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===============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 20-F
/ / Registration statement pursuant to Section 12(b) or (g) of the
Securities Exchange Act of 1934, or
/ X / Annual Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934,
FOR THE FISCAL PERIOD ENDED JUNE 30, 2002
/ / Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act 1934
-----------------------------
COMMISSION FILE NUMBER 0-26636
[CREW LOGO]
CREW DEVELOPMENT CORPORATION
(Exact name of Registrant as specified in its charter)
YUKON TERRITORY, CANADA
(Jurisdiction of incorporation or organization)
SUITE 400 - 837 WEST HASTINGS STREET, VANCOUVER
BRITISH COLUMBIA, CANADA V6C 3N6
(Address of principal executive offices)
(604) 683-7585
(Registrant's telephone number)
-----------------------------
Securities registered or to be registered pursuant to Section 12(g) of the Act.
NONE NOT APPLICABLE
(Title of Class) (Name of each exchange on which registered)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
COMMON SHARES WITHOUT PAR VALUE.
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act. NONE.
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report. 138,664,295 COMMON SHARES ISSUED AND OUTSTANDING AS AT NOVEMBER 15,
2002.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES / X / No / /
Indicate by check mark which financial statement item the registrant has elected
to follow. ITEM 17 / X / Item 18 / /
================================================================================
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INTERPRETATION
This information set forth in this Annual Report is as at November 15, 2002
unless an earlier or later date is indicated.
As used in this Annual Report, the "Corporation" means Crew Development
Corporation and its subsidiaries, except to the extent the context requires
otherwise.
Financial information is presented in accordance with accounting principles
generally accepted in Canada. The major measurement differences between
accounting principles generally accepted in Canada and in the United States, as
applicable to the Corporation, are set forth in Note 25 to the accompanying
Consolidated Financial Statements of the Corporation.
FORWARD-LOOKING STATEMENTS
Statements in this Annual Report regarding expected completion dates of
feasibility studies, anticipated commencement dates of resource production
operations, projected quantities of future resource production and anticipated
production rates, operating efficiencies, costs and expenditures are
forward-looking statements. Actual results could differ materially depending
upon the availability of materials, equipment, required permits or approvals and
financing, the occurrence of unusual weather or operating conditions, the
accuracy of reserve estimates, lower than expected resource grades or the
failure of equipment or processes to operate in accordance with specifications.
See Item 3.D "Key Information - Risk Factors" for other factors that may affect
the Corporation's future financial performance.
CURRENCY TRANSLATIONS
In this Annual Report, unless otherwise specified, all monetary amounts are
expressed in Canadian Dollars. See Item 3.A "Key Information-Selected Financial
Data" for a summary of key exchange rates.
<Page>
SECURITIES AND EXCHANGE COMMISSION
FORM 20-F FOR CREW DEVELOPMENT CORPORATION
TABLE OF CONTENTS
<Table>
<Caption>
INTERPRETATION....................................................................................................2
FORWARD-LOOKING STATEMENTS........................................................................................2
CURRENCY TRANSLATIONS.............................................................................................2
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS...........................................7
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.........................................................7
ITEM 3. KEY INFORMATION.................................................................................7
A. Selected Financial Data.........................................................................7
B. Capitalization and Indebtedness.................................................................8
C. Reasons for the Offer and Use of Proceeds.......................................................8
D. Risk Factors....................................................................................8
ITEM 4. INFORMATION OF THE CORPORATION.................................................................10
A. History and Development of the Corporation.....................................................10
B. Business Overview..............................................................................12
C. Organizational Structure.......................................................................26
D. Property, Plants and Equipment.................................................................27
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS...................................................27
A. Operating Results..............................................................................27
B. Liquidity and Capital Resources................................................................31
C. Research and Development, Patents and Licenses, etc............................................33
D. Trend Information..............................................................................33
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.....................................................33
A. Directors and Senior Management................................................................33
B. Compensation...................................................................................34
C. Board Practices................................................................................37
D. Employees......................................................................................38
E. Share Ownership................................................................................38
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..............................................39
A. Major Shareholders.............................................................................39
B. Related Party Transactions.....................................................................39
C. Interests of Experts and Counsel...............................................................39
ITEM 8. FINANCIAL INFORMATION..........................................................................40
A. Consolidated Statements and Other Financial Information........................................40
B. Significant Changes............................................................................40
ITEM 9. THE OFFER AND LISTING..........................................................................40
A. Offer and Listing Details......................................................................40
B. Plan of Distribution...........................................................................41
C. Markets........................................................................................41
D. Selling Shareholders...........................................................................41
E. Dilution.......................................................................................41
F. Expenses of the Issuer.........................................................................41
</Table>
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<Table>
<Caption>
ITEM 10. ADDITIONAL INFORMATION.........................................................................42
A. Share Capital..................................................................................42
B. Memorandum and Articles of Association.........................................................42
C. Material Contracts.............................................................................44
D. Exchange Controls..............................................................................45
E. Taxation.......................................................................................46
F. Dividends and Paying Agents....................................................................52
G. Statements by Experts..........................................................................52
H. Documents on Display...........................................................................52
I. Subsidiary Information.........................................................................52
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................................52
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.........................................52
ITEM 13. DEFAULTS, DIVIDEND ARREARS AND DELINQUENCIES...................................................52
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS...................53
ITEM 15. CONTROLS AND PROCEDURES........................................................................53
ITEM 16. [RESERVED].....................................................................................53
ITEM 17. FINANCIAL STATEMENTS...........................................................................53
ITEM 18. FINANCIAL STATEMENTS...........................................................................53
ITEM 19. EXHIBITS.......................................................................................53
A. Consolidated Financial Statements..............................................................53
B. Miscellaneous Exhibits.........................................................................54
</Table>
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GLOSSARY OF TECHNICAL TERMS
---------------------------
ADIT - A passageway or opening driven horizontally into the side of a hill,
generally for the purpose of exploring underground or otherwise accessing a
mineral deposit.
ALTERATION - Any physical or chemical change in rock or mineral subsequent to
its formation.
ANOMALY - A term applied to a departure from the normal or field characteristic,
commonly used in geochemical and geophysical prospecting.
ASSAY - A quantitative test of minerals and ore by chemical and / or fire
techniques.
CONCESSION - A grant of mining rights especially by a government in return for
services or for a particular use.
CO - Cobalt.
CU - Copper.
DEPOSIT - A mineralized body which has been physically delineated by sufficient
drilling, trenching and / or underground work, and found to contain a sufficient
average grade of metal or metals to warrant further exploration and / or
development expenditures.
DMT - Dry metric tonnes.
G/T - Grams per tonne.
HECTARE (HA) - 10,000 square metres or 2.471 acres.
HIGH-GRADE - More than 31 grams of gold per tonne or more than one troy ounce of
gold per ton.
INFERRED MINERAL RESOURCE - The part of a mineral resource for which quantity
and grade or quality can be estimated on the basis of geological evidence and
limited sampling and reasonably assumed, but not verified, geological and grade
continuity. The estimate is based on limited information and sampling gathered
through appropriate techniques from locations such as outcrops, trenches, pits,
workings and drill holes.
INDICATED MINERAL RESOURCE - The part of a mineral resource for which quantity,
grade or quality, densities, shape and physical characteristics, can be
estimated with a level of confidence sufficient to allow the appropriate
application of technical and economic parameters, to support mine planning and
evaluation of the economic viability of the deposit. The estimate is based on
detailed and reliable exploration and testing information gathered through
appropriate techniques from locations such as outcrops, trenches, pits workings
and drill holes that are spaced closely enough for geological and grade
continuity to be reasonably assumed.
INTRUSIVE - A body of igneous rock formed by a consolidation of magma intruded
into other rocks, in contrast to lavas, which are extruded upon the surface.
KILOMETRE (KM) - 1,000 metres or 0.621 miles.
MEASURED MINERAL RESOURCE - The part of a mineral resource for which quantity,
grade or quality, densities, shape, physical characteristics are so well
established that they can be estimated with confidence sufficient to allow the
appropriate application of technical and economic parameters, to support
production planning and evaluation of the economic viability of the deposit. The
estimate is based on detailed and reliable exploration, sampling and testing
information gathered through appropriate techniques from locations such as
outcrops, trenches, pits, workings and drill holes that are spaced closely
enough to confirm both geological and grade continuity.
