SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______ to _____
Commission file number-_____________
NORTHWESTERN MINERAL VENTURES INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
NORTHWESTERN MINERAL VENTURES INC.
--------------------------------------------------------
(Translation of Registrant's name into English)
Province of Ontario, Canada
----------------------------
(Jurisdiction of incorporation or organization)
36 Toronto Street
Suite 1000
Toronto, Ontario M5C 2C5
-------------------------
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section
12(g) of the Act:
Common Shares
--------------
(Title of Class)
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:
None
-----
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's
classes of capital or common shares as of the close of the period covered by the
annual report.
Not Applicable
=========
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 [ ]. No [X].
Indicate by check mark which financial statement item the Registrant
has elected to follow. Item 17 [ ]. Item 18 [X].
All references herein are to Canadian dollars. Reference is made to
"Item 3. Key Information." for exchange rate information for the Canadian
Dollar.
EXHIBIT INDEX LOCATED ON PAGE 53
TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................i
PART I ........................................................................................................1
Item 1. Identity of Directors, Senior Management and Advisers...................................................1
Directors and Senior Management.........................................................................1
Advisers ...............................................................................................1
Auditors ...............................................................................................2
Item 2. Offer Statistics and Expected Timetable.................................................................2
Item 3. Key Information.........................................................................................2
Selected Financial Data.................................................................................3
Capitalization and Indebtedness.........................................................................4
Reasons for the Offer and Use of Proceeds...............................................................4
Risk Factors............................................................................................4
RISK FACTORS AFFECTING THE COMPANY......................................................................4
None of our Mineral Properties Contain a Known Commercially Mineable Mineral Deposit....................4
We Will Need to Raise Substantial Funding in Order to Carry Out Our Activities..........................5
Lack of Revenue Producing Operations....................................................................5
We Could Lose our Interests in the Properties if Minimum Annual Work is Not Conducted...................5
Potential Loss of Option Rights if Required Payments are Not Made.......................................5
Title To Our Mining Properties Has Not Been Verified....................................................6
The Bear Project's Remote Location Limits its Access to Seven Months Per Year...........................6
The Value of our Mineral Properties is Dependent Upon Commodity Prices Which
Can Fluctuate Widely...........................................................................6
We Are Not Engaged in Mining Operations; In the Event We Engage in Mining
Operations in the Future, We Would Face Substantial Regulation.................................7
Exchange Rate Fluctuations May Affect the Company's Costs...............................................8
There is a Risk that we will be Unable to Compete for Mineral Properties,
Investment Funds and Technical Expertise.......................................................8
We Do Not Have Insurance; We Will Not be Able to Insure Against All Possible
Risks..........................................................................................8
If We are Unable to Maintain the Infrastructure for Our Exploration Activities, We
Could be Adversely Affected....................................................................9
Management May Be Subject to Conflicts of Interest Due to Affiliations with Other
Resource Companies.............................................................................9
Our Management May Not Be Subject to U.S. Legal Process................................................10
Prices for Precious Metals such as Gold are Volatile and Could Decline.................................10
Our Stock will be a Penny Stock which Imposes Significant Restrictions on Broker-
Dealers Recommending the Stock For Purchase...................................................10
Our Stock Price Could be Volatile......................................................................11
We Do Not Plan to Pay Any Dividends in the Foreseeable Future..........................................11
The Company has Only One Full-Time Employee............................................................11
Future Sales of Common Shares by Existing Shareholders.................................................11
Item 4. Information on the Company.............................................................................12
History and Development of the Company.................................................................12
Business Overview......................................................................................12
General .......................................................................................................12
Organizational Structure...............................................................................15
Property, Plants and Equipment.........................................................................15
Bear Project, Northwest Territories, Canada...................................................15
Agreement with Fronteer Development Group Inc.................................................15
Fronteer's Agreement with Phelps Dodge - Conjuror Property....................................18
Information Regarding Bear Project............................................................20
Property Description and Location.............................................................20
Access to the Bear Project....................................................................21
Geology .....................................................................................21
History of Exploration on Properties Comprising the Bear Project..............................21
Conjuror Property....................................................................22
Achook Property......................................................................23
McPhoo Property......................................................................24
EXPLORATION PROGRAM FOR 2004....................................................................................24
GLOSSARY .......................................................................................................26
Item 5. Operating and Financial Review and Prospects...........................................................29
Overview ..............................................................................................30
Operating Results.............................................................................30
Liquidity and Capital Resources...............................................................30
Research and development, patents and licenses, etc...........................................31
Trend Information.............................................................................32
Off-Balance Sheet Arrangements................................................................32
Tabular Disclosure of Contractual Obligations.................................................32
ii
Item 6. Directors, Senior Management and Employees.............................................................33
Directors and Senior Management........................................................................33
Compensation...........................................................................................34
No Termination Agreements for Executive Officers and Directors.........................................35
Stock Option Plan......................................................................................35
Board Practices........................................................................................36
Employees..............................................................................................37
Share Ownership........................................................................................37
Item 7. Major Shareholders and Related Party Transactions......................................................38
Major Shareholders.....................................................................................38
Related Party Transactions.............................................................................39
Item 8. Financial Information..................................................................................39
Consolidated Statements and Other Financial Information................................................39
Significant Changes....................................................................................39
Item 9. The Offer and Listing..................................................................................39
Offer and Listing Details..............................................................................39
Plan of Distribution...................................................................................40
Markets ..............................................................................................41
Selling Shareholders...................................................................................41
Dilution ..............................................................................................41
Expenses of the Issue..................................................................................41
Item 10. Additional Information.................................................................................41
Share Capital..........................................................................................41
Certificate and Articles of Incorporation..............................................................42
ARTICLES AND BY-LAWS............................................................................................43
General ..............................................................................................43
Directors..............................................................................................43
Annual and special meetings...................................................................44
Material Contracts.....................................................................................44
Exchange Controls......................................................................................46
Taxation ..............................................................................................47
Certain Canadian Federal Income Tax Consequences..............................................47
Dividends on Shares...........................................................................48
Disposition of Shares.........................................................................49
Dividends and Paying Agents............................................................................49
iii
Statements by Experts..................................................................................50
Documents on Display...................................................................................50
Subsidiary Information.................................................................................50
Item 11. Quantitative and Qualitative Disclosures About Market Risk............................................50
Item 12. Description of Securities Other than Equity Securities................................................50
Item 13. Defaults, Dividend Arrearages, and Delinquencies......................................................50
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds..........................50
Item 15 and 16..................................................................................................50
Item 17. Financial Statements..................................................................................50
Item 18. Financial Statements..................................................................................50
Item 19. Exhibits..............................................................................................51
iv
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.
A. DIRECTORS AND SENIOR MANAGEMENT.
Directors and Senior Management.
DIRECTORS AND OFFICERS. The names, residence and principal occupations
of the directors and senior management of Northwestern Mineral Ventures Inc.
(the "Company") as of May 6, 2004 are set forth in the following table.
NAME & RESIDENCE POSITION WITH PRINCIPAL OCCUPATION
COMPANY
Kabir Ahmed President, Chief President, Chief Executive
Toronto, Ontario Executive Officer, Officer of the Company
Canada Director
Jon North Director President, North Atlantic
Oakville, Ontario Nickel Corp
Canada
J. Scott Waldie Director Independent businessman
Pontypool, Ontario
Canada
Roderick Chisholm Chief Financial Officer Chartered Accountant
Mississauga, Ontario
Canada
B. ADVISERS. Our legal advisers are:
Goodman and Carr LLP
200 King Street West
Suite 2300
Toronto, Ontario M5H 3W5
Canada
Berns & Berns
1270 Avenue of the Americas
Rockefeller Center
New York, New York 10020
C. AUDITORS. Our auditors are:
McGovern, Hurley, Cunningham LLP
300-2005 Sheppard Avenue East
Toronto, Ontario M2J 5B4
Canada
Member - Canadian Institute of Chartered Accountants
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
Not applicable.
ITEM 3. KEY INFORMATION.
All dollar amounts in this Registration Statement are expressed in
Canadian dollars. The following tables set forth the exchange rates for one
Canadian dollar expressed in terms of one U.S. dollar for the years 1999 - 2003
and for the period September 1, 2003 - February 29, 2004.
YEAR AVERAGE
1999 .6612
2000 .6790
2001 .6579
2002 .6776
2003 .7186
LOW HIGH
November 2003 .7484 .7708
December 2003 .7460 .7738
January 2004 .7496 .7880
February 2004 .7496 .7880
March 2004 .7418 .7645
April 2004 .7293 .7637
2
The exchange rates are based upon the noon buying rate in New York City for
cable transfers in foreign currencies as certified for customs purposes by the
Federal Reserve Bank of New York. At May 6, 2004, one Canadian dollar, as quoted
by Reuters and other sources at 4 P.M. Eastern Time for New York foreign
exchange selling rates (for bank transactions of at least $1,000,000), equaled
$.7263 in U.S. dollars. (Source: The Wall Street Journal)
A. SELECTED FINANCIAL DATA.
Following is selected financial data of the Company, expressed in
Canadian. dollars, for the period from the Company incorporation on September
26, 2003 through December 31, 2003, the date of its audited financial
statements, which were prepared in accordance with Canadian generally accepted
accounting principles ("Canadian GAAP"), which differ substantially from United
States generally accepted accounting principles "(US GAAP"). Reference is made
to Note 9 to the audited financial statements for the period ended December 31,
2003 in "Item 18. Financial Statements." for a description of the differences
between Canadian and United States generally accepted accounting principles, and
how these differences could affect the Company's financial statements.
CANADIAN GAAP
CAN $
Period from September 26, 2003 to
December 31, 2003 (audited)
Revenues $0
Loss for the Period 33,097
Loss Per Share 0.01
Total Assets 172,413
Current Assets 172,413
Liabilities 10,000
Share Capital 101
Deficit 33,097
Shareholders' Equity 162,413
The Selected Financial Data presented above would be the same if
presented under US GAAP.
B. CAPITALIZATION AND INDEBTEDNESS.
At May 6, 2004, there were 18,000,000 common shares ("Shares")
outstanding. The Company is authorized to issue an unlimited number of Shares.
At such date, there were no options or warrants outstanding to purchase any
Shares.
3
At December 31, 2003, the Company's total liabilities were $10,000, it
had an accumulated deficit of $33,097, and its shareholder's equity was
$162,413.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS.
Not applicable.
D. RISK FACTORS.
RISK FACTORS AFFECTING THE COMPANY
The business of the Company entails significant risks, and an
investment in the Shares should be considered highly speculative for a variety
of reasons. An investment in the Shares should only be undertaken by persons who
have sufficient financial resources to enable them to assume such risks. In
addition to the usual risks associated with investment in a business, the
following is a general description of significant risk factors, which should be
considered.
NONE OF OUR MINERAL PROPERTIES CONTAIN A KNOWN COMMERCIALLY MINEABLE
MINERAL DEPOSIT. We are in the highly speculative business of acquiring,
exploring for, and, if warranted, developing properties containing mining
precious metals. None of our properties contain a known commercially mineable
mineral deposit. Our business is subject to the lengthy and expensive process of
property acquisition and exploration, with no assurance of success. The
exploration for and development of mineral deposits involves significant risks
which even a combination of careful evaluation, experience and knowledge may not
eliminate. While the discovery of an ore body may result in substantial rewards,
few properties which are explored are ultimately developed into producing mines.
Major expenses may be required to locate and establish mineral reserves, to
develop metallurgical processes and to construct mining and processing
facilities at a particular site. It is impossible to ensure that the exploration
or development programs planned by the Company will result in a profitable
commercial mining operation. Whether a mineral deposit will be commercially
viable depends on a number of factors, including, but not limited to the
following: the particular attributes of the deposit, such as size, grade and
proximity to infrastructure; metal prices, which are highly cyclical; and
government regulations, including regulations relating to prices, taxes,
royalties, land tenure, land use, importing and exporting of minerals and
environmental protection. If we are unable to acquire, explore for, identify
and/or develop a property for commercial production, investors could lose their
entire investment.
WE WILL NEED TO RAISE SUBSTANTIAL FUNDING IN ORDER TO CARRY OUT OUR
ACTIVITIES. With limited cash resources, it will be necessary in the near and
over the long term to raise substantial funds to maintain existing property
interests, acquire, explore, and if warranted, develop mineral properties. Our
auditors have expressed substantial doubt as to our ability to continue as a
going concern. There is no assurance that we will be able to raise the necessary
funds on acceptable terms, or at all. If we
4
do not raise these funds, investors could lose their investment. If we are able
to raise these funds, it is likely that investors will experience dilution of
their interests, which could result in a decrease in the value of their Shares.
LACK OF REVENUE PRODUCING OPERATIONS. Since inception, the Company has
not generated any revenues from mining operations. As of December 31, 2003, the
Company had an accumulated deficit of approximately $33,000. Accordingly, the
Company's business operations are subject to all of the risks inherent in
companies without cash flow or earnings. The future earnings, if any, and cash
flow, if any, from operations of the Company are dependent, in part, on its
ability to locate properties containing commercially mineable mineral deposits,
of which there can be no assurance.
WE COULD LOSE OUR INTERESTS IN THE PROPERTIES IF MINIMUM ANNUAL WORK IS
NOT CONDUCTED. Pursuant to applicable legislation, Fronteer Development Group
Inc. ("Fronteer") is entitled to hold its interest in certain claims comprising
the Conjuror Property until July 22, 2012, subject to it completing specified
work on the property. A report detailing the work completed in connection with
the certain of the claims was submitted to the Mining Recorder of the Northwest
Territories for approval on November 25, 2003, in the absence of which approval
Fronteer's interest in these claims will lapse. Although formal approval of the
required exploration work has not been granted, Management believes it will
obtain the necessary approvals. Furthermore, annual exploration work is required
to be conducted on the claims comprising the Bear Project. If this work is not
completed, the interests in the claims will lapse and be forfeited.
POTENTIAL LOSS OF OPTION RIGHTS IF REQUIRED PAYMENTS ARE NOT MADE. In
addition to the failure to obtain sufficient financing possibly resulting in the
loss of the option granted pursuant to the our agreement with Fronteer described
in "Item 4. Information on the Company. D. Property, Plant, and Equipment,"
Fronteer may terminate our agreement in the event that the Company fails to
fulfill its contractual obligations. In addition, in the event that Fronteer
defaults in respect of any of its material obligations (including its financial
obligations) under its agreement with Phelps Dodge Corporation of Canada,
Limited ("Phelps Dodge"), described in "Item 4. Information on the Company. D.
Property, Plant, and Equipment," and does not cure any such default within the
allowable time limitations, Phelps Dodge may terminate its agreement with
Fronteer. Further, Fronteer's (and by implication, the Company's) interest in
the Conjuror Property may be compromised if Phelps Dodge breaches any of its
representations or warranties contained in its agreement with Fronteer. In such
an event, the Company would have no direct remedy against Phelps Dodge since it
has no direct relationship with Phelps Dodge. Reference is made to "Item 4.
Information on the Company. D. Property, Plant, and Equipment." The loss of any
options rights would have a material, adverse effect on the Company.
