donoso District, Province of Colon, Republic of Panama and adjoins on the west with the Zone No. 1 granted to the company, GEO-RECURSOS INTERNACIONAL, S.A, according to Agreement No. 27-A of August 7, 1991 and to the Zone No. 3 requested by the Company of the same name.
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ANNEX II
DEFINITION OF THE FEASIBILITY STUDY – CERRO PETAQUILLA PROJECT BASE
The Feasibility Study, which shall include any necessary modifications at the time the economical aspects and financial costs are established, shall consist of a feasibility study that contains all information necessary to decide whether THE PROJECT shall be commercially exploited..
In the preparation of the Feasibility Study the following procedures shall be followed:
The tests in scale model have been completed in most parts and shall be supported by tests carried out in pilot plants, should the latter be necessary. Specifications of the products shall be based on marketing research. Several visits may be required to the place where the plant is installed.
Listings of equipment and designs shall be made, for their location backed by pipeline system drawings of pipelines of one sole strip and electric wiring. Equipment specifications shall not be included and formal bids will not be required from suppliers however, written quotes should be obtained from at least one supplier for each important item. Installation costs of the machinery shall be determined, based on former experience, based on weight and percentage factors. Installation costs of pipelines and electrical wiring may be based on approximations with regard to the extensions of electrical wiring and pipeline. An estimate of the construction cost of the plant and camp shall be provided and estimates on designing costs may be more precise. Income shall be estimated on the basis of estimates on plant performance and payment indicators coming from foundations and other buyers.
Data Required
It will be necessary to have available proper topographic and geotechnical data. Written reports related to metallurgic works should be available. Actual costs of labor available in the region shall be determined, and written quotations from basic material suppliers should be obtained, such as: fuel, explosives, atomizers, reactives, etc., if deemed necessary. Rates from companies providing public services should be obtained, such as water, light, gas, and telephone providing service to the region. If necessary research should be made for obtaining permits and licenses from governmental agencies when required. Regulations applicable to water and air pollution should be studied.
Training Required
The Feasibility Study shall be prepared under the supervision of a project engineer with knowledge of the mining industrial sector as referred to in this study. Considering the existence of general design drawings, pipeline system drawings, electrical wiring and placement of instrumentats, it will be possible to use the services of capable professional project specialists trained to make projections relating to electrical wiring, pipelines and instrumentation as well as experienced project specialists experience relating to the industry referred to in the study.
Use of Estimates
The overall factor of contingencies for the Feasibility Study shall be between 10% and 15%. The percentages assigned to contingencies shall constitute estimating prices and should not be construed as an indication that estimates are necessarily precise within the margin of contingencies, nor as an implicit reference to any degree of precision. In general, the Feasibility Study shall be adequate to determine the feasibility and assist the administration in the preparation of a budget for THE PROJECT.
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ANNEX III
Preliminary Investment Program
ENGINEERING AND ACQUISITIONS US$24,000,000.00
Requests and Construction Permits Authorizations
Detailed Engineering
Acquisitions
Agreements
Field Studies
CONSTRUCTION/MINING US$67,000,000.00
Pre-production (Phase I)
Waste Deposit (Initial)
Access Route (Llano Grande to Petaquilla)
PROCESSING INSTALLATIONS US$102,000,000.00
Crushing
Excavation and Backfill/Concrete
Retaining Wall-Reinforced Soil
Installation of Crushing Machine
Steel for Construction of Building and Enclosure
Machinery, Piping, Electrical Wiring and Instrumentation
Transports
Ore Piling and Restoration
Concentrator
Excavation, Concrete and Slab
Building, Internal Steel and Enclosure
Installation of Mills
Machinery, Piping, Electrical Wiring and Instrumentation
SITE AND GENERAL US$118,000,000.00
Clearing, Weed-cutting, Preliminary Grading
Roads, Fencing, Entry /Booth, Parkings
Storage, Water Provision and Distribution
Sewage Collection and Discarding
Reservoir for Settlement of Mine Wastes
Electricity Provision and Transmission
Main Substation Wiring and Additions
Communications
Fuel Storage and Distribution
BUILDING FOR SERVICE TO THE PROJECT US$9,000,000.00
Administration and Engineering Building
Rolling Equipment Workshop/Warehouse/Dry Explosive Warehouse
Testing Laboratory
WASTE AND RESTORATION SYSTEM US$28,000,000.00
INFRASTRUCTURE AND INSTALLATION US$13,000,000.00
Construction Camp
Aeronautic Installations
New Airdrome/Landing Strip
PORT US$47,000,000.00
Conditioning of Site and Streets
Water System and Pipes
Generation of Electric Energy
Installations for Shipment of Concentrate and Supplies
Note: The foregoing figures are subject to variation on the basis of final results of the Feasibility Study.