METER (M) - 3.281 feet.
MINERAL RESERVE - The economically mineable part of a measured or indicated
mineral resource demonstrated by at least a preliminary feasibility study. This
study must include adequate information on mining, processing, metallurgical,
economic and other relevant factors that demonstrate, at the time of reporting,
that economic
5
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extraction can be justified. A mineral reserve includes diluting materials and
allowances for losses that may occur when the material is mined.
MINERAL RESOURCE - A concentration or occurrence of natural, solid, inorganic or
fossilized organic material in or on the Earth's crust in such form and quantity
and of such a grade or quality that it has reasonable prospects for economic
extraction. The location, quantity, grade, geological characteristics and
continuity of a mineral resource are known, estimated or interpreted from
specific geological evidence and knowledge.
MINERALIZATION - The concentration of metals and their chemical compounds within
a body of rock.
MT or TONNE - Metric tonne.
MTU - Metric tonne unit.
NI - Nickel.
ORE - A natural aggregate of one or more minerals which, at a specified time and
place, may be mined and sold at a profit, or from which some part may be
profitably separated.
OUNCES or OZ - Troy ounces.
PRELIMINARY FEASIBILITY STUDY - A comprehensive study of the viability of a
mineral project that has advanced to a stage where the mining method, in the
case of underground mining, or the pit configuration, in the case of an open
pit, has been established, and where an effective method of mineral processing
has been determined. This study must include a financial analysis based on
reasonable assumptions of technical, engineering, operating and economic factors
and evaluation of other relevant factors which are sufficient for a qualified
person acting reasonably, to determine if all or part of the mineral resource
may be classified as a mineral reserve.
PROBABLE RESERVE - The economically mineable part of an indicated, and in some
circumstances measured mineral resource demonstrated by at least a preliminary
feasibility study. This study must include adequate information on mining,
processing, metallurgical, economic, and other relevant factors that
demonstrate, at the time of reporting, that economic extraction can be
justified.
PROVEN RESERVE - The economically mineable part of a measured mineral resource
demonstrated by at least a preliminary feasibility study. This study must
include adequate information on mining, processing, metallurgical, economic, and
other relevant factors that demonstrate, at the time of reporting, that economic
extraction is justified.
PYRITE - A mineral containing iron sulphide.
SULPHIDE - A mineral of sulphur with one or more other elements.
TROY OUNCE - 31.10348 grams.
WMT - Wet metric tonne.
ZAR - The South African Rand.
The above definitions of resources and reserves are according to the Canadian
Institute of Mining, Metallurgy and Petroleum, Standards on Mineral Resources
and Reserves: Definitions and Guidelines. Resources and reserves reported in
this document which refer to the Australasian Code for Reporting of Mineral
Resources and Ore Reserves ("JORC Code") are retained in their original format.
6
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PART I
------
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. SELECTED FINANCIAL DATA
The following tables summarize selected financial data for the Corporation
(stated in Canadian Dollars) prepared in accordance with Canadian generally
accepted accounting principals ("Canadian GAAP") and United States generally
accepted accounting principals ("U.S. GAAP"), respectively. The information in
the tables relating to the last three financial years of the Corporation was
extracted from the consolidated financial statements and related notes (the
"Consolidated Financial Statements") of the Corporation attached as an exhibit
hereto and should be read in conjunction with the Consolidated Financial
Statements and with the information appearing under Item 5 "Operating and
Financial Review and Prospects". Results for the period ended June 30, 2002 are
not necessarily indicative of results for future periods.
SELECTED FINANCIAL DATA PREPARED IN ACCORDANCE WITH CANADIAN GAAP
<Table>
<Caption>
16 MONTHS ENDED
YEAR ENDED JUNE 30 JUNE 30
--------------------------------------------------------------
2002 2001 2000 1999 1998
------------ ------------- ------------- ------------- -------------
Total revenues $111,730,701 $79,702,138 $10,908,252 $23,692,705 $12,336,880
Net earnings (loss) (40,750,689) (26,283,537) 2,390,060 (107,047) (1,664,364)
Net earnings (loss) per share
fully diluted (0.26) 0.04 - (0.07)
Net earnings (loss) per share (0.31) (0.26) 0.04 - (0.07)
Income (loss) From Continuing
Operations (40,750,689) (26,283,537) 2,390,060 (107,047) (1,664,364)
Income (loss) From Continuing
Operations per share (0.31) (0.26) 0.04 - (0.07)
Income (loss) From Continuing
Operations per share
fully diluted (0.31) (0.26) 0.04 - (0.07)
Total assets 82,085,934 225,155,286 99,572,940 43,682,183 33,361,631
Net assets (shareholders
equity) 73,774,089 107,282,920 96,544,908 29,556,746 28,007,772
Long term debt Nil 10,484,144 Nil Nil 443,905
Capital Stock $160,390,184 $156,750,902 $113,830,010 $49,738,903 $45,242,209
Dividends 228,284 Nil Nil Nil Nil
Weighted average number of
shares outstanding 131,790,183 101,708,357 54,471,076 26,669,081 23,444,319
</Table>
Note 25 of the Consolidated Financial Statements sets forth the differences were
such information to be presented in accordance with U.S. GAAP.
7
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SELECTED FINANCIAL DATA PREPARED IN ACCORDANCE WITH U.S. GAAP
<Table>
<Caption>
16 MONTHS ENDED
YEAR ENDED JUNE 30 JUNE 30
--------------------------------------------------------------
2002 2001 2000 1999 1998
------------- ------------- -------------- ------------- --------------
Total revenues $111,730,701 $79,702,138 $10,908,252 $23,692,705 $12,336,880
Net earnings (loss) (38,382,519) (50,886,072) (3,994,051) (107,047) (1,684,364)
Net earnings (loss) per
share fully diluted (0.29) (0.50) (0.07) - (0.07)
Net earnings (loss) per share (0.29) (0.50) (0.07) - (0.07)
Income (loss) From (3,994,051) (1,684,364)
Continuing Operations (38,382,519) (50,886,072) (107,047)
Income (loss) From
Continuing Operations per
share (0.29) (0.50) (0.07) - (0.07)
Income (loss) From
Continuing Operations per
share fully diluted (0.29) (0.50) (0.07) - (0.07)
Total assets 61,987,328 197,103,211 113,076,705 43,021,522 32,783,877
Net assets (shareholders
equity) 56,832,164 83,507,892 91,370,480 28,896,086 27,430,018
Long term debt Nil 10,484,144 Nil Nil 443,905
Dividends 228,284 Nil Nil Nil Nil
Weighted average number of 131,790,183 101,708,357 54,471,076 26,669,081 23,444,319
shares outstanding
</Table>
In this Annual Report, unless otherwise specified, all monetary amounts are
expressed in Canadian Dollars. On November 15, 2002, the exchange rate, based on
the noon buying rate published by the Federal Reserve Bank of New York, for the
conversion of United States Dollars into Canadian Dollars (the "Noon Rate of
Exchange") was $1.5805 (US$1.00 = CAD$1.5805).
The following table sets out the high and low exchange rates exchange rates for
each of the last six months.
<Table>
<Caption>
2002
-------------------------------------------------------------------------------------------------------
NOVEMBER (1) OCTOBER SEPTEMBER AUGUST JULY JUNE
------------- --------------- -------------- ------------- ------------- --- -------------
HIGH $1.5805 $1.5932 $1.5862 $1.5959 $1.5843 $1.5507
LOW $1.5527 $1.5591 $1.5536 $1.5527 $1.5162 $1.5123
</Table>
NOTE:
(1) From November 1, 2002 to November 15, 2002
The following table sets out the average exchange rates for the five most recent
financial years calculated by using the average of the Noon Rate of Exchange on
the last day of each month during the period.
<Table>
<Caption>
YEAR ENDED JUNE 30
-------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
---------------- ---------------- ----------------- ------------------ -------------------
AVERAGE $1.5684 $1.5198 $1.4725 $1.5130 $1.4233
</Table>
B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
The following is a brief discussion of those distinctive or special
characteristics of the Corporation's operations and industry which may have a
material impact on, or constitute risk factors in respect of, the Corporation's
future financial performance. In addition to the risks described below, you
should also carefully consider any risks that may be described in other filings
made by the Corporation with the SEC.
