UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 20-F
[ ]REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES
EXCHANGE ACT OF 1934.
OR
[X]ANNUAL REPORT PURSUANT TO SECTION "13" OR "15(d)" OF THE SECURITIES EXCHANGE
ACT OF 1934.For the fiscal year ended March 31, 2003
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from to
Commission file number: 0-12660
PINE VALLEY MINING CORPORATION
(Exact name of registrant as specified in its charter)
Not Applicable
(Translation of registrant's name into English)
British Columbia, Canada
(Jurisdiction of incorporation or organization)
Suite 501 - 535 Thurlow Street
Vancouver, British Columbia, V6E 3L2
(Address of principal executive offices)
Securities to be registered pursuant to Section 12(b) of the Act.
None.
Securities to be registered pursuant to Section 12(g) of the Act.
Common Shares, without par value.
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
None.
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.
32,073,269 common shares (Fiscal year end March 31, 2003)
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.
Yes: X No: N/A
Indicate by checkmark which financial statement item the registrant has elected
to follow:
Item 17 X Item 18 _______
FORM 20-F
INDEX
CONVERSION TABLE 3
GLOSSARY OF NAMES AND TERMS 4
FORWARD-LOOKING STATEMENTS 5
PART 1 5
Item 1 - Identity Of Directors, Senior Management and Advisers 5
Item 2 - Offer Statistics and Expected Timetable 5
Item 3 - Key Information 5
A. Selected Financial Data 5
B. Capitalization and Indebtedness 7
C. Reasons for the Offer and Use of Proceeds 7
D. Risk Factors 7
Item 4 -Information on the Company 12
A. History and Development of the Company 12
B. Business Overview - Description of Properties 14
C. Organizational Structure 25
D. Property, Plants and Equipment 25
Item 5 - Operating and Financial Review and Prospects 26
A. Operating Results 26
B. Liquidity and Capital Resources 33
C. Research and Development, Patents and Licenses, Etc. 35
D. Trend Information 36
E. Off-Balance Sheet Arrangements 36
F. Tabular Disclosure of Contractual Obligations 36
G. Safe Harbor 36
ITEM 6 - Directors, Senior Management and Employees 36
A. Directors and Senior Management 36
B. Compensation 37
C. Board Practices 40
D. Employees 41
E. Share Ownership 41
ITEM 7 - Major Shareholders and Related Party Transactions 43
A. Major Shareholders 43
B. Related Party Transactions 43
C. Interests of Experts and Counsel 45
ITEM 8 - Financial Information 45
A. Consolidated Statements and Other Financial Information 45
B. Significant Changes 45
ITEM 9 - The Offer and Listing 45
A. Offer and Listing Details 45
B. Plan of Distribution 47
C. Markets 47
D. Selling Shareholders 47
E. Dilution 47
F. Expenses of the Issue 47
Item 10 - Additional Information 48
A. Share Capital 48
B. Memorandum and Articles of Association 48
C. Material Contracts 49
D. Exchange Controls 52
E. Taxation 52
F. Dividends and Paying Agents 54
G. Statements by Experts 54
H. Documents on Display 54
I. Subsidiary Information 54
Item 11 - Quantitative and Qualitative Disclosures about Market Risk 55
Item 12 - Description of Securities Other than Equity Securities 55
PART II 55
Item 13 - Defaults, Dividends Arrearages and Delinquencies 55
Item 14 - Material Modifications to the Rights of Security Holders and Use of
Proceeds 55
Item 15 - Controls and Procedures 55
Item 16 - Reserved 55
Item 16A - Audit Committee Financial Expert 55
Item 16B - Code of Ethics 55
PART III 56
Item 17 - Financial Statements 56
Item 18 - Financial Statements 56
Item 19 - Exhibits 56
CONVERSION TABLE
For ease of reference, the following conversion factors are provided:
1 mile = 1.6093 kilometres
1 metric ton (tonne) = 2,205 pounds
1 foot - 0.305 metres
1 troy ounce = 31.103 grams
1 acre = 0.4047 hectare
1 imperial gallon = 4.546 litres
1 long ton = 2,240 pounds
1 imperial gallon = 1.2010 U.S. gallons
GLOSSARY OF NAMES AND TERMS
"BTU":
A British thermal unit, the amount of heat needed to raise the temperature
of 1 pound of water by 1 degree Fahrenheit.
"Coal Rank":
The qualitative classification of coal from lignite to anthracite based on
calorific values and other qualitative characteristics.
"Coke":
A hard, dry carbon substance produced by heating coal to a very high
temperature in the absence of air, used primarily in the manufacture of
iron and steel.
"Coking Coal":
It is the same as metallurgical coal. See the definition of metallurgical
coal below.
"Deposit":
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 a commodity, metal or metals to warrant further
exploration and/or development expenditures. Such a deposit does not
qualify as a commercially mineable ore body or as containing reserves of
ore, unless final legal, technical, and economic factors are resolved.
"Metallurgical Coal":
Means the various grades of coal suitable for carbonization used to make
coke for steel manufacture.
"Net Profits":
Profits resulting from metal production from the property, less deduction
of certain limited costs including smelting, refining, transportation and
insurance costs.
"Pulverized Coal Injection" or "PCI":
Refers to that step in the integrated steel mill process where coal is
pulverized and injected into a blast furnace. The grades of coal used in
the process are generally non-coking. In the integrated steel mill process
pulverized coal injection grade coal is used primarily as a heat source in
partial replacement of high quality coking coals which are typically more
expensive.
"Reclamation":
Means the restoration of land and the surrounding environment of a mining
site after the coal or metal is extracted.
"Recoverable Coal Reserves":
Refers to that portion of the coal in mineable seams that can be recovered
with the mining techniques considered in the feasibility study of a
specific project. In a surface mining scenario recoverable coal would
exclude mining losses from the top and bottom of the seam and adjacent to
removable internal rock partings, as well as allowances for surface
facilities, spoil piles, etc., under which mining would be conducted.
"Royalty":
A phrase used to describe a royalty payment made by a producer of metals
based on a percentage of revenue from production, less deduction of the
costs of commercial production, including exploration and capital and
operating costs.
"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.
"Seam":
Means a three dimensional zone consisting of one or more layers of coal,
which may be separated by one or more thin layers of rock.
"Thermal Coal":
Means coal used for its heating value by power plant and industrial steam
boilers to produce electricity or process steam.
"Ton":
Short ton (2,000 pounds)
"Tonne (t)":
Metric tonne (1,000 kilograms)
FORWARD-LOOKING STATEMENTS
Pine Valley Mining Corporation (the "Company") cautions you that certain
important factors (including without limitation those set forth in this Report)
may affect our actual results and could cause such results to differ materially
from any forward-looking statements that may be deemed to have been made in
this Report, or that are otherwise made by or on behalf of the Company. See
Item 5G of this Report for further discussion regarding such forward-looking
statements.
PART 1
Item 1 - Identity Of Directors, Senior Management and Advisers
Not applicable.
Item 2 - Offer Statistics and Expected Timetable
Not applicable.
Item 3 - Key Information
A. Selected Financial Data
Financial Highlights
The following table sets forth our selected consolidated financial data for the
five years ended March 31, 2003 prepared in accordance with Canadian generally
accepted accounting principles ("Canadian GAAP") in Canadian dollars. The
table also summarizes certain corresponding information prepared in accordance
with United States generally accepted accounting principles ("U.S. GAAP") in
Canadian dollars. This selected consolidated financial data includes the
accounts of our subsidiaries.
Years ended March 31
2003 2002 2001 2000 1999
$CDN $CDN $CDN $CDN $CDN
Revenues
Canadian GAAP - - - - -
US GAAP 2,348,587 - - -
(Loss) from continuing
operations and net loss for
the year
Canadian GAAP (3,457,839) (2,340,558) (694,160) (430,539) (239,086)
US GAAP (851,000) (2,765,739) (5,586,139) (654,332) (619,695)
(Loss) per share
Canadian GAAP (0.12) (0.12) (0.04) (0.03) (0.01)
US GAAP (0.03) (0.14) (0.30) (0.04) (0.04)
Total assets
Canadian GAAP 11,124,817 15,049,644 12,692,376 7,933,634 7,650,167
US GAAP 801,736 2,073,469 91,422 224,619 192,585
Net assets
Canadian GAAP 10,338,945 10,853,536 8,194,660 7,754,270 7,069,500
US GAAP (115,386) (2,122,639) (4,406,334) 45,255 (388,082)
Deficit
Canadian GAAP (17,904,526) (14,446,687) (12,106,129) (11,411,969) (10,981,430)
Long-term debt
Canadian GAAP - - - - -
Interest expense on
convertible debt
Canadian GAAP - - - 27,640 3,455
Mineral property exploration
costs
Canadian GAAP (2,603,094) (425,181) (4,891,979) (251,433) (384,064)
Capital stock
Canadian GAAP 26,423,896 23,207,462 19,268,028 18,913,478 17,756,704
Cash dividends declared
Canadian GAAP - - - - -
Weighted average number of
common shares outstanding
28,318,672 20,007,894 18,749,353 16,998,512 16,116,495
See Item 5, Operating and Financial Review and Prospects, Section A Operating
Results, Differences Between Canadian and United States Generally Accepted
Accounting Principles and Effects of Recent Accounting Pronouncements for
comments on reconciliation of Canadian and United States Generally Accepted
Accounting Principles in this Report.
Exchange Rates
In this report, unless otherwise specified, all dollar amounts are expressed in
Canadian dollars ("CDN").
Since June 1, 1970, the Government of Canada has permitted a floating exchange
rate to determine the value of the Canadian dollar against the U.S. dollar.
The high and low exchange rates, the average rates (average of the exchange
rates on the last day of each month during the period) and the end of the
period rates for Canadian dollars, expressed in U.S. dollars, from April 1,
1999 to March 31, 2003 were as follows:
U.S. DOLLARS PER $1.00 (CDN.)
Years ended March 31
2003 2002 2001 2000 1999
High .6823 .6559 .6983 .6917 .7159
Low .6252 .6219 .6525 .6391 .6307
Average .6457 .6330 .6786 .6683 .6843
End of Period .6806 .6275 .6534 .6801 .6486
The high and low exchange rates for Canadian dollars, expressed in U.S. dollars
for each month from March 1, 2003 to September 26, 2003 were as follows:
U.S. DOLLARS PER $1.00 (CDN.)
Monthly 2003
March April May June July August September
High .6823 .6976 .7437 .7495 .7483 .7228 .7423
Low .6708 .6736 .7031 .7268 .7084 .7093 .7206
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Going Concern Issues, History of Net Losses, and Likelihood of Future Losses
The Company's ability to remain as a going concern is dependent on additional
capital being raised to fund future operations and on-going and development
activities.
We are an exploration stage company without significant revenues and we have
relied on equity financing to continue operations. We have been successful in
raising financing in the past, but there is no assurance that we will be able
to continue raising financing in the future. The aggregate of our net losses
(accumulated deficit) of $17,904,526 to March 31, 2003, has been financed by
private placements and the exercise of stock options and warrants.
The marketability of our products and services may be affected by numerous
factors beyond our control. These factors include market fluctuations,
government regulations, including regulations relating to prices, taxes,
royalties, land tenure, land use, and environmental protection. The exact
effect of these factors cannot be accurately predicted.
We have minimal revenues and there is no assurance that we will attain
significant revenue and operate at a profitable level in the future. In
addition, the future prospects must be considered in light of the risks,
expenses and difficulties frequently encountered in establishing new businesses
which can be characterized by intense competition and rapidly changing events.
There can be no assurance that our financial forecasts will be achieved.
Uncertainty of Additional Financing and Possible Dilution to Shareholders
We have limited financial resources and there is no assurance that additional
funding will be available to allow us to fulfill our obligations on existing
projects or businesses. Failure to obtain additional financing could result in
delay or indefinite postponement of further business activity and the possible,
partial or total loss of some or all our interest in certain assets. Even if
we are successful in raising capital through private placements or otherwise,
there can be no assurance that any such financing would be available in a
timely manner or on terms acceptable to us and its current shareholders. Any
additional equity financing could be dilutive to the then-existing shareholders
and any debt financing could involve restrictive covenants with respect to
future capital raising activities and other financial and operational matters.
There can be no assurance that we will be able to continue to raise funds in
which case we may be unable to meet our obligations. Should we be unable to
realize on our assets and discharge our liabilities in the normal course of
business, the net realizable value of our assets may be materially less than
the amounts recorded on the balance sheets and would accordingly cast
substantial doubt on our ability to continue as a going concern.
Exploration and Development Risks
All of the property interest owned by the Company or in which it has an option
to earn an interest are in the exploration stages only and are without a known
body of commercial ore. The Company has received a positive feasibility study
on its Pine Valley project, nevertheless development of the Pine Valley project
or other of the Company's mineral properties remain subject to the successful
arrangement of many issues, to which no assurances of a successful conclusion
can be provided. These issues include but are not limited to financing to
develop the mine, contracts to design and build the mine and mine
infrastructure, the availability and purchase of suitable equipment and
contracts to transport and sell the coal product. Mineral exploration and
development involves a high degree of risk and few properties are ultimately
developed into producing mines. There is no assurance that the Company's
mineral exploration and development activities will result in any discoveries
of commercial bodies of ore or the development of any commercial bodies of ore.
The long-term profitability of the Company's operation will be in part
directly related to the cost and success of its exploration programs, which may
be affected by a number of factors.
Substantial expenditures are required to establish ore reserves through
drilling, to develop metallurgical process to extract the coal or metal from
the ore and, in the case of new properties to develop the mining and processing
facilities and infrastructure at any site chosen for mining. See also "Risk
Factors - Uncertainty of Additional Financing and Possible Dilution to
Shareholders". Although substantial benefits may be derived from the discovery
of a major mineralized deposit, no assurance can be given that coal or minerals
will be discovered in sufficient quantities or grades to justify commercial
operation or that the funds required for development can be obtained on a
timely basis. Estimates of reserves, mineral deposits and production costs can
also be affected by such factors as environmental 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 reserves, such as the need for orderly
development 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.
Material changes in ore reserves, coal quality, grades, stripping ratios or
recovery rates may affect the economic viability of any project. Reserves are
reported as general indicators of mine life. Reserves should not be
interpreted as assurances of mine life of the profitability of current or
future operations.
Operating Hazards and Risks
Mineral exploration involves risks, which even a combination of experience,
knowledge and careful evaluation may not be able to overcome. Operations in
which the Company has a direct or indirect interest may be subject to unusual
or unexpected formations, cave-ins, equipment breakdown, rugged terrain,
wildlife hazards and harsh weather conditions, all of which could result in
work stoppages, damage to property, and possible environmental damage. The
Company does not presently have insurance, in any significant amounts, covering
the Willow Creek Property and Indin Lake Property and does not presently intend
to obtain liability insurance in an amount which it would consider adequate;
the nature of the risks associated with the Company's activities is such that
liabilities might exceed policy limits, the liabilities and hazards might not
be insurable against, or the Company might not elect to insure itself against
such liabilities due to high premium costs or other reasons, in which event the
Company could incur significant costs that could have a materially adverse
effect upon its financial condition.
Title Matters
While the Company has reviewed and is satisfied with the title for any property
in which it has a material interest and, to the best of its knowledge, such
title is in good standing, there is no guarantee that title to such claims will
not be challenged or impugned.
Conflicts of Interest
Certain directors of the Company are also directors, officers or shareholders
of other companies that are similarly engaged in the business of acquiring,
developing and exploiting natural resource properties. Such associations may
give rise to conflicts of interest from time to time. In particular, directors
of the Company who also serve as directors of other companies in the same
industry may be presented with business opportunities that are made available
to such competing companies and not to the Company. The directors of the
Company are required by law to act honestly and in good faith with a view to
the best interests of the Company, to disclose any interest that they may have
in any project or opportunity of the Company, and to abstain from voting on
such matter.
Competition and Agreements with Other Parties
The mineral resources industry is intensely competitive and the Company
competes with many companies that have greater financial means and technical
facilities. Significant competition exists for the limited number of mineral
acquisition opportunities available. As a result of this competition, the
Company's ability to acquire additional attractive mining properties on terms
it considers acceptable may be adversely affected.
The Company may, in the future, be unable to meet its share of costs incurred
under agreements to which it is a party and the Company may have its interest
in the properties subject to such agreements reduced as a result. Furthermore,
if other parties to such agreements do not meet their share costs, the Company
may be unable to finance the costs required to complete the recommended
programs.
Mineral Prices
The mining industry in general is intensely competitive and there is no
assurance that, even if commercial quantities of mineral resources are
developed, a profitable market will exist for the sale of same. Factors beyond
the control of the Company may affect the marketability of any coal or minerals
discovered. Significant price movements over short periods of time may be
affected by numerous factors beyond the control of the Company, 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,
speculative activities and increased production due to improved mining and
production methods. The effect of these factors on the price of coal and
minerals and therefore the economic viability of any of the Company's projects
cannot accurately be predicated. As the Company is in the exploration stage,
the above factors have had no material impact on operations or income.
Environmental Regulation
All phases of the Company's operations in Canada are subject to environmental
regulations. Environmental legislation in Canada is evolving in a manner which
may require stricter standards and enforcement, increased fines and penalties
for non-compliance, more stringent environmental assessments of proposed
projects and a heightened degree of responsibility for companies and their
officers, directors and employees. Legislation and regulations implemented by
the Government of British Columbia directly affect the mining industry in the
province of British Columbia, where the Company owns its Willow Creek Property.
Legislation and regulations implemented by the Northwest Territories directly
affect the mining industry in the Northwest Territories, where the Company owns
an interest in the Indin Lake Property. In particular, the Company must
provide prior notice and a description of the planned exploration work before
the commencement of the work.
Although compliance with such laws is not presently a significant factor in the
Company's operations, there is no assurance that the compliance with future
changes in environmental regulation, if any, will not adversely affect the
Company's operations.
Possible Issuance of Additional Shares in the Future
Our Memorandum of our Company authorizes the issuance of 100,000,000 shares of
common stock without par value. We may issue some or all of such shares to
acquire one or more businesses or other types of property or to provide
additional financing. The issuance of those shares may result in a reduction
of the book value or market price of our outstanding shares. The issuance of
any additional shares will cause a reduction in the proportionate ownership and
voting power of all other shareholders. Further, any such issuance may result
in a change of our voting control.
Dependence Upon Key Personnel to Have Successful Operations
The success of our operations and activities is dependent to a significant
extent on the efforts and abilities of our management. The loss of services of
any of our management could have a material adverse effect. We do not maintain
key man insurance on any of our management.
Foreign Exchange Fluctuations
We do not hedge currency risk. All of our business operations are in Canada
and we normally export our coal products. If there were a large fluctuation in
the exchange rates between Canada and the United States, this could impact on
our profitability.
As a result, we are subject to foreign currency fluctuations that could
adversely affect our financial position and results.
Dividend Policy Dependent On Successful Operations and Capital Needs
We have never paid dividends on our common stock and cannot anticipate paying
any dividends on our common stock in the foreseeable future. The declaration
and payment of dividends is subject to the discretion of our board of directors
Any determination as to the payment of dividends in the future will depend upon
results of our operations, capital requirements, and restrictions in loan
agreements, if any, and such other factors as our board of directors may deem
relevant.
Risk of "Penny Stock"
The disclosure requirements often have the effect of reducing the level of
trading activity in any secondary market for a stock that becomes subject to
the penny stock rules, and accordingly, investors may find it difficult to sell
their shares, if at all.
The Company's common stock may be deemed to be "penny stock" as that term is
defined in Reg. Section 240.3a51-1 of the Securities and Exchange Commission.
Penny stocks are stocks (i) with a price of less than five dollars per share;
(ii) that are not traded on a "recognized" national exchange; (iii) whose
prices are not quoted on the NASDAQ automated quotation system
(NASDAQ listed stocks must still meet requirement (i) above); or (iv) in
issuers with net tangible assets less than $2,000,000 USD (if the issuer has
been in continuous operation for at least three years) or $5,000,000 USD (if in
continuous operation for less than three years), or with average revenues of
less than $6,000,000 USD for the last three years.
Section 15(g) of the Securities Exchange Act of 1934, as amended, and Reg.
Section 240.15g(c) 2 of the Securities and Exchange Commission require broker
dealers dealing in penny stocks to provide potential investors with a document
disclosing the risks of penny stocks and to obtain a manually signed and dated
written receipt of the document before effecting any transaction in a penny
stock for the investor's account. Potential investors in the Company's common
stock are urged to obtain and read such disclosure carefully before purchasing
any shares that are deemed to be penny stock.
Moreover, Reg. Section 240.15g-9 of the Securities and Exchange Commission
requires broker dealers in penny stocks to approve the account of any investor
for transactions in such stocks before selling any penny stock to that investor
This procedure requires the broker dealer to (i) obtain from the investor
information concerning his or her financial situation, investment experience
and investment objectives; (ii) reasonably determine, based on that information
that transactions in penny stocks are suitable for the investor and that the
investor has sufficient knowledge and experience as to be reasonably capable of
evaluating the risks of penny stock transactions; (iii) provide the investor
with a written statement setting forth the basis on which the broker-dealer
made the determination in (ii) above; and (iv) receive a signed and dated copy
of such statement from the investor, confirming that it accurately reflects the
investor's financial situation, investment experience and investment objectives
Compliance with these requirements may make it more difficult for investors in
the Company's common stock to resell their shares to third parties or to
otherwise dispose of them.
Forward Looking Statements
This Report contains forward looking statements concerning the Company's
operations, economic performance and financial condition, including in
particular, the likelihood of the Company's success in operating as an
independent company and developing and expanding its business. These statements
are based upon a number of assumptions and estimates that are inherently
subject to significant uncertainties and contingencies, many of which are
beyond the control of the Company, and reflect future business decisions which
are subject to change. Some of these assumptions inevitably will not
materialize, and unanticipated events will occur which will affect the
Company's future results. All such forward-looking statements are qualified
by reference to matters discussed under this section entitled "Risk Factors."
Item 4 -Information on the Company
A. History and Development of the Company
Pine Valley Mining Corporation is engaged in prospecting, acquiring and
developing mining properties, although it is not prohibited from engaging in
any business. Prior to March 5, 1993, the Company was known as New Lintex
Minerals Ltd., and all prior filing with the Securities and Exchange Commission
refer to such priorness. The Company was organized on March 5, 1993 under the
British Columbia Company Act under the name "Globaltex Industries Inc."
pursuant to the amalgamation of New Lintex Minerals Ltd., a public British
Columbia corporation, SEC File No. 0-12660 ("New Lintex"), and Willow Creek
Coal Ltd., ("Willow Creek") a wholly owned subsidiary of A.L.M. Associates Corp
("A.L.M."). The Company changed its name from "Globaltex Industries Inc." to
"Pine Valley Mining Corporation" on May 13, 2003.
The Company's principal place of business is located at:
#501 - 535 Thurlow Street
Vancouver, British Columbia, Canada V6E 3L2
Telephone: 604.682.4678
Facsimile: 604.682.4698
E-mail: pinevalley@radiant.net
The Company's registered office is located at:
3000 Royal Centre, P.O. Box 11130
1055 West Georgia Street
Vancouver, British Columbia, Canada V6E 3R3
The contact person is: Mark Fields, Executive Vice-President, Secretary &
Director
The Company has 100,000,000 common shares without par value authorized. At
March 31, 2003, the end of the Company's most recent fiscal year, there were
32,073,269 common shares issued and outstanding. At September 22, 2003, there
were 38,229,519 common shares issued and outstanding.