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ANNEX IV
MINERA PETAQUILLA, S.A., duly represented by Eng. Richard Fifer, male, Panamanian, of legal age, engineer, bearer of personal identification card Item, 8-433-263, hereinafter “MINERA”; and ADRIAN RESOURCES, S.A., duly represented by Juan Francisco Pardini, male, Panamanian, of legal age, bearer of personal identification card Item, 8-223-797, hereinafter “ADRIAN”, state that they agree to the following:
WHEREAS, MINERA together with THE STATE shall subscribe a Mining Concession Agreement (“AGREEMENT”) on the Concession Area as said term has been defined in the, Agreement and will receive determined specific rights according to same with respect to deposits located in the area of Cerro Petaquilla; and
WHEREAS, ADRIAN is holder of certain mining grants adjoining the aforementioned Concession Area identified as: Agreement No. 41 of July 12, 1994, Agreement No. 39-A of July 7, 1994, Agreement No. 39-B of July 7, 1994, Agreement No. 59 of December 29, 1994, all subscribed by and between the Ministry of Commerce and Industries and ADRIAN; and concession requests Nos. 93-92, 93-93 and 94-39, according to the records kept in the General Direction of Mineral Resources of the Ministry of Commerce and Industries of the Republic of Panama (hereinafter (“ADJACENT CONCESSIONS”); and
WHEREAS, MINERA and ADRIAN wish to acknowledge certain reciprocate rights and obligations regarding the use of easement rights and the use of the Area of the aforementioned Concession and on areas corresponding to the Adjacent Concessions, as well as of construction and location and use of facilities and installations. In consideration of the foregoing , MINERA and ADRIAN state and agree as follows:
1. THE COMPANY and its affiliates shall be entitled to the easement of use on the surface and subsoil of the Area identified as Adjacent Concessions and access to the area comprising the Adjacent Concessions for whatever reason or cause which, that according to THE COMPANY, is convenient for the proper exploration, construction, development or exploitation of THE PROJECT, including the right to, place, construct, build, operate, maintain and use in, or remove from, the Adjacent Concessions any type of facility or installation deemed convenient by THE COMPANY (hereinafter the “Adjacent Installations”). It is understood that the rights of access and of easement of use referred to in this paragraph granted in favor of the Concession, shall go with, and be inseparable of, the lands comprising the Adjacent Concessions and that same shall outlive any sale, transfer, assignation or granting of any type of right or interest, including rights protected under any type of mining concession existing or which may exist on said adjacent estate.
2. Without impairment to the above, before establishing or constructing any permanent or non movable installation or structure in the areas comprised by the Adjacent Concessions, THE COMPANY, or any affiliate or contractor or subcontractor of same, or any transferee or successor of part or the whole of the Concession, as defined in Annex 1 of the Agreement should carry out all the geotechnical research, including drilling works for condemnation of specific areas and any other necessary to determine the environmental technical and economical viability of the site, in which it is proposed to construct or establish the permanent installations or structures and shall carry out an exploration of the area of the Adjacent Concession, to be covered by said installation or structure, to confirm that there does not exist actual or potential minerals sufficiently near the surface of the proposed site so that its safe and econo mic extraction disabled or impaired by the presence of the permanent installation or structure it intends to establish, and shall provide the results of the mentioned research and exploitations to the holder of the Adjacent Concession(s) which may be affected.
Without impairment to provisions of item 1 of this Annex IV, THE COMPANY or the respective holder or beneficiary of the Concession, as the case may be, which has placed any movable structure or installation in the area known as the Adjacent Concessions, shall remove as soon as possible, at its own account and cost, said structure or installation or a portion of same if, according to the reasonable opinion of the holder of the affected Adjacent Concessions, its location is unfavorable for the mineral exploitation contemplated in said Adjacent Concession.