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MINERAL EXPLORATION AND DEVELOPMENT
The Corporation's business is subject to risks normally encountered in mineral
resource exploration and development. The profitability of the Corporation's
business and the market value of the Corporation's securities will be related to
its success in the exploration and development of resource properties. Mineral
exploration and development involve significant risk and while the rewards if an
orebody is discovered may be substantial. Few properties, which are explored,
are ultimately developed into producing mines. Substantial expenditures may be
required to establish ore reserves through drilling, to develop metallurgical
processes to extract the metals from the ore and to construct the mining and
processing facilities at any site chosen for mining.
Although substantial benefits may be derived from the discovery of a major
mineral resource, no assurance can be given that the resources discovered will
be of sufficient size, have a beneficial location, and be amenable to processing
in order for the deposit to justify commercial and profitable operations.
The marketability of natural resources which may be acquired or discovered will
be affected by numerous factors beyond the control of the Corporation. These
factors include market fluctuations, the proximity and capacity of natural
resource markets and processing equipment, government regulations, including
regulations relating to prices, taxes, royalties, land tenure, land use,
importing and exporting of minerals and environmental protection. The exact
effect of these factors cannot be accurately predicted, but the combination of
these factors may result in the Corporation not receiving an adequate return on
invested capital.
Mining operations generally involve a high degree of risk. Hazards such as
unusual or unexpected formations and other conditions are involved. The
Corporation may become subject to liability for pollution, cave-ins or hazards
against which it cannot insure against, or which it may elect not to insure. The
payment of such liabilities may have a material adverse effect on the
Corporation's financial position.
The current or future operations require permits from various governmental
authorities, and such operations are and will be governed by laws and
regulations governing prospecting, development, mining, production, taxes,
labour standards, occupational health, waste disposal, toxic substances, land
use, environmental protection, mine safety, native land claims, and other
matters. Companies engaged in the development and operation of mines and related
facilities generally experience increased costs and delays in production and
other schedules as a result of the need to comply with the applicable laws,
regulations and permits. There can be no assurance that all permits which the
Corporation may require will be obtainable on reasonable terms or that such laws
and regulations would not have an adverse effect on any mining project which the
Corporation might undertake.
Failure to comply with applicable laws, regulations and permitting requirements
may result in enforcement actions including orders issued by regulatory or
judicial authorities causing operations to cease or be curtailed, and may
include corrective measures requiring capital expenditures, installation of
additional equipment or remedial actions. Parties engaged in mining operations
may be required to compensate those suffering loss or damage by reason of the
mining activities and may have civil or criminal fines or penalties imposed upon
them for violation of applicable laws or regulations.
Governments are imposing higher standards of environmental compliance, which
often have the effect of adding substantial additional costs to a mine and its
operation. The cost of compliance may reduce the profitability of operations or
make them unprofitable. Changes to the environmental requirements for the
Corporation's operating mines are beyond the Corporation's control and may
result in such operations ceasing.
FOREIGN ACTIVITIES
The Corporation's mining interests are located in various countries other than
Canada and the Corporation depends upon these foreign mining interests. Such
interests could be adversely affected by war, civil disturbances and activities
of foreign governments which limit or disrupt markets, restrict the movement of
funds or supplies or result in the restriction of contractual rights or the
taking of property without fair compensation. These projects and investments
could also be adversely affected by changes in Canadian laws and regulations
relating to foreign trade, investment and taxation.
FINANCING RISKS
The Corporation has limited financial resources and, should additional funding
be required, there is no assurance that the Corporation will be able to obtain
the required funding, and additional equity financing may have the affect of
diluting the shareholder's interest in the Corporation. Failure to obtain
required additional financing could result in the possible reduction or loss of
interest in a project. In order to fund its capital and operating costs, the
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Corporation may have to undertake additional equity or debt financing or may
have to dilute its interest in a property by bringing in a joint venture
partner.
FOREIGN CURRENCY AND COMMODITY PRICE RISK
Certain of the Corporation's subsidiaries have, on certain occasions, entered
into future contracts in order to hedge its exposure to fluctuations in
commodity prices and foreign exchange rates on specific transactions. The
contracts are matched with anticipated future cash flows from mineral sales.
In the normal course of business, the Corporation enters into transactions for
the sale of its commodities in foreign currency. As a result, the Corporation is
subject to foreign exchange risk from fluctuations in foreign exchange rates.
COMPETITIVE CONDITIONS
The Corporation competes with numerous other companies and individuals in the
search for the acquisition of attractive mining properties. There are a number
of large established mining companies with substantial capabilities and greater
financial and technical resources than the Corporation. The Corporation may be
unable to acquire additional attractive mining properties on terms it considers
acceptable. The ability of the Corporation to acquire mining properties in the
future will depend not only on its ability to develop its present properties,
but also on its ability to select and acquire suitable producing properties for
mining development or exploration.
DEPENDENCE ON KEY PERSONNEL
The success of the Corporation is dependent on senior management, and the
continuing ability to attract and retain experienced staff.
CONFLICTS OF INTEREST
Certain directors of the Corporation are also directors of NPGP and Metorex.
Such an association may give rise to conflicts of interest from time to time.
The directors of the Corporation are required by law to act honestly and in good
faith with a view to the best interests of the Corporation, and to disclose any
interest, which they may have in any project or opportunity of the Corporation.
If a conflict of interest arises at a meeting of the board of directors of the
Corporation, any director in a conflict is required to disclose his or her
interest therein and abstain from voting on such matter. In determining whether
or not the Corporation will participate in any project or opportunity, the
directors will primarily consider the degree of risk to which the Corporation
may be exposed and its financial position at that time.
ITEM 4. INFORMATION OF THE CORPORATION
A. HISTORY AND DEVELOPMENT OF THE CORPORATION
Crew Development Corporation (the "Corporation") was incorporated in British
Columbia, Canada on March 31, 1980 under the name "Ryan Energy Corp. (N.P.L.)".
The name was changed to "Ryan Resources Ltd." on December, 18, 1985, to
"Canadian Crew Energy Corporation" on January 21, 1988, and to "Crew Development
Corporation" on March 21, 1997. The Corporation was continued into the Yukon
Territory, Canada, on January 28, 2000 and is subject to the provisions of the
BUSINESS CORPORATIONS ACT of the Yukon.
The Corporation's headquarters is located at Suite 400 - 837 West Hastings
Street, Vancouver, British Columbia, V6C 3N6, telephone number (604) 683-7585
and facsimile number (604) 682-0566.
The Corporation, in the last three completed financial years, has been
principally engaged in the following business ventures: mineral operations
through its wholly-owned subsidiary Crew Norway AS ("Crew Norway"); the
development of a renewable geothermal energy project through its ownership in
North Pacific GeoPower Corp. ("NPGP"); gold, coal and base mineral mining
operations through its part-ownership of Metorex Limited ("Metorex"); and potash
resources development through its 7.46% ownership of Asia Pacific Resources Ltd.
("Asia Pacific").
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CREW NORWAY AS
On December 2, 1999, the Corporation made an offer to acquire 100% of the issued
and outstanding shares of Mindex ASA ("Mindex"), a Norwegian company whose
shares were listed on the Oslo Stock Exchange. The offer was to exchange 0.625
shares of the Corporation for each share of Mindex. Effective December 27, 1999,
the Corporation acquired 42,109,987 Mindex shares, representing 91.2% of the
issued and outstanding shares of Mindex. During the period January 2000 to May
2000, the Corporation acquired the remaining 8.8% of the issued and outstanding
shares of Mindex. As a result, the Corporation currently owns 100% of the issued
and outstanding shares of Mindex. In respect to the Mindex acquisition, the
Corporation issued 27,127,908 shares and paid cash of $2,557,278 to the Mindex
shareholders.
Effective January 21, 2000, the Corporation's shares were listed on, and the
shares of Mindex were delisted from, the Oslo Stock Exchange and Mindex was
renamed "Crew Norway AS".
During fiscal 2000, the Corporation acquired a 50% interest in the Nalunaq gold
project ("Nalunaq"), via its acquisition of Mindex. This interest was increased
to 57% by June 30, 2000, as a result of the Corporation making additional
capital contributions. During fiscal 2001, the Corporation increased its
interest in Nalunaq to 67.15% through further capital contributions.