The Company's common shares trade on the TSX Venture Exchange ("TSX-V") in
Vancouver, British Columbia, Canada under the symbol "PVM" and on the OTC
Bulletin Board in the United States under the symbol "PVMCF". Canada is the
place of domicile for the Company.
The Company's fiscal year end is March 31st in each year.
The Company has interests in two mining properties located in Canada. These
properties consist of: (1) the Willow Creek Joint Venture; and (2) the Indin
Lake Gold Property.
During the year ended March 31, 1996, the Company entered into the Willow Creek
Joint Venture Agreement with respect to the Willow Creek Coal Project with
Mitsui Matsushima Canada Ltd, ("Mitsui Matsushima") and BCR Venture Inc.("BCR")
a wholly owned subsidiary of BC Railway Company ("BC Rail") to form the Willow
Creek Joint Venture ("Willow Creek Joint Venture"). The purpose of the Willow
Creek Joint Venture is to develop a low cost coal mine. Under the Agreement,
Mitsui Matsushima and BC Rail earned a one-third interest each by making equity
contributions totaling $5 million to the Willow Creek Joint Venture, and a best
efforts commitment to obtain project financing.
During the year ended March 31, 2001, the Company acquired BCR's interest in
consideration of $3,902,543 cash, resulting in the Company holding 66-2/3% of
the Willow Creek Joint Venture. The Company has recorded a cumulative loss
allowance on its Willow Creek properties of $4,774,290 at March 31, 2003 which
recognizes the difference between the property carrying value and the transfer
value to the Willow Creek Joint Venture to the extent of the interests of
Mitsui Matsushima.
On March 10, 2003 the Company's wholly owned subsidiary, Falls Mountain Coal
Inc., and Mitsui Matsushima entered into a binding Sale & Purchase Agreement
whereby the Company has the right to acquire Mitsui Matsushima's one third
interest in the Willow Creek Joint Venture for $6,000,000 prior to December 10,
2003. Mitsui Matsushima will retain its interest in the Willow Creek Joint
Venture until the transaction closes. Falls Mountain will pay all expenditures
until closing of the Sales & Purchase Agreement, and has a contingent
obligation to pay Mitsui Matsushima a break-up fee of $500,000 in the event the
purchase cannot be consummated due to an inability to secure the necessary
financing.
At March 31, 2003, the Company had recorded costs for a total of $10,423,081
(2002 - $13,026,175; 2001 - 12,600,994) on exploration and acquisition on the
two properties in which it still retains an interest.
B. Business Overview - Description of Properties
In September 2003, the Company has interests in the Willow Creek Coal Project
and the Indin Lake Property.
Willow Creek Coal Project
History
Before the joint venture agreement described in the following section was made,
the Company owned a 100% interest in fourteen coal licenses called the Willow
Creek Coal Licenses. The Company acquired a 100% interest in the Willow Creek
Licenses from the amalgamation with Willow Creek Coal Ltd. ("Willow Creek"),
which had acquired these licenses from a group including James W. McLeod (the
"McLeod Group") by way of an Assignment of Coal Licenses dated April 29, 1992.
Similarly, the Company acquired other assets from the McLeod Group, including
various mining reports, information and maps on the Willow Creek Coal Deposit,
a feasibility study on the Willow Creek Coal Deposit, an environmental and
socio-economic study, diamond drill logs, gamma ray neutron logs and assay
reports, as well as the Pine River Bridge spanning the Pine River. The Willow
Creek Coal licenses comprise what is referred to as the Willow Creek Coal
property.
The purchase price for the Willow Creek Coal Property was $580,000 in cash and
negotiable securities. The McLeod Group, as a consequence of default and
termination of a previous option agreement, reacquired title to the Willow
Creek Coal Property from a previous optionee on August 31, 1990. On or about
August 31, 1990, the McLeod Group granted to Orval Gillespie, the President of
New Lintex , and certain of his associates (the "Gillespie Group"), the right
to arrange for a purchaser for the Willow Creek Coal Property. In this
connection, the Gillespie Group personally pledged certain cash and negotiable
securities to pay off debt in relation to the Willow Creek Coal Property. In
addition, the Gillespie Group agreed to pay all ongoing expenses to keep the
Willow Creek Coal Licenses in good standing.
The Gillespie Group introduced the Willow Creek Coal Property to A.L.M., and
assisted in its financing by personally guaranteeing some of the purchase price
of the Willow Creek Coal Property. To effect the acquisition, A.L.M. formed
Willow Creek as a wholly owned British Columbia subsidiary. Subsequently, the
directors of New Lintex and Willow Creek approved the transaction. Willow
Creek reimbursed the Gillespie Group the sum of $112,414 for their direct costs
in license fees paid for the years 1989 to 1991, inclusive, to maintain the
Willow Creek Coal Licenses in good standing.
Following the acquisition of the Willow Creek Coal Property, Willow Creek
commissioned, at a cost of $4,918, a Summary report on the property prepared by
K.G Collins, P. Eng., a director of New Lintex, dated May 1992. Harold M.
Jones & Associates, Inc., Consulting Geologists, reviewed the report and found
it a factual and concise summary of all the data generated with respect to the
Willow Creek Coal Licenses during the 1979 through 1981 exploration programs on
the Property. The report summarizes the results of previous reports prepared
by G. A. Noel, P. Eng., a consulting geologist and his associates, A.S. Marton
B.Sc., and H.M. Jones, P. Eng. In addition, Kilborn Engineering Ltd. prepared
a full technical and financial feasibility study for the development and mining
of the deposit by underground mining methods (the "Kilborn Report").
Previous exploration work during 1979-81 on the Willow Creek coal licenses
included geological mapping, trenching, sampling and diamond drilling. The
work, which included forty-six HQ size diamond drill holes and more than forty
trenches, identified eight significant coal zones. The total of all measured,
indicated and inferred coal resources is 72,927,759 tonnes (Noel, Marton, Jones
1980-81, Cholach 1982), most of which is underground coal.
Falls Mountain Coal Inc. ("Falls Mountain"), a wholly owned subsidiary of Pine
Valley Mining Corporation, acquired a 100% interest in the Pine Pass Properties
from IDI Resource Technologies Inc. by way of a purchase agreement dated
February 1994 for a consideration of 80,000 shares of common stock from the
Company's treasury for a deemed value of $96,000.
Willow Creek Joint Venture
The Company and Falls Mountain on February 16, 1996 entered into a Joint
Venture Agreement (the "Agreement") with respect to the Willow Creek Coal
Project with Mitsui Matsushima Canada Ltd., a wholly owned subsidiary of
Mitsui Matsushima Co. Ltd. ("Mitsui Matsushima"), and BCR Ventures Inc., a
wholly-owned subsidiary of BC Rail Ltd. ("BCR"). The purpose
of the joint venture ("Joint Venture") is to develop a coal mine. A new
company, Pine Valley Coal Ltd., has been set up as the operator and is directed
by a Joint Venture Management Committee. BC Rail, a crown corporation owned by
the Province of British Columbia, owns and operates the rail system serving
northeast British Columbia; its main line runs adjacent to the proposed Willow
Creek operation. BC Rail is looking to this joint venture to develop coal
tonnage from the northeast. It entered into the joint venture in order to
participate in joint-venture opportunities, which have the potential to
generate new traffic opportunities for its core rail freight business. Mitsui
Matsushima is a major Japanese coal mining company. Mitsui Matsushima has been
doing coal business for over 80 years, and is now actively proceeding with the
expansion of its overseas coal business outside Japan, including in Canada.
Under the Agreement, Falls Mountain contributed 25 coal licenses which it owned
together with other assets in connection with its exploration activities at
Willow Creek. The licenses and assets were transferred in trust to the Joint
Venture in return for a capital account of $2,500,000, wherein Mitsui
Matsushima and BC Rail earned a one-third interest each by making equity
contributions totaling $5 million to the Joint Venture and a best efforts to
obtain project financing. The property now includes one Coal Lease, comprising
twenty-one of the original Coal Licenses, and fifteen Coal Licenses, giving a
total coal land area of 10,566 hectares. In March 2003, Falls Mountain applied
for further Coal Licenses adjacent to the current property area to acquire the
coal rights to a further 2,930 hectares. The application is still in process.
On January 8, 2001, the Company purchased a one-third interest from BC Rail for
$3.9 million, thus increasing its ownership to 66.67%. Mitsui Matsushima owns
the balance of 33.33%. As at March 31, 2003, the total joint venturers' equity
in the Willow Creek coal project was $10,830,000. Under the Agreement, the
parties have contracted with BC Rail to provide haulage services under a
haulage contract, and have contracted with Mitsui Matsushima to market the coal
worldwide during the life of the project. The Agreement also provides that, in
the event of acquisition of control of the Company (as defined by the
Securities Act of British Columbia) by a person in the business of producing or
transporting coal in, or selling coal produced from Alberta or British Columbia
the Company will cease to have any representation on or right to vote on the
management committee of the Joint Venture.
The project is overseen by a management committee comprised of two members of
each joint venture party that retain the operator, Pine Valley Coal Ltd., a
corporation owned equally by the joint venture parties.
The project is expected to be financed, to the extent possible, from external
debt financing on a non-recourse basis. The management committee will be
entitled to make a cash call on the joint venture parties if the joint venture
requires additional funding. Failure to meet a cash call will result in the
party failing to pay being diluted. When a participant's interest is diluted
to less than 20%, it will lose its voting rights with respect to the project.
On March 10, 2003 the Company, Falls Mountain and Mitsui Matsushima entered
into a binding Sale & Purchase Agreement whereby the Company has the right to
acquire Mitsui Matsushima's one third interest in the Willow Creek Joint
Venture for $6,000,000 prior to December 10, 2003. Mitsui Matsushima will
retain its interest in the Willow Creek Joint Venture until the transaction
closes. Falls Mountain will pay all expenditures until closing of the Sales &
Purchase Agreement, and has a contingent obligation to pay Mitsui Matsushima a
break-up fee of $500,000 in the event the purchase cannot be consummated due to
an inability to secure the necessary financing. The Company has guaranteed
Falls Mountain's obligations under the Sale and Purchase Agreement and will
pledge its shares in Falls Mountain to secure the breakup fee.
Willow Creek Project Description
The Willow Creek property ("Property") is 200 km northeast of Prince George
And 45 km west of Chetwynd, B.C. (Figure 1). It is in the Liard Mining
Division at latitude 55036' N; longitude 122017' W on National Topographic
Series Map 93O/9 Access to the area is via the John Hart Highway (Highway 97),
which is an all- weather paved highway connecting the Peace River District
with the city of Prince George. At the property, the highway lies along the
north bank of the Pine River; secondary and tertiary roads provide access to
most parts of the Property. A substantial bridge provides access across the
Pine River from the highway to the proposed plant site, which is adjacent to
the proposed mining areas on the coal deposit. The bridge may require
upgrading to serve the mining operation. The principal access road within the
property is the Willow Creek Forestry Road which will be upgraded for use as a
haulage road.
Pine Pass is a transportation corridor within which lie the John Hart Highway
and the BC Rail main line (from Prince George to the Peace River District),
which crosses the property along the south side of the Pine River adjacent to
the proposed plant site and clean coal storage areas. In addition, natural
gas is available 2 km from the property, and a power supply is available 2 km
from the plant site. The latter would require upgrading along Highway 97 from
the town of Hasler to the mine site. BC Rail provides direct rail access to
the port of Vancouver, BC, or indirect access, via Canadian National railway
at Prince George, to the Ridley Island coal port at Prince Rupert, BC. The
Peace River District is serviced by scheduled airline flights to the cities
of Dawson Creek, Fort St. John and Prince George, which are 148 km, 203 km
and 265 km respectively from the property.
The property is in the Rocky Mountain Inner Foothills physiographical region,
and has relatively low, rounded, northwest-trending ridges and valleys. It is
dissected by the 1.5 km wide Pine River Valley. Elevations range from 630 m
to 1,300 m.
The forest consists of jackpine and minor spruce with little underbrush except
in wet areas adjacent to creeks and seepages. The climate is northern
temperate with temperatures ranging from a maximum of 320C to a minimum of
480C The mean total annual precipitation in the region is 425 mm. Coal was
observed in the Peace River District by Alexander Mackenzie's party during
their journey to the Pacific Ocean in 1793. Development of the area was
hindered by the lack of railway transportation. During the period from 1946
to 1949, drilling and trenching were done on coal prospects in the area of the
Willow Creek Project by the British Columbia Department of Mines' Coal
Division in anticipation of improved transportation to be afforded by a
proposed railway line along the Pine River Valley. In 1973, the Pine Pass
Coal Company drilled five diamond drill holes at the headwaters of Willow and
Johnson creeks, which confirmed the presence of thick coal seams in the
Gething Formation in this area. Semper Resources Ltd., which later
amalgamated with David Minerals Ltd., explored the Gething Formation in the
Willow Creek area in 1980 and 1981. Semper excavated 42 trenches and drilled
46 diamond drill holes. Subsequently, Kilborn Engineering used the resulting
data to prepare a feasibility study for an underground coal mine in the area
presently being studied by Pine Valley.
In 1993, Pine Valley Mining Corporation acquired the original 14 Coal Licenses.
Since that time, the property was increased in size to its present 15 Coal
Licenses (as listed below) plus a Coal Lease (#15) that covers 21 former Coal
Licenses.
Coal Land Map
License No District Reference Block Units Area
327314 Peace River 93O/9 B 49,50,59,60 Falling Creek
327316 Peace River 93O/9 C 63,64,73,74 Falling Creek
327318 Peace River 93O/9 C 83,84,93,94 Falling Creek
327320 Peace River 93O/9 C 41,42,51,52 Falling Creek
327321 Peace River 93O/9 C 61,62,71,72 Falling Creek
347215 Peace River 93O/9 B 29,30,39,40 Falling Creek
347216 Peace River 93O/9 B 27,28,37,38 Falling Creek
347217 Peace River 93O/9 B 7,8,17,18 Falling Creek
347218 Peace River 93O/9 B 5,6,15,16 Falling Creek
327312 Peace River 93O/9 F 27,28,37,38 Pine Pass
327313 Peace River 93O/9 F 29,30,39,40 Pine Pass
347214 Peace River 993O/ L 1,2,11,12 Pine Pass
384195 Peace River 93O/9 F 65,66,75,76 Crassier Creek
384196 Peace River 93O/9 F 45,46.55,56 Crassier Creek
384197 Peace River 93O/9 F 43,44,53,54 Crassier Creek
In March 2003, Falls Mountain applied for further Coal Licenses adjacent to
The current property area to acquire the coal rights to a further 2,930
hectares. The application is still in process.
Feasibility Study Results
In 1996, Pine Valley Coal Ltd. commissioned Norwest to prepare a bankable
feasibility study for an open pit mine. The study was completed in July, 1997
for the use of the joint venture participants. Subsequently, additional mine
design was done by Norwest which resulted in a further report ("Semi-detailed
Mine Design Report") in February 1998. A detailed feasibility study (the
"Feasibility Study") was completed on January 14, 1999 by Norwest, Cochrane
PBK Engineering, Piteau Associates and Agra Earth & Environmental.
An update of the 1999 feasibility study focused on updating the costs and
revenues to 2002 was completed Norwest in September, 2002. The Company is
currently studying a series of initiatives designed to lower capital and
operating costs in an attempt to negate negative impacts from things such as
exchange rate movements. The Company is not currently in a position to
accurately estimate the financial impact of these initiatives as a whole.
The 2002 feasibility study estimated initial capital costs of approximately
$24.1 million to fully equip the site and begin production. Annual production
was based on an average 950,000 tonnes (1,045,000 tons) of coal from open pits
with a strip ratio of run of mine coal to waste rock of approximately 3.6:1
for the life of mine. The report estimated the operating and processing costs
would be $25.09 per tonne of coal production. The exchange rate used was
US$1.00 =CDN$1.55. While using a base case 14-year life and recoverable coal
reserves of 15.2 million tonnes of run of mine coal, the report also indicated
there appears to be significant potential for improvements by increasing the
mine life and/or annual production through delineation of increased reserves
and utilizing recent processing advancements. The economic factors to which
the project is sensitive to include the exchange rate, coal prices,
infrastructure, operating and capital costs. All major mobile mining and
support equipment will be leased.
The 2002 feasibility study mine plans were developed for two mining areas
referred to as North and Central. The plans provided the flexibility to
accommodate a variety of pit sequencing options to achieve a coal release
schedule to meet product requirements. The topography is steep but not severe
and is favorable with respect to drainage and haulage. The pits vary in size
and geometry, with depths ranging from approximately 40m to more than 150m.
The mining and production logistics were complex. During the project a total
of six pits would be mined and each pit had a number of phases scheduled to
aid in maximizing the economic return, leveling annual strip ratios and to
maximize back-filling. Several pits need to be in production at any particular
time because of the two-product production and associated component blending,
the seam geometry and topography. The average yield after washing the coal is
expected to be 79.5 per cent and the resultant saleable coal was 12.3Mt coal.
The coal reserves and resources were calculated using data generated in 1981
and 1994-1997 from 358 open drill holes and 214 cored drill holes totalling
33,709m. Coal samples were obtained from the cored holes. Down-the-hole
geophysics was done in all the open holes and most of the cored holes in order
to correlate intersections of the various coal seams.
The coal measures of current interest on the property belong to the lower
Cretaceous Gething Formation. Although the Gething is known to be coal
Bearing the Willow Creek mine would be the first to exploit its coal on a
major scale. The Willow Creek geology is typical of other Western Canadian
mountain coal mines, characterized by folding and faulting in a moderately to
steeply dipping multi-seam deposit.
The 2002 feasibility study considered eight seams for mining; the upper five
seams to be blended for a metallurgical coking product, and the lower three
seams to be blended for a low-volatile product for pulverized coal injection
(PCI). The economic seams vary in true thickness from the minimum mining
thickness of 1m to in excess of 7m (combined coal and parting, with in excess
of 5m of coal), with an aggregate true thickness of 20m over the total mining
section. The majority of the tonnage is the PCI product.
A primary consideration for the specification of major mining equipment is the
need to selectively mine the dipping, multi-seam deposit. Owing to the
confined working area and multiple working faces, the use of electric-powered
equipment is not practical; therefore the equipment used will be diesel-
powered. In addition to the configuration of the seams, production levels,
topography, and surface area of the individual pit benches, are important
factors affecting equipment selection.
Sizing of the major mining equipment is based on the assumption that the truck
fleet will haul both waste and coal. The 2002 feasibility study considered
productivity, break-out force, the ability to selectively mine the coal units
and partings, and mobility and identified as appropriate a 7.0 cubic metre
backhoe for coal combined with a 10.7 cubic metre front-end-loader for waste.
The most economical fleet option included four, later expanding to six, 97t
trucks. Production drilling could be carried out with one 230mm blasthole
drill.
The planned mine support equipment included two dozers, a grader and a scraper.
The dozer work included dump and road construction and maintenance, ripping
frost and hard materials as required, coal cleaning and parting removal, drill
pad preparation, and backhoe pad leveling. The use of a wheel loader and
backhoe for waste and coal loading minimized the amount of dozer work for
loading area maintenance. Soil savage and reclamation required dozers for the
soil recovery, dump sloping and grading, and soil spreading. The initial dozer
fleet included one 300kW dozer and one 425kW dozer and road maintenance will
require a 335kW grader. Provision was made for road watering in summer and for
dust control and road sanding in winter.
The tracked equipment will be hauled between job sites with a 120t capacity
lowboy tractor/trailer because of the distances between active mining areas.
The maintenance shop is designed to meet the expected needs for maintaining
mobile equipment and haulage trucks. The facilities included four bays, one
wash bay that doubles as a maintenance bay, two maintenance bays that are
equipped with an overhead crane, and a fourth bay that is suitable for welding
and other maintenance functions. Tire maintenance and replacement will be
contracted out and a warehouse is attached to the shop.
The coal preparation facilities were designed to wash run-of-mine (ROM) coal
and prepare the primary metallurgical coking coal and PCI coal products and
the limited by-product thermal coal. The specification ash contents for the
metallurgical, PCI, and thermal products are respectively 8.5 per cent, 9.0
per cent and 11.0 per cent on an air-dried basis. Although the proposed
products have target ash contents in the lower range for their markets, lower
ash products with ash contents of 5 to 7 per cent can be produced from select
seam at high yields because of the low-ash character of the coal.
In the design, the ROM coal was delivered by haulage truck to a 15,000 to
20,000t storage area, where the coal is segregated into separate piles
according to seam type. A front-end loader reclaimed the ROM coal from the
stockpiles proportional to the blend required to meet the quality
specifications for each product. The ROM coal was sized in a feeder-breaker
and conveyed to a screening plant for the next stage of processing.
The raw coal screen made a 'dry' separation at 6mm where the undersize ( 6mm x
0 ) passed through a variable position flop gate. Depending upon the grade of
coal and the clean coal ash content, the position of the variable flop gate
could be changed to divert more or less fine coal to the plant for cleaning.
If the ROM coal quality was adequate, the fines could be diverted to bypass
The cleaning plant and combined directly with the coarse-circuit clean coal.
All coarse coal (150mm x 6mm) was cleaned in a heavy media vessel where rock
refuse was separated from the coal. A portion of the fines (6mm x 0) was
cleaned in a heavy media cyclone and spirals. Clean coal was mechanically
dewatered, combined with any fines that were diverted around the cleaning
circuit, and conveyed to the clean coal stockpiles. A planned radial stacker-
conveyor was used to blend the product and create two 10,000t stockpiles.
The 2002 feasibility study contemplated a load out system designed for
continuous loading of unit-trains of up to 10,000t in seven hours. The coal
was recovered from the clean coal stockpile by one or two dozers pushing into
and underground recovery hopper and conveyor that fed the load out system. The
load out included an automated weighing system, coal profiler, and spray
systems for dust control. Besides the high thermal and low sulphur contents of
the coal, a major attraction of the project is the proximity of existing
infrastructure and services. The property is already serviced by road and rail,
power supply is nearby, and the town of Chetwynd is within easy commuting
distance. A track parallel to BC rail's main line is planned for train loading.
The access road from Hwy 97 would be upgraded and power and communications
brought in the 2km distance. An office and dry facility would be built
adjacent to the shop.
In 2001 and early 2002 a trial cargo was completed mining approximately 84,000
tonnes (92,000 tons) in , which was shipped and sold to a leading Japanese
steel maker. The mining occurred within the future mine development area. The
total property covers 40km of the coal measures outcrop, of which the proposed
development covers about 4km.
Pine Valley Coal has completed the major components of the regulatory process
and has received the two major development approvals required in British
Columbia to proceed to construction, the 'Project Approval Certificate' and
the 'Mine Permit'. The project is currently targeting Japanese coal markets to
secure sufficient sales to warrant construction. The 2002 feasibility study
considered that from the time of the construction decision the mine could be
in full production in approximately 15 months.