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Without impairment to provisions in item 1 of this Annex IV, THE COMPANY or the respective holder or beneficiary of the Concession, as the case may be, shall carry out its activities related to the construction, installation and operation of any structure or installation located in the area comprised by the Serving Concession carefully and according to the principles of good mining practices and the laws in effect in the Republic of Panama, and should indemnify the holder of the Adjacent Concession affected for any expense, action or demand against the later , resulting from the cited activities performed by THE COMPANY or the beneficiary holder of the Concession.
3. If at any time any of the Adjacent Installations has a surplus capacity not necessary to carry out the existing or scheduled operations of THE COMPANY and it has not previously committed itself to third parties after having granted a first option to the holder of the respective Adjacent Concession, THE COMPANY shall make available to the holder of the Adjacent Concession where the respective installation is located, this surplus capacity, provided this holder is an Affiliate of THE COMPANY, in the understanding that it will be done in fair terms and always in conditions not more favorable to THE COMPANY than those applicable in the event of sale, license or other rights of use to third parties or affiliates of an installation similar to the Adjacent Installation.
4. The parties state that any conflict or dispute arising between the same for reason of the execution or fulfillment of what has been covered in this agreement shall not affect in any way the respective obligations and commitments that entail MINERA, according to the Agreement and to ADRIAN with regard to the Adjacent Concessions in the face of THE STATE, unless the respective conflict or dispute be motivated or caused by any act or omission of THE STATE.
IN WITNESS WHEREOF, this document is entered into in two similar copies in Panama, December 5, 1995.
by ADRIAN RESOURCES, S.A.
by MINERA PETAQUILLA, S.A.
(signed)
(signed)
JUAN FRANCISCO PARDINI
RICHARD FIFER
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Article 2. This Law shall enter into effect as of its promulgation; it annuls Cabinet Decree 267 of 1969 and any provision contrary to same.
LET IT BE NOTIFIED AND EXECUTED.
Approved in third debate, in the Justo Arosemena Palace, Panama City, on January 30, nineteen hundred ninety seven (1997).
CESAR A PARDIC
VICTOR M. DE GRACIA M.
President
Secretary General
NATIONAL EXECUTIVE BODY. MINISTRY OF THE PRESIDENCY
PANAMA, REPUBLIC OF PANAMA, FEBRUARY 26, 1997
ERNESTO PEREZ BALLADARES
RAUL ARANGO GASTEAZORO
President of the Republic
Ministry of Commerce and Industries
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Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 247 |
EXHIBIT 12.A
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT 2002
I,Joao Manuel , President and Chief Executive Officer of Petaquilla Minerals Ltd., certify that:
1.
I have reviewed this Amendment No. 1 to the annual report on Form 20-F of Petaquilla Minerals Ltd.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
Date:
November 6, 2009
| |
By: | /s/Joao Manuel |
| Joao Manuel |
| President and Chief Executive Officer |
| (principal executive officer ) |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 248 |
EXHIBIT 12.B
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT 2002
I, Bassam Moubarak, Chief Financial Officer of Petaquilla Minerals Ltd., certify that:
1.
I have reviewed this Amendment No. 1 to the annual report on Form 20-F of Petaquilla Minerals Ltd.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
Date:
November 6, 2009
| |
By: | /s/ Bassam Moubarak |
| Bassam Moubarak |
| Chief Financial Officer |
| (principal financial officer) |
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 249 |
EXHIBIT 13.A
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with Amendment No. 1 to the Annual Report of Petaquilla Minerals Ltd. (the “Company”) on Form 20-F for the fiscal period ended May 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joao Manuel , President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| | | |
| 1. | | The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
| | | |
| 2. | | The information contained in the Report fairly presents, in all materials respects, the financial condition and results of operations of the Company. |
| |
/s/ Joao Manuel | |
Joao Manuel | |
(principal executive officer ) | |
Dated: November 6, 2009
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 250 |
EXHIBIT 13.B
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with Amendment No. 1 to the Annual Report of Petaquilla Minerals Ltd. (the “Company”) on Form 20-F for the fiscal period ended May 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bassam Moubarak, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| | | |
| 1. | | The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
| | | |
| 2. | | The information contained in the Report fairly presents, in all materials respects, the financial condition and results of operations of the Company. |
| |
/s/ Bassam Moubarak | |
Bassam Moubarak |
(principal financial officer) |
Dated: November 6 , 2009
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
| |
Form 20-F/A_Amendment No. 1_Fiscal Year Ended 2009 May 31 | Page 251 |