In June 2001, the Corporation gained full operational control of Nalunaq and
increased its ownership of the Nalunaq portion of the concession to 82% in
exchange for a commitment to fund the development of the project through to
completion of a feasibility study and to provide necessary project loan
guarantees.
NORTH PACIFIC GEOPOWER CORP.
Effective November 22, 2001, NPGP acquired from the Corporation all of the
issued and outstanding common shares of Meager Creek Development Corporation
("MCDC") in exchange for 97,378,558 shares of South Crofty Holdings Ltd. (now
renamed "North Pacific GeoPower Corp."), being 82% of the total number of issued
and outstanding shares of NPGP. MCDC holds a licence of occupation granted by
the British Columbia Ministry of Lands and Parks, giving surface tenure to
property at a geothermal site, and also holds a geothermal lease granted by the
British Columbia Ministry of Energy, Mines and Petroleum relating to such
geothermal site. The licence of occupation and the geothermal lease expire on
December 17, 2017.
Concurrently with the completion of the MCDC acquisition, the Corporation
purchased by way of private placement 16,700,000 shares of NPGP at an aggregate
purchase price of $2,004,000.
Also concurrently with the MCDC acquisition, the Corporation purchased from a
shareholder of NPGP 10,030,823 shares of NPGP for an aggregate purchase price of
$1,203,699. Shortly thereafter, the Corporation granted to each of its
shareholders a dividend of one share of NPGP for each 20 shares of the
Corporation held by each shareholder, resulting in an aggregate dividend of
approximately 6,400,000 shares of NPGP.
At June 30, 2002, the Corporation held 117,684,945 shares in the capital of
NPGP, being approximately 86.8% of the total number of issued and outstanding
shares of NPGP.
The NPGP shares owned by the Corporation are being held in escrow pursuant to
the policies of the TSX Venture Exchange.
METOREX LIMITED
Effective December 1999, the operations of Metorex were restructured whereby the
interests held by Metorex and the minority shareholders in various mining
operations were consolidated into Consolidated Murchison Ltd. and listed on the
London and Johannesburg Stock Exchanges. As part of the reorganization,
Consolidated Murchison Ltd. was renamed "Metorex Limited." As a result of the
reorganization, the Corporation's 50% joint control interest in Metorex was
replaced by a 41% interest therein.
In November 2000, the Corporation increased its interest in Metorex from 41% to
52% through the acquisition from existing shareholders of 11% of the issued and
outstanding shares of Metorex.
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In April 2002, the Corporation's interest in Metorex was reduced to 46%, as a
result of a private placement by Metorex with other shareholders. Concurrent
with the private placement, the Corporation disposed of 6.5 million shares of
Metorex for cash proceeds of $2,969,040, resulting in the further dilution of
the Corporation's interest in Metorex to 41%.
On October 22, 2002, the Corporation sold 28,208,412 shares of Metorex for cash
proceeds of $12.6 million. As a result of this transaction, the Corporation's
interest in Metorex was reduced to 21%.
ASIA PACIFIC RESOURCES LTD.
Asia Pacific is a New Brunswick company listed on the Toronto Stock Exchange.
Asia Pacific holds a 90% interest in Asia Pacific Potash Corporation Ltd., a
Thai company which owns 100% of a potash concession in north-eastern Thailand.
At June 30, 2001, the Corporation held 8,000,000 shares of Asia Pacific, being
13.3% of the total number of the issued and outstanding shares of Asia Pacific.
During the year ended June 30, 2002, Asia Pacific completed a financial
restructuring which included a conversion of all of its outstanding debentures
to common shares and the issuance of additional common shares through private
placements. As part of the restructuring, which was agreed to by the
Corporation's previous management, the Corporation purchased an additional 25
million shares of Asia Pacific at an aggregate purchase price of $5 million. As
part of the restructuring and the conversion of the debentures, Olympic Capital
Holdings I, LP, a limited partnership organized under the laws of the Cayman
Islands, became the controlling shareholder of Asia Pacific. Concurrently with
the restructuring, Asia Pacific appointed a new board of directors and
management.
At June 30, 2002, the Corporation held 33 million shares of Asia Pacific, being
7.46% of the total number of the issued and outstanding shares.
B. BUSINESS OVERVIEW
The business of the Corporation currently consists of the following ventures,
each of which is described in more detail below:
(a) mineral projects located in Greenland, Ghana, Philippines and Norway
through its 100% ownership of Crew Norway;
(b) the development of a renewable geothermal energy project through its
86.8% ownership in NPGP;
(c) gold, coal, basemetal and mineral mining operations through its 21%
ownership of Metorex; and
(d) potash resources development through its 7.46% ownership of Asia
Pacific.
Except as otherwise indicated, all disclosure of a scientific or technical
nature in this portion of this Annual Report was prepared under the supervision
of Jon S. Petersen, M.Sc., Vice President, Exploration of the Corporation.
The Corporation has 7 employees at its headquarters in Vancouver, Canada,
providing technical, financial and administrative services. In addition, the
Corporation has 10 employees at its Oslo, Norway, office, providing technical,
management and administrative support services, together with 5 employees in the
Philippines providing technical support services.
The following is a summary of the operations of the Corporation and it
subsidiaries:
NALUNAQ GOLD PROJECT, GREENLAND
PROPERTY DESCRIPTION AND LOCATION
Nalunaq is a high-grade gold project, located at the southern tip of Greenland
approximately 40 kilometres from Nanortalik, the nearest town. Transportation to
Nalunaq is by helicopter from the international airport at Narssarsuaq and takes
approximately 40 minutes. The Nalunaq concession area is 1,081 km2, was renewed
for an additional 2 years on July 12, 2002, and is renewable on two-year terms
continuously upon meeting work requirements outside of the Nalunaq area as
outlined by the Bureau of Minerals and Petroleum. The application for a Mining
License for Nalunaq was submitted to the Bureau of Minerals and Petroleum on
August 4, 2002. The
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Danish-Greenlandic parliamentary Joint-Committee, the authority under which the
mine permitting is regulated, is expected to process the application by the end
of the first quarter of 2003.
OWNERSHIP
In 1997, Mindex entered into an earn-in agreement with Nunaminerals AS
("Nunaminerals") (formerly Nunaoil AS) for 50% of the Nalunaq high-grade gold
deposit originally discovered in 1992. During fiscal 2000, the Corporation
acquired a 50% interest in Nalunaq via the Corporation's acquisition of Mindex.
See Item 4.A "Information of the Corporation - History and Development of the
Corporation Crew Norway AS".
During the year ended June 30, 2000, the Corporation acquired a 57% interest in
Nalunaq.
In June 2001, the Corporation gained full operational control of Nalunaq and
increased its ownership of the Nalunaq portion of the concession to 82% in
exchange for a commitment to fund the development of the project through to
completion of a feasibility study and to provide necessary project loan
guarantees. As a result, Nunaminerals converted its 33% contributory interest in
Nalunaq to an 18% carried interest. In the remaining exploration part of the
concession, the Corporation and Nunaminerals are continuing to operate on a
proportionate basis with the Corporation at 67% and Nunaminerals at 33%, with
each partner continuing to contribute to development costs.
The Corporation and Nunaminerals are in the process of transferring the
ownership of the Nalunaq assets to a Greenlandic limited liability company,
Nalunaq Gold Mine AS, which will be the operator of the gold mine in Greenland
and, ultimately, the holder of the mining license from the Greenlandic
authorities.
GEOLOGY
The Nalunaq deposit is a Proterozoic, shear-zone hosted, high-grade gold
mineralization. The occurrence has gold-bearing outcroppings exposed along more
than 2,000 meters on the side of the mountain. The entire length of the exposed
structure has been sampled with significant sections at 1-meter intervals. The
results support the presence of a significant gold-bearing system. The gold is
irregularly distributed within the planar structure, but easy to recognize when
occurring.
The most pronounced structures at Nalunaq are zones of intense shear with
evidence of ductile shearing surrounded by brittle margins. The main vein is
hosted in a narrow ductile shear zone with a remarkably constant orientation.
The regular sheet has an average strike of 45-50(Degree) and an average dip of
36(0) SE. On the local scale the structure undulates somewhat, and dips measured
in the face of the adits vary between 22(Degree) and 45(Degree).