Geology - Stratigraphy
The Cretaceous sediments of the northern foothills were deposited along the
western margin of the Western Canada Basin in a series of transgressive-
regressive cycles. Environments of deposition vary from marine through near-
shore to delta plain. Rock types include mudstones, siltstones, sandstones,
conglomerates and coal.
The Willow Creek property is underlain by the Lower Cretaceous Bullhead and
Fort St. John Groups. The Bullhead Group is made up of a lower unit, the
Cadomin Formation, of mostly conglomerate with some sandstones and grits
containing discontinuous coal seams. Conformably overlying the Cadomin
Conglomerate is the unit of economic interest, the Gething Formation, which is
350 m to 550 m thick and is made up of mudstone, siltstone, carbonaceous
mudstone and minor bentonite and conglomerate. In the upper part, occasional
thin tuffs occur, as well as nine well-developed coal seams: Seam Nos. 1
through 8 and Seam A.
Overlying the Gething Formation is the 150 m to 300 m thick Moosebar Formation.
The basal member of this, the Bluesky, is a glauconite-rich, conglomeritic
sandstone and mudstone which directly overlies the coal seams.
Structural Geology
In the Pine Valley Area, the coal-bearing strata are exposed in a series of
northwesterly-striking folds that are cut by thrust faults. During the period
of compression, the depth of burial was not great, resulting in brittle to
semi-brittle deformation. The dips of the fold limbs can vary from nearly
horizontal to overturned, but are usually 200 to 500. Plunges, which are
usually shallow, can vary between northerly and southerly along the length of
a large scale fold, but steepen locally to as much as 350. Concentric folds
are usually U-shaped, and in concentric folding both the competent and the
incompetent beds can maintain a constant thickness. Chevron folds are V-shaped
with short hinge areas and straight limbs. Strain in the hinge zone results
in limb faults, bulbous hinge zones and boudinage in incompetent beds on the
limbs Box folds have a broad, nearly flat crests flanked by steeply dipping
limbs.
On the Willow Creek property, a series of northwesterly trending, northwesterly
- -plunging anticlines and synclines expose the coal seams of the Gething
Formation. The larger folds, the Fisher Creek Syncline and the Pine River
Anticline, traverse the length of the property, and continue in the northwest
direction to beyond the Pine River. The folds are cut in places by
northeasterly-dipping thrust faults with displacements of 20 m or more. These
folds, and subsidiary folds on their flanks, bring the coal seams to the
surface in the various mining areas.
Stratigraphic complexity is evident from the number of splits of mineable
thickness that may be present in any one coal seam. Structural complexity is
evident from the tendency of the thrust faults to cut down through the
stratigraphic sequence along strike and for small scale structures to
contribute to the mineability of the various coal seams.
Coal Quality
Coals in the upper part of the Gething Formation generally are suitable for use
as coking coal. Regionally, Gething Formation coals range from low-volatile to
high-volatile A bituminous. These grades are measured by their vitrinite
reflectance and by proximate analyses. The rank is mostly a function of the
stratigraphic position of the seams. The Upper Gething seams generally fall
into the medium-volatile bituminous category, and the Middle Gething seams fall
into the low-volatile bituminous category.
The Free Swelling Index ("FSI") of a coal is of importance in determining
whether it can be used as a coking coal. FSI values are measured on a scale of
0 to 9. Another measure used to determine the suitability for coking is the
coke strength after reaction ("CSR").
The Upper Gething seams have FSI and CSR measurements in the coking coal range,
and the Lower Gething seams have potential for use as semi-hard coking coals,
pulverized coal injection (PCI) coals or high-heat thermal coals.
Some of the Gething Formation coal seams are low in ash. On an air-dried
basis, their values range from less than 2.5% up to 30% with an average of
about 14%. The lowest values indicate potentially high wash plant recoveries.
As a result of this and the rank of the coal, Gething Formation coals have high
calorific values. The Hargrove Grindability Index (HGI) is a measure of the
hardness or friability of coal, and is measured by the ease with which it can
be ground into powder. Gething Formation coals generally have HGI values above
80, and are considered to be soft coals. In most of the coal seams, the sulfur
content of the 1.7 specific gravity floats is 0.5%, which is considered low.
Seam 8 has a higher level of 1.1%.
The typical coal quality for the Willow Creek coal is as follows:
Coking PCI
Sources of Coal unoxidized Seams Seams 5 to 8 and
1-4, A oxidized 1-4, A
Product Ash 8.5+% dry 9+% dry
Volatile Matter 21+% db 16+% db
FSI > 3 -
CSR > 65
Heat Value - ca 7,785 kcal/kg dry
= 14,000 BTU/lb dry
Future Plans
As described in the "Willow Creek Joint Venture" section above the Company has
the right to purchase Mitsui Matsushima's interest. The Company's pre-
development effort is focused around the issues of mine design, development
approach, reserve delineation, costs, marketing and financing. The new
management who joined the Company in March, 2003 are developing new plans to
develop the Willow Creek project.
Management have reworked the mine plans to maximize the initial extraction of
unwashed coal and minimise initial mining costs. Early utilization of the low
strip ratio Peninsular Pit reserve is key to the Project's initial development.
This will allow for the production and sale of unwashed coal for at least the
first one million tonnes of output and defer the need to construct washery
facilities until late in the first year of production.
Management's new mine plan results in the exclusive production of low-volatile
pulverized coal injection coal for at least the first three million tonnes of
production. Approaches have been made to potential customers in Asia and
Europe, and the Company has also received enquiries for supply into China.
Several drum samples have been delivered to potential customers for testing and
the next step will be to seek contracts or letters of intent for coal delivery.
Material contractual commitments will be pivotal to any financing and positive
Project development decision.
The Company has been proceeding with detailed reviews of operating and capital
costs under the revised mine plan.
The Company has engaged Norwest to delineate a reserve at Pine Pass using the
currently available data.
Financing remains the key rate-determining step for a Willow Creek project
development commitment decision. The project economics are affected by many
factors, an important one being the exposure to the foreign exchange of the
Canadian dollar, which has strengthened considerably since the September, 2002
feasibility study. The time required for construction and mobilization after a
financing commitment decision is estimated by management at 3-5 months.
The Company is currently in discussions with parties to provide CDN$22 million
which management has estimated is sufficient to purchase the Mitsui
Matsushima's interest and fund the initial construction of the mine. Further
capital construction cost requirements would be funded from cash flow to
complete mine facilities required after production has commenced. There is no
assurance that the Company will be able to obtain these funds.
Indin Lake Property
The Company has a 90% interest in certain mining leases which form the majority
of the Indin lake property, subject to a 3% net smelter royalty, wherein the
balance of 10% is a net profits interest after all costs are recovered, located
in the Mackenzie Mining Division of the Northwest Territories. The Company has
the option to purchase the above royalty for $500,000 in cash or shares at the
time of production. The Company wrote the value of Indin Lake down to zero
during the year ended Match 31, 2003. The Company did this due to the extended
period of time since any active exploration work has been undertaken, the
difficulty advancing the property at current gold prices and the limited
likelihood that the Company will realize any significant value from the
property in the near future.
The Indin Lake Property is located approximately 130 air miles northwest of
Yellowknife, Northwest Territories, Canada. The Indin Lake property covers
approximately 1,180 hectares (2,900 acres), consisting of the following:
Mining Lease Lease Number Current Expiry Date
North 1, 2 3226-27 November 3, 2009
Arseno 1 to 3 2486-88 October 18, 2013
Ra 3, 6, 8, 10 2489-92 October 18, 2013
Tartan 44-18 3214 April 18, 2006
North 3 to 16 3216 January 29, 2007
Tartan 44-7 to 44-17 3217 April 18, 2006
Dip1,2 3215 January 29, 2007
Float 3732 July 10, 2019
A predecessor company of the Company (Indin Gold Ltd.) acquired its 90%
interest in the Indin Lake Property by a series of agreements in 1979 and 1980
with S.M. Paulson and Ursa Polaris Development Corporation ("Ursa Polaris"), a
Nevada corporation. Originally, S.M. Paulson paid Ursa Polaris $15,000 on
August 27, 1979, and agreed to spend $315,000 on the property to earn a 90%
interest. Subsequently, this obligation was replaced with a convertible loan
and an obligation to spend at least $800,000 on the property to obtain the 90%
interest. In 1980, the sum of $956,711 was spent on the property for which S.M.
Paulson, the Norvan Group and Orval E. Gillespie received 750,000 escrow shares
of Indin Gold Ltd. at a deemed value of $0.74642 per share. In 1985, 248,200
of these shares were donated back to the Company. Ursa Polaris retains a 10%
net profits interest in the Indin Lake Property. If the property goes into
production, 224613 Alberta Ltd., an Alberta company, owned 40% by Ursa Polaris,
20% by S.M. Paulson, 20% by Orval E. Gillespie and 20% by the Norvan Group, is
entitled to retain 3% of the net smelter returns interest. Orval E. Gillespie,
who was a director and Chairman of the Company prior to his death, was at arm's
length to Indin Gold at the time of entering into these transactions. The
Company has the right to purchase this interest for $500,000.
The Float Claim was acquired in 1990 for 100,000 shares at a deemed value of
$25,000. The Float Claim is subject to a 2% net smelter returns interest, to
an aggregate maximum amount of $500,000. The Float claim was surveyed in 1998
and on December 10, 1998 was converted to a mining lease.
History of Indin Lake
Prospecting for gold in the area began around 1938, but was short-lived because
of the start of World War II. Exploration activities resumed in 1944, and, in
the period between 1946 and 1949, North Inca Gold Mines Ltd. worked the Inca
Zone on the property completing 9,740 metres (31,954 feet) of surface drilling
and 2,800 metres (9,176 feet) of underground diamond drilling, shaft sinking to
a depth of 97.5 metres (320 feet) and 595 metres (2,000 feet) of lateral
development on two levels.
Work on the Indigo Zone of the property was initially conducted in the period
1945 to 1951, at first by Diversified Mining Interests (Canada) Ltd. and later
by Indigo Consolidated Gold Mines Ltd. Exploration during this period
comprised 6,700 metres (21,982 feet) of surface and 2,670 metres (8,760 feet)
of underground diamond drilling, sinking of a shaft to 160 metres (525 feet),
970 metres (3,182 feet) of lateral development on two levels, and 40 metres
(131 feet) of raising. The underground development was concentrated on one
gold-bearing structure (the "A Vein"). Activity on this zone resumed in 1979,
with rehabilitation and dewatering of the shaft by S.M. Paulson. Almost
$1,000,000 was spent in a six-month period in 1980, by S.M. Paulson, Norvan
Group and Orval E. Gillespie, for hauling material to the site, rehabilitation
of the workings and a prefeasibility study by Kilborn Engineering. A fire in
March, 1981 (after the property had been acquired by Indin Gold Ltd.) destroyed
most surface buildings and equipment and underground equipment stored on the
surface. The equipment was subsequently replaced. In addition to repairing
and replacing surface assets with a new Atco camp and a Petwa septic system,
repairs were made to the underground facilities and new track was laid in the
workings. The total cost of work conducted on the Indin Lake property by the
predecessor company at the end of 1984 was $1,978,560. The present workings,
which have been allowed to flood, are comprised of a vertical, three-
compartment shaft, 160 metres (525 feet) in depth, with levels established at
the 54 metre (178 foot) and 145 metre (475 foot) horizons. In addition, a third
level station has been excavated at the 137 metre (375 foot) level. Lateral
development consists of approximately 970 metres (3,182 feet). A considerable
amount of mining equipment, track, pipe, operating supplies and spare parts are
on the site. The head frame was reconditioned, a hoist has been installed and
a permanent camp has been erected. It was planned in 1983 to place the
property into production, but sufficient funds were not available.
In 1988, by way of a joint venture arrangement, Manson Creek Resources Ltd.
spent about $453,656 on a geophysical survey and a diamond-drilling program.
The diamond drill program consisted of ten holes totaling 1465.7 metres (4,809
feet) on the Indigo and Inca zones between April 30, 1988 and May 23, 1988.
All holes were drilled from the ice on Indin Lake. In 1989, Manson Creek
wanted an extension to continue work on the property, but the predecessor
company did not agree to the extension and all rights were returned.
The work to date below surface may be summarized as follows:
Shaft 525'
Stations out 3
Underground Development
Drifting 178' level 941'
Drifting 475' " 1,265'
Crosscutting 178' level 176'
475' " 800'
Raising 178' level 110'
Slashing 475' level 352.5'
Diamond drilling from surface 22,000'
Diamond drilling from underground 8,756'
Assays of drill cores indicate that gold is the only metal present in
potentially economic quantities, although there are some silver values present.
The mineralization is coarse-grained, and contains visible gold.
Future Plans for Indin Lake
The Company must undertake site remediation work under the terms of its land
use permit. It has done some initial work to achieve this and obtain an
initial evaluation of the work required to remediate the site. It is expected
that the Company will need to continue to undertake an ongoing program of
remediation for some years.
The Company plans to have discussions with interested parties to option or sell
the Indin Lake gold project so that the Company can focus its efforts on the
Willow Creek coal project.
C. Organizational Structure
The Company has the following material subsidiaries:
(a) Globaltex Gold Mining Corp. ("Globaltex Gold") was incorporated under the
laws of British Columbia, Canada on March 29, 1993 under the name "Globaltex
Coal Mining Corp." and subsequently changed its name effective January 20,
1994 to "Globaltex Coal Corporation" and effective September 11, 1996 to
"Globaltex Gold Mining Corp.". Globaltex Gold is a wholly-owned subsidiary
of the Company;
(b) Falls Mountain Coal Inc. ("Falls Mountain") was incorporated under the laws
of British Columbia, Canada on April 13, 1994 and is a wholly-owned
subsidiary of the Company; and
(c) Pine Valley Coal Pty Limited ("Pine Valley Coal") was incorporated under
the laws of Victoria, Australia on March 5, 2003 and is a wholly-owned
subsidiary of the Company.
D. Property, Plants and Equipment
The Company utilizes about 1,750 square feet of office space in Vancouver,
British Columbia, Canada at a cost of approximately $3,000 per month. In
addition, the Company pays approximately $4,000 per month for computers,
printers, secretarial services, reception, electricity and Internet access.
Item 5 - Operating and Financial Review and Prospects
Overview
The following discussion should be read in conjunction with the audited
consolidated financial statements of the Company for the years ended March 31,
2003, 2002, and 2001, and related notes thereto, and with the selected data set
forth. The Company's consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles. Except as
described below under "Material Differences Between US and Canadian Generally
Accepted Accounting Principles," and in Note 14 to the audited consolidated
financial statements, there are no material differences, for the purposes of
these financial statements, between accounting principles generally accepted in
Canada and the US. Unless otherwise indicated, all currency is reported in
Canadian dollars.
The Company's activities are primarily directed toward the development and
production of coal from its joint venture coal mine. In addition, the Company
is interested in the location, exploration and development of mineral
properties. Activities over the last five years include general exploration in
locating and evaluating potential properties and exploration on properties
that have been acquired by the Company. Costs incurred for general exploration
that did not result in the acquisition of mineral properties with ongoing
exploration or development potential were charged to operations. Exploration
costs relating to the Company's properties with ongoing exploration or
development potential were capitalized as deferred exploration. Should the
Company abandon a property, the related deferred exploration costs are charged
to operations. Administrative costs are not deferred.
A. Operating Results
Year ended March 31, 2003 Compared to Year Ended March 31, 2002
The consolidated loss for March 31, 2003 was $3,457,839 or $0.12 per share
compared with a loss of $2,340,558 or $0.12 per share for March 31, 2002.
The Company incurred Expenses and Other Items totaling $561,595 for the fiscal
year ended March 31, 2003 compared to $2,118,345 for the fiscal year ended
March 31, 2002. Expenses and Other Items was reduced through a focus on
reducing general and administrative expenses and decreased interest and
financing charges due to lower debt. This was offset by an increase in
consulting costs as a result of stock based compensation.
Below is a table comparing Expense items for the year-ended March 31 in 2003
and 2002 where significant changes occurred. A discussion of the changes
follows the table.
Year ended Year-ended
March 31, 2003 March 31, 2002
Accounting & Audit $39,150 $45,842
Consulting 22,794 Nil
Fees & Assessment 24,422 1,253
Interest and Financing 143,957 969,210
Management Fee 32,750 161,796
Office 162,566 741,464
Professional Fees 78,374 139,689
Travel 20,833 22,558
Promotion & Marketing 11,898 7,580
Consulting fees increased as a result primarily of adopting the fair value
method for stock based compensation for stock options which were issued to non-
employees or non-directors. The consulting services included aiding the Company
in the preparation and dissemination of press releases and the introduction and
communication with the financial markets in the United States. Fees and
Assessments increased due to payments for British Columbia capital taxes. The
Company incurred lower interest and financing costs due to substantially lower
loans outstanding. Management Fees, incurred for the services of one of the
management team, were lower, reflecting the Company's focus to reduce the
administrative costs to operate the Company. The management services in the
current year included overall Company management and administration as well as
rail negotiations, government liaison and commercial dealings with Mitsui
Matsushima Canada Ltd. In the previous year the management fees included the
provision of the services of two individuals filling the roles of the President
CEO and CFO who provided overall Company management and administration,
including managing the financial affairs of the Company. Office costs were
comprised of salaries and salary related costs totaling $146,683 as well as
general office supplies and miscellaneous items. A portion of the salaries and
salary related costs was for the engagement of an individual as President of
the Company. The Office costs declined significantly over the full year due to
the provision during the year ended 2002 for a $600,000 payment to the estate
of a former Chairman of the Company as described in note 6 of the current
financial statements. Office costs did increase in the fourth quarter compared
to the previous three quarters as a result of increased salaries due to the
added management and establishing the Australian office in March 2003 to
support the increased management expertise, as announced in a press release on
March 10, 2003. Professional Fees were lower in the current period as in the
year ended March 31, 2002 the Company had incurred costs related to the
investigation of an opportunity to develop a coal fired electrical generation
plant in Washington State The Company also reversed significant legal fees
which has been accrued in 2002 thus lowering the Professional Fees in 2003. The
professional services provided in 2003 were primarily by the Company's legal
counsel and related to dealings for the agreement to purchase Mitsui Matsushima
Canada Ltd.'s Willow Creek Joint Venture interest, a variety of regulatory
related matters including public company issues and debt settlements, the
engagement contracts of the added management as announced on March 10, 2003 and
various other legal matters. Promotion and Marketing increased primarily due
to the initial start up costs as the Company developed and launched a new web
site during the second quarter and engaged a firm to focus on marketing for a
limited period of time.
The Company entered into related party transactions. A total of 4,185,722
shares were issued to satisfy debt totaling $2,516,433. The debt had been
incurred principally to finance the trial cargo the Company participated in
during 2001 and the acquisition of the BC Rail joint venture interest in the
Willow Creek project. The shares were issued to a director and trusts of which
a director is a trustee; the TSX Venture Exchange approved the terms and
shareholders approved the transaction at the Company's Annual General Meeting
on September 30, 2002. The Company paid and accrued interest expense totaling
$76,960 to a director of the Company beneficially owning more than 10% of the
stock. This includes $34,000 that was reclassified by the Company's auditor in
the year-end accounts for loan interest. Management fees of $32,750 due to a
former officer and director of the Company were accrued. The Company had
agreed to pay compensation of $500 per day for the professional services,
including Company management, rail negotiations government liaison, and
commercial dealings with Mitsui Matsushima Canada Ltd. for approximately ten
days per month. Of the daily amount 50% was paid through the Willow Creek Joint
Venture, and the balance was deferred until such time as the Company has the
financial resources to pay the appropriate amount. The total deferred payment
to the former officer and director is $51,675 (2002 -$18,925). During the year
100,000 shares were issued to a former officer and director to settle a $55,000
debt outstanding. The terms of this settlement were approved by the TSX
Venture Exchange. As well a total of $16,800 was paid to an individual for
consulting services prior to the individual becoming an officer of the Company.
The Company incurred development costs of $311,506 in the period ending March
31, 2003 compared to $425,181 in the same period of the previous year. The
Company incurred costs of $307,761 with respect to the Willow Creek project.
These costs included the completion of feasibility and regional geological
studies and ongoing environmental and site maintenance work. The Company
concluded that the Indin Lake gold property should be written down in the March
31, 2003 financial statements to nil value due to the extended period of time
since any active exploration work has been undertaken, the difficulty advancing
the property at current gold prices and the limited likelihood that the Company
will realize any significant value from the property in the near future. A
write down of $2,914,600 on the Indin Lake property was charged to operations
for the year ended March 31, 2003.
Year ended March 31, 2002 Compared to Year Ended March 31, 2001
The consolidated loss for March 31, 2002 was $2,340,558 or $0.12 per share
compared with a loss of $694,160 or $0.04 per share for March 31, 2001.
The Company incurred expenses totaling $2,118,345 for the fiscal year ended
March 31, 2002 compared to $697,776 for the fiscal year ended March 31, 2001.
The increased expenses reflect the increased activity and debt related to the
trial cargo as well as pursuing an opportunity to develop a coal fired
generation plant in Washington State.
The Company incurred higher interest and financing costs in the year ended
March 31, 2002 of $969,210 compared to March 31, 2001 costs of $260,155. This
increase arises from non-cash payments of $215,450 paid in the form of bonus
shares for two notes payable, and $577,028 of accreted interest allocated as
fair value to warrants on two other notes payable. Interest expenses of
$176,732 were paid and accrued. These higher costs result from an increase in
the short term loans of about $2 million bearing interest at 15% per annum and
used for working capital to finance the Company's portion of the trial cargo.
Accounting and audit fees were $45,842 for the period ending March 31, 2002
compared to $25,473 for the period ending March 31, 2001. This increase is due
primarily to an increase in auditing fees and recording the 2001 audit fees in
the 2002 period, as well as recording the 2002 fees in the 2002 period.
Legal fees for the year ended March 31, 2002 were $139,689 compared to March
31, 2001 costs of $94,179. These increased expenses result from investigating
an opportunity to develop a coal fired electrical generation plant in
Washington State and for financing and joint venture matters associated with
the trial cargo.
Management fees for the year ended March 31, 2002 were $161,796 compared to
March 31, 2001 costs of $137,100. These fees included $18,925 paid to a former
Director for time spent on management affairs, including in negotiating, on the
Company's behalf, commercial matters with BC Rail, BC government departments
and Mitsui Matsushima Canada Ltd.; $97,871 paid to a former Director while
acting as CEO and President of the Company and $45,000 paid to a former
Director for his services over six months acting as the CFO for the Company.
The Office Costs were $741,464 for the year ended March 31, 2002 compared to
$92,714 in 2001. Much of the increase was as the Company has provided for the
payment of $600,000 to the estate of the former Chairman of the Company (the
"Estate"). The Estate is administered on behalf of its beneficiaries by a
director of the Company. The Company has agreed, subject to certain conditions
being fulfilled, to enter into discussions that could result in a mutually
satisfactory settlement of this payment. Settlement terms could include payment
over a period of time or by means of shares of the Company being issued in full
consideration of an amount of $600,000 for the Estate upon terms and
arrangements that are not yet to be determined. There is no immediate
requirement or intention to finalize these discussions. Salaries, included in
the Office Costs, were $121,966 for the year ended March 31, 2002 compared to
$22,956 in 2001. The increase was a result of a new President and CEO being
engaged as a direct employee of the Company following the September 2001 AGM,
as well as office support staff. Previously this work was done by Directors of
the Company who were paid a management fee, shown under related party
transactions.