TITLE TO OUR MINING PROPERTIES HAS NOT BEEN VERIFIED. Although the
title to the properties in which the Company holds interests were reviewed by or
on behalf of us, and title opinions were delivered to us, no assurances can be
given that there are no title defects affecting such properties. Title
5
insurance generally is not available for mining claims in Canada, and the our
ability to ensure that it has obtained secure claim to individual mineral
properties or mining concessions may be severely constrained. The Company has
not conducted surveys of the claims in which it holds direct or indirect
interests; therefore, the precise area and location of such claims may be in
doubt. Accordingly, the properties may be subject to prior unregistered liens,
agreements, transfers or claims, including native land claims, and title may be
affected by, among other things, undetected defects. In addition, the Company
may be unable to operate its properties as permitted or to enforce its rights
with respect to its properties.
THE BEAR PROJECT'S REMOTE LOCATION LIMITS ITS ACCESS TO SEVEN MONTHS
PER YEAR. The Company's property interests are located approximately 400
kilometers north of Yellowknife, in the Northwest Territories, Canada. Access to
the Bear Project is via float-equipped, fixed wing aircraft from Yellowknife,
Northwest Territories. Because of the Bear Project's extreme north location,
access is limited to seven months. This remote location makes it difficult and
costly to bring mining equipment to the area. In the event of bad weather, it
may be difficult, if not impossible, to conduct any exploration activities or
mining activities, in the event any properties are placed into commercial
production, of which there can be no assurance, adversely affecting the Company.
THE VALUE OF OUR MINERAL PROPERTIES IS DEPENDENT UPON COMMODITY PRICES
WHICH CAN FLUCTUATE WIDELY. The price of our Shares, our financial results and
exploration, development and mining activities may in the future be
significantly adversely affected by declines in the price of gold, copper, or
other minerals. Gold, copper, and other mineral prices fluctuate widely and are
affected by numerous factors beyond the Company's control such as the sale or
purchase of such commodities by various central banks and financial
institutions, interest rates, exchange rates, inflation or deflation,
fluctuation in the value of the United States dollar and foreign currencies,
global and regional supply and demand, and the political and economic conditions
of major gold, copper or other mineral-producing countries throughout the world.
The prices of gold, copper or other minerals have fluctuated widely in recent
years, and future serious price declines could cause continued development of
and commercial production from the Company's properties to be impracticable.
Depending on the price of gold, copper, or other minerals, cash flow from mining
operations may not be sufficient and the Company could be forced to discontinue
production and may lose its interest in, or may be forced to sell, some of its
properties. Future production from the Company's mining properties is dependent
on gold, copper or other mineral prices that are adequate to make these
properties economic.
In addition to adversely affecting the Company's reserve estimates and
its financial condition, declining commodity prices can impact operations by
requiring a reassessment of the feasibility of a particular project. Such a
reassessment may be the result of a management decision or may be required under
financing arrangements related to a particular project. Even if the project is
ultimately determined to be economically viable, the need to conduct such a
reassessment may cause substantial delays or may interrupt operations until the
reassessment can be completed.
6
WE ARE NOT ENGAGED IN MINING OPERATIONS; IN THE EVENT WE ENGAGE IN
MINING OPERATIONS IN THE FUTURE, WE WOULD FACE SUBSTANTIAL REGULATION. We are
not engaged in any mining operations at the present time and there can be no
assurance we will ever engage in any mining operations in the future. All of our
current activities are exploratory in nature. If our exploration activities
uncover a commercially mineable mineral deposit, of which there can be no
assurance, we plan to take the necessary steps to commence mining operations.
Mining operations in Canada are subject to federal, provincial and local laws
relating to the protection of the environment, including laws regulating the
removal of natural resources from the ground and the discharge of materials into
the environment. Mining operations are also subject to federal, provincial and
local laws which seek to maintain health and safety standards by regulating the
design and use of mining methods and equipment. Various permits from government
bodies are required for mining operations to be conducted; no assurance can be
given that such permits will be received. No assurance can be given that
environmental standards imposed by federal, provincial or local authorities will
not be changed with material adverse effect on the Company's activities.
Moreover, compliance with such laws may cause substantial delays and require
capital outlays in excess of those anticipated, thus causing an adverse effect
on the Company. Additionally, the Company may be subject to liability for
pollution or other environmental damage which it may elect not to insure against
due to prohibitive premium costs and other reasons.
EXCHANGE RATE FLUCTUATIONS MAY AFFECT THE COMPANY'S COSTS. Exchange
rate fluctuations may affect the costs that the Company incurs in its
exploration activities. Gold, copper, and other minerals are generally sold in
U.S. dollars. Since the Company's costs are incurred principally in Canadian
dollars, the appreciation of non- U.S dollar currencies against the US dollar
can increase the cost of gold, copper, and other mineral exploration and
production in U.S. dollar terms.
THERE IS A RISK THAT WE WILL BE UNABLE TO COMPETE FOR MINERAL
PROPERTIES, INVESTMENT FUNDS AND TECHNICAL EXPERTISE. Significant and increasing
competition exists for the limited number of gold and other precious metal
acquisition opportunities available in North, South and Central America and
elsewhere in the world. As a result of this competition, some of which is with
large, established mining companies with substantially greater financial and
technical resources than us, we may be unable to acquire additional attractive
precious metal mining properties on terms we consider acceptable. Moreover, this
competition makes it more difficult for us to attract and retain mining experts,
and to secure financing for our operations. Accordingly, there can be no
assurance that our exploration and acquisition programs will be successful or
result in any commercial mining operation.
WE DO NOT HAVE INSURANCE; WE WILL NOT BE ABLE TO INSURE AGAINST ALL
POSSIBLE RISKS. The Company's business is subject to a number of risks and
hazards generally, including adverse environmental conditions, industrial
accidents, labor disputes, unusual or unexpected geological conditions, ground
or slope failures, cave- ins, changes in the regulatory environment and natural
phenomena such as inclement weather conditions, floods and earthquakes. Such
occurrences could result in damage to mineral properties or production
facilities, personal injury or death, environmental damage to the Company's
7
properties or the properties of others, delays, monetary losses and possible
legal liability.
Although the Company intends to obtain insurance to protect against certain
risks in such amounts as it considers to be reasonable, it does not have any
insurance at the present time. If and when insurance is obtained, of which there
can be no assurance, the insurance will not cover all the potential risks
associated with a mining company's operations. Moreover, the Company may also be
unable to maintain insurance to cover these risks at economically feasible
premiums. Insurance coverage may not continue to be available or may not be
adequate to cover any resulting liability. Moreover, insurance against risks
such as environmental pollution or other hazards as a result of exploration and
production is not generally available to the Company or to other companies in
the mining industry on acceptable terms. The Company might also become subject
to liability for pollution or other hazards which may not be insured against or
which the Company may elect not to insure against because of premium costs or
other reasons. Losses from these events may cause the Company to incur
significant costs that could have a material adverse effect upon its financial
performance and results of operations. Should a catastrophic event arise,
investors could lose their entire investment.
IF WE ARE UNABLE TO MAINTAIN THE INFRASTRUCTURE FOR OUR EXPLORATION
ACTIVITIES, WE COULD BE ADVERSELY AFFECTED. Our exploration activities depend,
to one degree or another, on adequate infrastructure. Reliable roads, bridges,
power sources and water supply are important factors which affect capital and
operating costs. Unusual or infrequent weather phenomena, sabotage, government
or other interference in the maintenance or provision of such infrastructure
could adversely affect the Company's exploration activities and its financial
condition.
MANAGEMENT MAY BE SUBJECT TO CONFLICTS OF INTEREST DUE TO AFFILIATIONS
WITH OTHER RESOURCE COMPANIES. Because some of our directors and officers serve
as officers and/or directors of other resource exploration companies which are
themselves engaged in the search for additional opportunities, situations may
arise where these persons are presented with, or identify, resource exploration
opportunities that may be or perceived to be in competition with us for
exploration opportunities. Since all of our officers and directors have a
financial interest in other resource issuers to which they owe a fiduciary duty,
it is likely our management may never be financially disinterested in such
potential conflict of interest situations. It is likely that these other
companies will be in competition with us for properties, funds, and personnel.
Although it is anticipated that such potential conflicts will be dealt with in
accordance with corporate and common law of the Province of Ontario, there can
be no assurance any conflicts will be dealt with in a way that is best for the
Company.
Although directors are required to declare and refrain from voting on
any matter in which such directors may have a conflict of interest in accordance
with the procedures set forth in the Business Corporations Act (Ontario) and
other applicable laws, this could result in a situation where it will be
difficult to have a totally disinterested board of directors deciding on a
matter.
OUR MANAGEMENT MAY NOT BE SUBJECT TO U.S. LEGAL PROCESS. The
enforcement
8
by investors of civil liabilities under the United States federal securities
laws may be adversely affected by the fact that all of our officers and
directors are neither citizens nor residents of the United States. There can be
no assurance that (a) U.S. stockholders will be able to effect service of
process within the United States upon such persons, (b) U.S. stockholders will
be able to enforce, in United States courts, judgments against such persons
obtained in such courts predicated upon the civil liability provisions of United
States federal securities laws, (c) appropriate foreign courts would enforce
judgments of United States courts obtained in actions against such persons
predicated upon the civil liability provisions of the federal securities laws,
and (d) the appropriate foreign courts would enforce, in original actions,
liabilities against such persons predicated solely upon the United States
federal securities laws.
PRICES FOR PRECIOUS METALS SUCH AS GOLD ARE VOLATILE AND COULD DECLINE.
Historically, gold prices have fluctuated, so that there is no assurance, even
if substantial quantities of gold are discovered, that we can make a profit. The
prices of precious and base metals fluctuate on a daily basis and have
experienced volatile and significant price movements over short periods of time.
Prices are affected by numerous factors beyond our control, including
international economic and political trends, expectations of inflation, currency
exchange fluctuations (specifically, the U.S. dollar relative to other
currencies), interest rates, central bank transactions, world supply for
precious and base metals, international investments, monetary systems, and
global or regional consumption patterns (such as the development of gold coin
programs), speculative activities and increased worldwide production due to
improved mining and production methods. The effect of these factors cannot be
accurately predicted, and the combination of these factors may result in us not
receiving adequate returns on invested capital or the investments retaining
their respective values. There is no assurance that the price of gold and of
other precious and base metals will be high enough so that our properties,
assuming that we ever discover substantial quantities of gold, could be mined at
a profit.
OUR STOCK WILL BE A PENNY STOCK WHICH IMPOSES SIGNIFICANT RESTRICTIONS
ON BROKER-DEALERS RECOMMENDING THE STOCK FOR PURCHASE. The Securities and
Exchange Commission (SEC) has adopted regulations that define "penny stock" to
include common stock that has a market price of less than $5.00 per share,
subject to certain exceptions. These rules include the following requirements:
broker-dealers must deliver, prior to the transaction, a disclosure schedule
prepared by the SEC relating to the penny stock market; broker-dealers must
disclose the commissions payable to the broker-dealer and its registered
representative; broker-dealers must disclose current quotations for the
securities; if a broker-dealer is the sole market- maker, the broker-dealer must
disclose this fact and the broker-dealer's presumed control over the market; and
a broker-dealer must furnish its customers with monthly statements disclosing
recent price information for all penny stocks held in the customer s account and
information on the limited market in penny stocks. Additional sales practice
requirements are imposed on broker-dealers who sell penny stocks to persons
other than established customers and accredited investors. For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and must have received the purchaser's written consent to the
transaction prior to sale. If our Shares become subject to these penny stock
rules these disclosure requirements may have the effect of reducing the level of
trading activity in the
9
secondary market for the Shares, if such trading market should ever develop, of
which there can be no assurance. Accordingly, this may result in a lack of
liquidity in the Shares and you may be unable to sell your Shares on terms you
consider reasonable.
OUR STOCK PRICE COULD BE VOLATILE. The market price of our Shares, like
that of the common shares of many other natural resource companies, has been and
is likely to remain highly volatile. Results of exploration activities, the
price of gold, copper, and other precious metals, period-to-period fluctuations
in our operating results, changes in estimates of the Company's performance by
securities analysts, market conditions for shares of natural resource companies
in general, and other factors beyond the control of the Company, could have a
significant, adverse impact on the market price of the Shares.
WE DO NOT PLAN TO PAY ANY DIVIDENDS IN THE FORESEEABLE FUTURE. The
Company has never paid a dividend and it is unlikely that the Company will
declare or pay a dividend until warranted based upon the factors outlined below.
The declaration, amount and date of distribution of any dividends in the future
will be decided by the Board of Directors from time-to-time, based upon, and
subject to, the Company's earnings, financial requirements and other conditions
prevailing at the time.
THE COMPANY HAS ONLY ONE FULL-TIME EMPLOYEE. The Company's only full-
time service provider is Kabir Ahmed, who is its President and Chief Executive
Officer. Mr. Roderick Chisholm, our Chief Financial Officer, works for the
Company on a part-time basis, devoting approximately ten to fifteen hours a
month on the Company's affairs. The loss of Mr. Ahmed, for any reason, or our
inability to attract and retain additional highly skilled employees, may
adversely affect our business and future operations. We do not carry key-man
insurance on any members of our management.
FUTURE SALES OF COMMON SHARES BY EXISTING SHAREHOLDERS. Sales of a
large number of our Shares in the public markets, or the potential for such
sales, could decrease the trading price of the Shares and could impair the
Company's ability to raise capital through future sales of Shares. The Company
has previously issued Shares at an effective price per share which is lower than
the effective price of the Shares in the Company's public offering of its Shares
completed in February 2004. Accordingly, certain shareholders of the Company
have an investment profit in the Shares that they may seek to liquidate.
ITEM 4. INFORMATION ON THE COMPANY.
A. History and Development of the Company.
The Company was incorporated under the laws of the Province of Ontario,
Canada on September 26, 2003.
The principal business office of the Company is located at 36 Toronto
Street, Suite 1000, Toronto, Ontario M5C 2C5 Canada. Its telephone number is
(416) 365- 6580.
10
Its registered and records office is located at 200 King Street West.
Suite 2300, Toronto, Ontario M5H 3W5 Canada. Its telephone number is (416)
595-2300.
B. Business Overview(1).
GENERAL
The Company was founded on September 26, 2003 to explore for precious
and base metals in Canada. The Company is an exploration stage company and is
not engaged in any mining operations, and there can be no assurance it will ever
engage in mining operations. To date, its only mining interest is an option to
earn a 50% undivided interest in three properties located in the Northwest
Territories, Canada. These properties are collectively referred to as the "Bear
Project." There can be no assurance that a commercially mineable mineral deposit
exists on these properties. The Company acquired the option pursuant to an
Option Agreement between Fronteer Development Group Inc. and the Company, dated
September 26, 2003, as amended December 17, 2003 and January 30, 2004 (the
"Option Agreement"). The Bear Project consists of 8,778.1 contiguous hectares
(21,690 acres) and it contains three separate properties - the Conjuror, Achook
and McPhoo properties, all of which are located within the Northwest Territories
Mining District, Northwest Territories. The Achook and McPhoo properties are
wholly-owned by Fronteer Development Group Inc. ("Fronteer"). Fronteer holds an
option to acquire a 100% interest in the Conjuror Property pursuant to an
Exploration Option Agreement between Fronteer and Phelps Dodge Corporation of
Canada, Limited ("Phelps Dodge"), dated October 4, 2002. The Company believes
the properties making up the Bear Project have the potential for an iron-oxide
copper-gold deposit. However, none of the properties contain a known
commercially mineable mineral deposit, otherwise referred to as "ore."
Our business is highly speculative. We are exploring for base and
precious metals. Ore is rock containing particles of a particular mineral (and
possibly other minerals which can be recovered and sold), which rock can be
legally extracted, and then processed to recover the minerals which can be sold
at a profit.