The presence of quartz veins is the single most important component of the gold
mineralization and occurs principally as sheeted veins with stripes and bands of
included calc-silicates. The quartz veins vary in width from 0.05 meters to 1.8
meters and form a relatively continuous structure. In the adits, the quartz
veins often display pinch and swell structure and there is clear evidence of
both compressive and dilational post-mineralization deformation within the
mineralized structure.
The mineralized quartz vein is almost universally associated with a pronounced
calc-silicate alteration zone, of 0.2 m to 0.5 m width, on one or both sides of
the quartz. When very high gold grades are encountered in the quartz vein, the
alteration zone may also sporadically carry significant amounts of gold, but is
normally poorly mineralized.
Systematic sampling of the underground exposure of the vein has shown that gold
grade is subject to a high nugget effect. Despite this, a grade-zonation is
clearly identifiable with high-grade segments running approximately east-west
throughout the mine area. The reason for this regularity is not clear.
Preliminary interpretations suggest that highest-grade sections occur when the
structure is crossing medium-grained metadolerite sills or is located very near
the metadolerite/metapillow basalt contact. Lower grade segments all seem to be
hosted in finer-grained metapillow basalt.
As a generic type, the Nalunaq gold mineralization is a mesothermal vein-type
gold deposit, hosted in amphibolite-facies metabasic rocks. The gold is
associated with sheeted quartz veins, hosted in a large-scale shear structure,
which appears to relate to regional thrusts. However, possibly due to extensive
post-mineralization deformation, there is no simple relationship between the
gold grade and amount of quartz at Nalunaq.
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WORK TO DATE
To date, a total of 90 drill holes (15,000 meters) and more than 3,600 meters of
underground adits and raises have been completed within mineralized structure,
as well as over 1,000 meters of access drifts and waste development. In
addition, surface sampling has been conducted over 2,000 meters of exposed
outcrops, with substantial portions channel sampled at 1-meter intervals. As a
result of underground work performed to date, approximately 53,600 tonnes
containing approximately 25,000 ounces of gold have been stockpiled. It is
expected that this material will be processed and sold, with the proceeds
thereof being used to fund mine commissioning and costs.
2002 WORK PROGRAM
During the 2002 exploration season, 872 m of underground development, including
577 m of drifting and sub-drifting and 295 m of raising, was completed. The
underground work was carried out as continuation of existing drifts on the
300-Level (extensions of both the Target East and the South West drifts) and the
driving of an exploration decline from the 300-Level in the South Block towards
lower levels. In addition, development of four new raises on the 300-Level were
completed, which increases the number of raises to 23. Further test mining was
conducted on 450-Level, including a 72 m long subdrift on the 460-Level, with
three 15 m long slot raises which resulted in the extraction of four test stopes
with an average mining width of 1.3 m and separated by three 1.5 m pillars. 521
channel samples and 5 test-hole samples were collected and sent to Xral
Laboratories, Ontario, Canada for analysis. When the results of this work are
available they will be incorporated into a resource update calculation.
Stathcona Minerals Services of Toronto supervises the Corporation's Quality
Assessment/Control program on all assay results.
A local contractor carried out upgrading of the access road from the fjord to
the camp in August 2002. The upgrade will allow transport of ore materials with
30-tonne dumpers to the coast and facilitate delivery of supplies and mining
equipment.
TEST MINING
Eight test stopes have now been successfully completed at Nalunaq. Two mining
methods - raise and long-hole mining - were tested initially to determine which
method would provide the least mining width, which minimizes dilution.
Minimizing dilution means less material to be hauled and processed, and thus
lower operating costs. In 2002, four long-hole stopes were successfully
produced. These were based on a continuous 72 meter subdrift development and
three 15-meter slotraises. As a result of these tests, management of the
Corporation believes that a mining width of approximately 1.2 meters or less
will be achieved during mining operations.
FEASIBILITY STUDY AND ENVIRONMENTAL IMPACT ASSESSMENT
A full feasibility study (the "Nalunaq Feasibility Study") and Environmental
Impact Assessment pertaining to Nalunaq was completed in August 2002. The
Nalunaq Feasibility Study, prepared by Kvaerner Engineering & Construction UK
Ltd. ("Kvaerner") from information generated both in-house and supplied by a
number of international specialists and consultants appointed by Kvaerner and
Nalunaq, describes the development of a gold mine in Kirkespirdalen, 40 km
northeast of Nanortalik in Southern Greenland. It was the first gold mine
developed, and will also be the first new mine to be developed in over 25 years,
in Greenland.
Based upon the results of the Nalunaq Feasibility Study, the Corporation has
decided to pursue the offshore processing of gold whereby the Corporation will
ship the run-of-mine ore to an offshore processing facility. It is estimated
that the total pre-production capital is US$9.7 million. This is based on the
assumption that a 20-30,000 tonnes bulk carrier will be used with a jetty and
barge-conveyor system for loading. Costs per tonne, excluding sustaining
capital, for offshore processing is estimated to be US$60 for the existing
stockpile and US$130 for any additional ore coming from the mine. This compares
to US$139 per tonne for processing on site according to the Base Case of the
Nalunaq Feasibility Study. The total cash cost for the operation in this
scenario is estimated to be $169 per oz gold.
The high-grade gold nature of the Nalunaq ore and the location of the mine close
to navigable waters allows for this interim solution to establish early cash
flow while conducting additional exploration to expand the resources. Shipping
the ore to an offshore plant with excess processing capacity will also minimize
environmental impact of the mine while maintaining employment benefits to the
local community.
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An initial mining rate estimated at 350 tonnes per day will result in a gold
production of approximately 90,000 oz per year at an estimated total cash cost
of US$169 per oz. The Nalunaq Feasibility Study recognises that the current
measured and indicated resource of approximately 400,000 oz gold has significant
upside potential that may be developed in parallel with the mining and offshore
processing operation.
The table below is an excerpt from the Nalunaq Feasibility Study and summarizes
the net present value of Nalunaq:
<Table>
<Caption>
TOTAL GEOLOGICAL RESOURCES 483,900 TONNES (MEASURED & INDICATED)*
TOTAL ORE PROCESSED 450,408 TONNES
-------------------------- --------------------------------------
Maximum Production Rate 350 tpd (122,500 tonnes p.a.)
Mining Height 1.2 m
Average Annual Production 94,694 oz gold
Assumed Metallurgical Recovery 96%
Project Life 3.7 years production including rehabilitation
Life of Mine Cash Costs $ 130.20 per tonne ore milled
Excluding Sustaining Capital $ 168.50 per oz of gold
Life of Mine Cash Costs $ 141.60 per tonne ore milled
Including Sustaining Capital $ 183.20 per oz of gold
Initial Capital Costs $ 9,681,613
Life of Mine (LOM) Capital Costs $ 16,149,300
Sunk Costs $ 16,000,000
Gold price $ 300 per oz
Pre-Tax Financial Analysis IRR: 108.67%
NPV: $19.46 million (12% discount rate)
</Table>
* Includes existing 45,000 tonne stockpile with average grade of 14.4
g/t gold (All Dollar amounts are in US currency)
The use of an offshore processing facility in the interim period eliminates the
need for immediate environmental approvals related to on-site ore processing,
such as the need for water consumption, handling of chemicals and tailings
disposal. In addition, industrial processing at an external facility will
provide valuable information about the ore characteristics and the tailings
composition. Offshore processing is deemed a necessary first stage in Nalunaq's
development, as it will provide the necessary capital to allow additional
exploration for the expansion of the resources and to justify, financially, the
construction of an on-site processing facility.
The $16 million of sunk costs in Nalunaq were used to diminish taxable income in
the post-tax analysis but were not used in the pre-tax analysis. Because Nalunaq
is a narrow vein, high-grade deposit, the currently defined resources are
restricted by the available underground development, but there is evidence to
support the presence of additional resources.