Travel costs for the year-end March 31, 2002 were $22,558, relatively similar
to the March 31, 2001 costs of $30,774.
With respect to the Deferred Exploration and Development Costs, the Company
carried out a mining program to produce two trial cargoes totaling 84,000
tonnes for use by potential customers. The first trial was carried out in the
second quarter and revenue from the sale received early in the third quarter.
The second trial was carried out in the fourth quarter and revenue from the
coal sales were received in that quarter. The mining costs included crushing,
explosives, drilling, hauling and loading. Freight includes rail and port
charges to Ridley Terminal at Prince Rupert. Site costs included environmental
control work, site supervision, survey, geology and engineering. A sales
commission was paid to Mitsui Matsushima Canada Ltd. in relation to the sale
of the coal. Other costs included an updated feasibility study, independent
engineering reviews and scoping study.
During the year 2001, the Company purchased one-third interest of Willow Creek
Coal Property from its former Joint Venture partner BC Rail.
The Company wrote down its entire investment in US Electric Power Inc.,
$189,260, for the period ending March 31, 2002 as a result of its decision to
not pursue further the opportunity to develop a coal fired electrical
generation plant in Washington State.
Differences Between Canadian and United States Generally Accepted Accounting
Principles and Effects of Recent Accounting Pronouncements.
Our financial statements are prepared in accordance with Canadian GAAP
(Generally Accepted Accounting Principles) and reconciled to US GAAP.
Differences are shown in note 14 of the audited consolidated financial
statements for the period March 31, 2003 which form a part of this Report.
Mineral property costs
US GAAP prefers that mineral property costs be expensed until there is
substantial evidence that a commercial body of ore has been located, whereas
Canadian GAAP allows mineral property costs to be deferred during the
exploration and development process. Although the Company has completed a
feasibility study with respect to the Willow Creek Property, there remains
uncertainty as to the economics of the project and the ability of the Company
to finance the development. For US GAAP purposes, the Company has written off
the property costs until the development ability has been confirmed.
Convertible Loans
Under Canadian GAAP, the convertible loan issued during 1999 has been
segregated into its liability and equity components measured at their
respective fair values at the date the convertible loan was issued (see Note 7)
Over the term of the convertible loan the liability component was accreted to
the face value of the convertible loan by the recording of additional interest
expense.
Under U.S. GAAP, the convertible loan issued during the year is recorded
entirely as debt with no portion segregated as an equity component.
Accounting for Joint Ventures
U.S. GAAP requires investments in joint ventures to be accounted for using the
equity method, while under Canadian GAAP, the accounts of the joint ventures
are proportionately consolidated. However, under rules promulgated by the
Securities and Exchange Commission, a foreign registrant may, subject to the
provision of additional information, continue to follow proportionate
consolidation for purposes of registration and other filings notwithstanding
the departure from U.S. GAAP. Consequently, the balance sheets have not been
adjusted to restate the accounting under U.S. GAAP and additional information
concerning the Registrant's interest in a joint venture is presented in Note
5(b).
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This standard requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
uncured. When the liability is initially recorded, the entity capitalizes a
cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period, and the
capitalized cost is amortized over the useful life of the related asset.
Upon settlement of the liability, an entity either settles the obligation for
its recorded amount or incurs a gain or loss upon settlement. Companies are
required to adopt SFAS 143 for fiscal years beginning after June 15, 2002, but
early adoption is permitted. The Company has determined that the application
of SFAS 143 will not have a material affect on its consolidated financial
position or results of operations.
In August 2001, the FASB issued SFAS 144, accounting for the impairment or
disposal of Long-lived assets. SFAS 144 replaces SFAS 121, accounting for the
impairment of long-lived assets and for long-lived assets to be disposed of.
The FASB issued SFAS 144 to establish a single accounting model, based on the
framework established in SFAS 121, as SFAS 121 did not address the accounting
for a segment of a business accounted for as a discontinued operation under APB
30, reporting the results of operations - reporting the effects of disposal of
a segment of a business, and extraordinary, unusual and infrequently occurring
events and transactions. SFAS 144 also resolves significant implementation
issues related to SFAS 121. Companies are required to adopt SFAS 144 for
fiscal years beginning after December 15, 2001, but early adoption is permitted
The Company will adopt SFAS 144 as of January 1, 2002. The Company has
determined that the application of SFAS 144 will not have a material affect on
its consolidated financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
Among other things, SFAS No. 145 rescinds both SFAS No. 4, Reporting Gains and
Losses from Extinguishment of Debt, and the amendment to SFAS No. 4, SFAS No.
64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. Through
this rescission, SFAS No. 145 eliminates the requirement (in both SFAS No. 4
and SFAS No. 64) that gains and losses from the extinguishment of debt be
aggregated and, if material, classified as an extraordinary item, net of the
related income tax effect. Generally, SFAS No. 145 is effective for
transactions occurring after May 15, 2002. The Company determined SFAS No. 145
did not have a material impact on the Company's results of operations or its
financial position.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal of Activities. SFAS No. 146 requires that the liability
for a cost associated with an exit or disposal activity is recognized at its
fair value when the liability is incurred. Under previous guidance, a liability
for certain exit costs was recognized at the date that management committed to
an exit plan, which was generally before the actual liability had been incurred
As SFAS No. 146 is effective only for exit or disposal activities initiated
after December 31, 2002, the Company does not expect the adoption of this
statement to have a material impact on the Company's financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, ("FIN 45"). FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about thee obligations associated with guarantees issued. The
recognition provisions of FIN 45 will be effective for any guarantees that are
issued or modified after December 31, 2002. The Company has adopted the
disclosure requirements and is currently evaluating the effects of FIN 45;
however, it does not expect that the adoption of such provisions will have a
material impact on the Company's results of operations or financial position.
In December 2002, the FASB issued FAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. SFAS NO. 148 amends SFAS NO. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for an entity that voluntarily changes to the fair value based
method of accounting for stock-based compensation. It also amends the
disclosure provisions of that statement. The disclosure provisions of this
statement are effective for financial statements issued for fiscal periods
beginning after December 15, 2002. The Company does not currently have plans
to change to the fair value method of accounting for its stock-based
compensation.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51.
FIN 46 requires that if any entity has a controlling financial interest in a
variable interest entity, the assets, liabilities and results of activities of
the variable interest entity should be included in the consolidated financial
statements of the entity. FIN 46 provision are effective for all arrangements
entered into after January 31, 2003. For those arrangements entered into prior
to January 31, 2003, FIN 46 provisions are required to be adopted at the
beginning of the first interim or annual period beginning after June 15, 2003.
The Company is currently assessing the impact of this statement on its
operating results.
In April 2003, the FASB issued Statement of Financial Accounting Standard No.
149 ("SFAS 149"), Amendment of Statement 133 on Derivative Instruments and
Hedging Activities. SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS 133. SFAS 149 is generally
effective for derivative instruments, including derivative instruments embedded
in certain contracts, entered into or modified after June 30, 2003 and for
hedging relationships designed after June 30, 2003. The Company does not
expect the adoption of SFAS 149 to have a material impact on its operating
results or financial condition.
In May 2003, the FASB issued Statement of Financial Accounting Standard No. 150
("SFAS 150"), Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity. SFAS 150 clarifies the accounting for certain
financial instruments with characteristics of both liabilities and equity and
requires that those instruments be classified as liabilities on the balance
sheet. Previously, many of those financial instruments were classified as
equity. SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003 and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The Company does not
expect the adoption of SFAS 150 to have a significant impact on its operating
results or financial position.
On April 22, 2003, the FASB announced its decision to require all companies to
expense the fair value of employee stock options. Companies will be required to
measure the cost according to the fair value of the options. Although the new
guidelines have not yet been released, it is expected that they will be
finalized soon and be effective in 2004. When final rules are announced, the
Company will assess the impact to its financial statements.
Accounting Polices
The Company's accounting policies are set out in Note 3 of the audited
consolidated financial statements. There is one policy, that due to the nature
of the mining business, may not be readily understood. This policy relates to
the capitalizing of mineral exploration expenditures and the use of estimates.
The Company defers all costs relating to the acquisition and exploration of its
mineral properties. Any revenues received from such properties are credited
against the costs of the property. If commercial production commenced on any of
the Company's properties, all costs would be charged to operations on a unit-of
- -production method. The Company's management periodically reviews the results
of its exploration programs. Any decisions to abandon or reduce exploration
efforts on any of its properties would result in a charge to operations when
such decision is made. There is not a predetermined hold period for any
property as geological economic circumstances render each property unique.
B. Liquidity and Capital Resources
As the Company has no source of revenue from operations, its ability to conduct
its operations, including the acquisition, exploration and development of
mineral properties, is based on its ability to raise funds from equity and
other sources. The Company's financial success will be dependent upon the
extent to which it can develop viable mines, the development of which can take
many years to complete, with the certainty of resulting income impossible to
determine.
The Willow Creek coal project is a coal property that the Company is currently
in discussions with parties to obtain the required financing to place it into
production. Coal prices, exchange rates, operating and capital costs and other
factors having a direct impact on the economics of a coal mine fluctuate and a
coal mine can range from profitable to unprofitable in a short period of time.
If there are cost overruns, the Company may from time to time be required to
inject funds to the joint venture to retain its percentage ownership. Failure
to do so would reduce its equity share in the joint venture, which could
ultimately lead to reduce returns on investment to the Company. At December 31
1996 the joint venture participants other than the Company had contributed some
$1,960,367 entitling them to a 46.9% interest. At December 31, 1997, the joint
venture participants other than the Company had contributed some $5,000,000 for
a 66.67% interest. At December 31, 1998, the joint venture participants had
contributed some $5,766,520 of which the Company was responsible for one-third
of the excess over $5 million or $255,507.
Payments were made by the Company during 1999 to cover this deficiency. On
January 8, 2001, we purchased the 1/3 interest in the coal mine from BC Rail
for an amount of $3,902,543, thus increasing our interest to 2/3. As at March
31, 2001, the other joint venture participant had made excess contributions of
$22,793 (2000 - $109,610). The Company made payments in August and September
of 2001 to cover this deficiency. The Company did not contribute its portion
of the costs of the trial cargo and 2002 feasibility study program undertaken
in 2002. The Company applied the proceeds of the trial cargo revenues towards
its required contributions and paid a further $443,178 in January, 2003 in
order to restore its interest to 2/3.
The Indin Lake Project was written down to nil due to the extended period of
time since any active exploration work has been undertaken, the difficulty
advancing the property at current gold prices and the limited likelihood that
the Company will realize any significant value from the property in the near
future. The Company plans to have discussions with interested parties to option
or sell the Indin Lake gold project so that the Company can focus its efforts
on the Willow Creek coal project.
The Company's historical capital needs have been met by the sale of equity
shares, by amalgamations with suitable companies and loans.
The Company had working capital of $501,014 as of March 31, 2003 and has
approximately $320,000 as of September 22, 2003.
The Company has been able to continue to raise the necessary funds for the
exploration and development programs on its properties and to fund the general
and administrative costs. Nevertheless the Company has to rely upon the sale
of equity securities or debt for cash required for exploration and development
purposes, for acquisitions and to fund the administration, among other things.
Since the Company does not expect to generate any significant positive cash
flow in the near future, it will have to continue to rely upon sales of its
equity and debt securities to raise capital. It follows that there can be no
assurance that financing, whether debt or equity, will always be available to
the Company in the amount required at any particular time or for any particular
period or, if available, that it can be obtained on terms satisfactory to the
Company.
The Company's financial statements have been prepared on the basis of
accounting principles applicable to a going concern which assume that the
Company will realize its assets and discharge its liabilities in the normal
course of business. The Company has incurred losses since inception of
$17,904,526 and has working capital at March 31, 2003 of $501,014. The
Company's continued existence is dependent on the ability to obtain loan
financing; the raising of additional equity capital through sales of its
common stock or other means to fund its operations and the Company's ability to
ultimately attain profitable operations.
If the going concern assumption were not applicable in the preparation of these
financial statements, adjustments would be necessary to the carrying values of
assets and liabilities, the reported net loss and the balance sheet
classifications used.
The Company's current working capital is adequate for several more months, and
the Company therefore must raise further working capital to maintain the
current level of operations. It will require further working capital to
complete the acquisition of the one third Willow Creek Joint Venture interest
from Mitsui Matsushima pursuant to a binding Sale & Purchase Agreement on March
10, 2003 and advance the Willow Creek project into production. Management is
continuing its efforts to obtain additional funds so that the Company can meet
its obligations however there is no assurance that the Company will be
successful in obtaining the necessary funds. A significant requirement is the
consideration to Mitsui Matsushima for the purchase of their one third interest
in Willow Creek of $6,000,000 payable in cash prior to December 10, 2003 or
else the agreement to sell terminates. The Company will have a contingent
obligation to pay Mitsui Matsushima a break-up fee of $500,000 in the event
that the purchase can not be consummated due to an inability to secure the
necessary financing. The Company has guaranteed the obligations under the Sale
& Purchase Agreement and by pledging its shares in the wholly owned subsidiary,
through which its Willow Creek Joint Venture ownership is held, to secure the
break-up fee. Should the Company not be able to raise sufficient funds to
exercise its right to acquire Mitsui Matsushima Canada's interest the Company
will lose the right to complete the acquisition. Further if the Company is
unable to pay the break-up fee required in the event that the purchase is not
consummated, the Company would lose all or part of its principal asset, the
interest in the Willow Creek project. No break-up fee is payable if the
purchase takes place. The Company's subsidiary will pay all expenditures until
closing of the Sales & Purchase Agreement.
Over the previous three years the Company has financed its cash requirements
through loans, private placements and the issuance of common shares to settle
the notes payable as a result of certain loans. At March 31, 2001 the Company
had a working capital deficit of $4,436,643. During the year ended March 31,
2001, the Company issued capital stock for $354,550. A large portion of the
deficit was as the Company borrowed $4.4 million from a private lender. The
terms of the loans were non interest bearing promissory notes secured by the
Company's interest in the Willow Creek coal mine. Maturity date was January 8,
2002 for $4 million and September 18, 2001 (extended to September 18, 2002) for
$400,000. As consideration for these loans, the lender, Mark Smith, received
warrants entitling him to purchase purchasing 2.3 million shares from treasury
at $1.50 in the first year, $1.60 in the second year and $1.70 in the third
year. On September 18, 2003, warrants to purchase 300,000 shares expired
unexercised. During the year ended March 31, 2002 agreement was reached to
convert $4 million debt into 4,285,714 shares equity, which was completed
following the year end. The Company had a working deficit of $1,592,169 as of
March 312, 2002.
During the year, the Company issued 866,667 common shares for proceeds of
$578,000 on the exercise of warrants and stock options, and issued 4,695,080
common shares settling $3,361,434 of debt. The Company had working capital of
$501,014 as of March 31, 2003. During the year ended March 31, 2003 the
Company issued 4,085,722 common shares to settle notes payable in the amount of
$2,461,433, closed two private placements of 3,261,362 unites for proceeds
totaling $700,000 and settled $55,000 debt due to a former director by the
issuance of 100,000 common shares.
The Company has the following entered into additional commitments which are
described below.
The Company has a $50,000 letter of credit outstanding at March 31, 2003 (2002
- - $50,000).
The Company has entered into an operating lease agreement for office space
which require the Company to make the following lease payments:
2004 $32,966
2005 21,977
Total $54,943
Values ascribed to shares issued for consideration other than cash is
determined from the date of the agreement or transaction and the market value
of the Company's shares on that date. All treasury share issuances are subject
to application to regulators and receipt of regulatory approval. Although
there is fluctuation of the market price of the Company's shares from time
to time, which may not bear any relationship to a particular share transaction,
it is a matter of procedure by regulatory policy based on the date of the
transaction and an application of the share transaction to the regulators.
C. Research and Development, Patents and Licenses, Etc.
Not applicable
D. Trend Information
Not applicable
E. Off-Balance Sheet Arrangements
Not applicable
F. Tabular Disclosure of Contractual Obligations
Not applicable
G. Safe Harbor
This Report and the attached exhibits contain "forward-looking statements" as
defined in the United States Private Securities Litigation Reform Act of 1995,
that involve a number of risks and uncertainties. Such statements are based on
the Company's current expectations, estimates and projections about the
industry, management's beliefs and certain assumptions made by it. Words such
as "anticipates", "expects", "intends", "plans", "believes" or similar
expressions are intended to identify forward-looking statements. These
statements include, but are not limited to, statements concerning projected
revenues, expenses and gross profit, need for additional capital, market
acceptance of the Company's resource production, and the Company's production
capacity. Such statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, the Company's actual results could differ materially and
adversely from those expressed in any forward-looking statements as a result
of various factors. The section in this Report entitled "Risk Factors" and
similar discussions in the Company's other United States Securities and
Exchange Commission ("SEC") filings discuss some of the important risk factors
that may affect its business, results of operations and financial conditions.
You should carefully consider those risks, in addition to the other information
in this Report and in the Company's other filings with the SEC, before making
any business or investment decisions involving the Company and its securities.
The Company undertakes no obligation to revise or update publicly any forward-
looking statements for any reason.
ITEM 6 - Directors, Senior Management and Employees
Our board of directors is elected by our members as indicated in our memorandum
of association. Directors have not entered into any service agreements and do
not receive any remuneration. Our executive officers are appointed by our
board of directors and have employment or service agreements with our Company.
The following sets out our directors and officers of our Company:
A. Directors and Senior Management
Name Age Position with the Company
Mark Smith 49 Chairman of the Company, Director
Richard Palmer 39 President, CEO, Director
Mark Fields 50 Executive Vice President, Corporate
Secretary, Director
Clay Gillespie 34 Director
Gordon Fretwell 50 Director
Kevin Forbes 53 Chief Financial Officer
Graham Mackenzie 47 Vice President of Willow Creek
Mark Smith, B.A. (Harvard), MBA (Stanford), a Director since March 2002. Mr.
Smith is President and COO of Oakwood Labs L.L.C., a pharmaceutical development
company located in Oakwood, Ohio, where significant advances in the treatment
of life-threatening diseases are commercially developed. Mr. Smith serves as
Chairman of the Company and is one of the Company's largest shareholders.
Richard A. Palmer, MBA, B. Engineering (Mining), President and Chief Executive
Officer, Director since August 2003. Mr. Palmer was formerly Vice President of
Business Development at Peabody Energy Corporation during which his business
development milestones included the acquisition and divestment of several coal
mining enterprises.
Mark Fields, B.Sc., B.Comm., P.Geo., Executive Vice President and Corporate
Secretary, Director since September, 2001. Mr. Fields has over 18 years
experience as a professional geologist within the mineral exploration and
development industry, focusing on northern Canada and Alaska. Mr. Fields is a
member of the audit committee. He is a member of the Professional Engineers
and Geoscientists of British Columbia, and of the Canadian Institute of Mining,
Metallurgy and Petroleum.
Clay Gillespie, B.B.A., CIM, CFP, Director since April 2002. Mr. Gillespie has
been an investment counselor and financial advisor for a prominent Vancouver
advisory firm for the past ten years. Mr. Gillespie is a member of the audit
committee. Mr. Gillespie holds a Bachelor of Business Administration with a
specialty in Finance and is a Certified Investment Manager and a Certified
Financial Planner.
Gordon Fretwell, L.L.B., Director since August, 2003. Mr. Fretwell is the
principal of his law corporation and acts as director on a number of other
public companies. Mr. Fretwell is a member of the audit committee.
Kevin Forbes, Fellow of Institute of Chartered Accountants (Australia). Mr.
Forbes has been the Chief Financial Officer of the Company since April, 2003.
Mr. Forbes was formerly a senior financial officer in Australia with a large
coal mining company.
Graham Mackenzie, B. Engineering (Civil), appointed Vice President in charge of
the Willow Creek coal mine in March 2003. Mr. Mackenzie has extensive
technical and operating experience within the coal industry, including being
Mine Manager of a 6.5 million tones per year capacity open pit coal mine.
B. Compensation
Summary Compensation Table
The following table sets forth all compensation paid in respect of the
individuals who were, at March 31, 2003, the current and the former Chief
Executive Officers of the Company (the "Chief Executive Officers"). There were
no other executive officers of the Company whose total salary and bonus
exceeded $100,000 during the financial year ended March 31, 2003.
Summary Compensation Table
Annual Compensation Long Term Compensation
Awards Payouts
Name and Principal Other Securities Long Term All
Annual Under Options Incentive Other
Position Year Salary Bonus Compen- Granted Plan Compen-
sation Payouts sation
($) ($) ($) (#) ($) ($)
Richard Palmer
Chief Executive Officer(1)
2003 $6,516 (2,3) Nil $8,329 (2) 1,500,000 Nil Nil
Mark Fields
President & Former
Chief Executive Officer(4)
2003 $90,000 Nil $3,000 Nil Nil Nil
2002 $45,000 Nil $1,500 300,000 Nil Nil
NOTES:
(1) Richard Palmer was appointed Chief Executive Officer of the Company on
March 7, 2003.
(2) Amounts were converted from Australian dollars to Canadian dollars at a
rate of CDN$1.00 equals AUS$1.11.
(3) In addition, CDN$6,621 (AUS$7,350) is owing to Richard Palmer and has not
been paid but will be settled by way of shares for payment as per Mr.
Palmer's employment contract.
(4) Mark Fields resigned as Chief Executive Officer of the Company on March 7,
2003.
Stock Options
The following table sets forth stock options granted during the financial year
ended March 31, 2003 to the current Chief Executive Officer:
Option Grants During the Most Recently Completed Financial Year
Market Value
% of Total of Securities
Securities Options Exercise or Underlying
Under Options Granted to Base Price Option on the
Granted to Employees ($/Security) Date of Grant
Name (#) in Financial ($/Security)
Year Expiration
Date
Richard Palmer 1,500,000(1) 62.1%(2) $0.20 $0.62 March 10/08
NOTES:
(1) This stock option was accepted for filing by the TSX Venture Exchange on
June 20, 2003.
(2) This figure was calculated as the option granted to Mr. Palmer as compared
to the total number of senior officer, consultant and employee options
granted during the financial year ended March 31, 2003 which number was
2,415,000 (including Mr. Palmer's option above).
The following table sets forth details of the financial year end value of
unexercised options held by the Chief Executive Officers on an aggregate basis:
Aggregated Option Exercises During the Most Recently Completed Financial Year
and Financial Year-End Option Values
Value of
Unexercised Unexercised in the
Securities Aggregate Option at the Money-Options
Acquired on Value FY-End (#) at FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
Richard Palmer Nil N/A 1,500,000 $630,000
Mark Fields Nil N/A 300,000(1) Nil
NOTE:
(1) Stock option to purchase 300,000 shares at $0.90 per share exercisable
until December 12, 2006.
Pension Arrangements
The Company and its subsidiaries has a pension arrangement in place for the
current Chief Executive Officer whereby a AUS$2,709 monthly superannuation
contribution is made to the account of Mr. Palmer.