Although mineral exploration is a time consuming and expensive process
with no assurance of success, the process is straight forward. First, we acquire
the rights to enable us to explore for, and if warranted, extract and remove ore
so that it can be refined and sold on the open market to dealers. Second, we
explore for precious and base metals by examining the soil, rocks on the
surface, and by drilling into the ground to retrieve underground rock samples,
which can then be analyzed. This work is undertaken in staged programs, with
each successive stage built upon the information gained in prior stages.
If exploration programs discover what appears to be an area which may
be able to be profitably
- --------
(1) See Glossary on pages 27-30 for terms used throughout this Registration
Statement.
11
mined, we will focus our activities on determining whether that is feasible,
while at the same time continuing the exploratory activities to further
delineate the location and size of this potential ore body.
Things that will be analyzed by us in making a determination of whether
we have a deposit which can be feasibly mined at a profit include:
1. The amount of mineralization which has been established, and
the likelihood of increasing the size of the mineralized
deposit through additional drilling;
2. The expected mining dilution;
3. The expected recovery rates in processing;
4. The cost of mining the deposit;
5. The cost of processing the ore to separate the gold from the
host rocks, including refining the precious or base metals;
6. The costs to construct, maintain, and operate mining and
processing activities;
7. Other costs associated with operations including permit and
reclamation costs upon cessation of operations;
8. The costs of capital;
9. The costs involved in acquiring and maintaining the property;
and
10. The price of the precious or base minerals. For example, the
price of one ounce of gold for the years 1999-2003 ranged from
a low of $271 U.S. in 2001, to a high of $ 416.25 U.S. in
2003. At May 7, 2004, the price of gold was $380.80 U.S. per
ounce(2).
Our analysis will rely upon the estimates the plans of geologists
mining engineers, metallurgists and others.
If we determine that we have a feasible mining project, we will
consider pursuing alternative courses of action, including:
- --------
(2) Based upon the Average Spot Price of Gold, London PM fix.
12
o seeking to sell the deposit or the Company to third parties;
o entering into a joint venture with larger mining company to mine
the deposit; or
o placing the property into production ourselves.
There can be no assurance, that we will discover any precious or base
metals, establish the feasability of mining a deposit, or, if warranted, develop
a property to production and maintain production activities, either alone or as
a joint venture participant. Furthermore, there can be no assurance that we
would be able to sell either the deposit or the Company on acceptable terms, or
at all, enter into such a joint venture on acceptable terms, or be able to place
a property into production ourselves. If we do enter actual mining operations,
which is unlikely in the near future, our operations will be subject to various
factors and risks generally affecting the mining industry, many of which are
beyond our control. These include the price of precious or base metals
declining, the possibility that a change in laws respecting the environment
could make operations unfeasible, or our ability to conduct mining operations
could be adversely affected by government regulation. Reference is made to
"Item. 3. Key Information. D. Risk Factors."
C. Organizational Structure.
The Company has no subsidiaries.
D. Property, Plants and Equipment.
BEAR PROJECT, NORTHWEST TERRITORIES, CANADA
Our only interest to date is an option to earn a 50% undivided interest
in three properties located in the Northwest Territories, Canada. These
properties are collectively referred to as the "Bear Project." The Company
acquired the option pursuant to the Option Agreement. The Bear Project consists
of 8,778.1 contiguous hectares (21,690 acres) and it contains three separate
properties - the Conjuror, Achook and McPhoo properties, all of which are
located within the Northwest Territories Mining District, Northwest Territories.
The Achook and McPhoo properties are wholly-owned by Fronteer Development Group
Inc. ("Fronteer"). Fronteer holds an option to acquire a 100% interest in the
Conjuror property pursuant to an Exploration Option Agreement between Fronteer
and Phelps Dodge Corporation of Canada, Limited ("Phelps Dodge"), dated October
4, 2002. The Company believes the properties making up the Bear Project have the
potential for an iron-oxide copper-gold deposit. However, none of the properties
contain a known commercially mineable mineral deposit and the Company's proposed
exploration program is exploratory in nature.
AGREEMENT WITH FRONTEER DEVELOPMENT GROUP INC.
13
Pursuant to the Option Agreement, the Company was granted the sole and
exclusive right and option ("Option") to acquire a 50% undivided interest in the
Bear Project.
To exercise the Option, the Company is required to spend at least
$5,000,000 on exploration of the Bear Project ("Expenditures"), as follows:
DATE AMOUNT
On or before September 26, 2004 $500,000
On or before September 26, 2005 $500,000
On or before September 26, 2006 $1,000,000
On or before September 26, 2007 $1,000,000
On or before September 26, 2008 $2,000,000
In addition to incurring at least $5,000,000 in Expenditures, the
Company is required to make cash payments to Fronteer totalling $270,000 in the
amounts specified below on or prior to the dates noted:
DATE CASH
PAYMENT
September 26, 2003 $20,000
September 26, 2004 $30,000
September 26, 2005 $40,000
September 26, 2006 $50,000
September 26, 2007 $60,000
September 26, 2008 $70,000
If the Company makes the payments totalling $270,000 above on or prior
to the required date, and the following Expenditures described below, it will be
deemed to have acquired and be vested with an undivided right, title and
interest in the Bear Project in the percentages set forth below, except for its
proportionate share of an underlying royalty to Phelps Dodge, described in
"FRONTEER'S AGREEMENT WITH PHELPS DODGE - CONJUROR PROPERTY."
Incurs Expenditures of not less than $1,000,000 on or before
September 26, 2005 - 10%;
14
Incurs Expenditures of not less than $3,000,000 on or before
September 26, 2007 - 30%; and
Incurs Expenditures of not less than $5,000,000 on or before
September 26, 2008 - 50%
On or before January 31st of each year, Fronteer is required to prepare
an exploration program for that year and submit it to the Company for its
approval. If the Company fails to approve that year's program within thirty
days, it has the right to submit its own recommended exploration program for
that year to Fronteer, which will become the budget used for that year.
After an exploration program has been agreed upon, Fronteer is to
submit to the Company an invoice for the full amount of the Company's share of
the expenditures for that coming year. Within ten days of receiving Fronteer's
invoice, the Company is required to advance to Fronteer its share of that year's
exploration expenditures. If the Company does not advance the funds to Fronteer,
the Company will be in breach of the Option Agreement. If the Company does not
cure the breach within the 15 day period it has to cure the breach, after
notice, Fronteer has the right to terminate the Option Agreement.
If Fronteer decides not to proceed with exploration on either the
McPhoo, Achook, or Conjuror properties, and does not provide us with an
exploration budget for a particular year, then the Company has the right to
terminate the Option Agreement. Fronteer has no obligation to spend money on any
specific property constituting the Bear Project. For instance, so long as the
Company fulfills its obligation to provide $1,000,000 in exploration
expenditures by September 26, 2005, it would still earn a 10% vested interest in
all three properties constituting the Bear Project. Management of the Company
believes that the Company's interest in the Achook and McPhoo properties is not
linked to its spending specifically on those two properties. So long as, in the
aggregate, $1,000,000, provided by the Company, is spent on exploration by
September 26, 2005, the Company will be deemed to have earned its ten (10%)
percent interest in all three properties.
When the Company has (i) incurred the $5,000,000 in exploration
expenditures, and (ii) made $270,000 in cash payments to Fronteer. the Company
will be deemed to have exercised the Option and acquired a 50% undivided
interest in the Bear Project, subject to its proportionate responsibility for an
underlying royalty due to Phelps Dodge, described in "Item 4. Information on the
Company. D. Property, Plants, and Equipment- Fronteer's Agreement with Phelps
Dodge - Conjuror Property". In addition, the Company and Fronteer will be deemed
to have formed a joint venture; the parties will then enter into a joint venture
agreement in the form set forth in the amended option agreement with Fronteer
dated January 30, 2004.
Fronteer will be the operator of exploration programs conducted under
the Option Agreement, and is entitled to a management fee equal to ten (10%)
percent of any expenditures incurred. The management fees the Company pays to
Fronteer will be credited to its required exploration expenditures.
15
FRONTEER'S AGREEMENT WITH PHELPS DODGE - CONJUROR PROPERTY
Included in the Bear Project is the Conjuror Property. Pursuant to an
Exploration Option Agreement dated October 4, 2002 between Phelps Dodge and
Fronteer ("Phelps Dodge-Fronteer Agreement"), Fronteer was granted the option to
acquire a 100% in the Conjuror Property ("Option").
To acquire the Option, Fronteer paid Phelps Dodge $25,000 on October 4,
2002. To maintain the Option, Fronteer is required to make the following
payments, totaling $100,000, to Phelps Dodge:
ON OR BEFORE SEPTEMBER 26 VALUE OF CASH PAYMENT/ISSUE
OF ADDITIONAL SHARES
2003 $10,000 (paid)
2004 $20,000
2005 $30,000
2006 $40,000
Fronteer can satisfy its obligations by either paying cash, or issuing
shares of its common stock having an equivalent value to all or a portion of the
cash payments required to be made, based upon the trading closing price of its
shares on the TSX Venture Exchange for the seven consecutive trading days
immediately prior to the issuance of the shares to Phelps Dodge.
Although Fronteer has covenanted with the Company to fulfill its
obligations under the Phelps Dodge-Fronteer Agreement to keep its option in good
standing, in the event that Fronteer defaults in respect of any of its material
obligations under its Option and does not cure such defaults within the
allowable periods, Phelps Dodge may terminate the Phelps Dodge-Fronteer
Agreement.
Under the Phelps Dodge-Fronteer Agreement, after the Option has been
exercised, Phelps Dodge retains a 2% net smelter royalty from production from
the Conjuror Property. Fronteer can purchase one-half of the net smelter royalty
by paying Phelps Dodge $1,000,000.
16
[MAP OF BEAR PROJECT LOCATION OMITTED]
17
INFORMATION REGARDING BEAR PROJECT
The following information regarding the Bear Project's location,
access, history, planned exploration activities, and related topics are
summarized from a report titled "Summary Report on the Bear Project," prepared
by Murray I. Jones, P.Geo. ("Jones"), Equity Engineering Ltd., and dated January
2004 (the "Jones Report"). There is no known commercially mineable mineral
deposit on any of the properties comprising the Bear Project.
PROPERTY DESCRIPTION AND LOCATION
The Bear Project consists of 8,778.1 contiguous hectares (21,690 acres)
in three separate properties - the Conjuror, Achook and McPhoo properties,
located within the Northwest Territories Mining District, Northwest Territories,
Canada. As described in "Item 4. Information on the Company. B. Business
Overview." the Achook and McPhoo properties are wholly-owned by Fronteer, while
Fronteer holds an option to acquire a 100% interest in the Conjuror property
pursuant to an Exploration Option Agreement between Fronteer and Phelps Dodge
dated October 4, 2002. None of the claims have been surveyed.
The properties comprising the Bear Project are considered "grass roots"
properties, open for exploration. Management does not believe there is any
significant equipment or material infrastructure on any of the properties.
According to the Jones Report, the surface rights over the Achook
property are held by the Sahtu First Nation (the "Sahtu") stemming from the
settlement of land claims in the area of Great Bear Lake. The Sahtu also hold
surface rights in the area of the Conjuror Property that may cover access routes
to the Camsell River mining camp. Consultation with the Sahtu is necessary when
land use permitting is required for exploration activities and is recommended
when working on lands where surface rights are held.
In the Jones Report, Jones stated that he initially contacted and
obtained permission from the Deline District Land Corporation ("Deline"), one of
three divisions of the Sahtu, to access the Achook Property without impediment
in connection with the field program conducted by Fronteer on the Achook
Property in 2002. Although permitting was not required in connection with
Fronteer's 2002 field program, Jones stated that he engaged in informal
discussions with Deline at such time pursuant to which Deline informed him that
it would be amenable to the permitting of lands under its administration for
exploration and other development purposes, and of Deline's established process
for permitting activities. No permits have been granted nor have applications
been made pertaining to the future exploration work recommended for the Bear
Project. According to the Jones Report, there are no environmental liabilities
known to exist on the Bear Project. See "Item 3. Key Information. Risk Factors".
ACCESS TO THE BEAR PROJECT
Access to the Bear Project is via float-equipped, fixed wing aircraft
from Yellowknife, Northwest
18
Territories. The Conjuror Property is located south of Conjuror Bay, on Great
Bear Lake, 405 kilometers north-northwest of Yellowknife, Northwest Territories.
The nearest community is Kugluktuk (formerly Coppermine), located on the Arctic
Ocean, 260 kilometers north-northeast of the Conjuror Property. The abandoned
mining town of Port Radium is located 45 kilometers north of the Conjuror
property on Great Bear Lake. The Achook Property is located on Achook and Rocher
Rouge Islands in eastern Great Bear Lake, approximately 460 kilometers
north-northwest of Yellowknife, with Kugluktuk 200 kilometers to the northeast
and Port Radium 30 kilometers to the south. The McPhoo Property is located in
the Calder River area, 375 kilometers north-northwest of Yellowknife, with
Kugluktuk 225 kilometers north-northeast of the McPhoo property and Port Radium
located 80 kilometers to the northwest.
GEOLOGY
According to the Jones Report, all the properties comprising the Bear
Project have characteristics of iron-oxide copper gold deposits. On the Conjuror
property the Jones Report stated that there was evidence of a large,
hydrothermal system, consisting of iron and alkaline-rich zones.
Copper-cobalt-gold-zinc mineralization is associated with iron-oxide breccias.
The Jones Report stated that on the Achook property, copper-gold mineralization
is commonly associated with northeast trending faults. The mineralization
identified consists mostly of bornite, chalcopyrite, and chalcocite, with
secondary copper minerals occurring in fractures and small veins. The Jones
Report stated that the McPhoo property was staked to cover a discrete regional
magnetic anomaly with associated gold, uranium, and copper mineralization.
Several showings of magnetite-chalcopyrite mineralization have been identified.
HISTORY OF EXPLORATION ON PROPERTIES COMPRISING THE BEAR PROJECT
According to the Jones Report, prospecting was conducted in the Great
Bear Lake area for gold in the 1920s and 1930s. This work eventually led to the
discovery of silver-copper-uranium at Port Radium. This discovery changed the
focus of exploration from gold to silver and uranium prospecting.
1. Conjuror Property
According to the Jones Report, because it is located adjacent to the
Camsell River mining camp, with several former-producing silver mines, including
the Terra, Norex and Northrim mines, the Conjuror Property has been the subject
of considerable exploration. The historical activities on and ownership of the
Conjuror Property are summarized below.
1967 - Conjuror Bay Mines Ltd. and Jason Bay Mines Ltd. conducted
airborne radiometric, ground geophysical surveys north of Camsell
River, and trenching and diamond drilling on large quartz vein east of
Jason Bay with no significant results. They also reported cobalt-
nickel mineralization, with low silver values, in quartz-carbonate
veins from other trench areas.
19
1975 to 1977 - Sunshine Mining Company performed geological mapping,
and geochemical surveys between the Silver Bear and Norex mines, and
reported mineralized quartz veins at the north end of Jason Bay and in
the Luv Lake area.
1976 to 1977 - DuPont of Canada Exploration Ltd. and Sherrit Gordon
Mines Ltd. (as a joint venture) flew airborne geophysics and conducted
regional mapping in the Conjuror Bay area but did not report any
significant results.