MINERAL RESOURCE AND RESERVE ESTIMATES
In conjunction with the preparation of the Nalunaq Feasibility Study, SRK
Consulting Engineers and Scientists ("SRK Consulting") of Toronto, Ontario was
appointed to conduct an independent resource calculation (the "Resource
Calculation") for Nalunaq. The Resource Calculation defined 483,900 tonnes with
25.5 g/t gold in measured and indicated mineral resources, being the equivalent
of 396,600 oz contained gold. In addition, the Resource Calculation identified
in areas immediately adjacent to the developed parts of Nalunaq 281,300 tonnes
with 20.3 g/t of inferred mineral resources. The inferred mineral resources
exclude the drill-indicated structure of the south vein as well as widely spaced
surface sampling of the north face of the Nalunaq mountain which was previously
included in the Corporation's internal resource assessment. The significant
additional resource potential in these extensions, however, is recognized in the
Resource Calculation. The resources calculations were conducted by M. Michaud of
SRK Consulting. Mr. Michaud is independent of the Corporation and is a
"qualified person" as defined in NI 43-101.
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The table below, extracted from the Nalunaq Feasibility Study, shows the effect
of mining width over these intervals:
<Table>
<Caption>
MEASURED & INDICATED OVER 1.0 METERS OVER 1.2 METERS OVER 1.5 METERS GOLD
MINERAL RESOURCES TONNES G/T TONNES G/T TONNES G/T OUNCES
-------------------- --------------- --------------- --------------- --------
Main Vein (including 352,100/30.3 414,200/25.8 508,300/20.9 343,700
Stockpiles)
South Vein 58,000/28.3 69,700/23.6 88,300/18.7 52,900
Total 410,100/30.0 483,900/25.5 596,600/20.6 396,600
</Table>
<Table>
<Caption>
OVER 1.0 METERS OVER 1.2 METERS OVER 1.5 METERS GOLD
INFERRED MINERAL RESOURCES TONNES G/T TONNES G/T TONNES G/T OUNCES
-------------------------- ---------- ---------- ---------- ------
Main Vein (including 200,000/24.7 240,100/20.6 326,000/15.9 159,100
Stockpiles)
South Vein 34,000/22.4 41,200/18.7 52,000/14.8 24,800
Total 234,000/24.4 281,300/20.3 378,000/15.7 183,900
</Table>
ENVIRONMENTAL WORK - 2002 PROGRAM
The Nalunaq program has been subjected to detailed environmental monitoring by
the Corporation since 1997. The baseline study comprises sampling of water and
plant materials and the installation of a weather station in the valley. A new
weather station was established in the fjord in 2001. In addition to the
baseline work, a complete environmental impact assessment was completed in
August 2002 by SRK Consulting. This report has been submitted to the Bureau of
Minerals and Petroleum for the processing of the application for a mining
permit.
Since 2000, exploration monitoring programs have been maintained whereby water
samples have been collected in the river bi-weekly with sampling stations in the
upper valley, at the waterfall, at the bridge and at the camp sanitary
installation. The sulphide outcrop stations were sampled for total metals and
general parameters twice over the summer program. In addition, mine water
runoffs at level 300 and 350 were sampled bi-weekly and assayed for total metals
(total soluble solids and acidity). Finally, rainwater draining through the two
crushed high and low-grade stockpiles were also sampled and assayed regularly
for total metals.
Biology programs included collection of migratory and stationary arctic char in
the river and sending them to the Danish National Environmental Research
Institute ("NERI") for their sample bank. In the fjord, fish caught in several
stations were collected and also sent to NERI for their data bank. Dust was
sampled continuously during the summer program using tubes for analyses of
nitrates and sulfates as well as lichen sampling along the road as well as
around camp and stockpile areas. Both the lower and upper valleys were mapped
for vegetation and soil depth.
Meteorological data at the campsite and weather station in the fjord were
downloaded several times during the monitoring period. River flow monitoring,
conducted with a pressure transducer installed in February 2002 in the river
downstream from the bridge, allows for continuous measurements. In addition, the
river flow was measured using propellers several times over the year. A second
pressure transducer was installed at the waterfall in October 2002.
In the fjord, conductivity-temperature-depth casts were conducted throughout the
year at eight stations on a bi-weekly basis. An Acoustic Doppler Current
Profiler was installed in October 2001 for continuous recording of oceanic
currents. The current meter was recovered and downloaded in October 2002 thereby
acquiring one full year's data.
The environmental studies were summarized in the Environmental Impact Assessment
study whereby independent consultant Dr. Geoff Ricks concludes that in the
opinion of SRK (UK) Ltd. there are no environmental issues which might
negatively affect the viability of the project.
RISK ELEMENTS
The Nalunaq project is a high-grade gold deposit. The nature of the deposit,
being a high-grade, narrow-vein deposit, prevents the definition of the full
resource without further extensive and costly underground development.
Accordingly, this is a limiting factor for the project's financial planning. The
currently defined resources indicate production for approximately four years,
depending upon the mining rate. However, the continuity of the geological
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structure indicates that the actual mine life may substantially exceed four
years. Many classical narrow-vein gold mines (for example, Placer Dome's Dome
Mine in Timmins, Ontario, and Campbell Mine in the Red Lake district in
Balmertown, Ontario) have never had more than five or six years of resources
ahead of production, yet have been active for decades.
Environmental permitting in Greenland must be approved by the Joint Committee,
which is composed of members from both the Danish and Greenlandic parliaments.
The processing of the permits for a mine in Greenland is new to the authorities
and it is unknown how fast the process can be completed. To the knowledge of
management of the Corporation, both the local communities and the national
opinion in Greenland have a positive interest in the project; the local
communities welcome the new opportunity for employment in a region with a record
of high unemployment.
OTHER POTENTIAL TARGETS
In addition to the Nalunaq deposit, the Nanortalik concession area, which is a
1081 km2 area around the deposit, hosts exploration potential. Several locations
with visible gold in outcrop have been discovered and numerous stream sediment
anomalies exist. Work on areas of interest has already been initiated at
Nanisiaq and Lake 410.
A regional sediment sampling and prospecting campaign was carried out in the
remaining parts of the 1081 km2 license area in July and August 2002, including
renewed sampling at Lake 410 and elsewhere with the aim of starting a drilling
program in the future.
HWINI-BUTRE GOLD PROJECT, GHANA
PROPERTY DESCRIPTION AND LOCATION
The Hwini-Butre gold concession (the "HB Gold Concession") is a new gold
discovery in southwestern Ghana. The 45.4 km2 concession is located along the
eastern contact of the prolific Ashanti Gold belt, less than 30 km from
Takoradi, a major port city in Ghana. Access to the HB Gold Concession is via a
15 km fair quality gravel road located along the entire length of the property
and is maintained by the operators of a palmoil plantation located further
north.
OWNERSHIP
Hwini-Butre Minerals Ltd. ("HBM"), a 100% owned Ghanaian subsidiary of Crew
Norway, owns 51% of the HB Gold Concession and the operator, St. Jude Resources
Ltd. (TSX Venture Exchange: SJD), owns 49% of the HB Gold Concession; the
Government of Ghana retains a carried interest of 10%. See Item 4.A "Information
of the Corporation - History and Development of the Corporation - Crew Norway
AS".
St. Jude Resources Ltd. has been the operator of the license since 1995. The
current title was renewed on July 2, 2002 for a period of 12 months to allow St.
Jude Resources Ltd. to complete the exploration and feasibility study.
GEOLOGICAL DESCRIPTION
The Mpohor Intrusive Complex forms a prominent feature in the southern part of
the HB Gold Concession, and is composed of diorite and gabbro, and cut by
finer-grained mafic dykes. The gold mineralization occurs in altered shear zones
within the intrusive. Birimian metasediments and volcanics dominate in the
northern half of the concession. The structural setting of the gold
mineralization follows that of the Ashanti Gold Belt with a dominant North-South
trend transacted by North-East, South-West faults. Disseminated gold occurs in
quartz veins and in wide alteration zones in the adjacent country-rocks.
EXPLORATION
The drilling totals 24,308 meters from 300 holes, with about 20% being drilled
by reverse circulation drilling. Spacing is a nominal 25m on the three main
mineralized zones, being the Adoikrom, the Father Brown, and the Dabokrom
targets.
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Adoikrom is the most developed target on the HB Gold Concession. It is a highly
altered and silicified shear zone with ore grade mineralization. 64 holes
(6,312m) have been drilled in this target. Drill intersections at 25-50m
intervals show consistent thick mineralization in all holes. So far, a 325m long
and 165m deep gold vein has been confirmed. The deposit has expansion potential
towards the north and south and towards depth.