Termination of Employment, Change in Responsibilities and Employment Contracts
Executive Employment Agreement with Richard Palmer
The Company's wholly-owned Australian subsidiary, Pine Valley Coal Pty Limited
("Pine Valley Sub"), entered into a three-year Executive Employment Agreement
dated effective March 10, 2003 with Richard Palmer (the "Palmer Agreement") for
his services as Managing Director of Pine Valley Sub and other duties. Mr.
Palmer has also been appointed Chief Executive Officer and Secretary of the
Company. Pursuant to the terms of the Palmer Agreement, Pine Valley Sub will:
(a) pay to Mr. Palmer an annual salary of AUS$124,000, payable monthly, which
salary will be increased to AUS$250,000 upon the achievement of acquisition
milestones relating to the acquisition of Mitsui Matsushima Canada Ltd.'s
one-third ownership in the Willow Creek joint venture (the "Post-
Acquisition Milestone Salary");
(b) provide to Mr. Palmer shares in the capital of the Company to the value of
AU$10,500 each month in respect of any period of Mr. Palmer's employment
occurring prior to the fulfillment of the acquisition milestones;
(c) pay to Mr. Palmer, at the end of each of the Company's fiscal years, a
bonus, the amount of which will be at the discretion of those directors of
Pine Valley Sub who are independent of Mr. Palmer, and will take into
account the performance of Mr. Palmer during the then-ended fiscal year
compared against specified targets as set out in the Palmer Agreement; and
(d) make monthly superannuation contributions to the account of Mr. Palmer
equal to 13% of the gross monthly Post-Acquisition Milestone Salary.
In the event of termination without just cause, a lump sum amount equal to:
(a) one and one-half times the Palmer Post-Acquisition Milestone Salary, plus
the 13% contribution under the Superannuation Plan described in the Palmer
Agreement;
(b) 50% of the Palmer Post-Acquisition Milestone Salary in lieu of future
annual bonus entitlements; and
(c) any then-accrued but unpaid entitlements to the Palmer Post-Acquisition
Milestone Salary and bonus.
Employment Agreement with Mark Fields
The Company entered into an Employment Agreement dated effective October 1,
2001 (the "2001 Employment Agreement") with Mark Fields for his services as an
officer of the Company in consideration of an annual salary of $90,000.
The Company entered into a new Employment Agreement dated effective December 9,
2002 (the "2002 Employment Agreement") with Mr. Fields for his continuing
services as an officer of the Company in consideration of an annual salary of
$90,000. In addition, up to $30,000 will be payable at the discretion of the
Company's Board of Directors as a bonus based on Mr. Fields' overall
performance as set out in the 2002 Employment Agreement. In the event that
there is a change of control of the Company and Mr. Fields is terminated,
demoted, or otherwise constructively dismissed, then an amount equal to
$105,000 will be paid to Mr. Fields under the 2002 Employment Agreement,
together with interest.
Compensation of Former Chairman
The Company has agreed, subject to certain conditions being fulfilled, to enter
into discussions regarding payments totalling $600,000, or other consideration
of like value, to the former Chairman of the Company, Orval Gillespie, upon
terms and arrangements that are yet to be determined. Orval Gillespie died in
November 2000. Since his death, the administrators of his estate have advised
the Company that they intend to continue discussions with the Company to settle
this matter.
Compensation of Directors
During the financial year ended March 31, 2003, Walter Davidson, a former
director and Executive Chairman of the Board of the Company, was paid $3,000 in
cash by the Willow Creek joint venture and $32,750 was deferred and remains
owing to Mr. Davidson.
Other than as set out above, the Company has no pension plan or other
arrangement for cash or non-cash compensation to the directors of the Company,
other than the Chief Executive Officers (the "Other Directors"), except stock
options. On April 29, 2002, two current directors and one former director were
granted stock options to purchase an aggregate of 400,000 Common shares in the
capital of the Company exercisable for a term of five years expiring on April
28, 2007 at a price of $0.90 per share (Mark Smith - 150,000, Clay Gillespie -
100,000 and Howard Behren - 150,000). The option granted to Howard Behren, a
former director of the Company, terminated on March 30, 2003. To date, none of
these stock options have been exercised.
The exercise price of the foregoing options was not lower than the closing
market price of the Company's shares for the trading day immediately preceding
the date of granting of the options less any available discounts, in accordance
with the rules of the TSX Venture Exchange. The terms of the option agreements
provide that the options will terminate six months after the optionee ceases to
be a director of the Company, except by reason of his or her death, in which
case his or her personal representative may exercise the options within one
year following the date of death or the expiry date, whichever occurs first.
C. Board Practices
Terms of Office
The directors of the Company are elected annually and hold office until the
next annual general meeting of the members of the Company or until their
successors in office are duly elected or appointed. All directors are elected
for a one-year term. All offices serve at the pleasure of the board of
directors. The Company held its 2003 Annual & Extraordinary General Meeting on
August 12, 2003. Refer to Item 6.A.
Directors' Service Contracts
See "Compensation -Termination of Employment, Change in Responsibilities and
Employment Contracts".
Board of Director Committees
The Company's Board of Directors has an audit committee. The members of the
audit committee are appointed or replaced annually at a directors' meeting held
immediately following the annual general meeting of members of the Company.
The audit committee, the members of which are Mark Fields, Clay Gillespie and
Gordon Fretwell, is responsible for reviewing the Company's financial reporting
procedures, internal control and management information systems and liaising
with the external auditors. The audit committee also reviews the annual and
interim financial statements before those statements are approved by the Board.
D. Employees
The average number of employees was as follows:
Years ended March 31
2003 2002 2001
4 3 4
E. Share Ownership
The following table lists, as of September 30, 2003, directors and senior
management who beneficially own the Company's voting securities, consisting
solely of common shares, and the amount of the Company's voting securities
owned by the directors and senior management as a group.
Name No. of Shares Percentage of Class(1)
Richard Palmer(2) 3,520,000 9.21
Mark Fields 3,500 0.01
Mark Smith(3) 15,922,314 41.65
Clay Gillespie 50,000 0.13
Gordon Fretwell 0 0
Kevin Forbes 0 0
Graham Mackenzie 880,000 2.30
Total 20,375,814 53.30%
NOTES:
(1) Based on 38,229,519 shares outstanding as of September 30, 2003.
(2) Richard Palmer directly owns 1,760,000 shares, and has a power-of-attorney
with respect to the sale and voting of a further 1,760,000 shares.
(3) Mark Smith directly owns 10,700,697 shares. An additional 5,221,617 shares
are owned by The Rockside Foundation of New Rochelle, New York, U.S.A., a
private charitable trust, of which Mark Smith is a trustee.
As at September 30, 2003, the following stock options to purchase a total of
2,965,004 shares of the Company's common stock are outstanding:
Name/Title No. of Shares Exercise Price Expiry Date
Mark Fields/Director 300,000 $0.90 December 12, 2006
Mark Smith/Director 150,00 $0.90 April 28, 2007
Clay Gillespie/Director 100,000 $0.90 April 28, 2007
Lei Wang/Employee 15,000 $0.90 May 7, 2007
Anreder Hirschhorn and
Co./Consultant 100,004 $0.90 November 1, 2003
Richard Palmer/Senior Officer 1,500,000 $0.20 March 10, 2008
Graham Mackenzie/Senior Officer 700,000 $0.20 March 10, 2008
Gordon Fretwell/ Director 100,000 $0.29 August 12, 2008
As at the date hereof, officers and directors, as a group, own options
entitling them to purchase a total of 2,850,000 shares of the Company.
On July 10, 2003, the Company adopted a share option plan (the "Plan") for the
benefit of directors, officers, employees and consultants of the Company and of
its subsidiaries in order to conform to the applicable rules and policies of
the TSX-V, which plan was subsequently accepted by the TSX-V on July 25, 2003
and approved by the members of the Company on August 12, 2003.
At the time of adoption of the Plan, the Company had outstanding options to
purchase 2,865,004 common shares which remain in effect and are exercisable in
accordance with their terms. Any new options granted will be granted pursuant
to the terms of the Plan. The principal features of the Plan are as follows:
1. The maximum number of common shares issuable pursuant to the Plan (including
all options that were outstanding when the Plan was adopted) shall not
exceed 10% of the issued shares of the Company at the time of the stock
option grant.
2. The maximum number of shares under option to the benefit of one person under
the Plan may not exceed 5%, on an annual basis, of the total of the issued
and outstanding shares of the Company (on a non-diluted basis) at the time
of grant (in the case of a consultant, as defined by the Exchange's
policies, the annual maximum is 2%).
In the case where the holder of an option is engaged in investor relations
activities (as defined by the Exchange's policies) for the Company or one of
its subsidiaries, the total number of shares under option may not exceed 2% of
the total of the issued and outstanding shares of the Company (on a non-diluted
basis) at the time of grant.
3. The options granted will have a maximum term of 10 years from the date of
grant.
4. The option is non-assignable and non-transferable.
5. If an optionee ceases to be employed by the Company (other than as a result
of termination with cause) or ceases to act as a director or officer of the
Company or a subsidiary of the Company, any option held by such optionee may
be exercised within 90 days after the date such optionee ceases to be
employed by the Company or ceases to act as a director or officer, as the
case may be, or within 30 days if the optionee is engaged in investor
relations activities and ceases to be employed to provide investor relations
activities.
6. In the event of the death of an optionee, the optionee's heirs or
administrators may exercise any portion of the outstanding option up to a
period of one year from the date of the optionee's death or the termination
date of the option, whichever is earlier.
7. Any common shares subject to an option which for any reason is cancelled or
terminated without having been exercised shall again be available for grant
under the Plan.
ITEM 7 - Major Shareholders and Related Party Transactions
A. Major Shareholders
To the best of the Company's knowledge, we are not owned or controlled,
directly or indirectly, by another corporation or by any foreign government.
The following persons or groups are known to us to each own more than 5% of our
issued and outstanding common shares, which as of June 25, 2003 was:
Name No. of Shares Percentage
Mark Smith 10,700,697 28.0%
CDS & Co.(1) 9,243,485 24.2%
The Rockside Foundation(2) 5,221,617 13.7%
CEDE & Co. (1) 4,494,944 11.8%
NOTES:
(1) The Company has no knowledge of the beneficial ownership of these shares
registered in the names of clearing agencies.
(2) Mark Smith, a director of the Company, is a trustee of The Rockside
Foundation of New Rochelle, New York, U.S.A., a private charitable trust.
(3) Includes 1,760,000 shares over which Mr. Palmer has a power -of -attorney.
The Company's major shareholders do not have different voting rights.
As at June 25, 2003, according to the records maintained by the Company's
registrar and transfer agent, there were 116 shareholders of the Company of
record having addresses in the United States holding a total of 20,053,144
shares, representing approximately 52.45% of the outstanding common shares.
As at June 25, 2003, the total number of our issued and outstanding common
shares beneficially owned by the directors and officers as a group was
13,394,197 common shares.
To the best of our knowledge, there are no arrangements, the operation of which
at a subsequent date will result in a change in control of our Company.
B. Related Party Transactions
Shares for Debt - Walter Davidson
On September 12, 2002, the Company issued 100,000 Common shares at a deemed
price of $0.55 per share to settle indebtedness owing by the Company in the
amount of $55,000 to Walter Davidson, a former director and officer of the
Company.
Shares for Debt - Mark Smith
Pursuant to four loans made by Mark Smith to the Company and due respectively
on August 24, 2002, September 10, 2002, September 18, 2002 and April 5, 2003,
the Company and Mr. Smith agreed to convert the approximately $1,461,433.47
in loans and interest outstanding as of September 30, 2002 into an aggregate of
2,657,151 Common shares at a deemed price of $0.55 per share. The issuance of
these shares, which resulted in a change of control of the Company, received
approval of the members of the Company at the Annual & Extraordinary General
Meeting held on September 30, 2002 and the shares were thereafter issued to Mr.
Smith on October 1, 2002. Mark Smith is a director and officer of the Company.
Employment Agreement with Mark Fields
See "Compensation - Termination of Employment, Change in Responsibilities and
Employment Contracts" for details regarding the entering into by the Company
with Mark Fields of an Employment Agreement dated effective October 1, 2001 and
a subsequent Employment Agreement dated effective December 9, 2002. Mark Fields
is a director and officer of the Company.
Private Placements
On December 31, 2002, the Company issued to Mark Smith by way of private
placement 3,125,000 units at a price of $0.20 per unit, each unit consisting of
one Common share and one warrant. Each warrant entitles Mr. Smith to purchase
one additional Common share for a term of two years at a price of $0.23 per
share in the first year and $0.27 per share in the second year.
On April 16, 2003, the Company issued by way of private placement a total of
5,500,000 units at a price of $0.20 per unit, each unit consisting of one
Common share and one warrant. Each warrant entitles the holder to purchase one
additional Common share for a term of two years at a price of $0.25 per share.
Richard Palmer and Graham Mackenzie, both officers of the Company, participated
in this private placement as to 1,760,000 units and 880,000 units, respectively
Employment Agreement with Richard Palmer
See "Compensation - Termination of Employment, Change in Responsibilities and
Employment Contracts" for details regarding the entering into by Pine Valley
Coal with Richard Palmer of an Executive Employment Agreement made effective
March 10, 2003.
Employment Agreement with Graham Mackenzie
Pine Valley Coal entered into a two-year Executive Employment Agreement dated
effective March 11, 2003 with Graham Mackenzie (the "Mackenzie Agreement") for
his services as Vice-President of the Willow Creek project. Pursuant to the
terms of the Mackenzie Agreement, Pine Valley Coal will:
(a) pay to Mr. Mackenzie an annual salary of AUS$94,000, payable monthly, which
salary will be increased to AUS$190,000 upon the achievement of acquisition
milestones relating to the acquisition of Mitsui Matsushima Canada Ltd.'s
one-third ownership in the Willow Creek joint venture (the "Mackenzie Post-
Acquisition Milestone Salary");
(b) provide to Mr. Mackenzie shares in the capital of the Company to the value
of AU$8,000 each month in respect of any period of Mr. Mackenzie's
employment occurring prior to the fulfillment of the acquisition milestones
(c) pay to Mr. Mackenzie, at the end of each of the Company's fiscal years, a
bonus, the amount of which will be at the discretion of those directors of
Pine Valley Coal who are independent of Mr. Mackenzie, and will take into
account the performance of Mr. Mackenzie during the then-ended fiscal year
compared against specified targets as set out in the Mackenzie Agreement;
and
(d) make monthly superannuation contributions to the account of Mr. Mackenzie
equal to 13% of the gross monthly Mackenzie Post-Acquisition Milestone
Salary.
In the event of termination without just cause, a lump sum amount equal to:
1. one times the Mackenzie Post-Acquisition Milestone Salary, plus the 13%
contribution under the Superannuation Plan described in the Mackenzie
Agreement;
2. 30% of the Mackenzie Post-Acquisition Milestone Salary in lieu of future
annual bonus entitlements; and
3. any then-accrued but unpaid entitlements to the Mackenzie Post-Acquisition
Milestone Salary and bonus.
During the fiscal year ended March 31, 2003, no director or officer or any
associate of any director or officer was indebted to the Company, and there
were no transactions, except in respect of loans to the Company, between the
Company and any related party.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8 - Financial Information
A. Consolidated Statements and Other Financial Information
See Item 17 for the Company's Consolidated Financial Statements.
To the best of our knowledge, there are no legal or arbitration proceedings
against the Company or any of our subsidiaries.
To the best of the Management's knowledge, the Company has not since the date
of its incorporation, declared or paid any dividends, nor does it intend to
declare any dividend for the foreseeable future.
B. Significant Changes
None.
ITEM 9 - The Offer and Listing
A. Offer and Listing Details
Nature of Trading Market
Our common shares trade on the TSX-V, the successor to the Canadian Venture
Exchange, which was the successor to the merger between the Alberta Stock
Exchange and the Vancouver Stock Exchange, under the symbol "PVM". The
Company's shares also trade on OTC BB in the United States under the symbol
"PVMCF".
Trading on the TSX-V
The following table sets forth the high and low sale prices on the TSX-V for
our common shares for the last five fiscal years ended March 31, 2003.
Year Ended High Low Volume
$CDN $CDN
March 31, 2003 0.74 0.17 909,713
March 31, 2002 2.70 0.55 1,418,605
March 31, 2001 2.35 1.12 2,744,781
March 31, 2000 1.75 0.42 2,566,979
March 31, 1999 1.38 0.40 1,753,352
The following table sets forth the high and low sale prices on the TSX-V for
our common shares for each quarterly period in the two most recent fiscal years
ended March 31, 2003 and the subsequent quarter ended June 30, 2003.
Quarter Ended High Low Volume
$CDN $CDN
June 30, 2003 0.65 0.25 402,271
March 31, 2003 0.69 0.17 348,903
December 31, 2002 0.32 0.18 232,425
September 30, 2002 0.54 0.29 78,902
June 30, 2002 0.74 0.48 249,483
March 31, 2002 0.82 0.66 147,520
December 31, 2001 1.15 0.55 351,997
September 30, 2001 2.70 0.85 745,450
June 30, 2001 2.70 1.92 707,197
The following table sets forth the high and low sale prices on the TSX-V for
our common shares for each monthly period in the past six months.
Month Ended High Low Volume
$CDN $CDN
August 31, 2003 0.30 0.26 78,050
July 31, 2003 0.35 0.22 143,283
June 30, 2003 0.49 0.23 156,571
May 31, 2003 0.50 0.42 47,200
April 30, 2003 0.65 0.33 197,300
March 31, 2003 0.69 0.20 221,433
Trading on the OTC BB
The following table sets forth the high and low sale prices on the OTC BB and
Pink Sheets for our common shares for the last five fiscal years ended
March 31, 2003.
Year Ended High Low Volume
$USD $USD
March 31, 2003 0.50 0.10 989,300
March 31, 2002 1.90 0.35 1,535,200
March 31, 2001 1.53 0.66 1,450,500
March 31, 2000 Nil
March 31, 1999 Nil
The following table sets forth the high and low sale prices on the OTC BB for
our common shares for each quarterly period in the two most recent fiscal years
ended March 31, 2003 and the subsequent quarter ended June 30, 2003.
Quarter Ended High Low Volume
$USD $USD
June 30, 2003 0.47 0.25 727,300
March 31, 2003 0.50 0.10 421,900
December 31, 2002 0.21 0.11 183,100
September 30, 2002 0.35 0.21 54,500
June 30, 2002 0.42 0.29 329,800
March 31, 2002 0.50 0.41 43,000
December 31, 2001 0.648 0.35 95,200
September 30, 2001 1.70 0.53 693,900
June 30, 2001 1.90 1.313 703,100
The following table sets forth the high and low sale prices on the OTC BB for
our common shares for each monthly period in the past six months.
Month Ended High Low Volume
$USD $USD
August 31, 2003 0.265 0.23 40,501
July 31, 2003 0.35 0.26 179,000
June 30, 2003 0.38 0.29 279,500
May 31, 2003 0.38 0.30 100,900
April 30, 2003 0.47 0.25 346,900
March 31, 2003 0.50 0.10 393,500
On the TSX-V the most recent trade of the stock was $0.28 on September 19, 2003
and on the OTC BB the most recent trade of the stock was $US0.21 on September
17, 2003.
B. Plan of Distribution
Not applicable.
C. Markets
The common shares of the Company trade on the TSX-V in Canada and the OTC BB in
the United States. Refer to Item 9A.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10 - Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
We are registered in British Columbia, Canada, certificate of amalgamation No.
442303. We do not have any stated "objects" or "purposes" as the Company Act
of the Province of British Columbia does not require it. Our memorandum
("Memorandum") has authorized 100,000,000 common shares without par value. Our
articles of association ("Article of Association") contain the following
provisions, which also relies on the Company Act of British Columbia:
Voting Rights
(i) Shareholders shall have the right to receive notice of, to attend and to
vote at all general meetings. Except as otherwise provided in the Articles
of Association, on a show of hands each holder of shares present in person
and entitled to vote shall have one vote and upon a poll each such holder
who is present in person or by proxy and entitled to vote shall have one
vote in respect of every share held by him.
Variation of Class Rights and Alteration of Capital
(i) The Company may by ordinary resolution increase the share capital, and
cancel any shares which at the date of the passing of the resolution have
not been taken or agreed to be taken by any person.
(ii) By special resolution that requires a three-fourths majority, the Company
may consolidate and divide all or any of the share capital into shares of
larger amount, sub-divide the shares into shares of smaller amount.
Transfer of Shares
(i) Any member can transfer shares by delivering an instrument of transfer to
the Company's transfer agent.
Directors
(i) Our Company's business is managed by the Directors who may exercise all
powers subject to the provisions of the Articles of Association and the
Company Act of British Columbia.
(ii) The number of Directors shall be not less than three. At our last annual
general meeting, the number of directors was five. A Director shall not
be required to hold any shares in the capital of our Company. At each
annual general meeting of our Company, all of the board of directors
retire and our members elect a new board.
(iii) A Director shall not vote but can be counted in the quorum present on any
motion in respect of any contract, arrangement, transaction or any other
proposal in which he has an interest that is to his knowledge a material
interest.
(iv) The Directors shall be paid for their services as Directors such sums (if
any) as the Directors may from time to time determine.
(v) The Directors may be paid all reasonable traveling, hotel and other
expenses properly incurred by them in attending and returning from meetings
of the Directors or any committee of the Directors or general meetings or
otherwise in connection with our business.
Borrowing Powers
(i) The Directors may, exercise all of the powers to borrow money and to
mortgage or charge its undertakings, properties, assets and uncalled
capital, or any part thereof, and, subject to the provisions of the
Articles of Association, to issue debentures, debenture stock and other
securities whether outright or as security for any debt, liability or
obligation of us or of any third party.
Dividends and Distributions on Liquidation to Shareholders
(i) The Directors may declare dividends, and need not give notice to any member
Subject to any priority, preference or special rights, all dividends shall
be declared and paid according to the number of shares held on a specified
date with respect of the period of which the dividend is paid.
(ii) The Directors may pay such interim dividends as they think.
(iii) No dividend shall bear interest.
General Meetings
(i) Each year we hold a general meeting as the annual general meeting in
addition to any other meetings in that year, and not more than 13 months
shall elapse between the date of one annual general meeting and that of
the next. The annual general meeting shall be held at such time and place
as the Directors shall appoint.
(ii) All general meetings other than annual general meetings are extraordinary
general meetings. The Directors may, whenever they think fit, convene an
extraordinary general meeting.
Committees of the Board of Directors
Our board of directors has established an audit committee. Our audit committee
will recommend a firm to be appointed as independent auditors to audit
financial statements and to perform services related to the audit, review the
scope and results of the audit with the independent auditors, review with
management and the independent auditors our annual operating results and
consider the adequacy of the internal accounting procedures and the effect of
the procedures relating to the auditors' independence. In addition, the audit
committee will monitor the board's corporate governance practices, propose
nominees annually for election to the board, make recommendations as to the
composition of the committees of the board and review the functioning of the
board and the powers, mandates and performance of the committees. The audit
committee is composed of two independent directors and one officer: Clay
Gillespie, Gordon Fretwell and Mark Fields.