1983 - Procan Exploration Company ("Procan") conducted detailed
prospecting and lithogeochemical and soil sampling programs focused on
silver mineralization, covering ground almost duplicating the current
Conjuror property and including the Northrim mine and the region known
as the Borthwick Shaft area. Procan collected 362 rock samples and 431
soil samples. All rocks and soils were analyzed for copper and silver,
and soils were analyzed for arsenic. A few selected rocks were also
analyzed for arsenic, gold, silver, lead, and zinc. The program was
focused on silver exploration but other than a few select samples with
high grades, no silver mineralization of any extent was located.
Numerous rocks with high grade copper values were located, primarily in
the banded quartz-carbonate veins but no further work was conducted to
determine the copper-gold potential in these rocks.
1985 - Echo Bay Mines Ltd. explored the Omni Claims in the Balachey
Lake area, conducted trenching, and reported pyrite, chalcopyrite,
hematite, and minor bornite mineralization in a volcanic breccia.
1991 - Aber Resources Ltd. conducted exploration for
copper-gold-uranium deposits in the northeast Balachey Lake area.
2002 - Fronteer conducted geological mapping and limited rock and soil
sampling to test the potential for iron oxide, copper and gold deposits
on the Conjuror Property. Fronteer collected 52 rock samples and 264
(plus 22 duplicate) grid soil samples, at 100 meter spacing, taken in
several areas of the property at a cost of approximately $45,700. The
rock samples include 7 chip samples, 30 grab samples, 9 select samples,
and 6 float samples.
2. Achook Property
According to the Jones Report, most of the exploration work conducted
on the Achook Property was concentrated on uranium. It is thought that Achook
Island was likely prospected at the time of the development of the silver and
uranium deposits at Port Radium in the 1930s and 1940s, although no records were
found from this era. In the 1970s, exploration focus turned to uranium. A
summary of work performed on the Achook Property is set forth below.
1968 - PCE Exploration Ltd. and Mariner Mines conducted blasting and
trenching which generated
20
results of 2-3% copper in some samples.
1977-1982 - BP Minerals Limited ("BP") conducted three uranium
exploration programs on Achook Island, including grid establishment,
mapping, rock sampling, and radiometric surveys. BP located several
copper-uranium showings on the island. BP also analyzed samples for
copper, silver, Ni, lead, and zinc. However, only one gold analysis is
reported showing no significant values. BP completed four trenches on
the area known as the Rhy Showing, for a total of 48.2 linear meters.
2002 - Fronteer completed a program consisting of geological mapping,
rock sampling (50 samples), and grid and contour soil sampling (173
samples plus 12 duplicates) at a cost of approximately $36,500. The
rock samples include 21 chip samples, 16 grab samples, 11 select
samples and 2 float samples.
3. McPhoo Property
According to the Jones Report, all exploration on the McPhoo Property
has focused on uranium. A summary of the exploration work conducted on
the McPhoo Property is set forth below.
1954 - Jackpot Uranium Mines Ltd. conducted prospecting, excavated a 12
meter long open cut and 6 meter deep adit and completed 1,034.8 meters
of diamond drilling in 19 holes. Chalcopyrite and magnetite were
identified in association with the uranium mineralization.
1976 - Sheer Energy Development made a one day examination of the adit
area, conducting minor surveying.
1981-Sheer Energy Development conducted magnetometer and gamma
spectrometer surveys over selected areas, minor geological mapping and
collected 14 rock samples.
2002 - Fronteer conducted an exploration program consisting of
geological mapping, rock sampling (17 samples), and soil sampling (105
samples).
******************************************
EXPLORATION PROGRAM FOR 2004
Based upon the preliminary exploration work described above, the Jones
Report recommended that an exploration program be undertaken to evaluate the
most promising areas for a drilling program. This exploration program is
referred to as Phase 1. The Jones Report recommended that the Phase 1 program be
21
split between a detailed airborne geophysical program and groundwork consisting
of geological and geochemical evaluation of anomalies from previous work and the
airborne survey. The projected cost of Phase 1 is approximately $482,000, as set
forth below:
Wages (project geologist, prospector, etc.) $30,000
Rental (equipment) 64,000
Airborne geophysics 252,500
Fixed wing aircraft 45,000
Analyses (soils, geochemistry, assays, etc.) 22,300
Misc. Expenses (airfare, supplies, fuel, etc.) 27,000
Preparation of Report 13,500
------
396,700
========
Contingency (10%) 436,370
--------
SUBTOTAL: $436,370
========
Project Supervision Charge 45,630
--------
TOTAL: $482,000
========
The Phase 1 program is being conducted now and the Company anticipates
that it will be completed by September 26, 2004.
If Phase 1 identifies what Management believes are promising drill
targets for further exploration the Company intends to undertake a diamond
drilling program called Phase 2. It is anticipated that the Phase 2 drilling
program will drill selected targets outlined based upon exploration work to date
and the results in Phase 1. Until Phase 1 is completed, it is not possible to
determine what the Phase 2 program will consist of. Management is budgeting
approximately $500,000 for Phase 2, but this amount could be either lower or
higher, depending upon the results of Phase 1. The Company plans on paying for
the exploration programs from its working capital.
Pursuant to the terms of the Option Agreement with Fronteer, Fronteer
is the operator of the property, and will be conducting the exploration program
described above. Fronteer is a junior mineral exploration company, trading on
the Toronto Stock Exchange under the symbol "FRG." Fronteer's Board of Directors
includes senior mining company executives, including a former Vice President of
Phelps Dodge Corporation.
22
Fronteer's President and CEO is Dr. Mark O'Dea. Dr. O'Dea is
responsible for overseeing and supervising Fronteer's exploration programs. Dr.
O'Dea specializes in the application of structural geology and geophysics to
mining and mineral exploration. He has been involved in building practical
geological foundations to help direct exploration decisions and highlight
opportunities. From 1997 to 1999, Dr. O'Dea was a senior geologist with the
mining and exploration division of SRK Consulting Canada. His responsibilities
included providing structural input into mineral exploration, resource
calculations, feasibility studies and valuations. In 1999 he launched Riftore
Consulting Inc., a Vancouver-based firm providing structural geology services to
the mining industry in Alaska, Canada and India.
**************************************
GLOSSARY
Following is a glossary of terms used throughout this Registration
Statement.
adit a horizontal tunnel in an underground mine
driven from a hillside surface
assay a precise and accurate analysis of the metal
contents in an ore or rock sample
bornite a copper ore; a sulphide of copper and iron.
breccia a fragmented rock, the components of which are
angular, and not waterworn.
chalcopyrite a sulphide of copper and iron.
concentrate a concentrate of minerals produced by
crushing, grinding and processing methods such
as gravity, flotation or leaching.
contained gold total measurable gold in grams or ounces
estimated to be contained within a mineral
deposit; does not imply that deposit contains
ore copper.
cut-off grade deemed grade of mineralization,
established by reference to economic factors,
above which material is considered ore and
below which is considered waste.
diamond drill a large machine that produces a more or less
continuous core sample of the rock or material
being drilled.
dilution the contamination of ore with barren wall
rock; this means that in extracting ore, rock
is also extracted, which contains a lesser
amount
23
of the mineral than the ore, effectively
reducing the grade of the ore.
feasibility study a detailed report assessing the
feasibility, economics and engineering of
placing a mineral deposit into commercial
production.
gm/mt or gpt grams per tonne.
gold deposit means a mineral deposit mineralized with gold.
gold equivalent a method of presenting combined gold and
silver concentrations or weights for
comparison purposes. Commonly involves
expressing silver as its proportionate value
in gold based on the relative values of the
two metals. When gold equivalent is used to
express metal sold, the calculation is based
on actual prices received. When grades are
expressed in gold equivalent, the relative
recoveries of the two metals are also taken
into account.
grams per cubic meter alluvial mineralization measured by grams of
gold contained per cubic meter of material, a
measure of gold content by volume not by
weight.
lode mining mining of gold bearing rocks, typically in the
form of veins or stockworks
net profit interest or NPI a royalty based on the net profits generated
after recovery of all costs
net smelter royalty or NSR a royalty based on the gross proceeds received
from the sale of minerals less the cost of
smelting, refining, freight and other related
costs.
nugget effect an effect of high variability of gold assays,
due to the gold occurring in discreet coarse
grains such that their content in any given
sample is highly variable.
ore a naturally occurring rock or material from
which minerals, such as gold, can be extracted
at a profit; a determination of whether a
mineral deposit contains ore is often made by
a feasibility study.
ounce or oz. a troy ounce or 20 pennyweights or 480 grains
or 31.103 grams
opt troy ounces per ton
patented mining claim a claim to which a patent has been obtained
from the government by compliance with laws
relating to such claims.
prospect an area prospective for economic minerals
based on geological, geophysical, geochemical
and other criteria
pyrite ore - the economically mineable part of a
measured resource demonstrated by at least a
preliminary feasibility study. This study must
include adequate information on mining,
processing, metallurgical, economic, and other
relevant factors that demonstrate,
24
at the time of reporting, that economic
extraction is justified.
quartz a rock-forming mineral of silica and oxygen,
often found in veins
raise a vertical or inclined tunnel in an
underground mine driven upwards from below.
ramp an inclined tunnel in an underground mine
driven downwards from surface
reserve ore - the economically mineable part of a
measured resource demonstrated by at least a
preliminary feasibility study. This study must
include adequate information on mining,
processing, metallurgical, economic, and other
relevant factors that demonstrate, at the time
of reporting, that economic extraction is
justified.
reverse circulation drill a large machine that produces a continuous
chip sample of the rock or material being
drilled
shaft a vertical or inclined tunnel in an
underground mine driven downward from surface
shear a tabular zone of faulting within which the
rocks are crushed and flattened
stock or pluton a body of intrusive rock that covers less than
40 square miles, has steep dips and is
discordant with surrounding rock.
stockwork multiple small veins of mineralization that
have so penetrated a rock mass that the whole
rock mass can be considered mineralized.
strike length the longest horizontal dimensions of a body or
zone of mineralization.
stripping ratio the ratio of waste material to ore that is
estimated for or experienced in mining an ore
body.
sulfide a compound of sulphur with more than one
element; metallic sulfides are usually
insoluble in water and occur in many cases as
minerals.
ton short ton (2,000 pounds).
tonne metric tonne (2,204.6 pounds).
trenching the surface excavation of a linear trench to
expose mineralization for sampling
unpatented mining claim mining claims to which a deed from the
United States government has not been
received, and which are subject to annual
assessment work in order to maintain
ownership.
vein a tabular body of rock typically of narrow
thickness and often mineralized occupying a
fault, shear, fissure or fracture crosscutting
another pre-existing rock
25
For ease of reference, the following conversion factors are provided:
1 mile = 1.609 kilometers 2,204 pounds = 1 tonne
1 yard = 0.9144 meter 2,000 pounds/1 short ton = 0.907 tonne
1 acre = 0.405 hectare 1 troy ounce = 31.103 grams
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
The following is a discussion of the results of operations of the
Company for the period commencing on the date of incorporation of the Company
(September 26, 2003) and ending December 31, 2003, and should be read in
conjunction with the audited financial statements of the Company for such
period, together with the accompanying notes, included elsewhere in this
Registration Statement. All references herein are to Canadian dollars. Please
see "Item 3. Key Information." for exchange rate information for the Canadian
dollar.
The financial statements have been prepared in accordance with Canadian
generally accepted accounting principles. Reference is made to Note 9 of the
financial statements for a discussion of the material differences between
Canadian and United States generally accepted accounting principles, and their
effect on the Company's financial statements. In addition to historical
information, the following discussion contains forward-looking statements that
involve risk and uncertainties. The Company's actual results could differ
significantly from those anticipated in these forward-looking statements as a
result of certain factors, including those discussed in "Risk Factors" and
elsewhere in this Registration Statement.
OVERVIEW
The Company was incorporated September 26, 2003 to engage in the
acquisition, exploration, and, if warranted, the development of properties
containing precious and base metals. In particular, the Company's activities
since incorporation have focused on the financing of its proposed exploration of
the Bear Project, located in the Northwest Territories, Canada.
A. OPERATING RESULTS
The Company commenced operations during September 2003. From September
26, 2003 to December 31, 2003, Management devoted its activities toward
organizing the Company and negotiating the Option Agreement with Fronteer.
During this time, no revenues were realized or significant expenses incurred.
The Company funded operations during the period from incorporation (September
26, 2003) to December 31, 2003 through the net proceeds of a Special Warrant
Offering, completed on November 12, 2003. The Company issued 2,000,000 Special
Warrants at a price of $0.10 per Special Warrant. Each Special
26
Warrant entitled the holder thereof to acquire, without additional payment and
subject to adjustment pursuant to the Special Warrant Certificates, one Share. A
Prospectus dated January 9, 2004 qualified the distribution of 2,000,000 Shares
issued by the Company, without additional payment, upon the exercise of the
2,000,000 Special Warrants. The net proceeds of the Special Warrant Offering
were used by the Company to finance the operations of the Company, to make the
initial payment to Fronteer of $20,000 under the Option Agreement in respect of
the Bear Project, and for general corporate purposes.
B. LIQUIDITY AND CAPITAL RESOURCES
At March 2, 2004 the Company had cash on hand of approximately
$1,489,000. Pursuant to a Prospectus dated January 9, 2004, the Company sold in
Canada and in jurisdictions outside of the United States a total of 15,000,000
Shares, at a price of $0.10 Can. per share, receiving net proceeds of
approximately $1,350,000. These funds, along with the $200,000 received from the
November 2003 Special Warrant offering described above, are being used to fund
the Company's obligations on the Bear Project and for general corporate
purposes.
In 2004 the Company intends to undertake an exploration program based
upon the Jones Report described in "Item 4. Information on the Company. D.
Property, Plants and Equipment." The Jones Report recommended that an
exploration program be undertaken to evaluate the most promising areas for a
drilling program. This exploration program is referred to as Phase 1. The Jones
Report recommended that the Phase 1 program be split between a detailed airborne
geophysical program and groundwork consisting of geological and geochemical
evaluation of anomalies from previous work and the airborne survey. The
projected cost of the Phase 1 program is approximately $482,000. If the Phase 1
program identifies what Management believes are promising drill targets for
further exploration, the Company intends to undertake a diamond drilling program
called Phase 2. The Phase 2 drilling program is designed for selected drill
targets that have been outlined based upon exploration work to date. The
estimated cost of the Phase 2 drilling program is approximately $500,000.
However, the Phase 2 drilling program will not commence on these targets until
all geophysical work has been completed in Phase 1 that may delineate better
drill hole locations. Depending upon the results of the Phase 1 exploration
program, Company intends to undertake the Phase 2 drilling program recommended
in the Jones Report. The Company plans on paying for the exploration programs
from its working capital.
Since the Bear Project is at the exploration stage, the Company has no
sources of revenue other than interest earned on its cash. The primary source of
funding for the Company is the issue of equity capital. Management believes its
current cash on hand will be sufficient to fund the Company's activities,
including the recommended exploration program on the Bear Project. The Company's
capital requirements in the future will be largely dependant upon the success of
its various exploration programs. Until such time as a feasibility study is
completed and a production decision is made with regard to one of the Company's
properties, it is expected that the only available source of future capital will
be through the issuance of additional equity shares. The availability of equity
capital, and the price at which additional equity could be issued, is dependent
upon the success of the Company's exploration activities, and upon the state of
the
27
capital markets generally. See "Item 3. Key Information. D. Risk Factors."