In total, 94 holes (6,502m) have been drilled in the Father Brown zone and all
intercepts contain economic mineralization. The spacing between the intercepts
varies between 10 and 25m. To date a 200m-long and 150m-deep gold vein has been
confirmed. The deposit has expansion potential in both ends and towards depth.
The Dabokrom Zone constitutes a very substantial geochemical surface anomaly
that measures 800m by 1,200m. A total of 99 drill holes (9,343m) have been
completed in this anomaly and the drilling confirms the presence of several
gently dipping mineralized gold zones extending from the surface. In addition,
extensive trenching and pitting has been carried out on the Dabokrom Zone.
MINERAL RESOURCES AND RESERVE ESTIMATES
According to an independent geological report prepared in February 2002 by
Watts, Griffis and McOuat Limited, Consulting Geologists and Engineers of
Toronto, Ontario, the concession contains 4,251,100 tonnes with 4.1 g/t of
indicated mineral resources and 1,718,400 tonnes with 3.0 g/t inferred mineral
resources based on 200 drill holes totalling 16,879 meters. In addition, the
property hosts an inferred eluvial deposit of 5,656,700 tonnes with 1.1 g/t.
Thus, indicated resources amounts to 562,000 oz gold while the inferred mineral
resources hold 374,000 oz gold. Strathcona Mineral Services Ltd. of Toronto,
Ontario reviewed in July 2002 the independent report prepared by Watts, Griffis
and McOuat Limited for the Corporation and concluded that the project has a
potential for an open-pit, heap-leachable deposit.
LEGAL STATUS
A number of court cases relating to a claim of a former Ghanaian partner of HBM
to the rights to the HB Gold Concession have been concluded in the Corporation's
favour. The final court case instituted by HBM to finalize the title disputes is
expected to be processed by the Ghanaian High Court in 2003. This is expected to
conclude the legal disputes, which at times have temporarily disturbed the field
operations at the HB Gold Concession.
NORTH PACIFIC GEOPOWER CORP., CANADA
OWNERSHIP
NPGP is a publicly-listed (TSX Venture Exchange: NPP) energy company dedicated
to the development of a renewable geothermal project to support the commercial
production of electricity in British Columbia, Canada. As at June 30, 2002, the
Corporation owned approximately 86.8% of the issued and outstanding shares of
NPGP. See Item 4.A "Information of the Corporation - History and Development of
the Corporation - North Pacific GeoPower Corp.".
SOUTH MEAGER GEOTHERMAL PROJECT
MCDC, a wholly-owned subsidiary of NPGP, holds the rights, through a geothermal
lease with the Government of British Columbia, to develop a geothermal
electrical power resource at Meager Creek in southwestern British Columbia (the
"South Meager Geothermal Project"). The geothermal lease with the Government of
British Columbia relates to 1,968 hectares of an undeveloped mountainous area
approximately 160 km north of Vancouver, British Columbia. Access is via highway
from Vancouver to Pemberton, followed by 25 km of sealed provincial highway, 36
km of secondary gravel logging roads, and 18 km of gravel roads that necessitate
the use of four-wheel drive vehicles during adverse weather conditions. The
geothermal lease expires December 17, 2017 and may be renewed for an additional
20 years. MCDC has provided a security deposit of $150,000. The lease carries an
annual rental of $19,680.00. An undetermined royalty may be payable to the Crown
on the production of electricity. The Minister may renew the lease for a further
20 years and no renewal charges are specified. Renewal would be predicated upon
MCDC continuing to work the geothermal lease.
The South Meager Geothermal Project was identified as the most promising
geothermal site in Canada by the Canadian Geological Survey in the late 1970s.
BC Hydro and the Geological Survey of Canada spent substantial
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funds on reviewing alternative energy sources culminating in the drilling
between 1982 and 1984 of three production-size test wells (M1-M3) in Meager
Creek, on the south side of Meager Mountain. The Corporation, when first
acquiring full title to the South Meager Geothermal Project in 2000, decided to
conduct a full re-examination of the potential for a commercial geothermal
resource in view of the emerging energy crisis in the western United States, and
the new energy policies in British Columbia recommending development of
alternative "green" energy sources.
In 2000, the Corporation recognized that the South Meager Geothermal Project had
encountered substantial investments without measurable progress and that the
entire project was in need of a complete re-evaluation before embarking on
renewed drilling and development. The Corporation's review of the project
included a full examination of all previous reports on geological and
volcanological mapping, geophysical studies (magnetotelluric and resistivity
surveying as well as radon mapping), slim-hole drilling and the previous
production-size well drillings.
Recent years' geophysical surveying and slim-hole drilling results supports the
currently preferred geological model, which suggests a substantial thermal
up-flow zone (and possible thermal reservoir) in the vicinity of the Angel Creek
vent. The very high temperatures encountered in the latest slim-hole drilling,
despite significantly higher elevation than previous holes, warranted a further
drill program to better define and delineate the thermal source and the possible
identification of a commercial reservoir for geothermal fluids.
Management of the Corporation believes that the completed work demonstrates that
the South Meager Geothermal Project, despite previous unsuccessful attempts,
hosts a potential for geothermal energy production. The recent geophysical
modelling and reinterpretation of available drill holes have provided
information, which suggest why the previous drilling campaigns failed to
demonstrate commercial quantities of circulating hot fluids, as they seemingly
were drilled too deep and past the identified outflow zone (previously
designated "shallow reservoir"). The previous drillings were directed into solid
unaltered rocks below the outflow tongue, as now identified by the recent
magneto-telluric geophysical survey.
The current thermal fence drilling, in a section behind the earlier drilling
supports the conceptual model of a large thermal outflow zone that derives from
a substantial up-flow in the region of the Angel Creek volcanic vent. The highly
explosive nature of this eruptive vent supports the presence of a fractured,
permeable halo around the stem of the volcanic vent, which may serve as a
commercial reservoir. Test drilling into this halo with slim-hole equipment will
allow assessment for the nature of the possible reservoir. Full size drilling
can access such a commercial reservoir from a few drill pads through directional
and branched drilling; such technology is increasingly being applied in
low-productivity gas fields.
Management of the Corporation concluded that the latest results provide evidence
that the South Meager Geothermal Project is a potentially viable geothermal
project and that further development is warranted.
MINDORO NICKEL CONCESSION, PHILIPPINES
PROPERTY DESCRIPTION AND LOCATION
The Mindoro nickel project (the "Mindoro Nickel Project") is approximately 97
km2 and is located on Mindoro Island in the Philippines, approximately 200 km
south of Manila, where the nickel and cobalt-bearing laterite deposit is
developed along the foothills of the central mountains of the island
approximately 30 km from the coast. The property is accessible via a 6 km dirt
road from paved public roads in Mindoro Oriental between Calapan and Victoria.
OWNERSHIP
The Mindoro Nickel Project is owned by the Corporation through Crew Norway's
direct and indirect interests in Crew Minerals (Phil.), Inc. ("Crew Minerals"),
Aglubang Mining Corp. and Alagag Mining, Inc. See Item 4.A "Information of the
Corporation - History and Development of the Corporation - Crew Norway AS".
The Corporation received an Exploration Permit for the Mindoro Nickel Project in
1997 from the Filipino Department of Energy and Natural Resources (the "DENR"),
which was renewed in February 1999 for a period of two years. In early 2001, the
key section of the concession was granted by the Philippine DENR Secretary a
19
<Page>
Mineral Production Agreement ("MPA") whereby the Corporation was granted the
exclusive right for 25 years to develop the property into a mine. The MPA covers
the area where the Corporation, following extensive work, had defined a measured
and indicated resource of 73 mill tonnes with 0.94% Ni and 0.06% Co.
The Corporation signed on June 29, 1999 a Memorandum of Agreement with 25
Mangyan leaders of the Alangan tribe in Oriental Mindoro and the National
Commission on Indigenous Peoples. This Memorandum of Understanding outlined that
the Corporation shall pay a royalty of 2% of the gross output for community
development and socio-economic well being of the Mangyan tribes who
traditionally utilize the coverage area. In July 2001, the MPA was cancelled
unexpectedly by the new DENR Secretary, H.T. Alvarez, without due process. The
Corporation has appealed the cancellation to the Office of the President and
also plans to file an appeal under the Foreign Investment Protection Agreement
between Canada and the Philippines. As a result of the cancellation of the MPA,
the Corporation has suspended all work on Mindoro Nickel Project. The management
of the Corporation is convinced that there is no basis in law for the
cancellation of the MPA and has taken steps to re-establish tenure.