C. Material Contracts
Other than contracts entered into in the ordinary course of business and those
disclosed elsewhere in this Annual Report, the Company has not entered into any
material contracts within the past two years except as follows:
(a) Letter Agreement dated October 16, 2001 between the Company and Mark Smith
with respect to outstanding loans;
(b) Mutual Release and Settlement Agreement dated October 5, 2001 between the
Company and Casey Forward whereby Mr. Forward agrees to the termination of
his outstanding stock option;
(c) Notice Letter dated February 28, 2003 from Thomas O'Brien to the Company
surrendering his outstanding stock options;
(d) Debt Settlement Agreement dated December 14, 2001 between the Company and
Mark Smith whereby the Company issued 5,714,285 shares at a deemed price of
$0.70 per share to settle outstanding loans of $4,000,000;
(e) Letter Agreement dated November 14, 2001 between the Company and Mark Smith
amending the Loan Agreement dated August 24, 2001;
(f) Employment Agreement dated effective October 1, 2001 between the Company
and Mark Fields which has since been replaced by an Employment Agreement
dated effective December 9, 2002;
(g) Director Stock Option Agreement dated December 13, 2001 between the Company
and Mark Fields;
(h) Letter Agreement dated December 21, 2001 among the Company, Falls Mountain
and Mitsui Matsushima Ltd. regarding the Willow Creek Joint Venture
operations;
(i) Debt Settlement Agreements dated December 13, 14 and 19, 2001 between the
Company and each of Mark Smith (on behalf of himself, The R. Smith
Templeton Foundation and The Rockside Foundation), Jenny Valente, Thomas
O'Brien and Edward Lawson whereby the Company issued 5,922,836 shares at a
deemed price of $0.70 per share to settle outstanding indebtedness of
$4,145,985;
(j) Loan Agreement dated March 25, 2002 between the Company and Mark Smith
whereby Mr. Smith loaned the Company US$40,000;
(k) Corporate Finance Services Agreement dated March 25, 2002 between the
Company, Thomas O'Brien and LOGG Investment Research Inc.;
(l) Agreement dated January 31, 2003 between the Company, Thomas O'Brien and
LOGG Investment Research Inc. amending the Corporate Finance Services
Agreement;
(m) Agreement dated March 3, 2003 between the Company, Thomas O'Brien and LOGG
Investment Research Inc. amending the Corporate Finance Services Agreement;
(n) Investor Relations Agreement dated March 27, 2002 between the Company and
Anreder Hirschhorn and Co. which was terminated by the Company on November
1, 2002;
(o) Director Stock Option Agreements dated April 29, 2002 between the Company
and each of Mark Smith and Clay Gillespie;
(p) Employee Stock Option Agreement dated May 8, 2002 between the Company and
Lei Wang;
(q) Private Placement Subscription Agreements dated May 17 and 30, 2002 between
the Company and each of Mark Smith and Louie Garrett whereby the Company
issued 136,362 units at a price of $0.55 per unit;
(r) Debt Settlement Agreement dated May 30, 2002 between the Company and Mark
Smith whereby the Company issued 2,455,960 shares at a deemed price of
$0.55 per share to settle outstanding indebtedness of $1,350,778;
(s) Debt Settlement Amendment Agreement dated June 12, 2002 between the Company
and Mark Smith whereby the Company issued 2,595,395 shares at a deemed
price of $0.55 per share to settle outstanding indebtedness of
$1,427,467.50;
(t) Consultant Stock Option Agreement dated June 4, 2002 between the Company
and Anreder Hirschhorn and Co.;
(u) Debt Settlement Agreement dated August 2, 2002 between the Company and
Walter Davidson whereby the Company issued 100,000 shares at a deemed price
of $0.55 per share to settle outstanding indebtedness of $55,000;
(v) Private Placement Subscription Agreement dated December 18, 2002 between
the Company and Mark Smith whereby the Company issued 3,125,000 units at a
price of $0.20 per unit;
(w) Employment Agreement dated effective December 9, 2002 between the Company
and Mark Fields. See "Compensation - Termination of Employment, Change in
Responsibilities and Employment Contracts" on page 56;
(x) Letter Agreement dated March 10, 2003 among the Company, Mitsui Matsushima
Co. Ltd., Falls Mountain and Pine Valley Coal Ltd. whereby the Company
agrees to purchase Mitsui's participating interest in the Willow Creek
Joint Venture;
(y) Sale & Purchase of Joint Venture Interest Agreement dated for reference
March 10, 2003 among the Company, Mitsui Matsushima Canada Ltd. and Falls
Mountain with respect to the Willow Creek Joint Venture;
(z) Share Pledge Agreement dated March 10, 2003 between the Company and Mitsui
Matsushima Canada Ltd. with respect to the Willow Creek Joint Venture;
(aa) Executive Employment Agreement made effective March 10, 2003 between Pine
Valley Coal and Richard Palmer. See "Compensation - Termination of
Employment, Change in Responsibilities and Employment Contracts" on page
(bb) Executive Employment Agreement made effective March 11, 2003 between Pine
Valley Coal and Graham Mackenzie. See "Related Party Transactions -
Employment Agreement with Graham Mackenzie" on page 57;
(cc) Private Placement Subscription Agreements dated March 5, 2003 between the
Company and each of Richard Palmer, Tracey-Ann Palmer, Graham Mackenzie
and Bazamakijo Pty Limited whereby the Company issued 5,500,000 units at
a price of $0.20 per unit;
(dd) Amending Agreements dated April 7, 2003 between the Company and each of
Richard Palmer, Tracey-Ann Palmer, Graham Mackenzie and Bazamakijo Pty
Limited with respect to an amendment to the warrant exercise price;
(ee) Senior Officer Stock Option Agreements dated March 31, 2003 between the
Company and each of Richard Palmer and Graham Mackenzie; and
(ff) Consulting Agreement dated April 29, 2003 between the Company and Kevin
Forbes.
(gg) Notice of Stock Option Commitment (Director) dated August 12, 2003 between
the Company and Gordon Fretwell.
D. Exchange Controls
There is no law or government decree of regulation in Canada that restricts the
export or import of capital, or that affects the remittance of dividends,
interest or other payments to a non-resident holder of common shares, other
than withholding tax requirements.
There is no limitation imposed by Canadian law or by the articles or other
charter documents of a company on the right of a non-resident to hold or vote
common shares of a company, other than as provided in the Investment Canada
Act, as amended (the "Investment Act").
The Investment Act generally prohibits implementation of a reviewable
investment by an individual, government, corporation, partnership, trust or
joint venture that is non-Canadian unless the minister responsible for the
Investment Act is satisfied that the investment is likely to be of net benefit
to Canada. If an investment by a non-Canadian is not a reviewable investment,
it requires the filing of a short notice.
An investment in common shares of a company by a non-Canadian that is a "WTO
investor" would be reviewable if the value of the assets of the Company equaled
or exceeded $184 million, the threshold established for 1999In subsequent
years, the threshold amount may be increased or decreased in accordance with
the provisions of the Investment Act. A WTO investor is a member of the World
Trade Organization, current members of which include the European Community,
Germany, Japan, Mexico, the United Kingdom and the United States, or a WTO
investor-controlled entity, as defined in the Investment Act.
An investment in common shares of a company by a non-Canadian, other than a WTO
investor, would be reviewable under the Investment Act if it were an investment
to acquire control of a company and the value of the assets were $5.0 million.
The Investment Act would not apply to certain transactions in relation to
common shares of the Company, including:
An acquisition of common shares of a company by any person made in the ordinary
course of that person's business as a trader or dealer in securities;
An acquisition of control of a company by an amalgamation, merger,
consolidation or corporate reorganization following which the control of the
Company, remains unchanged.
E. Taxation
This section is to make United States persons aware and caution them as to some
of the consequences of investing in the Company (a Canadian company). Taxation
of the Company in Poland from a business perspective is discussed in the
immediately following section.
A brief description of certain provisions of the tax treaty between Canada and
the United States is included below. The consequences of state and local taxes
are not considered. The following information is general and security holders
should seek the advice of their own tax advisors.
Taxation of Dividends
A holder of a common share who is not resident in Canada for purposes of the
Income Tax Act will be subject to Canadian withholding tax on dividends paid or
credited to the holder of the common share. The rate of withholding tax on
dividends is 25% of the amount of the dividend. This rate may be reduced under
the provisions of an international tax treaty to which Canada is a party. Under
the tax treaty that Canada has entered into with the United States, the rate of
Canadian withholding tax is generally reduced to 15%, or 5% in the case of a
corporate holder which owns 10% or more of the voting shares. A foreign tax
credit for the tax withheld may be available to a holder resident in the United
States against U.S. federal income taxes.
Disposition of Common Shares
A non-resident holder of a common share will not be subject to tax under the
Income Tax Act in respect of a capital gain realized on the disposition of a
common share unless the common share is a "taxable Canadian property" (as
defined in the Income Tax Act). Shares of a corporation that are listed on a
prescribed stock exchange are generally not considered to be taxable
Canadian property. Taxable Canadian property includes any common share held by
a non-resident if used in carrying on a business (other than an insurance
business) in Canada. A non-resident whose common shares constitute taxable
Canadian property will realize upon disposition, a capital gain (or a capital
loss).
One-half of any capital gain realized by a holder (a taxable capital gain) will
be included in computing the holder's income. Non-residents are advised to
consult their tax advisers with regard to the availability of a treaty
exemption and their own particular circumstances.
Passive Foreign Investment Company
A foreign corporation with one or more U.S. shareholders is a PFIC if 75% or
more of its income is passive income or if at least 50% of its assets would be
invested in instruments which produce interest, dividends and/or capital gains.
Unlike a controlled foreign corporation or a foreign personal holding company,
there is no minimum percentage ownership by U.S. shareholder to trigger
application of the PFIC rules. If a foreign corporation has a high enough
percentage of passive income or assets, it is a PFIC as regards any U.S.
shareholder no matter how small their ownership percentage of the foreign
corporation and regardless of whether the U.S. shareholders, individually or in
the aggregate, have the ability to control the business or investments of the
foreign corporation.
If you own shares in a PFIC and you sell them for a profit you generally must
pro-rate your profit over all the years you held the shares in the PFIC, pay
U.S. income tax on the profit allocated to each year at the highest U.S. rate
in effect for that year, and pay interest on all the prior year's tax, computed
from the tax return due date for the year to which the income is attributable.
The above rule may not apply if you elect to treat your investment as a
"Qualified Electing Fund" (QEF). This election is made by attaching Form 8621
to the annual tax return. This will permit the annual inclusion of the QEF
your pro-rata share of ordinary income and long-term capital gains.
The Company does not believe it was a passive foreign investment company during
the fiscal year ended March 31, 2002 or any other year.
Future Developments
The foregoing discussion is based on existing provisions of the Code, existing
and proposed regulations thereafter, and current administrative rulings and
court decisions, all of which are subject to change. Any such changes could
affect the validity of this discussion. In addition, the implementation of
certain aspects of the PFIC rules requires the issuance of regulations which
in many such instances have not yet been promulgated and which may have
retroactive effect. Furthermore, legislation has been proposed which would
replace the PFIC provisions with a consolidated anti-deferral regime. While
this legislation was vetoed, it may be re-introduced in subsequent years.
ALL PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF PURCHASING THE COMMON SHARES.
F. Dividends and Paying Agents
Not applicable.
G. Statements by Experts
Not applicable.
H. Documents on Display
You may review a copy of our filings with the SEC, including exhibits and
schedules filed with it, at the SEC's web site www.sec.gov and search for
company filings, or at public reference facilities in Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may call the SEC at
1-800-SEC-0330 for further information on the public reference rooms.
In addition, any of the documents referred to above can be viewed at the
registered office of the Company at Suite 3000, 1055 West Georgia Street,
Vancouver, British Columbia, Canada, V6E 3R3. All of the documents referred to
above are in English.
I. Subsidiary Information
Not applicable.
Item 11 - Quantitative and Qualitative Disclosures about Market Risk
The Company does not presently believe it has material exposure to potential,
change in fair value of market sensitive instruments, near-term losses in
future earnings and/or cash flows from reasonably possible near-term changes
in market rates.
The Company did not have any foreign currency derivatives outstanding at March
31, 2003. Accordingly, no market risk existed for such instruments at this
date.
Item 12 - Description of Securities Other than Equity Securities
Not applicable.
PART II
Item 13 - Defaults, Dividends Arrearages and Delinquencies
Not applicable.
Item 14 - Material Modifications to the Rights of Security Holders and Use of
Proceeds
Not applicable.
Item 15 - Controls and Procedures
Within the 90-day period prior to the filing of this report ("Date of
Evaluation"), an evaluation was carried out under the supervision and with the
participation of the Company's management, including the Chief Executive
Officer ("CEO"), of the effectiveness of our disclosure controls and
procedures. Based on that evaluation, the CEO has concluded that the Company's
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms.
The Company's disclosure controls and procedures operate such that important
information flows to appropriate collection and disclosure points in a timely
manner and are effective to ensure that such information is accumulated and
communicated to the Company's management, and made known to the Company's CEO,
including during the period in which this Annual Report on Form 20-F was
prepared, as appropriate to allow timely decision regarding the required
disclosure.
There have been no significant changes in the Company's internal controls or
the occurrence of events or other factors that could significantly affect these
controls, subsequent to the Date of Evaluation, nor have there been any
corrective actions with regard to significant deficiencies or material
weaknesses.
Item 16 - Reserved
Item 16A - Audit Committee Financial Expert
[Pine Valley to advise whether BHT to assist with drafting.]
Item 16B - Code of Ethics
[Pine Valley to advise whether BHT to assist with drafting.]
PART III
Item 17 - Financial Statements
See Financial Statements and Exhibits listed in Item 19 hereof and filed as
part of this Annual Report.
Item 18 - Financial Statements
Not applicable.
Item 19 - Exhibits
1. Memorandum and Articles and amendments thereto:
Other than Exhibits 1.1 and 1.2 mentioned below, those documents were
attached as Exhibits to the Company's Registration Statement on Form 20-F
dated July 9, 1984 and are incorporated herein by reference.
1.1 Form 18, Ordinary Resolution, dated November 8, 2002 and attached Altered
Memorandum.
1.2 Form 19, Special Resolutions, dated April 14, 2003 and attached Altered
Memorandum.
2. Instruments defining the rights of holders of equity or debt securities
being registered: Refer to Exhibit No. 1
3. Voting Trust Agreements: Not applicable
4. Material Contracts:
4.1 Amalgamation Agreement dated March 14, 1983 between Nithex Exploration Ltd.
and Indin Gold Ltd. which was attached as an Exhibit to the Company's
Registration Statement on Form 20-F dated July 9, 1984 and is incorporated
herein by reference.
4.2 Amalgamation Agreement dated January 5, 1993 between New Lintex Minerals
Ltd., Willow Creek Coal Ltd. and A.L.M. Associates Corp. which was attached
as an Exhibit to the Company's Annual Report on Form 20-F for the year
ended December 31, 1992.
4.3 Joint Venture Agreement dated February 14, 1996 among the Company, Falls
Mountain, Mitsui Matsushima Canada Ltd. and BCR Ventures Inc. which was
attached as an Exhibit to the Company's Annual Report on Form 20-F for the
year ended March 31, 1996.
4.4 Loan Agreement dated August 24, 2001 between the Company and Mark Smith.
4.5 Share Pledge Agreement dated August 24, 2001 between the Company and Mark
Smith.
4.6 Loan Amending Agreement dated September 7, 2001 between the Company and
Mark Smith.
4.7 Loan Agreement dated September 7, 2001 between the Company and Mark Smith.
4.8 Share Pledge Agreement dated September 10, 2001 between the Company and
Mark Smith.
4.9 Employment Agreement dated effective October 1, 2001 between the Company
and Mark Fields.
4.10 Director Stock Option Agreement dated December 13, 2001 between the
Company and Mark Fields and Schedule.
4.11 Debt Settlement Agreement dated December 14, 2001 between the Company and
Mark Smith (on behalf of himself, The R. Smith Templeton Foundation and
The Rockside Foundation) and Schedule.
4.12 Loan Agreement dated March 26, 2002 between the Company and Mark Smith.
4.13 Corporate Finance Services Agreement dated March 25, 2002 between the
Company, Thomas O'Brien and LOGG Investment Research Inc.
4.14 Director Stock Option Agreement dated April 29, 2002 between the Company
and Mark Smith and Schedule.
4.15 Employee Stock Option Agreement dated May 8, 2002 between the Company and
Lei Wang.
4.16 Subscription Agreement dated May 17, 2002 between the Company and Mark
Smith and Schedule.
4.17 Debt Settlement Agreement dated May 30, 2002 between the Company and Mark
Smith.
4.18 Debt Settlement Amendment Agreement dated June 14, 2002 between the
Company and Mark Smith.
4.19 Debt Settlement Agreement dated August 2, 2002 between the Company and
Walter Davidson.
4.20 Employment Agreement dated effective December 9, 2002 between the Company
and Mark Fields.
4.21 Subscription Agreement dated December 18, 2002 between the Company and
Mark Smith.
4.22 Amending Agreement dated January 31, 2003 between the Company, Thomas
O'Brien and LOGG Investment Research Inc.
4.23 Amending Agreement dated March 3, 2003 between the Company, Thomas O'Brien
and LOGG Investment Research Inc.
4.24 Subscription Agreement dated March 5, 2003 between the Company and Richard
Palmer and Schedule.
4.25 Letter Agreement dated March 10, 2003 among the Company, Mitsui Matsushima
Co. Ltd., Falls Mountain and Pine Valley Coal Ltd.
4.26 Sale & Purchase of Joint Venture Interest Agreement dated for reference
March 10, 2003 among the Company, Mitsui Matsushima Canada Ltd. and Falls
Mountain.
4.27 Share Pledge Agreement dated March 10, 2003 between the Company and Mitsui
Matsushima Canada Ltd.
4.28 Executive Employment Agreement made effective March 10, 2003 between Pine
Valley Coal and Richard Palmer.
4.29 Executive Employment Agreement made effective March 11, 2003 between Pine
Valley Coal and Graham Mackenzie.
4.30 Senior Officer Stock Option Agreement dated March 31, 2003 between the
Company and Richard Palmer and Schedule.
4.31 Amending Agreement dated April 7, 2003 between the Company and Richard
Palmer and Schedule.
4.32 Consulting Agreement dated April 29, 2003 between the Company and Kevin
Formbes.
4.33 Share Option Plan dated for reference July 10, 2003.
4.34 Notice of Stock Option Commitment (Director) dated August 12, 2003 between
the Company and Gordon Fretwell.
5. Foreign Patents: Not applicable
6. Earnings Per Share Calculation:
Effective from April 1, 2001, the Company retroactively adopted a new standard
for the computation and disclosure of earnings per share, as recommended by
the Canadian Institute of Chartered Accountants. The adoption of the new
standard mainly affects the calculation of the diluted earnings per share
amount.
Diluted earnings per share amounts are calculated giving effect to the
potential dilution that would occur if securities or other contracts to issue
Common shares were exercised or converted to Common shares. Under the new
standard, the treasury stock method is used to determine the dilutive effect of
stock options and other dilutive instruments. The treasury stock method
assumes that proceeds received from the exercise of stock options and warrants
are used to repurchase Common shares at the prevailing market rate.
Basic earnings per share is computed using the weighted average number of
Common shares outstanding during the year.
The adoption of the new standard has no effect on the calculation of diluted
earnings per share amount for the prior years as the effect of Common shares
issuable upon the exercise of options of the Company would be anti-dilutive.
Therefore, basic and diluted earnings per share would be the same.
7. Ratio Calculations:
The ratios of debt to equity referred to in the Liquidity and Capital Resources
section were calculated in each case by dividing the figure shown on the
balance sheet for the relevant year as "Total liabilities" by the figure shown
on that balance sheet as "Total shareholders' equity".
8. List of Subsidiaries:
Globaltex Gold Mining Corp. (Incorporated in British Columbia, Canada)
Falls Mountain Coal Inc. (Incorporated in British Columbia, Canada)
Pine Valley Coal Pty Limited (Incorporated in Victoria, Australia)
9. Statement Regarding Date of Financial Statements: Not applicable
10. Notice required by Rule 104 of Regulation BTR: Not applicable
11. Code of Ethics: Not applicable
12. Certifications Required by Rule 13a-14(a) or Rule 15d-14(a):
See Certifications for each of the Chief Executive Officer and the Chief
Financial Officer on pages 58 and 60.
13. Certifications Required by Rule 13a-14(b) or Rule 15d-14(b):
14. Additional Exhibits: Not applicable
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
PINE VALLEY MINING CORPORATION
Dated: September 30, 2003 By:
"Richard Palmer", President & CEO
CERTIFICATION
I, Richard Palmer, certify that:
1. I have reviewed this annual report on Form 20-F of Pine Valley Mining
Corporation;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual report based on such evaluation; and
(d) disclosed in this annual 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: September 30, 2003
Richard Palmer, Chief Executive Officer
CERTIFICATION ACCOMPANYING PERIODIC REPORT
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Annual Report of Pine Valley Mining Corporation (the
"Company") on Form 20-F for the period ending March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Richard Palmer, 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:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Date: September 30, 2003
Richard Palmer, Chief Executive Officer
Pine Valley Mining Corporation
CERTIFICATION
I, Kevin Forbes, certify that:
1. I have reviewed this annual report on Form 20-F of Pine Valley Mining
Corporation;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual report based on such evaluation; and
(d) disclosed in this annual 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: September 30, 2003
Kevin Forbes, Chief Financial Officer
CERTIFICATION ACCOMPANYING PERIODIC REPORT
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Annual Report of Pine Valley Mining Corporation (the
"Company") on Form 20-F for the period ending March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Kevin
Forbes, 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:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Date: September 30, 2003
Kevin Forbes, Chief Financial Officer
Pine Valley Mining Corporation
Independent Auditors' Report
To the Shareholders of
Pine Valley Mining Corporation
(formerly Globaltex Industries Inc.)
We have audited the consolidated balance sheets of Pine Valley Mining
Corporation (formerly Globaltex Industries Inc.) as at March 31, 2003 and 2002
and the consolidated statements of loss and deficit and cash flows for each of
the years in the three year period ended March 31, 2003 and the period from
inception to March 31, 2003. 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 auditing standards generally accepted in the United States of
America. These 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 March 31, 2003
and 2002 and the results of its operations and its cash flows for each of the
years in the three year period ended March 31, 2003 and the period from
inception to March 31, 2003 in accordance with Canadian generally accepted
accounting principles.
"Deloitte & Touche LLP"
Chartered Accountants
Vancouver, Canada
June 6, 2003
Comments by Auditors on Canadian - United States of America Reporting
Differences
In the United States of America, reporting standards for auditors require the
addition of an explanatory paragraph for the following:
a) When 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 2 to the consolidated financial statements.
b) To describe changes in accounting policies that have been implemented in the
consolidated financial statements. Effective April 1, 2002, the Company
adopted CICA Handbook Section 3870, Stock-Based Compensation and Other Stock-
Based Payments. The impact of this change in accounting policy is set out in
Note 3 (m) to the consolidated financial statements.
Although we conducted our audits in accordance with both Canadian generally
accepted auditing standards and United States generally accepted auditing
standards, our report to the Shareholders dated June 6, 2003 is expressed in
accordance with Canadian reporting standards which do not permit a reference
to such conditions and events in the auditors' report when these are adequately
disclosed in the consolidated financial statements.