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
Since its incorporation on September 26, 2003 the Company has not engaged in any
research and development activities. Its activities have been focused on (i)
raising funds through the Special Warrant Offering described in "A. Operating
Results,"and (ii) negotiating the Option Agreement with Fronteer regarding
exploration of the Bear Property.
D. TREND INFORMATION.
Not Applicable.
E. OFF-BALANCE SHEET ARRANGEMENTS.
The Company is not engaged in any off-balance sheet arrangements.
F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS.
The Company's only contractual obligations are in connection with its
option to acquire a 50% interest from Fronteer in the Bear Project, Northwest
Territories, Canada set forth in the following table:
PAYMENTS DUE BY PERIOD
TOTAL LESS THAN 1-3 YEARS 3-5 YEARS MORE
ONE YEAR THAN
FIVE
YEARS
CONTRACTUAL OBLIGATIONS
Option Payments to $5,270,000 $530,000 $1,590,000 $3,130,000 0
Fronteer and required
Exploration Expenditures
on Bear Project
If the Company makes payments totalling $270,000 on or prior to the
required dates specified in the Option Agreement, and incurs the following
exploration expenditures, it will be deemed to have acquired and be vested with
an undivided right, title and interest in the Bear Project in the percentages
set forth below, except for its proportionate share of the underlying royalty to
Phelps Dodge:
Incurs Expenditures of not less than $1,000,000 on or before September
26, 2005 - 10%;
28
Incurs Expenditures of not less than $3,000,000 on or before September
26, 2007 - 30%; and
Incurs Expenditures of not less than $5,000,000 on or before September
26, 2008 - 50%
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
A. Directors and Senior Management.
DIRECTORS AND OFFICERS. The names, municipalities of residence and
principal occupations of the directors and officers of the Company are
as follows:
NAME &
MUNICIPALITY OF POSITION WITH PRINCIPAL OCCUPATION AGE
RESIDENCE COMPANY
Kabir Ahmed Chief Executive President and CEO - 35
Toronto, Ontario Officer, Northwestern Mineral
Canada Director Ventures Inc.
Jon North Director President, North Atlantic 42
Oakville, Ontario Nickel Corp.
Canada
J. Scott Waldie Director Independent Businessman 50
Pontypool, Ontario
Canada
Roderick Chisholm Chief Financial Chartered Accountant 55
Officer
KABIR AHMED is a securities lawyer and serves as the Company's
President and Chief Executive Officer. Mr. Ahmed holds a B.Sc. from the
University of Toronto, an LL.B. from Osgoode Hall Law School, and a Masters of
Business Administration in Corporate Finance from York University's Schulich
School of Business. He has been admitted to the Bars of New York and Ontario.
Mr. Ahmed was engaged as a part-time instructor at York University, Atkinson
College (1999 to 2000), corporate counsel at Mirus Internet Technologies Inc.,
an internet technology firm (2000 to 2001), Ontario Regional Manager (Corporate
Finance Services/Business Development) at the Toronto Stock Exchange (2001 to
2002) and as senior corporate counsel, compliance and corporate finance at
Richmond Capital Partners Inc., a corporate finance firm (2002 to present). Mr.
Ahmed dedicates approximately 75% of his time to the Company and has not entered
into any non-competition or non-disclosure agreement with the Company.
29
JON NORTH is a professional exploration geologist with 18 years of
experience in mineral exploration with major and junior mining companies
world-wide, including Western Mining Corp. (WMC) International, BHP Minerals
International and Agip Mining Zambia Ltd. Dr. North holds a B.Sc. (1984) from
the University of Western Ontario, an M.Sc. (1988) from Memorial University of
Newfoundland and a Ph.D. (1993) from the University of Western Ontario. Dr.
North's industry experience is primarily in area selection and target evaluation
in the exploration for a wide variety of mineral deposits including Proterozoic
Ni-Cu deposits and IOCG deposits. Dr. North currently serves as President and a
director of North Atlantic Nickel Corp. ("NAC") and as a director of Grange
Resource Group, each mineral exploration companies. Dr. North previously served
as Vice President, Exploration of Dumont Nickel Inc., a mineral exploration
company, from October, 1998 to May, 2002. Dr. North dedicates approximately 5%
of his time to the Company and has not entered into any non- competition or
non-disclosure agreement with the Company. Jon North was a director of Grange
Gold Corporation which was the subject of a cease trade order issued in June
2003 for failure to file financial statements. The cease trade order was
subsequently revoked in July 2003.
J. SCOTT WALDIE has 24 years of experience in the mining, mineral
exploration and mining finance industries. Mr. Waldie graduated from the Mining
Technology program of Halleybury School of Mines in 1979. Mr. Waldie is an
independent contractor that has worked for a number of companies in the junior
mining industry. Mr. Waldie is currently a director of NAC. Mr. Waldie dedicates
approximately 5% of his time to the Company and has not entered into any
non-competition or non- disclosure agreement with the Company.
RODERICK CHISHOLM was appointed the Company's Chief Financial Officer
on February 24, 2004. A chartered accountant, Mr. Chisholm has over 20 years
experience as a chief financial officer of junior mining companies and providing
financial and corporate services. Mr. Chisholm devotes between ten to fifteen
hours per month on the Company's affairs.
B. Compensation.
MR. KABIR AHMED receives $7,500 per month in for serving as the
Company's as President and Chief Executive Officer. Other than the payments to
Mr. Ahmed, the Company has not paid or accrued any annual, long-term and other
compensation for services rendered in any capacity to the Company for the period
commencing September 26, 2003 (the date of incorporation of the Company's
incorporation) and ending December 31, 2003 to any person.
RODERICK CHISHOLM charges the Company $150 per hour for his services as
its Chief Financial Officer. Mr. Chisholm has been receiving between $1,500 to
$2,000 per month in compensation from the Company.
30
No Termination Agreements for Executive Officers and Directors.
The Company has no plans or arrangements that would result in the
compensation of an executive officer or director in the event such person's
employment is terminated, as a result of either resignation, retirement, change
of control, or change of responsibilities following a change in control.
Stock Option Plan.
On September 27, 2003 the Company established a Stock Option Plan (the
"Plan") for the purpose of providing incentives to directors, officers,
employees and consultants of the Company. The maximum number of Shares reserved
for issue under the Plan cannot exceed the lesser of 2,000,000 Shares and 10% of
the issued and outstanding Shares from time to time. The total number of Shares
which may be reserved for issuance to any one individual under the Plan shall
not exceed 5% of the outstanding Shares in any 12 month period.
The purpose of the Plan is to attract, retain and motivate directors,
officers, employees and other service providers by providing them with the
opportunity, through share options, to acquire a proprietary interest in the
Company. The options are non-assignable and may be granted for a term not
exceeding five years.
The Plan is currently administered by the Board of Directors (the
"administrator"). Options may be granted to purchase Shares on such terms that
the administrator of the Plan may determine within the limitations of the Plan
and subject to the rules of applicable regulatory authorities. In determining
the number of optioned Shares that may be granted to each optionee,
consideration will be given to the optionee's present and potential contribution
to the success of the Company and to any applicable regulatory requirements.
Options may be granted under the Plan only to directors, officers,
employees and other service providers subject to the rules and regulations of
applicable regulatory authorities and any Canadian stock exchange upon which the
Shares may be listed or may trade from time to time. The number of Shares
reserved for issue to any one person pursuant to the Plan may not exceed 5% of
the issued and outstanding Shares at the date of such grant or in any 12 month
period.
The exercise price for options granted under the Plan may not be less
than the "fair market value" of the Shares at the time of grant as determined by
the administrator of the Plan but may not be less than the average closing price
of the Shares on the TSX Venture Exchange (or any other applicable stock
exchange) for the ten trading days prior to the date of grant. Options are
non-assignable and are exercisable for a period of up to five years from the
date the option is granted (or up to ten years from the date of grant if
permitted by applicable stock exchanges), subject to earlier termination after
certain events such as the optionee's
31
cessation of service to the Company or death.
Options/SARs Granted Since Company's Incorporation. The following table
sets out certain information relating to options and SARs granted since the
Company's incorporation on September 26, 2003 to the Company's executive
officers and directors.
IN CANADIAN $ IN CANADIAN $
MARKET VALUE OF
% OF TOTAL SECURITIES
OPTIONS/SARS UNDERLYING
SECURITIES UNDER GRANTED TO EXERCISE OR OPTIONS/SARS ON THE
OPTIONS/SARS EMPLOYEES IN BASE PRICE PER DATE OF THE
NAME GRANTED(#) FINANCIAL YEAR SECURITY($/SECURITY) GRANT($/SECURITY) EXPIRATION DATE
Kabir Ahmed 100,000 28.57% $1.15 $1.15 March 26, 2009
Chief Executive
Officer, Director
Jon North 100,000 28.57% $1.15 $1.15 March 26, 2009
Director
J. Scott Waldie 100,000 28.57% $1.15 $1.15 March 26, 2009
Director
Roderick Chisholm 50,000 14.29% $1.15 $1.1 March 26, 2009
Director
No amount has been set aside or accrued by the Company and its
subsidiaries during the last fiscal year of the Company to provide pension,
retirement or similar benefits for directors and officers of the Company
pursuant to any existing plan provided or contributed to by the Company and its
subsidiaries, or otherwise.
C. BOARD PRACTICES.
The directors of the Company are as follows:
NAME POSITION DATE APPOINTED DIRECTOR
Kabir Ahmed Chairman of the Board, CEO, September 27, 2003
President
Jon North Director September 27, 2003
J. Scott Waldie Director September 27, 2003
The Company's Board of Directors acts as the audit committee to oversee
the retention, performance and compensation of the Company's independent
auditors, and to oversee and establish procedures concerning systems of internal
accounting and control. The Company does not have a remuneration committee.
32
D. EMPLOYEES.
The Company's sole service providers are Kabir Ahmed, its President and
Chief Executive Officer, and Roderick Chisholm, its Chief Financial Officer.
E. SHARE OWNERSHIP.
The following table sets forth the shareholdings of the Company's
directors and senior management as at May 6, 2004.
NAME POSITION NUMBER OF PERCENTAGE
SHARES OF
OWNED OUTSTANDING
SHARES
Kabir Ahmed President, Chief Executive 1,000,000* 5.56%
Officer, Director
Jon North Director 0 0
J. Scott Waldie Director 0 0
Roderick Chisholm Chief Financial Officer 0* 0
Officers & Directors, as a 1,000,000 5.56%
group
* These amounts do not reflect (i) the 100,000 Shares Kabir Ahmed can acquire
pursuant to the exercise of options, or (ii) the 50,000 Shares Roderick Chisholm
can acquire pursuant to the exercise of options.
Pursuant to an Escrow Agreement dated January 9, 2004 among
Northwestern Mineral Ventures Inc., Equity Transfer Services Inc. (the "Escrow
Agent"), and Kabir Ahmed ("Ahmed"), in connection with the Company's initial
public offering of up to 15,000,000 Shares in February 2004, Ahmed agreed to
place 1,000,000 Shares in escrow with the Escrow Agent, to be released from
escrow as follows:
DATE NUMBER OF SHARES
RELEASED FROM ESCROW
Date Company's Shares are listed on TSX 1/10 of Shares in Escrow
Venture Exchange ("Listing Date")
6 Months After Listing Date 1/6 of Shares Remaining in Escrow
12 Months After Listing Date 1/5 of Shares Remaining in Escrow
18 Months After Listing Date 1/4 of Shares Remaining in Escrow
33
24 Months After Listing Date 1/3 of Shares Remaining in Escrow
30 Months After Listing Date 1/2 of Shares Remaining in Escrow
36 Months After Listing Date any Shares Remaining in Escrow
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
A. Major Shareholders.
The following table sets forth the shareholdings of persons believed by
the Company to beneficially own 5% or more of our Shares. At May 6, 2004, there
were 18,000,000 Shares outstanding.
MAJOR SHAREHOLDERS SHARES OWNED SHARES WHICH CAN BE SHARES WHICH PERCENTAGE
ACQUIRED THROUGH CAN BE OWNED OF CLASS(3)
OPTION EXERCISE(1) ACQUIRED
THROUGH
WARRANT
EXERCISE(2)
Kabir Ahmed 1,000,000 0 0 5.56%
George Grant 1,000,000 0 0 5.56%
Peter Karlechuk 1,000,000 0 0 5.56%
At May 6, 2004, there were no U.S. holders of record. At such date,
there were no arrangements, the operation of which could result in a change of
control. All shareholders have the same voting rights with respect to the
Shares.
B. Related Party Transactions.
No director, executive officer, person owning at least 5% of the
Company's outstanding Shares, or affiliate thereof, has or has had any material
interest, directly or indirectly, in any transaction involving the Company since
its incorporation, or in any proposed transaction involving the Company.
ITEM 8. FINANCIAL INFORMATION.
A. Consolidated Statements and Other Financial Information.
Reference is made to "Item 18. Financial Statements" for the financial
statements included in this Registration Statement.
34
There are no legal proceedings of a material nature pending against the
Company, or its subsidiaries. The Company is unaware of any legal proceedings
known to be contemplated by any governmental authorities.
The Company has never paid a dividend and it is unlikely that the
Company will declare or pay a dividend until warranted based upon the factors
outlined below. The declaration, amount and date of distribution of any
dividends in the future will be decided by the Board of Directors from
time-to-time, based upon, and subject to, the Company's earnings, financial
requirements and other conditions prevailing at the time.
B. Significant Changes.
Other than the approximately $1,350,000 in net proceeds funds we
received in our public offering completed in February 2004, there have been no
significant changes in the Company's business since the date of the audited
financial statements for the period ended December 31, 2003.
ITEM 9. THE OFFER AND LISTING.
A. OFFER AND LISTING DETAILS.
The Company's Shares commenced trading on the TSX Venture Exchange in
Canada on March 19, 2004 under the symbol "NWT," on the Berlin Stock Exchange on
March 30, 2004 ("MNV"), and the Frankfurt Stock Exchange on April 5, 2004
("MNV"). Following is information on the trading history of the Company's
Shares:
The low and high market prices for the Shares, on a monthly basis, on
the TSX Venture Exchange are as follows:
MONTH AND YEAR LOW HIGH
March 2004 0.57 1.30
April 2004 1.32 1.50
The closing price of the Shares on the TSX Venture Exchange on May 6,
2004 was $1.37.
The low and high market prices for the Company's Shares on the Berlin
and Frankfurt Stock Exchanges are as follows:
35
BERLIN STOCK EXCHANGE
MONTH AND YEAR LOW HIGH
March 2004 .72 Euros .76 Euros
April 2004 .76 Euros .93 Euros
FRANKFURT STOCK EXCHANGE
MONTH AND YEAR LOW HIGH
April 2004 .85 Euros .90 Euros
At May 6, 2004, one Euro, as quoted by Reuters and other sources at 4
P.M. Eastern Time for New York foreign exchange selling rates (for bank
transactions of at least $1,000,000), equaled $1.2075 in U.S. dollars. (Source:
The Wall Street Journal)
The closing prices of the Shares on the Berlin Stock Exchange and
Frankfurt Stock Exchange on May 6, 2004 were .82 Euros and $.80 Euros,
respectively.
The Company plans to have its Shares traded on the OTC Bulletin Board
in the United States during 2004, although there can be no assurance that the
Shares will be accepted for trading on this facility.
B. PLAN OF DISTRIBUTION.
Not applicable.
C. MARKETS
(see A. above)
D. SELLING SHAREHOLDERS.
Not applicable.
E. DILUTION.
Not applicable.
F. EXPENSES OF THE ISSUE.
Not applicable.
36
ITEM 10. ADDITIONAL INFORMATION.
A. SHARE CAPITAL.
The Company is authorized to issue an unlimited number of Shares, no
par value. At May 6, 2004, there were 18,000,000 Shares issued and outstanding.
At such date, there were no outstanding options.
Since incorporation on September 26, 2003, the Company has sold and
issued the following securities, for the stated consideration.
DATE AND TITLE OF AMOUNT OF PRICE/SECURITY
SECURITIES SOLD SECURITIES SOLD
PRIVATE PLACEMENT OR
IPO
September 26, 2003 1 Share $1.00/Share
September 30, 2003 999,999 Shares $.0001/Share
Common Stock
November 17, 2003 2,000,000 $.10/Special Warrant
Special Warrants
February 26, 2004 1,500,0000 $.10/Share
Common Stock
B. CERTIFICATE AND ARTICLES OF INCORPORATION
Common Shares
The Company is authorized to issue an unlimited number of Common Shares
("Shares"), with no par value.
The holders of Shares are entitled to such dividends as and when
declared by our board of directors, to one vote per share at meetings of
shareholders and upon liquidation, to receive such of our assets as are
distributable to holders of Shares, subject to the rights of holders, if any, of
the Preferred Shares. All Shares presently outstanding are duly authorized,
validly issued, fully paid and non-assessable. Shares have no preference,
conversion, exchange, preemptive or cumulative voting rights.
37
All Shares are entitled to one vote per share at all meetings of
shareholders, rank equally as to dividends and as to the distribution of the
Company's assets available for distribution in the event of a liquidation,
dissolution or winding up of the Company. There are no preemptive or conversion
rights and no provision for redemption, purchase for cancellation, surrender or
sinking or purchase funds.
Provisions as to the modification, amendment or variation of such
rights and provisions are contained in the Business Companies Act (Ontario) (the
"Act") and the regulations promulgated thereunder. Certain fundamental changes
to the articles of the Company will require the approval of two-thirds of the
votes cast on a resolution submitted to a special meeting of the Company's
shareholders called for the purpose of considering the resolution. These items
include (i) an amendment to the provisions relating to the outstanding capital
of the Company, (ii) a sale of all or substantially all of the assets of the
Company, (iii) an amalgamation of the Company with another company, other than a
subsidiary, (iv) a winding-up of the Company, (v) a continuance of the Company
into another jurisdiction, (vi) a statutory court approved arrangement under the
Act (essentially a corporate reorganization such as an amalgamation, sale of
assets, winding-up, etc.), and (vii) a change of name.
Although the Act does not specifically impose any restrictions on the
repurchase or redemption of shares, under the Act a corporation cannot
repurchase its shares or declare dividends if there are reasonable grounds for
believing that (a) the corporation is, or after payment would be, unable to pay
its liabilities as they become due, or (b) after the payment, the realizable
value of the corporation's assets would be less than the aggregate of (i) its
liabilities and (ii) its stated capital of all classes of its securities.
Generally, stated capital is the amount paid on the issuance of a share.
ARTICLES AND BY-LAWS
The following presents a description of certain terms and provisions of
the Company's articles and by-laws.
GENERAL
The Company was incorporated in the Province of Ontario on
September 26, 2003. Its Ontario Corporation Number is 1589236.
The Company's corporate objectives and purpose are unrestricted.
DIRECTORS
Pursuant to Section 132 of the Business Corporation Act (Ontario)
("OBCA"), a director who is a party to, or who is a director or officer of or
has a material interest in any person who is a party to, a material contract or
transaction or proposed material contract or transaction with us shall disclose
to us the nature and extent of that interest and shall not vote on any
resolution to approve such contract or transaction.
38
If a quorum of independent directors is present, the directors are
entitled to vote compensation to themselves.
Section 137 of the OBCA provides that the directors shall be paid such
remuneration for their services as the board of directors may from time to time
determine.
Section 184 of the OBCA provides that the board may from time to time
on our behalf, without authorization of shareholders:
o borrow money upon Company credit;
o issue, reissue, sell or pledge debt obligations of the
Company;
o guarantee on our behalf to secure performance of any
obligation of any person; and
o mortgage, hypothecate, pledge or otherwise create a security
interest in all or any of our currently owned or subsequently
acquired property of the Company, to secure any obligations
of the Company.
There are no provisions in the Company's by-laws relating to retirement
or non- retirement of directors under an age limit requirement. A director need
not be a shareholder. A majority of directors must be resident Canadians and at
least one-third of the directors must not be officers or employees of the
Company or of any of the Company's affiliates.
Annual and special meetings
The annual meeting and special meetings of shareholders are held at
such time and place as the board of directors, the chairman of the board, the
managing director or the president shall determine. Notice of meetings are sent
out to shareholders not less than 21 nor more than 50 days before the date of
such meeting. All shareholders at the record date are entitled to notice of the
meeting and have the right to attend the meeting. The directors do not stand for
reelection at staggered intervals.
There are no provisions in either the Company's Articles of
Incorporation or By- laws that would have the effect of delaying, deferring or
preventing a change in control of the Company and that would operate only with
respect to a merger, acquisition or corporate restructuring involving the
Company or its subsidiary.
There are no by-law provisions governing the ownership threshold above
which shareholder ownership must be disclosed.
39
C. MATERIAL CONTRACTS
1. Option Agreement Between Fronteer Development Group Inc. and
Northwestern Mineral Ventures Inc., dated September 26, 2003.
Reference is made to "Item 4. Information on the Company. D.
Property, Plants and Equipment." for a discussion of this
agreement.
2. Amending Agreement made as of December 17, 2003 Between
Fronteer Development Group Inc. and Northwestern Mineral
Ventures Inc. Reference is made to "Item 4. Information on the
Company. D. Property, Plants and Equipment." for a discussion
of this agreement.
3. Second Amending Agreement made as of January 30, 2004 Between
Fronteer Development Group Inc. and Northwestern Mineral
Ventures Inc. Reference is made to "Item 4. Information on the
Company. D. Property, Plants and Equipment." for a discussion
of this agreement.
4. Agency Agreement dated January 9, 2004 between Northwestern
Mineral Ventures and Dominick & Dominick Securities Inc.
Pursuant to this agreement, Dominick & Dominick Securities
Inc. ("Dominick & Dominick") agreed to act as the Company's
underwriter, on a best efforts basis, in connection with the
Company's initial public offering in Canada of a minimum of
8,000,000 shares to a maximum of 15,000,000 shares, at a price
of $0.10 per share. Dominick & Dominick received a fee of 7%
of the gross proceeds of the offering (which was $105,000, or
7% of the $1,500,000 raised).
5. Escrow Agreement dated January 9, 2004 among Northwestern
Mineral Ventures Inc., Equity Transfer Services Inc. (the
"Escrow Agent"), and Kabir Ahmed ("Ahmed"). Pursuant to this
agreement, in connection with the Company's initial public
offering of up to 15,000,000 Shares, Ahmed agreed to place
1,000,000 Shares in escrow with the Escrow Agent, to be
released from escrow as follows:
DATE NUMBER OF SHARES RELEASED FROM ESCROW
Date Company's Shares are listed on 1/10 of Shares in Escrow
TSX Venture Exchange ("Listing Date")
6 Months After Listing Date 1/6 of Shares Remaining in Escrow
12 Months After Listing Date 1/5 of Shares Remaining in Escrow
18 Months After Listing Date 1/4 of Shares Remaining in Escrow
24 Months After Listing Date 1/3 of Shares Remaining in Escrow
30 Months After Listing Date 1/2 of Shares Remaining in Escrow
40
36 Months After Listing Date any Shares Remaining in Escrow
6. Consulting Agreement with Primoris Group Inc. ("Primoris
Group"), dated April 22, 2004. Under the terms of this
agreement, Primoris Group is to provide investor relations
services to the Company for one year. Primoris Group is
receiving $13,500 per month and has been granted stock options
to acquire 150,000 Shares at an exercise price of $1.35 per
Share, with an expiration date of April 22, 2007. This
agreement is subject to approval by the TSX Venture Exchange.
The above descriptions of the Company's agreements are summaries only.
The full agreements are set forth at "Item 19. Exhibits."
D. EXCHANGE CONTROLS.
There are no laws, governmental decrees or regulations in Canada that
restrict the export or import of capital or which affect the remittance of
dividends, interest or other payments to non-resident holders of our shares,
other than withholding tax requirements. Reference is made to "Item E.
Taxation."
There are no limitations under the laws of Canada or the Province of
Ontario, or in our constituting documents, with respect to the right of
non-resident or foreign owners to hold or vote Shares other than those imposed
by the Investment Canada Act.
The Investment Canada Act is a federal Canadian statute which regulates
the acquisition of control of existing Canadian businesses and the establishment
of new Canadian businesses by an individual, a government or entity that is a
"non-Canadian" as that term is defined in the Investment Canada Act.
Management of the Company believes that it is not currently a
"non-Canadian" for purposes of the Investment Canada Act. If the Company were to
become a "non-Canadian" in the future, acquisitions of control of Canadian
businesses by the Company would become subject to the Investment Canada Act.
Generally, the direct acquisition by a "non-Canadian" of an existing Canadian
business with gross assets of $5,000,000 or more is reviewable under the
Investment Canada Act, with a thresholds of $223 million and $237 million for
transactions closing in 2003 and 2004, respectively, for "WTO investors" as
defined under the Investment Canada Act. If the Company were to become a
"non-Canadian" in the future, Management believes the Company would likely
become a "non-Canadian" which is a "WTO investor." Generally, indirect
acquisitions of existing Canadian businesses (with gross assets over certain
threshold levels) are reviewable under the Investment Canada Act, except in
situations involving "WTO investors" where indirect acquisitions are generally
not reviewable. In transactions involving Canadian businesses engaged in the
production of uranium, providing financial services, providing transportation
services or which are cultural businesses, the benefit of the higher "WTO
investor" thresholds do not apply.
41
Acquisitions of businesses related to Canada's cultural heritage or
national identity (regardless of the value of assets involved) may also be
reviewable under the Investment Canada Act. In addition, investments to
establish new, unrelated businesses are not generally reviewable. An investment
to establish a new business that is related to the non-Canadian's existing
business in Canada is not notifiable under the Investment Canada Act unless such
investment relates to Canada's cultural heritage or national identity.
Investments which are reviewable under the Investment Canada Act are
reviewed by the Minister, designated as being responsible for the administration
of the Investment Canada Act. Reviewable investments, generally, may not be
implemented prior to the Minister's determining that the investment is likely to
be of "net benefit to Canada" based on the criteria set out in the Investment
Canada Act. Generally investments by non-Canadians consisting of the acquisition
of control of Canadian businesses which acquisitions are otherwise
non-reviewable or the establishment of new Canadian businesses require that a
notice be given under the Investment Canada Act in the prescribed form and
manner.
Any proposed take-over of the Company by a "non-Canadian" would likely
be subject only to the simple "notification" requirements of the Investment
Canada Act as in all likelihood that non-Canadian would be a "WTO investor" for
purposes of the Investment Canada Act. Generally, a "WTO investor" is an
individual, other than a Canadian, who is a national of a country which is a
member of the World Trade Organization. In the case of a person which is not an
individual, a WTO investor is a person which, generally, is ultimately
controlled by individuals, other than Canadians, who are nationals of a WTO
member. Currently there are 134 countries which are members of the WTO,
including virtually all countries of the Western world. The Company would have
to have an asset base of at least before the "reviewable" transaction provisions
of the Investment Canada Act became relevant for consideration by a third party
non-Canadian acquirer, which is not a WTO investor.
E. TAXATION.
Certain Canadian Federal Income Tax Consequences
The following is a general summary of the principal Canadian federal
income tax considerations generally applicable to a person who holds Shares and
who, at all relevant times, for the purposes of the Income Tax Act (Canada) (the
"Act") and any applicable bi-lateral tax convention, is not and has never been
resident or deemed to be resident in Canada, deals at arm's length and is not
affiliated with the Company, holds his/her Shares as capital property, does not
use or hold (and will not use or hold) and is not deemed to use or hold his/her
Shares in, or in the course of, carrying on a business in Canada and does not
carry on an insurance business in Canada and elsewhere (a "Non-Resident
Holder").
The summary is based on the current provisions of the Act and the
regulations thereunder and the Company's understanding of the current published
administrative practices, and assessing policies of the Canada Customs and
Revenue Agency (the "CCRA"). This summary takes into account all specific
proposals to amend the Act and the regulations publicly announced by the
Minister of Finance (Canada) prior to the date hereof
42
(the "Proposed Amendments") although no assurances can be given that such
Proposed Amendments will be enacted in the form proposed or at all. This summary
does not otherwise take into account or anticipate any other changes in law,
whether by judicial, governmental or legislative action or decision or other
changes in administrative practices or assessing policies of the CCRA nor does
it take into account any provincial, territorial, local or foreign tax
considerations. The provisions of provincial income tax legislation may vary
from province to province in Canada and, in some cases, differ from federal tax
legislation.
This summary is of a general nature only and is not intended to be, nor
should it be construed to be, legal or tax advice to any particular holder.
Accordingly, holders and prospective holders of Shares should consult their own
tax advisors with respect to their particular circumstances, including the
application and effect of the income and other tax laws of any country,
province, state or local tax authority. Any Non-Resident Holder who acquires
Shares other than from the Company may be required to obtain from the vendor a
certificate pursuant to section 116 of the Act (described below) unless the
Shares are listed on a prescribed stock exchange or, after reasonable inquiry,
the purchaser had no reason to believe the vendor was a non-resident of Canada
within the meaning of the Act.
Dividends on Shares
Dividends paid or credited or deemed under the Act to be paid or
credited on the Shares held by a Non-Resident Holder will be subject to Canadian
non-resident withholding tax at a general rate of 25%. This rate may be reduced
pursuant to the terms of an applicable tax treaty between Canada and the country
of residence of the Non-Resident Holder. Dividends paid or credited or deemed
under the Act to be paid or credited on the Shares held by a Non-Resident Holder
who is resident in the United States for purposes of the Canada- United States
Income Tax Convention will generally be subject to Canadian non-resident
withholding tax at a rate of 15% and may, in the case of a corporation, be
further reduced in certain circumstances.
Disposition of Shares
A Non-Resident Holder will not be subject to tax under the Act in
respect of any capital gain realized on a disposition of Shares unless at the
time of such a disposition such shares constitute taxable Canadian property of
the Non-Resident Holder for purposes of the Act and such Non-Resident Holder is
not entitled to relief under an applicable tax treaty between Canada and the
country of residence of the Non-Resident Holder.
Shares will generally not constitute taxable Canadian property of a
Non-Resident Holder at a particular time provided that such Shares are listed on
a prescribed stock exchange (which includes Tiers 1 and 2 of the TSX Venture
Exchange) at that time unless at any time during the sixty month period
immediately preceding the disposition of such Shares, the Non-Resident Holder,
persons with whom the Non-Resident Holder did not deal at arm's length, or the
Non-Resident Holder together will all such persons, owned or had an interest in
or right to acquire 25% or more of the Shares of any class or series of the
capital stock of the Company. Under certain circumstances, Shares of the Company
may be deemed to be taxable Canadian property. In the event
43
that Shares constitute taxable Canadian property to a particular Non-Resident
Holder, capital gains realized on the disposition of the Shares held by a
Non-Resident Holder who is resident in the United States for purposes of the
Canada-United States Income Tax Convention will generally not be subject to
Canadian tax unless the value of the Shares at that time is derived principally
from real property situated in Canada.