"Deloitte & Touche LLP"
Chartered Accountants
Vancouver, Canada
June 6, 2003
Pine Valley Mining Corporation
(formerly Globaltex Industries Inc.)
(An exploration stage company)
Consolidated Balance Sheets
As of March 31, 2003
(Canadian Dollars)
2003 2002
ASSETS
CURRENT
Cash and cash equivalents $680,040 $73,501
Restricted cash - 296,803
Accounts receivable 1,349 1,628,158
Prepaid expenses 5,497 5,477
Total Current Assets 686,886 2,003,939
CAPITAL ASSETS (Note 4) 14,850 19,530
MINERAL PROPERTIES (Note 5) (Schedule 1) 10,423,081 13,026,175
10,437,931 13,045,705
Total Assets $11,124,817 $15,049,644
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $185,872 $2,019,165
Interest payable - 26,588
Notes payable (Note 7) - 1,550,355
Total Current Liabilities 185,872 3,596,108
DUE TO RELATED PARTY (Note 6) 600,000 600,000
Total Liabilities 785,872 4,196,108
SHAREHOLDERS' EQUITY
Capital stock (Note 8 and 9)
Authorized 100,000,000 common shares
of no par value
Issued and fully paid (Note 8)
32,073,269 shares (2002 - 24,626,185 shares) 26,423,896 23,207,462
Commitment to issue shares (Note 8(e)) 131,250 1,000,000
Share subscription (Note 8(e)) 572,770 -
Contributed surplus and other capital (Note 9) 1,115,555 1,092,761
Deficit accumulated during exploration stage (17,904,526) (14,446,687)
Total Shareholders' Equity 10,338,945 10,853,536
Total Liabilities and Shareholders' Equity $11,124,817 $15,049,644
CONTINUING OPERATIONS (Note 2)
CONTINGENT LIABILITIES AND COMMITMENTS (Note 15)
APPROVED BY THE BOARD OF DIRECTORS
Mark Fields Director
Clay Gillespie Director
Pine Valley Mining Corporation
(formerly Globaltex Industries Inc.)
(An exploration stage company)
Consolidated Statements of Loss and Deficit
For the Years Ended March 31
(Canadian Dollars)
Cumulative
from inception
to March 31,
2003 2003 2002 2001
REVENUE
Interest and other $216,460 $1,472 $8,874 $3,616
EXPENSES
Accounting and audit 724,041 39,150 45,842 25,473
Amortization 100,657 4,680 5,704 5,819
Consulting (Note 9 (a)) 22,794 22,794 - -
Fees and assessments 150,774 24,422 1,253 -
General exploration 83,821 - - -
Interest and financing 2,056,778 143,957 969,210 260,155
Management fees 1,128,847 32,750 161,796 137,100
Office 1,427,872 162,566 741,464 92,714
Professional fees 1,449,525 78,374 139,689 94,179
Promotion 362,674 11,898 7,580 25,400
Transfer agent 235,148 20,171 23,249 26,162
Travel 214,740 20,833 22,558 30,774
7,957,671 561,595 2,118,345 697,776
LOSS BEFORE UNDERNOTED ITEMS (7,741,211) (560,123) (2,109,471) (694,160)
Amalgamation and settlement costs (840,720) - - -
Loss on disposal of capital assets (115,320) - - -
Foreign exchange gain (loss) (24,943) 16,884 (41,827) -
Write-down of mineral
properties (note 5(a)) (8,993,072) (2,914,600) - -
Write down of investment
in US Electric Power Inc. (189,260) - (189,260) -
(10,163,315) (2,897,716) (231,087) -
NET LOSS (17,904,526) (3,457,839) (2,340,558) (694,160)
DEFICIT ACCUMULATED DURING
EXPLORATION STAGE,
BEGINNING OF PERIOD - (14,446,687) (12,106,129) (11,411,969)
DEFICIT ACCUMULATED DURING
EXPLORATION STAGE,
END OF PERIOD $(17,904,526) $(17,904,526) $(14,446,687) $(12,106,129)
Basic and diluted
loss per share $(0.12) $(0.12) $(0.04)
Weighted average
number of shares 28,318,672 20,007,894 18,749,353
Pine Valley Mining Corporation
(formerly Globaltex Industries Inc.)
(An exploration stage company)
Consolidated Statements of Cash Flows
For the Years Ended March 31
(Canadian Dollars)
Cumulative
from inception
to March 31, Years ended March 31,
2003 2003 2002 2001
OPERATINGACTIVITIES
Net loss $(17,904,526) $(3,457,839) $(2,340,558) $(694,160)
Adjustments:
Amortization 100,657 4,680 5,704 5,819
Loss on disposal of
capital assets 115,320 - - -
Accretion of equity component
of convertible instrument 31,095 - - -
Non-cash consulting costs 22,794 22,794 - -
Non-cash financing costs 1,055,450 25,973 792,477 237,000
Write-off of mineral
properties (Note 5(a)) 8,993,072 2,914,600 - -
Write-off of investment in
US Electric Power Inc. 189,260 - 189,260 -
Office expenses (Note 6) 600,000 - 600,000 -
Changes in non-cash operating
working capital items other
than cash (Note 12) (317,084) 198,057 (657,996) 29,249
(7,113,962) (291,735) (1,411,113) (422,092)
FINANCING ACTIVITIES
Capital stock issued 7,329,047 700,000 578,000 354,550
Share subscription
(Note 8(d)) 704,020 704,020 - -
Note proceeds 9,906,445 94,734 1,176,328 4,400,000
Note payments (288,974) (288,974) - -
Proceeds on convertible debt 150,000 - - -
17,800,538 1,209,780 1,754,328 4,754,550
INVESTING ACTIVITIES
Acquisition of capital assets (160,434) - (2,164) (3,532)
Investment in US Electric
Power Inc. (189,260) - (182,021) (7,239)
Deferred exploration and
development (5,876,505) (311,506) (116,912) (569,209)
Reclamation deposit - - - 15,000
Acquisition of net assets of Willow Creek net of
cash acquired (3,491,363) - - (3,902,543)
(9,717,562) (311,506) (301,097) (4,467,523)
INCREASE (DECREASE) IN CASH 969,014 606,539 42,118 (135,065)
CASH POSITION,
BEGINNING OF PERIOD - 73,501 31,383 166,448
CASH POSITION,
END OF PERIOD $969,014 $680,040 $73,501 $31,383
SUPPLEMENTAL INFORMATION
Interest paid $76,960 $129,865 $23,155
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
(i) the Company issued 4,085,722 (2002: 4,285,714, 2001: nil) common shares
to settle notes payable in the amount of $2,461,433 (2002: $3,000,000,
2001: $nil) (Note 8).
(ii) the Company issued 100,000 (2002: 208,551, 2001: nil) common shares to
settle certain accounts payable in the amounts totaling $55,000 (2002:
$145,984, 2001: $nil).
(iii) the Company issued nil (2002: 200,815, 2001: nil) common shares as
consideration for nil (2002: two, 2001: nil) new notes payable obtained
at a deemed value of $215,450.
(iv) the Company issued nil (2002: 300,000, 2001: 2,300,000) share purchase
warrants valued at $nil (2002: $60,000, 2001:$780,000) in consideration
of the $nil (2002:$400,000, 2001:$4,400,000) loan (Note 7).
Pine Valley Mining Corporation
(formerly Globaltex Industries Inc.)
(An exploration stage company)
Consolidated Statement of Deferred Exploration and Development Costs
For the Years Ended March 31
(Canadian Dollars) Schedule 1
Cumulative
from inception
to March 31, Years ended March 31,
2003 2003 2002 2001
DEFERRED EXPENDITURES
Indin Lake
Acquisition $553,665 $- $- $-
Consulting 512,895 - 31,124 57,678
Geological program 355,218 - - -
Environmental deposit 50,000 - - -
Equipment purchases 1,131,233 - - -
Insurance 56,974 - - -
Insurance proceeds (553,736) - - -
Taxes and licences 75,245 3,745 3,534 3,534
Supplies 318,556 - - -
Survey 43,331 - - -
Travel and camp 371,219 - - -
Cost written down (2,914,600) (2,914,600) - -
- (2,910,855) 34,658 61,212
Willow Creek Coal Property
Acquisition 12,097,331 - - 3,902,543
Bulk sample 115,754 - - -
Consulting 579,815 26,843 52,840 7,800
Deferred development 4,289,924 162,998 2,674,882 927,341
Environmental 34,451 - - -
Geological 2,061 - - 2,061
Laboratory 45,749 - - -
Licences 268,923 117,920 - -
Reclamation 4,803 - - (10,000)
Recovery from trial cargo
sale (2,348,587) - (2,348,587) -
Supplies 15,896 - - -
Survey and mapping 29,104 - - -
Travel 62,147 - 11,388 1,022
Costs written-down (4,774,290) - - -
10,423,081 307,761 390,523 4,830,767
TOTAL 10,423,081 (2,603,094) 425,181 4,891,979
MINERAL PROPERTIES,
BEGINNING OF PERIOD - 13,026,175 12,600,994 7,709,015
MINERAL PROPERTIES,
END OF PERIOD $10,423,081 $10,423,081 $13,026,175 $12,600,994
Pine Valley Mining Corporation
(formerly Globaltex Industries Inc.)
(An exploration stage company)
Notes to the Consolidated Financial Statements
For the Years Ended March 31
(Canadian Dollars)
1. BUSINESS OF THE COMPANY
The Company is engaged in the exploration and development of a coal project
(Note 5(b)) near Chetwynd, British Columbia Canada.
Effective from May 13, 2003 the Company changed its name to Pine Valley
Mining Corporation.
2. CONTINUING OPERATIONS
These financial statements have been prepared on the basis of accounting
principles applicable to a going concern which assume that the Company will
realize its assets and discharge its liabilities in the normal course of
business. The Company has incurred losses since inception of $17,904,526
and has working capital at March 31, 2003 of $501,014. The Company's
continued existence is dependent on the ability to obtain loan financing;
the raising of additional equity capital through sales of its common stock
or other means to fund its operations and the Company's ability to
ultimately attain profitable operations.
Management is continuing its efforts to obtain additional funds so that the
Company can meet its obligations and continue the exploration and
development of its mineral properties. Should the Company not be able to
raise sufficient funds to exercise its right to acquire Mitsui Matsushima
Canada Ltd.'s Willow Creek Joint Venture interest, it has a contingent
obligation to pay Mitsui Matsushima a breakup fee of $500,000 and the
Willow Creek Joint Venture will continue to be in effect, the Company
having an interest of 66 2/3% and Mitsui Matsushima having an interest of
33 1/3%. Should the Company not be able to raise sufficient funds for the
financial requirements of the Willow Creek Joint Venture, the Company would
likely have its interest in the Willow Creek Joint Venture decreased to
less than 66-2/3% (Note 5(b)).
If the going concern assumption were not applicable in the preparation of
these financial statements, adjustments would be necessary to the carrying
values of assets and liabilities, the reported net loss and the balance
sheet classifications used.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles ( Canadian GAAP)
which in respect of these financial statements do not differ materially
from accounting principles generally accepted in the United States ( US
GAAP), expect as disclosed in Note 14.
(a) Basis of presentation
These consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Pine Valley Coal Pty Limited,
Globaltex Gold Mining Corp. and Falls Mountain Coal Inc. All
intercompany transactions and balances have been eliminated.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(b) Cash and cash equivalents
Cash and cash equivalents includes short term money market instruments
with terms to maturity at the date of issue not exceeding 90 days.
(c) Mineral properties
The Company is involved in exploration and development of its mineral
properties. The Company defers all acquisition costs and exploration
costs, net of pre-commercial revenues, that relate to specific properties
when the properties are initially examined and/or the property has
indicated mineral reserves until such time as the properties are brought
into production, are sold or abandoned. Costs pertaining to properties
developed to production will be amortized over the estimated productive
life of the property. Costs pertaining to properties sold or abandoned
will be written off.
The carrying costs of mineral properties and deferred exploration costs
are not intended to represent present or future values. The ultimate
realization of the carrying costs of mineral properties is dependent upon
the discovery of commercially exploitable ore bodies or the proceeds from
disposition. The Company reviews the carrying value of its mineral
properties on a regular basis, primarily by reference to estimated future
expected cashflows. When the carrying value of these assets exceed their
estimated net recoverable amounts, an impairment provision is made for the
other than temporary decline in value.
(d) Capital assets
Capital assets are recorded at cost and the Company provides for
amortization using the declining balance method at rates ranging from 20%
to 30% per annum.
(e) Restoration, rehabilitation, and environmental expenditures
Restoration, rehabilitation and environmental expenditures are charged to
earnings as incurred during the exploration phase. Significant
restoration, rehabilitation and environmental expenditures to be incurred
subsequent to the cessation of exploration are accrued when their extent
can be reasonably estimated.
(f) Income taxes
The Company accounts for income taxes using the future income tax method
whereby future income tax assets and liabilities are computed based on
differences between the carrying amount of assets and liabilities on the
balance sheet and their corresponding tax values using the enacted income
tax rates at each balance sheet date. Future income tax assets also
result from unused loss carry forwards and other deductions. The value of
future income tax assets is reviewed annually and adjusted, if necessary,
by use of a valuation allowance to reflect the estimated realizable amount
Although the Company has tax loss carry forwards, there is uncertainty as
to utilization prior to their expiry. Accordingly, the future tax asset
amounts have been fully offset by a valuation provision.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(g) Earnings (loss) per common share
Earnings per share calculations are based on the weighted average number
of common and common equivalent shares issued and outstanding during the
year. Diluted earnings per share are calculated using the treasury stock
method. Common equivalent shares consist of the incremental common shares
exercisable upon the exercise of stock options and are excluded from the
computation if their effect is anti-dilutive.
(h) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue
and expenses during the reporting periods. Actual results could differ
from those estimates.
(i) Fair value of financial instruments
The Company believes, based upon current information, that the carrying
value of the Company's cash and cash equivalents, accounts receivable and
accounts payable and accrued liabilities approximate their fair value.
The estimated fair values of debt, which is estimated by discounting cash
flows using current market rates available for debt with similar terms and
maturity, is disclosed in Note 7.
(j) Financial risk
Financial risk is the risk arising from changes in interest rates and
foreign currency exchange rates. The Company does not use any derivative
instruments to reduce its exposure to fluctuations in interest rates and
foreign currency exchange rates.
(k) Joint venture
The Company accounts for its interest in the Willow Creek Joint Venture on
a proportionate consolidation basis, which, due to the current development
status of the property, results in presentation similar to that derived
from the equity method.
(l) Foreign currency translation
The Company uses the temporaral method to translate transactions and
balances denominated in foreign currencies. Under this method, monetary
items are translated at the rate of exchange in effect at the balance
sheet date and non-monetary items are translated at historical exchange
rates. Revenue and expense items are translated at exchange rates in
effect at the date of the transaction except for amortization, which is
translated using the same rates as the related assets. Gains and losses
on translation are recorded in operations.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(m) Stock options
The Company has a stock based compensation plan which is described in Note
9(a). The Company has adopted the recommendations of the new CICA Handbook
section 3870, Stock-Based Compensation and Other Stock-Based Payments,
effective April 1, 2002. This section establishes standards for the
recognition, measurement and disclosure of stock-based compensation and
other stock-based payments made in exchange for goods and services. The
standard requires that all stock-based awards made to non-employees be
measured and recognized using a fair value based method. The standard
encourages the use of a fair value based method for all awards granted to
employees, but only requires the use of a fair value based method for
direct awards of stock, stock appreciation rights, and awards that call
for settlement in cash or other assets. Awards that a company has the
ability to settle in stock are recorded as equity, whereas awards that the
entity is required to or has a practice of settling in cash are recorded
as liabilities.
Compensation expense is recognized when stock options are issued to
employees and directors for the excess, if any, of the quoted market price
at the date of grant over the exercise price. Any consideration paid by
employees and directors on exercise of stock options is credited to share
capital. If stock options are repurchased the excess of consideration paid
over the carrying amount of the stock option is charged to deficit.
Compensation expense is determined when stock options are issued to
non-employees and is recognized over the vesting period of the option.
The compensation expense is determined as the fair value of the option at
the date of grant using an option pricing model.
This policy applies to all stock options grants issued subsequent to April
1, 2002.
4. CAPITAL ASSETS
2003 2002
Accumulated Net Book Net Book
Cost Amortization Value Value
Office equipment $66,018 $51,952 $14,066 $18,410
Field equipment 9,000 8,216 784 1,120
$75,018 $60,169 $14,850 $19,530
5. MINERAL PROPERTIES
2003 2002
Indin Lake $- $2,910,855
Willow Creek Joint Venture 10,423,081 10,115,320
$10,423,081 $13,026,175
5. MINERAL PROPERTIES (Continued)
(a) Indin Lake
The Company has a 90% interest in certain leases located in the Mackenzie
Mining Division of the Northwest Territories. The Company has concluded
that the Indin Lake gold property should be written down to nil value due
to the extended period of time since any active exploration work has been
undertaken, the difficulty advancing the property at current gold prices
and the limited likelihood that the Company will realize any significant
value from the property in the near future.
(b) Willow Creek Joint Venture (Falls Mountain/Willow Creek)
During the year ended March 31, 1996, the Company entered into the Willow
Creek Joint Venture Agreement with respect to the Willow Creek Coal
Project with Mitsui Matsushima Canada Ltd, ( Mitsui Matsushima ) and BCR
Venture Inc. ( BCR ), a wholly owned subsidiary of BC Railway Company
( BC Rail ) to form the Willow Creek Joint Venture (Willow Creek Joint
Venture ). The purpose of the Willow Creek Joint Venture is to develop a
low cost coal mine.
Under the agreement, a feasibility study has been completed and accepted
by the Willow Creek Joint Venture participants, and a decision has been
made to proceed to develop a coal mine in the Willow Creek coal licenses.
Pine Valley Coal Ltd. has been set up as the operator and is directed by a
Management Committee. Under the agreement, the Company's 100% owned
subsidiary, Falls Mountain Coal Inc., contributed 25 coal licences which
it owned together with other assets in connection with its exploration
activities at Willow Creek. The licences and assets were transferred to
the Willow Creek Joint Venture in return for a capital account of
$2,500,000. Under the Agreement, Mitsui Matsushima and BC Rail earned a
one-third interest each by making equity contributions totaling $5 million
to the Willow Creek Joint Venture, and a best efforts commitment to obtain
project financing.
During the year ended March 31, 2001, the Company acquired BCR's interest
in consideration of $3,902,543 cash, resulting in the Company holding 66-
2/3% of the joint venture. The Company has recorded a cumulative loss
allowance on its Willow Creek properties of $4,774,290 at March 31, 2003
which recognizes the difference between the property carrying value and
the transfer value to the Joint Venture to the extent of the interests of
Mitsui Matsushima.
As at March 31, 2003, the Company has made all the necessary Willow Creek
Joint Venture payments to maintain its Willow Creek Joint Venture interest
at 66 2/3%.
Under the agreement, the parties have contracted with BC Rail to provide
haulage services under a haulage contract and have also contracted with
Mitsui Matsushima to market the coal worldwide during the life of the
project. The Willow Creek Joint Venture Agreement also provides that, in
the event of acquisition of control of the Company (as defined by the
Securities Act of British Columbia) by a person in the business of
producing or transporting coal in, or selling coal produced from Alberta
or British Columbia, the Company will cease to have any representation or
right to vote on the management committee of the Willow Creek Joint
Venture.
5. MINERAL PROPERTIES (Continued)
(b) Willow Creek Joint Venture (Falls Mountain/Willow Creek) (Continued)
On March 10, 2003 Falls Mountain and Mitsui Matsushima entered into a
binding Sale & Purchase Agreement whereby the Company has the right to
acquire Mitsui Matsushima's one third interest in the Willow Creek Joint
Venture for $6,000,000 prior to December 10, 2003. Mitsui Matsushima will
retain its interest in the Willow Creek Joint Venture until the
transaction closes. Falls Mountain will pay all expenditures until closing
of the Sales & Purchase Agreement, and has a contingent obligation to pay
Mitsui Matsushima a break-up fee of $500,000 in the event the purchase
cannot be consummated due to an inability to secure the necessary
financing.
The assets, liabilities and cash flows of the Willow Creek Joint Venture
are summarized as follows:
2003 2002
Current assets and deposits $32,194 $2,942,892
Coal property interests and equipment 10,821,653 11,239,335
10,853,847 14,182,227
Current liabilities 23,847 2,153,358
Joint Ventures' Equity $10,830,000 $12,028,869
Cash Flows - generated (applied)
Investing activities $1,091,856 $(1,787,134)
Financing activities $(1,198,869) $1,819,000
6. DUE TO RELATED PARTY
The Company has provided for the payment of $600,000 to the estate of the
former Chairman of the Company (the Estate ). The Estate is
administered on behalf of its beneficiaries by a director of the Company.
The Company has agreed, subject to certain conditions being fulfilled, to
enter into discussions that could result in a cash payment or shares of the
Company being issued in full consideration of an amount of $600,000 for the
Estate upon terms and arrangements that are not yet to be determined.
There is no immediate requirement or intention to finalize these
discussions. Per a letter from the Estate dated June 6, 2003, the Estate
undertook that no action will be taken to collect any or all of the amount
until beyond June 30, 2004.
7. NOTES PAYABLE
2003 2002
Non-interest bearing promissory note,
maturing September 18, 2002 $- $400,000
Promissory note, bearing 15% interest
per annum, secured by shares of
Falls Mountain Coal Inc.,
maturing August 24, 2002. - 804,328
Promissory note, bearing 15% interest
per annum, secured by shares of
Falls Mountain Coal Inc.,
maturing September 10, 2002. - 372,000
$- $1,576,328
Less amount to be accreted to
date of maturity - (25,973)
$- $1,550,355
In September 2001, the Company and the lender entered into an agreement to
extend the $400,000 loan to September 18, 2002 which was one year beyond
the original due date. As consideration for the extension of the loan, the
Company granted additional 300,000 share purchase warrants entitling the
holder to purchase up to 300,000 common shares for a term of three years to
September 6, 2004 at a price of $1.15 per share in the first year, $1.25
per share in the second year and $1.35 per share in the third year. The
fair value of these share purchase warrants of $60,000 is being amortized
over the remaining life of the loan. The fair value of the Company's share
purchase warrants were determined using an option pricing model based on
volatility of the stock price of 60%, a risk free interest rate of 4.00%,
no dividends and a life of three years.
In September 2001, the Company arranged a $1,150,000 loan (in US Dollars)
and a $372,000 loan, both due to an arm's length lender, to provide
working capital. Both loans were for a term of one year, bearing interest
at a rate of 15% per annum calculated daily in arrears and compounded
quarterly. The loans were secured by a pledge in favour of the principal
lender of the shares of Falls Mountain Coal Inc. In addition, the Company
granted 165,046 and 35,769 bonus shares respectively, as consideration for
the two new loans. On November 15, 2001, February 4, 2002, and May 10,
2002, the Company paid $306,434 (in US Dollars), $340,672 (in US Dollars)
and $150,708 (in US Dollars) respectively towards the $1,150,000 loan (in
US Dollars) which included interest.
In April 2002, the Company settled an outstanding loan balance of
$1,000,000 due to a director, through the issuance of 1,428,571 common
shares at a price of $0.70 per share.
In April 2002, the Company received a $40,000 loan (in US Dollars) from a
director. The loan was for a term of one year, bearing interest at a rate
of 10% per annum calculated daily in arrears and compounded annually,
maturity on or before April 5, 2003.
In November 2002, $20,000 in US dollars was advanced to the Company by a
director. The advanced loan was non-interest bearing and had no specific
terms of repayment. The loan was repaid in January 2003.
7. NOTES PAYABLE (Continued)
The Company agreed with the lenders to settle the outstanding balance as at
September 30, 2002 of all the above remaining loans totaling an equivalent
of $1,461,433 by issuing 2,657,151 shares at a price of $0.55 per share.
The shares were issued on October 1, 2002.
The Company estimates the fair value of the interest free loans using
discounted cash flows assuming a borrowing rate equal to the variable rate
of the LIBOR rate plus 3 1/2%.
2003 2002
Carrying value $- $374,027
Fair value - 388,710
8. SHAREHOLDERS' EQUITY INFORMATION FROM INCEPTION TO MARCH 31, 2003
Shareholders' Equity
Years Issued Number of from inception to
shares March 31, 2003
(a) Shares issued for cash
1970 45,117 $67,675
1971 12,895 30,948
1972 16,361 49,084
1973 1 1
1974 83,333 60,000
1976 100,000 90,000
1977 66,667 35,000
1978 100,000 52,173
1980 233,333 135,000
1981 433,333 1,496,546
1987 83,333 62,500
1988 358,334 321,751
1990 150,000 43,500
1991 50,000 14,000
1992 800,000 235,750
1994 236,500 302,030
1995 648,125 542,860
1996 100,000 120,000
1997 50,000 60,000
1998 355,000 230,787
1999 1,225,833 758,463
2000 1,816,157 958,000
2001 656,500 384,979
2002 866,667 578,000
2003 3,261,362 700,000
11,748,851 7,329,047
(b) Shares issued for property
(company and predecessor corporations)
1970 108,333 $162,500
1973 25,000 7,500
1976 108,333 3,250
1976 1,667 1,000
1980 250,000 559,815
1981 8,333 56,250
1983 8,333 42,500
* 1985 (82,732) (185,261)
1988 100,000 88,000
1990 100,000 25,000
1991 100,000 25,000
1993 5,400,000 8,532,000
1995 80,000 96,000
6,207,267 9,413,554
* Shares contributed to the Company and cancelled
8. SHAREHOLDERS' EQUITY INFORMATION FROM INCEPTION TO MARCH 31, 2003(Continued)
Shareholders' Equity
Years Issued Number of from inception
shares to March 31, 2003
(c) Shares issued for debt 1985 993,368 $745,026
Shares issued for equipment 1985 333,333 400,000
1987 447,052 335,289
Shares issued for debt 1988 46,315 34,737
1990 568,953 194,003
1991 608,360 152,090
Shares issued for finders' fee 1996 756,581 543,049
Shares issued for debt 1996 1,038,390 1,013,631
1997 50,000 47,500
1998 130,840 157,008
2000 263,157 181,095
2002 4,695,080 3,361,434
2003 4,185,722 2,516,433
14,117,151 9,681,295
Balance of Shares on March 31, 2003 32,073,269 $26,423,896
During the year ended March 31, 2003, the Company :
(i) Issued 1,428,571 common shares to settle notes payable in the amount of
$1,000,000 (Note 7).
(ii) Closed a private placement financing of 136,362 units for proceeds of
$75,000 on June 14, 2002. Each unit consisted of one common share and one
half common share purchase warrant of the Company. Each share purchase
warrant is exercisable for two years from the date of issue at an
exercise price of $0.60 (Note 9).
(iii) Issued 100,000 common shares to settle $55,000 debt due to a former
director. This debt was included in accounts payable and accrued
liabilities in the year.
(iv) Issued 2,657,151 common shares to settle notes payable in the amount of
$1,461,433 (Note 7).
(v) Closed a private placement financing of 3,125,000 units for proceeds of
$625,000 on December 31, 2002. Each unit consisted of one common share and
one common share purchase warrant. Each share purchase warrant is
exercisable for two years at a price of $0.23 per share in the first year
and $0.27 per share during the second year (Note 9).
(d) During the year ended March 31, 2002, the Company :
(i) Issued 866,667 common shares for proceeds of 578,000 on the exercise of
warrants and stock options.
(ii) Issued 4,695,080 common shares to settle $3,361,434 of debt.
(e) Share Subscription
On March 10, 2003, the Company announced a private placement of 5,500,000
units at a price of $0.20 per unit. Each unit consists of one common
share and one share purchase warrant entitling the holder to purchase one
common share at $0.25 each for a period of two years. At March 31, 2003,
the Company had received gross proceeds of $704,020 in connection with
3,520,100 units. A finder's fee totalling $131,250 was paid subsequent to
the year-end by the issuance of 656,250 common shares of the Company at a
price of $0.20 per share. (2002 - The Company had an obligation to issue
shares in settlement of a $1,000,000 obligations - See Note 7).
9. STOCK OPTIONS AND WARRANTS
(a) Stock Options
The Company has established a stock option plan for directors and
employees. The Company is allowed to grant up to 10% of issued and
outstanding shares as stock options. Stock options are exercisable from
the date of grant. A summary of the Company's options at March 31, 2003,
2002 and 2001 and the changes for the years ending on those dates is
presented below:
For the years ended March 31,
2003 2002 2001
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at the
beginning of year 2,193,500 $1.06 1,850,167 $1.20 1,301,667 $1.20
Granted 2,815,000 0.35 1,050,000 0.90 650,000 1.20
Exercised - - (96,667) 1.20 (26,500) 1.20
Cancelled and
expired (2,143,496) 1.06 (610,000) 1.20 (75,000) 1.20
Outstanding at the
end of year 2,865,004 $0.37 2,193,500 $1.06 1,850,167 $1.20
As at March 31, 2003, outstanding stock options to directors, officers and an
employee were as follows:
Number of shares Exercise price Expiry date
300,000 $0.90 December 12, 2006
250,000 0.90 April 28, 2007
15,000 0.90 May 7, 2007
100,004 0.90 November 1, 2003
2,200,000 0.20 March 10, 2008
2,865,004
During the year ended March 31, 2003, 200,000 stock options were granted to
non-employees and non-directors. Using the fair value method for stock based
compensation, consulting costs of $22,794 were recorded (2002 - $NIL, 2001 -
$Nil). This amount was determined using an option pricing model assuming no
dividends are to be paid, vesting occurring on the terms of the original
grant, exercising on the last day before expiry, a weighted average
volatility of the Company's share price of 69% and an average annual risk
free interest rate of 4%. The option granted to the optionee was vested as
to 16,674 shares at June 4, 2002 and was vested every month thereafter at a
rate of 16,666 shares per month up to November 1, 2002, the termination date
of the consulting service.
Proforma compensation expense
If the Company had adopted the fair value method of accounting for stock
options as set out in CICA Handbook section 3870, Stock-Based Compensation
and Other Stock Based Payments and included share purchase options granted to
employees in the calculation of compensation expense, net loss would be as
follows:
9. STOCK OPTIONS AND WARRANTS (Continued)
2003 2002 2001
Net loss as reported $(3,457,839) $(2,340,558) $(694,160)
Compensation expense
of employees (115,000) (510,000) (425,000)
Proforma net loss (3,572,839) (2,850,558) (1,119,160)
Proforma basic and
diluted loss per share $(0.13) $(0.14) $(0.06)
Compensation expense is determined using an option pricing model assuming no
dividends are to be paid, vesting on the date of grant, a weighted average
volatility of the Company's share price of 69% (2002 - 105% and 2001 - 60%),
an annual risk free interest rate of 4% ( 2002- 4.23%, and 2001 - 4%) and an
expected life of five years.
(b) Warrants
A summary of the Company's warrants at March 31, 2003, 2002, and 2001 and
the changes for the years ending on those dates is presented below:
For the years ended March 31,
2003 2002 2001
Weighted Weighted Weighted
Average Average Average
Warrants Price Warrants Price Warrants Price
Outstanding at the
beginning of year 2,600,000 $1.56 3,070,000 $1.50 770,000 $1.20
Issued 3,193,181 0.26 300,000 1.25 2,300,000 1.60
Exercised - - (770,000) 1.20 - -
Outstanding at the
end of year 5,793,181 $0.84 2,600,000 $1.56 3,070,000 $1.50
As at March 31, 2003, outstanding share purchase warrants were as follows:
Number of shares Exercise price Expiry date
300,000 $1.70 September 16, 2003
2,000,000 $1.70 January 8, 2004
300,000 $1.25/$1.35 September 18, 2003/2004
68,181 $0.60 June 3, 2004
3,125,000 $0.23/$0.27 December 31, 2003/2004
5,793,181
During the year ended March 31, 2002, the Company issued 300,000 warrants to
acquire common shares of the Company. These warrants had a fair value of
$60,000 at the date of issue which is being recorded in operations as a
financing expense over the remaining life of the related debt. This increased
the contributed surplus and other capital to $1,092,761 at March 31, 2002.
The fair value of these warrants was determined using an option pricing model
assuming no dividend payments, a weighted average volatility of the Company's
share price of 42%, an annual risk free interest rate of 4.23% and an
expected life of three years.
10. RELATED PARTY TRANSACTIONS
(a) The Company paid or accrued amounts payable to officers and companies
controlled by directors as follows:
2003 2002 2001
Management fees $32,750 $161,796 $137,100
Geological consulting 16,800 26,040 13,991
Interest expense 76,960 156,453 -
These transactions have been recorded at the exchange amount, which is
considered by management, to approximate terms and conditions that are
similar to those available from unrelated parties.
(b) As at March 31, 2003, accounts receivable includes $NIL (2002 - $17,140)
due from the Willow Creek Joint Venture.
(c) As at March 31, 2003, accounts payable and accrued liabilities include
$51,675 (2002 - $18,925) due to former directors, shareholders and
companies controlled by directors.
(d) During the year 4,085,722 shares were issued to a director of the Company
with respect to the settlement of notes payable in the amount of
$2,461,433. The terms of this settlement were approved by the TSX Venture
Exchange.
(e) During the year 100,000 shares were issued to a former director of the
Company to settle a $55,000 debt outstanding. The terms of this settlement
were approved by the TSX Venture Exchange.
11. SEGMENTED INFORMATION
The Company operates in one industry and as at March 31, 2003 and 2002
substantially all of the Company's assets were located in Canada.
12. CHANGE IN NON-CASH OPERATING WORKING CAPITAL ITEMS
Years ended March 31,
2003 2002 2001
Decrease (increase) in restricted cash $296,803 $(296,803) $-
Decrease (increase) in accounts
receivable 19,746 2,595 (8,419)
(Increase) decrease in prepaid expenses (20) 523 (3,457)
(Decrease) increase in accounts payable
and accrued liabilities (91,884) (390,899) 41,125
(Decrease) increase in interest payable (26,588) 26,588 -
$198,057 $(657,996) $29,249
13. FUTURE INCOME TAXES
The provision for income taxes reported differs from the amounts computed by
applying the cumulative Canadian federal and provincial income tax rates to
the loss before tax provision due to the following:
2003 2002 2001
Statutory tax rate 38% 44% 45%
Recovery of income taxes
computed at standard rates $1,313,979 $1,029,846 $312,400
Non-deductible non-cash financing costs (19,335) (348,690) (106,600)
Tax losses not recognized in the period
that the benefit arose (1,294,644) (681,156) (205,800)
$- $- $-
The approximate tax effect of each type of temporary difference that gives
rise to the Company's future tax assets is as follows:
2003 2002
Mineral property costs $2,697,000 $2,127,400
Operating loss carry-forward 1,200,000 1,039,832
3,897,000 3,167,232
Less valuation allowance (3,897,000) (3,156,232)
Future income tax asset - 11,000
Future income tax liability
Provision for non-deductibility of future
accretion charges - (11,000)
$- $-
At March 31, 2003, the Company has approximately $4,000,000 of non-capital
losses for tax purposes available at various dates until 2010, to be carried
forward and applied against future income for tax purpose and approximately
$189,000 of capital tax losses for tax purposes available to be carried
forward indefinitely and applied against future capital gains for tax
purposes.
14. RECONCILIATION OF CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These financial statements have been prepared in accordance with Canadian
GAAP which differ in some respects from US GAAP. The material differences
between Canadian and US GAAP, in respect of these financial statements,
are summarized as follows:
Consolidated Statements of Loss 2003 2002 2001
Net loss under Canadian GAAP $(3,457,839) $(2,340,558) $(694,160)
Mineral property acquisition and
exploration costs (307,761) (2,773,768) (4,891,979)
Writedown of mineral costs 2,914,600 - -
Revenue from sale of ore - 2,348,587 -
Net loss under US GAAP $(851,000) $(2,765,739) $(5,586,139)
Basic and diluted loss
per share under US GAAP $(0.03) $(0.14) $(0.30)
14. RECONCILIATION OF CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)
Consolidated Balance Sheets 2003 2002
Total Assets as per Canadian GAAP $11,124,817 $15,049,644
Decrease in mineral properties due to expensing
of mineral property costs (a) $(10,323,081) (12,976,175)
As per US GAAP $801,736 $2,073,469
Total Liabilities
As per Canadian GAAP and US GAAP $917,122 $4,196,108
Total Shareholders' Equity (Capital Deficiency)
As per Canadian GAAP $10,207,695 $10,853,536
Decrease in mineral property costs (a) (10,323,081) (12,976,175)
As per US GAAP $(115,386) $(2,122,639)
Consolidated Statements of Cash Flows
For all years presented, mineral property expenditures would be treated as
operating expenditures, as opposed to Canadian GAAP under which such
expenditures would be treated as investing activities.
(a) Mineral property costs
US GAAP requires that mineral property costs be expensed until there is
substantial evidence that a commercial body of ore has been located,
whereas Canadian GAAP allows mineral property costs to be deferred during
the exploration and development process. Although the Company has
completed a feasibility study with respect to the Willow Creek Property,
there remains some uncertainty as to the economics of the project and the
ability of the Company to finance the development. For US GAAP purposes,
the Company has written off the property costs until the development
ability has been confirmed.
(b) Revenue
Under Canadian GAAP, revenues received prior to the commercialization of
mineral properties reduce capitalized development and other capitalized
pre-production costs. Under US GAAP, such amounts are recorded as revenue
when title and risk of the ore pass to the buyer, the consideration is
fixed or determinable and collection is reasonably assured.
(c) Stock-based compensation
Due to the adoption by the Company of new stock based compensation
standards in Canada during the current year there is no difference in the
treatment of stock options to employees and directors in the current year
under US and Canadian GAAP.
The following proforma financial information presents the net loss and
loss per share for the years ended March 31 under US GAAP.
2003 2002 2001
Net loss for the year under US GAAP $(851,000) $(2,765,739) $(5,586,139)
Additional stock based
compensation costs (115,000) (510,000) (425,000)
Pro forma net loss under US GAAP $(966,000) $(3,275,739) $(6,011,139)
Pro forma basic and diluted loss
per share under US GAAP $(0.03) $(0.16) $(0.32)
14. RECONCILIATION OF CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)
(d) Accounting for joint ventures
US GAAP requires investments in joint ventures to be accounted for using
the equity method, while under Canadian GAAP, the accounts of joint
ventures are proportionately consolidated. However, under rules
promulgated by the Securities and Exchange Commission, a foreign
registrant may, subject to the provision of additional information,
continue to follow proportionate consolidation for purposes of
registration and other filings notwithstanding the departure form US GAAP.
Consequently, the balance sheets have not been adjusted to restate the
accounting under US GAAP and additional information concerning the
Company's interest in a joint venture is presented in Note 5 (b).
(e) Recent US Pronouncements
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This standard requires entities to record the fair
value of a liability for an asset retirement obligation in the period in
which it is incurred. When the liability is initially recorded, the
entity capitalizes the cost by increasing the carrying amount of the
related long-lived asset. Over time, the liability is accreted to its
present value each period, and the capitalized cost is amortized over the
useful life of the related asset. Upon settlement of the liability, an
entity either settles the obligation for its recorded amount or incurs a
gain or loss upon settlement. Companies are required to adopt SFAS 143
for fiscal years beginning after June 15, 2002, but early adoption is
permitted. The Company has not determined whether the application of SFAS
143 will have a material effect on its consolidated financial position or
results of operations.
In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 replaces SFAS 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. The FASB issued SFAS 144 to establish a single accounting
model, based on the framework established in SFAS 121, as SFAS 121 did not
address the accounting for a segment of a business accounted for as a
discontinued operation under APB 30, Reporting The Results of Operations
- Reporting The Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions.
SFAS 144 also resolves significant implementation issues related to SFAS
121. Companies are required to adopt SFAS 144 for fiscal years beginning
after December 15, 2001, but early adoption is permitted. The Company
adopted SFAS 144 as of January 1, 2002. The Company has determined that
the application of SFAS 144 did not have a material effect on its
consolidated financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. Among other things, SFAS No. 145 rescinds both SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt, and the amendment
to SFAS No. 4, SFAS No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements. Through this rescission, SFAS No. 145
eliminates the requirement (in both SFAS No. 4 and SFAS No. 64) that gains
and losses from the extinguishment of debt be aggregated and, if material,
classified as an extraordinary item, net of the related income tax effect.
14. RECONCILIATION OF CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)
(e) Recent US Pronouncements (Continued)
Generally, SFAS No. 145 is effective for transactions occurring after May
15, 2002. The Company determined SFAS No. 145 did not have a material
impact on the Company's results of operations or its financial position.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal of Activities. SFAS No. 146 requires that
the liability for a cost associated with an exit or disposal activity is
recognized at its fair value when the liability is incurred. Under
previous guidance, a liability for certain exit costs was recognized at
the date that management committed to an exit plan, which was generally
before the actual liability had been incurred. As SFAS No. 146 is
effective only for exit or disposal activities initiated after December
31, 2002, the Company does not expect the adoption of this statement to
have a material impact on the Company's financial statements.
In December 2002, the FASB issued FAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. SFAS NO. 148 amends SFAS NO.
123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition for an entity that voluntarily changes to the fair
value based method of accounting for stock-based compensation. It also
amends the disclosure provisions of that statement. The disclosure
provisions of this statement are effective for financial statements issued
for fiscal periods beginning after December 15, 2002. The Company does not
currently have plans to change to the fair value method of accounting for
its stock-based compensation.
In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, ( FIN 45 ). FIN 45 requires
that upon issuance of a guarantee, a guarantor must recognize a liability
for the fair value of an obligation assumed under a guarantee. FIN 45 also
requires additional disclosures by a guarantor in its interim and annual
financial statements about the obligations associated with guarantees
issued. The recognition provisions of FIN 45 will be effective for any
guarantees that are issued or modified after December 31, 2002. The
Company has adopted the disclosure requirements and is currently
evaluating the effects of FIN 45; however, it does not expect that the
adoption of such provisions will have a material impact on the Company's
results of operations or financial position.
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities - an Interpretation of ARB No.
51. FIN 46 requires that if any entity has a controlling financial
interest in a variable interest entity, the assets, liabilities and
results of activities of the variable interest entity should be included
in the consolidated financial statements of the entity. FIN 46 provision
are effective for all arrangements entered into after January 31, 2003.
For those arrangements entered into prior to January 31, 2003, FIN 46
provisions are required to be adopted at the beginning of the first
interim or annual period beginning after June 15, 2003. The adoption of
this statement will not impact the Company's financial statements for 2003
14. RECONCILIATION OF CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)
(e) Recent US Pronouncements (Continued)
In April 2003, the FASB issued Statement of Financial Accounting Standard
No. 149 ( SFAS 149 ), Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. SFAS 149 amends and clarifies
accounting for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities under
SFAS 133. SFAS 149 is generally effective for derivative instruments,
including derivative instruments embedded in certain contracts, entered
into or modified after June 30, 2003 and for hedging relationships
designed after June 30, 2003. The Company does not expect the adoption of
SFAS 149 to have a material impact on its operating results or financial
condition.
In May 2003, the FASB issued Statement of Financial Accounting Standard
No. 150 (SFAS 150), Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. SFAS 150 clarifies the
accounting for certain financial instruments with characteristics of both
liabilities and equity and requires that those instruments be classified
as liabilities on the balance sheet. Previously, many of those financial
instruments were classified as equity. SFAS 150 is effective for financial
instruments entered into or modified after May 31, 2003 and otherwise is
effective at the beginning of the first interim period beginning after
June 15, 2003. The Company does not expect the adoption of SFAS 150 to
have a significant impact on its operating results or financial position.
On April 22, 2003, the FASB announced its decision to require all
companies to expense the fair value of employee stock options. Companies
will be required to measure the cost according to the fair value of the
options. Although the new guidelines have not yet been released, it is
expected that they will be finalized soon and be effective in 2004. When
final rules are announced, the Company will assess the impact to its
financial statements.
15. CONTINGENT LIABILITIES AND COMMITMENTS
The Company has a $50,000 letter of credit outstanding at March 31, 2003
(2002 - $50,000).
The Company was billed $126,180 in March 2003 by an individual, who became
the CEO of the company before March 31, 2003 for services rendered
regarding the Willow Creek Joint Venture. The amount will become payable
upon the achievement of success criteria relating to the completion of the
purchase of Mitsui Matsushima's interest in the Willow Creek Joint Venture
and the commencement of mining operations at Willow Creek.
On March 10, 2003 Falls Mountain and Mitsui Matsushima entered into a
binding Sale & Purchase Agreement whereby the Company has the right to
acquire Mitsui Matsushima's one third interest in the Willow Creek Joint
Venture for $6,000,000 prior to December 10, 2003. Mitsui Matsushima will
retain its interest in the Willow Creek Joint Venture until the transaction
closes. Falls Mountain will pay all expenditures until closing of the Sales
& Purchase Agreement, and has a contingent obligation to pay Mitsui
15. CONTINGENT LIABILITIES AND COMMITMENTS (Continued)
Matsushima a break-up fee of $500,000 in the event the purchase cannot be
consummated due to an inability to secure the necessary financing. The
Company has guaranteed Falls Mountain's obligations under the Sale and
Purchase Agreement and will pledge its shares in Falls Mountain to secure
the breakup fee.
The Company is currently appealing an approximate $150,000 capital tax
assessment for the years 1997 to 2002 inclusive. The Company believes it
has substantial defences for the assessment and the amount of ultimate
payment, if any, is at present not determinable.
The Company has entered into an operating lease agreement for office space
which requires the Company to make the following lease payments:
2004 $32,966
2005 21,977
$54,943
16. SUBSEQUENT EVENTS
Subsequent to the year ended March 31, 2003, the Company:
(a) Received proceeds of $395,980 in connection with 1,979,900 units
representing the balance of the private placement announced on March 10,
2003 of 5,500,000 units at a price of $0.20 per unit, and completed
closing the private placement.
(b) Issued 656,250 common shares of the Company at a price of $0.20 per share
with respect to the finders' fee (Note 8(d)).