A purchase of Shares by the Company (other than a purchase of Shares in
the open market in the manner in which Shares would normally be purchased by any
member of the public in the open market) will give rise to a deemed dividend
under the Act equal to the amount, if any, by which the amount paid by the
Company on the purchase exceeds the paid-up capital of such Shares determined in
accordance with the Act. The paid-up capital may be less than the Non-Resident
Holder's adjusted cost base of such Shares. Any such dividend deemed to have
been received by a Non-Resident Holder will be subject to non-resident
withholding tax as described above. The amount of such deemed dividend will
reduce the proceeds of disposition of the Shares to the Non-Resident Holder for
purposes of computing the Non-Resident Holder's capital gain or loss under the
Act.
F. DIVIDENDS AND PAYING AGENTS.
Holders of Shares are entitled to receive dividends in cash, property
or Shares when and if dividends are declared by the Board of Directors out of
funds legally available therefore. There are no limitations on the payment of
dividends. To date, the Company has never paid any dividends to its
shareholders.
G. STATEMENTS BY EXPERTS.
Not applicable.
H. DOCUMENTS ON DISPLAY.
Copies of the documents referred to in this document may be inspected
during normal business hours, at 36 Toronto Street, Suite 1000, Toronto, Ontario
M5C 2C5 Canada.
I. SUBSIDIARY INFORMATION.
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
Not applicable.
44
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES, AND DELINQUENCIES.
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS.
None.
ITEM. 15 AND 16.
Not applicable.
ITEM 17. FINANCIAL STATEMENTS.
See "Item 18. Financial Statements."
ITEM 18. FINANCIAL STATEMENTS.
(1) Consolidated Balance Sheets of the Company as at December 31, 2003
and Statement of Cash Flows for the period from September 26, 2003 (date of
incorporation) to December 31, 2003. These statements were prepared in
accordance with Canadian generally accepted accounting principles, which differ
in certain respects from United States generally accepted accounting principles.
See Note 9 to the consolidated financial statements for a description of the
differences between Canadian Generally Accepted Accounting Principles and United
States Generally Accepted Accounting Principles.
ITEM 19. EXHIBITS.
Exhibits.
1. Certificate and Articles of Incorporation.
2. By-Laws.
3. List of Agreements.
A. Option Agreement Between Fronteer Development Group
Inc. and Northwestern Mineral Ventures Inc., dated
September 26, 2003.
B. Amending Agreement made as of December 17, 2003
Between Fronteer Development Group Inc. and
Northwestern Mineral Ventures Inc.
C. Second Amending Agreement made as of January 30, 2004
Between Fronteer Development Group Inc. and
Northwestern Mineral Ventures Inc.
45
D. Agency Agreement dated January 9, 2004 between
Northwestern Mineral Ventures and Dominick & Dominick
Securities Inc.
E. Escrow Agreement dated January 9, 2004 among
Northwestern Mineral Ventures Inc., Equity Transfer
Services Inc., and Kabir Ahmed.
F. Consulting Agreement dated April 22, 2004 with
Primoris Group Inc.
4. Consents
A. Consent of McGovern, Hurley, Cunningham,
LLP, Chartered Accountants.
B. Consent of Equity Engineering Ltd.
46
The Registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that is has duly caused and authorized the
undersigned to sign this registration statement on its behalf.
NORTHWESTERN MINERAL VENTURES INC.
By: /s/ Kabir Ahmed
----------------------------
By: Kabir Ahmed
Title: President
Date: June 24, 2004
47
NORTHWESTERN MINERAL VENTURES INC.
FINANCIAL STATEMENTS
(AN EXPLORATION STAGE COMPANY)
FOR THE PERIOD FROM DATE OF INCORPORATION (SEPTEMBER 26, 2003)
TO
DECEMBER 31, 2003
NORTHWESTERN MINERAL VENTURES INC.
FINANCIAL STATEMENTS
(AN EXPLORATION STAGE COMPANY)
FOR THE PERIOD FROM DATE OF INCORPORATION (SEPTEMBER 26, 2003)
TO
DECEMBER 31, 2003
INDEX PAGE
Auditors' Report 1
Balance Sheet 2
Statement of Operations and Deficit 3
Statement of Cash Flows 4
Notes to the Financial Statements 5 - 13
[MHC LOGO] McGovern, Hurley, Cunningham, LLP
Chartered Accountants
Page 1
AUDITORS' REPORT
To the Shareholders of
NORTHWESTERN MINERAL VENTURES INC.
(AN EXPLORATION STAGE COMPANY)
We have audited the balance sheet of Northwestern Mineral Ventures Inc. (An
Exploration Stage Company) as at December 31, 2003 and the statements of
operations and deficit and cash flows for the period from date of incorporation
(September 26, 2003) to December 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 audit.
We conducted our audits in accordance with Canadian and United States generally
accepted auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2003 and the
results of its operations and cash flows for the period from date of
incorporation (September 26, 2003) to December 31, 2003 in accordance with
Canadian generally accepted accounting principles.
MCGOVERN, HURLEY, CUNNINGHAM, LLP
/s/ MCGOVERN, HURLEY, CUNNINGHAM, LLP
CHARTERED ACCOUNTANTS
TORONTO, Canada
March 8, 2004
COMMENTS BY THE AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING CONFLICT
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by significant conditions and events that cast
substantial doubt on the company's ability to continue as a going concern, such
as those described in Note 1 to the financial statements. Our report to the
shareholders dated March 8, 2004, is expressed in accordance with Canadian
reporting standards which do not permit a reference to such events and
conditions in the auditors' report when these are adequately disclosed in the
financial statements.
MCGOVERN, HURLEY, CUNNINGHAM, LLP
/s/ MCGOVERN, HURLEY, CUNNINGHAM, LLP
CHARTERED ACCOUNTANTS
TORONTO, Canada
March 8, 2004
NORTHWESTERN MINERAL VENTURES INC. Page 2
(AN EXPLORATION STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 2003
================================================================================
2003
$
================================================================================
ASSETS
CURRENT
Cash 172,413
============
LIABILITIES
CURRENT
Accounts payable and accrued liabilities 10,000
------------
SHAREHOLDER'S EQUITY
CAPITAL STOCK (Note 3) 101
SPECIAL WARRANTS (Note 3(d)) 195,409
ACCUMULATED DEFICIT (33,097)
------------
162,413
------------
172,413
============
APPROVED ON BEHALF OF THE BOARD:
Signed "KABIR AHMED" , Director
- ---------------------------
Signed "JON NORTH" , Director
- ---------------------------
See accompanying notes to the financial statements
NORTHWESTERN MINERAL VENTURES INC. Page 3
(AN EXPLORATION STAGE COMPANY)
STATEMENT OF OPERATIONS AND DEFICIT
FOR THE PERIOD FROM DATE OF INCORPORATION (SEPTEMBER 26, 2003)
TO DECEMBER 31, 2003
================================================================================
2003
$
================================================================================
EXPENSES
Administrative expense 33,097
---------
NET LOSS FOR THE PERIOD 33,097
ACCUMULATED DEFICIT, beginning of period -
---------
ACCUMULATED DEFICIT, end of period 33,097
---------
Basic net loss per share (Note 5) (0.01)
---------
Diluted net loss per share (Note 5) (0.01)
---------
Basic shares outstanding (Note 5) 2,500,000
---------
Diluted shares outstanding (Note 5) 2,500,000
---------
See accompanying notes to the financial statements
NORTHWESTERN MINERAL VENTURES INC. Page 4
(AN EXPLORATION STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCORPORATION (SEPTEMBER 26, 2003)
TO DECEMBER 31, 2003
================================================================================
2003
$
================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (33,097)
Changes in non-cash working capital balances
Increase in accounts payable and accrued liabilities 10,000
----------
Net cash used in operating activities (22,097)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares 101
Issuance of special warrants 200,000
Special warrants issue costs (4,591)
-----------
Net cash provided by financing activities 195,501
----------
Increase in cash, and cash, end of year 172,413
==========
SUPPLEMENTAL INFORMATION:
Income taxes paid -
Interest paid -
See accompanying notes to the financial statements
NORTHWESTERN MINERAL VENTURES INC. Page 5
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2003
================================================================================
1. NATURE OF OPERATIONS AND GOING CONCERN
Northwestern Mineral Ventures Inc. (the "Company") was incorporated
under the laws of the Province of Ontario, Canada by Articles of
Incorporation dated September 26, 2003. The Company, which is in the
exploration stage, is engaged in the acquisition, exploration and
development of properties for the mining of precious and base metals.
The Company is in the process of exploring its exploration properties
for mineral resources and has not determined whether the properties
contain economically recoverable reserves. The recovery of the amounts
shown for the resource properties and the related deferred expenditures
is dependent upon the existence of economically recoverable reserves,
confirmation of the Company's interest in the underlying mineral
claims, the ability of the Company to obtain necessary financing to
complete the exploration, and upon future profitable production.
As at December 31, 2003, the Company had cash of $172,413 and working
capital of $162,413. Management of the Company believes that it has
sufficient funds to pay its ongoing administrative expenses and to meet
its liabilities for the ensuing year as they fall due. However, the
Company does not have sufficient resources to meet its exploration
property commitments as described in Notes 6 and 8(b).
The Company's ability to continue operations and meet its exploration
property commitments is dependent on management's ability to secure
additional financing. Management is actively pursuing such additional
sources of financing, and while it has been successful in doing so in
the past, there can be no assurance it will be able to do so in the
future. Because of this uncertainty there is substantial doubt about
the ability of the Company to continue as a going concern.
These financial statements do not include the adjustments that would be
necessary should the Company be unable to continue as a going concern.
Such adjustments could be material.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the Company are in accordance with Canadian
generally accepted accounting principles. Outlined below are those
policies considered particularly significant.
INTEREST IN EXPLORATION PROPERTIES AND DEFERRED EXPLORATION
EXPENDITURES
Interest in exploration properties and deferred exploration
expenditures are carried at cost until they are brought into
production, at which time they are depleted on a
unit-of-production method based on proven and probable reserves.
If a property is subsequently determined not to be economic, the
property and related deferred costs are written down to net
realizable value. Other general exploration expenses are charged
to operations as incurred. The cost of exploration properties
abandoned or sold and their related deferred exploration costs are
charged to operations in the current year.
The Company reviews its exploration properties on an annual basis
to determine if events or changes in circumstances have transpired
which indicate that the carrying value of its assets may not be
recoverable. The recoverability of costs incurred on the
exploration properties is dependent upon numerous factors
including exploration results, environmental risks, commodity
risks, political risks, and the Company's ability to attain
profitable production. In reviewing its exploration properties,
the Company estimates the potential future cash flows expected to
result from each asset and its eventual disposition. If the sum of
the undiscounted, expected future cash flow is less than the
carrying value of the asset, an impairment loss is recognized. It
is reasonably possible, based on existing knowledge, that changes
in future conditions in the near-term could require a change in
the determination of the need for and amount of any write down.
Continued...
NORTHWESTERN MINERAL VENTURES INC. Page 6
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2003
================================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INTEREST IN EXPLORATION PROPERTIES AND DEFERRED EXPLORATION
EXPENDITURES (Continued) Costs include the cash consideration and
the fair market value of the shares issued for the acquisition of
exploration properties. The carrying value is reduced by option
proceeds received until such time as the property cost and
deferred expenditures are reduced to nominal amounts. Properties
acquired under option agreements or by joint ventures, whereby
payments are made at the sole discretion of the Company, are
recorded in the accounts at the time of payment.
ENVIRONMENTAL EXPENDITURES
The Company has properties that must comply with environmental
regulations and laws. Expenditures for current operations are
expensed or capitalized, as appropriate. Liabilities are recorded
when remedial efforts are probable and the costs can be reasonably
estimated.
STOCK-BASED COMPENSATION PLAN
The Company has adopted the new recommendations of the Canadian
Institute of Chartered Accountants ("CICA") handbook Section 3870
with respect to stock based compensation awards to employees of
the Company. 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. These new recommendations require that
compensation for all awards be measured and recorded in the
financial statements at fair value for fiscal years beginning on
or after January 1, 2004. This Section may be adopted; (i)
retroactively in fiscal year 2005 with a restatement of prior
period financial statements (ii) retroactively in fiscal year 2005
with no restatement of prior period financial statements (iii)
prospectively in fiscal year 2004
The Company, as permitted by Section 3870, has chosen to apply
this Section prospectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with
Canadian generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the related reported amounts of revenue and expense
during the report period. Actual results could differ from those
estimates. Management believes that the estimates are reasonable.
INCOME TAXES
The Company uses the liability method of accounting for income
taxes. Under the liability method of tax allocation, future income
taxes are determined based on the differences between the
financial reporting and tax bases of assets and liabilities. These
income tax assets and liabilities are measured using the
substantially enacted tax rates in which the income tax assets or
liabilities are expected to be settled or realized. A valuation
allowance is provided to the extent that it is more likely than
not that future income tax assets will not be realized.
3. CAPITAL STOCK, OPTIONS AND SPECIAL WARRANTS
The capital stock is as follows:
A) AUTHORIZED
Unlimited number of common shares
Continued...
NORTHWESTERN MINERAL VENTURES INC. Page 7
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2003
================================================================================
3. CAPITAL STOCK, OPTIONS AND SPECIAL WARRANTS (Continued)
B) ISSUED AND OUTSTANDING
1,000,000 common shares
Transactions during the period are as follows:
Number of
Shares Amount
------ ------
# $
COMMON SHARES
Issuance of common shares 1,000,000 101
=========== =========
C) STOCK OPTIONS
The Company has a stock option plan for the purchase of common shares
for its directors, officers, employees and other service providers. The
aggregate number of common shares reserved for issuance under the stock
option plan is the lesser of 2,000,000 common shares and 10% of the
issued and outstanding common shares of the Company. The options are
non-assignable and non-transferable and may be granted for a term not
exceeding five years. The exercise price of the options is fixed by the
board of directors of the Company at the time of grant, subject to all
applicable regulatory requirements. As at December 31, 2003, there were
no options issued and outstanding.
D) SPECIAL WARRANTS
Special warrants to purchase 2,000,000 common shares of the Company for
no additional consideration, were issued and outstanding as of December
31, 2003. The net proceeds from the sale of the special warrants after
deducting the issue costs of the special warrant offering were
$195,409.
As at December 31, 2003, the following special warrants were
outstanding:
Exercise Price Number Expiry date
-------------- ------ -----------
$
Nil 2,000,000 November 12, 2008
Each special warrant is exercisable at no additional cost into one
common share at any time prior to January 19, 2004.
4. FINANCIAL INSTRUMENTS
FAIR VALUE
Canadian generally accepted accounting principles require that
the Company disclose information about the fair value of its
financial assets and liabilities. Fair value estimates are made
at the balance sheet date based on relevant market information
and information about the financial instrument. These estimates
are subjective in nature and involve uncertainties in significant
matters of judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect
these estimates.
The carrying amounts for cash and accounts payable and accrued
liabilities on the balance sheet approximate fair value because
of the limited term of these instruments.
Continued...
NORTHWESTERN MINERAL VENTURES INC. Page 8
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2003
================================================================================
5. NET LOSS PER SHARE
The basic loss per share is computed by dividing the loss for the year
by the weighted average number of common shares and special warrants,
as provided for under EIC-50 outstanding during the year. Fully diluted
loss per share is the same as basic loss per share.
6. INTEREST IN EXPLORATION PROPERTY
The Company has entered into a Letter of Intent with Fronteer
Development Group Inc. ("Fronteer") dated September 26, 2003 to earn an
interest in the Conjuror, Achook and McPhoo properties in the Northwest
Territories. Pursuant to the Letter of Intent, the Company acquired the
right to earn up to 50% interest in the Bear Project for the following
consideration:
(a) an initial payment to Fronteer of $20,000 cash;
(b) completion of exploration expenditures by the Company in the
amount of $5,000,000 over a five-year period, including a first
year commitment equal to $500,000; and
(c) annual cash payments to Fronteer, commencing on the first year
anniversary of the Option Agreement of $30,000, $40,000,
$50,000, $60,000 and $70,000 respectively over a five-year
period.
Pursuant to the Letter of Intent, the Company and Fronteer have agreed
to form a strategic alliance to explore for "Olympic Dam-type" iron
oxide copper gold deposits in Canada and, upon satisfaction of the
Company's obligations to acquire its full 50% interest noted above,
Fronteer and the Corporation shall form a joint venture with respect to
the Bear Project. Fronteer shall be the operator of all of the
exploration programs contemplated by the Option Agreement in
consideration of which Fronteer is entitled to a management fee equal
to 10% of the total expenditures on the Bear Project. The management
fees paid to Fronteer shall be counted as part of the required
exploration expenditures to exercise the option pursuant to the Option
Agreement. The Conjuror property is subject to a 2% net smelter
royalty, one-half of which may be purchased for $1,000,000.
Subsequent to December 31, 2003, the Company and Fronteer executed a
definitive formal option agreement (see Note 8(b)).
7. INCOME TAXES
As at December 31, 2003, the Company had non-capital losses of
approximately $28,000 carried forward for tax purposes, which may be
available to reduce taxable income of future years. The non-capital
losses expire in 2010.
Future income tax benefits which may arise as a result of these losses
have not been recognized in these financial statements as their
realization is unlikely and have been offset by a full valuation
allowance.
8. SUBSEQUENT EVENTS
a) Subsequent to December 31, 2003, the Company entered into an
Agency Agreement with Dominick & Dominick Securities Inc.
("Dominick") to appoint Dominick as agent of the Company to
offer for sale, on a best efforts basis, by way of prospectus, a
minimum of 8,000,000 and a maximum of 15,000,000 common shares
of the Company, at a price of $0.10 per share, for aggregate
proceeds of a minimum of $800,000 and a maximum of $1,500,000
(the "Offering"). The gross proceeds of the Offering will be
used for exploration of its existing properties, the search and
acquisition of additional properties and for general corporate
purposes. The offering was completed February 26, 2004 through
the sale of 15,000,000 common shares for gross proceeds of
$1,500,000.
Continued...
NORTHWESTERN MINERAL VENTURES INC. Page 9
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2003
================================================================================
8. SUBSEQUENT EVENTS (Continued)
Pursuant to the Agency Agreement, Dominick will receive a
commission equal to 7% of the gross proceeds of the Offering
($0.007) per common share for an aggregate commission of $56,000
in the event of the Minimum Offering and an aggregate commission
of $105,000 in the event of Maximum Offering. Final receipt for
the prospectus was obtained January 12, 2004.
b) Subsequent to December 31, 2003, the Company and Fronteer
executed the definitive formal agreement referred to in Note 6
along with an amending agreement.
The significant terms are the same as those described in Note 6
and include the following additional terms:
The completion of the exploration expenditures as follows:
Amount
Date $
----
On or before September 26, 2004 500,000
On or before September 26, 2005 500,000
On or before September 26, 2006 1,000,000
On or before September 26, 2007 1,000,000
On or before September 26, 2008 2,000,000
----------
5,000,000
==========
In addition, the following terms were included:
o Should the Company incur not less than $1,000,000 in
exploration expenditures on or before September 26, 2005 and
make the required cash payments as set out in Note 6, the
Company will earn a 10% interest in the project.
o Should the Company incur not less than $3,000,000 in
exploration expenditures on or before September 26, 2007 and
make the required cash payment as set out in Note 6, the
Company will earn a 30% interest in the project.
o Should the Company incur not less than $5,000,000 on or
before September 26, 2008 and make the required cash payment
as set out in Note 6, the Company will have earned its full
50% interest in the project.
c) The special warrants referred to in Note 3(d) were exercised at
no additional cost into 2,000,000 common shares.
Continued...
NORTHWESTERN MINERAL VENTURES INC. Page 10
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2003
================================================================================
9. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
These financial statements have been prepared in accordance with
generally accepted accounting principles in Canada ("Canadian GAAP"),
which, in all respects, are in conformity with accounting principles
generally accepted in the United States ("US GAAP") as related to the
Company's current operations.
The following are differences between Canadian GAAP and US GAAP which
may have a future impact on these financial statements:
(A) INTEREST IN EXPLORATION PROPERTIES AND DEFERRED EXPLORATION
COSTS In March 2002, the Emerging Issues Committee of the CICA
issued EIC 126 - "Accounting by Mining Enterprises for
Exploration Costs" which affects mining companies with respect
to the deferral of exploration costs. EIC 126 refers to CICA
Handbook Section 3061 "Property, Plant and Equipment",
paragraph .21 which states that for a mining property, the
cost of the asset includes exploration costs if the enterprise
considers that such costs have the characteristics of
property, plant and equipment. EIC 126 then states that a
mining enterprise that has not established mineral reserves
objectively, and therefore does not have a basis for preparing
a projection of the estimated cash flow from the property is
not precluded from considering the exploration costs to have
the characteristics of property, plant and equipment. EIC 126
also sets forth the Committee's consensus that a mining
enterprise in the exploration stage is not required to
consider the conditions regarding impairment in determining
whether exploration costs may be initially capitalized. With
respect to impairment of capitalized exploration costs, if an
enterprise has not established mineral reserves objectively,
and therefore does not have a basis for preparing a projection
of the estimated cash flow from the property it is not obliged
to conclude that capitalized costs have been impaired.
However, such an enterprise should consider the conditions set
forth in CICA Handbook Section 3061 in determining whether
subsequent write-down of capitalized exploration costs related
to mining properties is required.
The Company considers that exploration costs have the
characteristics of property, plant and equipment and,
accordingly, will defer such costs when incurred. Furthermore,
pursuant to EIC 126, deferred exploration costs would not
automatically be subject to regular assessment of
recoverability, unless certain conditions exist.
Under U.S. GAAP, mineral exploration costs are expensed as
incurred except in the year when proven or probable mineral
reserves have been established for a given property in which
case all exploration costs for that property incurred since
the beginning of that year are capitalized.
(B) INVESTMENT IN JOINTLY CONTROLLED ENTITIES
Canadian GAAP provides for investments in jointly controlled
entities to be accounted for using proportionate
consolidation. Under U.S. GAAP, investments in incorporated
joint ventures are to be accounted for using the equity
method. Under an accommodation of the United States Securities
and Exchange Commission, the accounting for joint ventures
need not be reconciled from Canadian to U.S. GAAP. The
different accounting treatment affects only the display and
classification of financial statement items and not net income
or shareholder's equity. The Company's interest in the
exploration property described in Note 6 may develop into a
jointly controlled entity.
Continued...
NORTHWESTERN MINERAL VENTURES INC. Page 11
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2003
================================================================================
9. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (Continued)
C) COMPREHENSIVE INCOME
Effective for fiscal years beginning after December 15, 1997,
Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" ("FAS 130"), is applicable for U.S. GAAP
purposes. FAS 130 establishes standards for the reporting and
display of comprehensive income and its components in a full
set of general purpose financial statements. FAS 130 requires
that all items that are required to be recognized under
accounting standards as components of comprehensive income be
reported in a financial statement.
The Canadian Standard for Comprehensive Income is in the form
of a CICA exposure draft dated March, 2003 which may become
Canadian GAAP.
(D) FLOW-THROUGH SHARES
The CICA issued a Draft EIC dated December 15, 2003,
"Flow-through Shares", which outlines the criteria for
accounting for flow-through shares.
Under U.S. GAAP, the issue of shares at a discount or premium
to the market price will result in a U.S./Canadian GAAP
difference. A liability is recognized on the sale of
flow-through shares for the premium obtained by the Company,
if any, of the sale price per share over the market value at
the time of issuance. Under Canadian GAAP, no such premium is
recognized. Upon renunciation of the flow-through share
proceeds to investors, the liability under U.S. GAAP is
reversed and the Company recognizes a deferred tax benefit for
this amount. The Company follows the policy of renouncing
fully to investors the proceeds of all flow-through share
financings received during the year, whether the underlying
exploration expenditures have been incurred or not, as at its
fiscal year end, which coincides with the personal taxation
year of individuals in Canada. All future issuances of
flow-through shares by the Company will be based on the market
price of the shares as they last traded on the TSX Venture
Exchange on the date that each agreement to issue shares was
made. Accordingly, the absence of a discount or premium to
market value on issuance results in no current impact on these
financial statements from the application of U.S. GAAP in
respect to flow-through shares. There have been no issuances
of flow-through shares to date.
(E) RECENT ACCOUNTING PRONOUNCEMENTS
Disposal of Long-Lived Assets and Discontinued Operations
In December 2002, the CICA issued Handbook Section 3475 for
Disposal of Long-Lived Assets and Discontinued Operations with
the purpose of harmonizing Canadian GAAP with U.S. GAAP. The
section is effective for disposal activities initiated by a
commitment to a plan on or after May 1, 2003, with earlier
adoption encouraged. The key aspects of Handbook Section 3475
are as follows:
o a long-lived asset to be disposed of other than by sale
should continue to be classified as held and used until
it is disposed of;
o a long-lived asset can only be classified as held for
sale if certain criteria are met;
o an asset classified as held for sale should be measured
at the lower of its carrying amount or fair value less
costs to sell;
o a loss recognized on classification of an asset as held
for sale does not include future operating losses;
o discontinued operations are defined more broadly than
previously. They comprise dispositions where the
operations and cash flows can be clearly distinguished,
operationally and for financial reporting purposes, from
the rest of the enterprise;
o the income statement display of discontinued operations
is unchanged from previous display; and
o various disclosures related to the disposal of
long-lived assets is required.
The Company is currently assessing the impact of Handbook
Section 3475 on its financial position and results of
operations.
Continued...
NORTHWESTERN MINERAL VENTURES INC. Page 12
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2003
================================================================================
9. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (Continued)
(E) RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
Accounting for Severance and Termination Benefits
In March 2003, the EIC issued EIC Abstract 134 for Accounting
for Severance and Termination Benefits, which addresses the
various types of severance and termination benefits related to
the termination of an employee's services prior to normal
retirement. The accounting treatment must be applied
prospectively to exit or disposal activities initiated after
March 31, 2003. This Abstract harmonizes Canadian GAAP and U.S.
GAAP.
Costs Associated with Exit or Disposal Activities
In July 2002, the FASB issued Statement of Financial Accounting
Standards No. 146 Accounting for Costs Associated with Exit or
Disposal Activities ("FAS 146"). FAS 146 addresses financial
accounting and reporting for costs associated with exit or
disposal activities, and is effective for exit or disposal
activities initiated after December 31, 2002. FAS 146 nullifies
Emerging Issues Task Force Issue No. 94-3 ("EITF 94-3")
Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain costs
Incurred in Restructuring). The principal difference between FAS
146 and EITF 94-3 relates to the recognition of a liability for
a cost associated with an exit or disposal activity. FAS 146
requires that the cost associated with an exit or disposal
activity be recognized when the liability is incurred, whereas
under EITF 94-3 the liability was recognized at the date of an
entity's commitment to an exit plan. This is substantially
consistent with the CICA EIC Abstract 135, Accounting for Costs
Associated with Exit and Disposal Activities (Including Costs
Incurred in a Restructuring). This new guidance is effective for
fiscal years beginning after December 31, 2002, and will impact
any exit or disposal activities the Company initiates after that
date.
Guarantees
In November 2002, the FASB issued Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others" ("FIN 45"), which requires certain disclosures to be
made by a guarantor in its interim and annual financial
statements for periods ending after December 15, 2002 about its
obligations under guarantees. FIN 45 also requires the
recognition of a liability by a guarantor at the inception of
certain guarantees entered into or modified after December 31,
2002. FIN 45 requires the guarantor to recognize a liability for
a non-contingent component of certain guarantees; that is, it
requires the recognition of a liability for the obligation to
stand ready to perform in the event that specified triggering
events or conditions occur. The initial measurement of this
liability is the fair value of a guarantee at inception. This is
substantially consistent with the CICA Accounting Guideline
AcG-14, Disclosure of Guarantees. The Company does not have any
guarantees under these standards.
Variable Interest Entities
In January 2003, the FASB issued Interpretation No. 46
"Consolidation of Variable Interest Entities" ("VIE's") ("FIN
46") which requires that companies that control another entity
through interests other than voting interest should consolidate
the controlled entity. In the absence of clear control through a
voting equity interest, a company's exposure (variable
interests) to the economic risk and the potential rewards from a
VIE's assets and activities are the best evidence of a
controlling financial interest. VIE's created after January 31,
2003 must be consolidated immediately. VIE's existing prior to
February 1, 2003 must be consolidated by the Company commencing
with its first quarter 2004 financial statements. The CICA
recently issued accounting guideline No. 15 "Consolidation of
Variable Interest Entities" which harmonizes with U.S. Fin 46.
The Canadian guideline is effective for year ends and interim
periods beginning on or after January 1, 2004. The Company has
determined that it does not have any VIE's which will require
consolidation.
Continued...
NORTHWESTERN MINERAL VENTURES INC. Page 13
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2003
================================================================================
9. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (Continued)
(E) RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
Liabilities and Equity
On May 15, 2003, the FASB issued Statement No, 150, Accounting
for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity. The Statement requires issuers to
classify as liabilities (or assets in some instances) three
classes of freestanding financial instruments that embody
obligations for the issuer. The Company has determined that the
statement did not have any impact on its financial statements.
Asset Retirement Obligations
In July 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
143, "Accounting for Asset Retirement Obligations." This
statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs.
This Statement applies to all entities. It applies to legal
obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development
and/or the normal operation of a long-lived asset, except for
certain obligations of lessees. This Statement is effective for
financial statements issued for fiscal years beginning after
June 15, 2002. This is substantially consistent with the CICA
Handbook Section 3110, Asset Retirement Obligations, which is
effective for fiscal periods beginning on or after January 1,
2004.
Stock-based Employee Compensation
In December 2002, the FASB issued Statement 148 ("SFAS 148"),
"Accounting for Stock-Based Compensation - Transition and
Disclosure: an amendment of FASB Statement 123" ("SFAS 123"), to
provide alternative transition methods for a voluntary change to
the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require prominent
disclosures in annual financial statements about the method of
accounting for stock-based employee compensation and the pro
forma effect on reported results of applying the fair value
based method for entities that use the intrinsic value method of
accounting. The pro forma effect disclosures are also required
to be prominently disclosed in interim period financial
statements.
This statement is effective for financial statements for fiscal
years ending after December 15, 2002 and is effective for
financial reports containing condensed financial statements for
interim periods beginning after December 15, 2002, with earlier
application permitted. The Company uses the fair value based
method of accounting for stock-based compensation and believes
that the Company's financial statement policy is consistent with
the new guidance contained in SFAS 148.