The Corporation has opened discussions with a number of potential local partners
about the further development of the Mindoro Nickel Project. The current
development of a new Pilot High-Pressure Acid-Leach processing plant in the
Philippines is believed to create positive interest for this technology of
Nickel mining and processing. In the meantime, the Corporation seeks to gain
support for the re-establishment of its title to the concession for the Mindoro
Nickel Project.
GEOLOGY
The Mindoro Nickel Project is based on an extensive laterite mineralization
derived from deep weathering of ultramafic host rocks, primarily dunite and
peridotite. Nickel and cobalt, when released by chemical weathering of the
rocks, are accumulating in secondary minerals of the well-developed weathered
rock profile.
Nickel occurs in two principal ore types, limonite ore and saprolite ore, both
of which are parts of a tropical laterite profile. Limonite is the red-weathered
clayey soil, which typically occupies the upper 5 meters of the soil profile and
which often has high iron and cobalt grades. Saprolite is the underlying zone of
deeply weathered and transformed rock, which usually hosts the highest nickel
grades. The saprolite zone is typically 5-15 meters thick.
WORK COMPLETED
The Corporation has completed more than 900 drill holes and test-pits, conducted
metallurgical testwork and computer resource modelling, as well as initiated
environmental studies. Most work to date has been carried out in the Lower
Kisluyan area, a 10.5 km2 sub-area of the 97 km2 concession area where drilling
has been completed on a grid basis with nominal distance of 100 and 140-meters
between holes. Other areas, including the Upper Kisluyan, Buraboy, Alagag,
Kapawa and the Shabo areas have been sampled on a much wider exploration grid.
The Corporation has examined the upgrading potential of the resource through an
extensive evaluation program. This program also included in-fill core drilling,
ground-penetrating radar survey, geostatistical drilling and a detailed
topographic survey audit. An independent Australian firm, International Mining
Consultants ("IMC"), verified the Corporation's resource calculations and
completed a positive audit of the geological database and assay procedures. IMC
also supervised the systematic ore beneficiation (upgrade) testwork by the
Hydrometallurgical Research Lab in Brisbane, Australia.
The Corporation is currently conducting a new resource estimate based on the new
samples and the upgrade testwork while the title issue is being resolved. A
total of 169 new samples have been tested and show that in the saprolite,
screening will give a 10% nickel upgrade and a 22% cobalt upgrade. In hard
saprolite, the upgrade is 20% for nickel and 23% for cobalt.
In-fill drilling on a 100-meter grid was completed. More than 70 new core drill
holes have demonstrated that mineralized material exists to depths that
significantly exceed those tested in the previous programs, predominantly based
on test pitting. The results of the resource re-evaluation and optimization
studies were encouraging, with regard to both the upgrade potential and the
increasing overall resource tonnage due to increased depth penetration.
Because of the near-surface nature of laterite deposits, the mining will
essentially involve removing only of the uppermost layers of the terrain. Mining
would be carried out in benches that would be rehabilitated sequentially
20
<Page>
after use by replacing topsoil and immediate replanting. If the deposit is taken
to commercial production, it is proposed that laterite ore will be mined by
surface strip-mining of the upper 6-9 meters, de-agglomerated and upgraded at
the mine site, and the ore slurry be transferred about 40 km by an overland
pipeline or by truck to the refinery plant located at Pili Point on the coast.
The High-Pressure Acid-Leach processing plant will be designed to produce
approximately 40,000 tonnes of nickel briquettes and 3,000 tonnes of cobalt
briquettes per year. A by-product of the process will be about 126,000 tonnes of
fertilizer-grade ammonium sulfate, which will enable the Mindoro Nickel Project
to supply approximately 30% of the Philippines' annual consumption thereof, all
of which is currently imported. The project infrastructure, once established,
will include a port, a power station and an accommodation village to support the
operation.
PRE-FEASIBILITY STUDY
A Pre-Feasibility study ("Mindoro Pre-Feasibility Report") prepared by Kvaerner
in August 1998 reports that the resource evaluation at the Mindoro Nickel
Project is homogenous and has the potential of supplying ore for at least 30
years of nickel-cobalt production. The Mindoro Pre-Feasibility Study estimated
that the Mindoro Nickel Project has the capacity of supplying 40,000 tonnes of
nickel per year at a projected cash cost of US$1.06 per pound of nickel or
US$0.30 per pound of nickel after cobalt credits. The following table of key
results is found on page 1 of the executive summary of the Mindoro
Pre-Feasibility Study:
BASE CASE*
- ----------
Nickel production 40,000 tonnes per year
Cobalt production 3,050 tonnes per year
Cash Cost (Ni only) $1.06 per lb.
Cash Cost (Ni + Co) $0.30 per lb.
Capital Cost $665 million
$467 million
Internal Rate of Return 39%
* Based on US$2.50 per lb. Ni and US$10 per lb. cobalt price
(All Dollar amounts in U.S. currency.)
DEVELOPMENT STAGE
The MPA title was cancelled when the Mindoro Nickel Project was in the final
feasibility stage. Most of the resource evaluation has been completed to
feasibility level and audited and confirmed by independent consultants. The
environmental baseline studies, test work regarding environmental impact
assessment and a final feasibility study remain to be completed. The current
suspension of activities is due to uncertainties in the title caused by the
unexpected cancellation of the MPA. No further development work will be
undertaken until the MPA is returned.
MINERAL RESOURCE AND RESERVE ESTIMATES
The Corporation has defined a measured and indicated mineral resource of 72.6
million DMT with an average "in-situ" grade (before upgrading/beneficiation) of
0.94% nickel and 0.06% cobalt, including 21.4 million DMT at 1.16% nickel and
0.06% cobalt primarily hosted in limonite and transitional saprolite. The global
resources are in excess of 200 million DMT, including the inferred mineral
resources derived from surrounding areas that are drilled on a much wider
exploratory grid. This drilling is unevenly spaced in 200-500 meter intervals.
<Table>
<Caption>
CATEGORY TONNES (DMT) NICKEL % COBALT %
-------- ------------ --------
Measured & indicated resources 72,671,396 0.94 0.06
Inferred mineral resources 134,913,832 0.90 0.09
</Table>
The calculation was conducted by Jon S. Petersen, M.Sc. (Vice President
of Exploration) according to JORC.
21
<Page>
PAMPLONA SULPHUR DEPOSIT, PHILIPPINES
PROPERTY DESCRIPTION AND LOCATION
The Pamplona sulphur deposit (the "Pamplona Sulphur Deposit") is located on the
Filipino island of Negros, less than 5 km from a deep-sea port site and consists
of a mixed sulfur-sulfide ore with both native sulphur and pyrite/marcasite.
Access to the deposit is by a 12 km partially rehabilitated forest road from
Amlan on the Southeast coast of Negros Island. The nearest domestic airport is
in Dumaguete, approximately 40 km from the project site.
OWNERSHIP
The current License covers an area of 39 km2 and is composed of two Exploration
Permit areas named EP00007-VII and EXPA00068-VII. The rights to the Pamplona
Sulphur Deposit were acquired by the Corporation, through Crew Norway, in 1999
as a stand-alone project, although it has the potential to enhance the economics
of the Mindoro Nickel Project. See Item 4.A "Information of the Corporation
History and Development of the Corporation - Crew Norway AS".
MINERAL RESOURCE AND RESERVE ESTIMATES
The Pamplona Sulphur Deposit has 60 million tonnes of open-pitable measured
mineral resources within a total resource of 84 million tonnes with an average
composition of 13.8% elemental sulphur and 17.0% sulphur as sulphide. Benguet
Mining Corp. and Freeport-McMoran Copper & Gold Inc., the former concession
holders, classified the deposit as a proven mineral reserve, but the Corporation
has not completed an economic study on the deposit, and, therefore, has
re-classified the resource as a measured and indicated mineral resource
according to the JORC code. The resource evaluation was carried out on the basis
of 178 diamond-core drill holes placed in a 60-meter grid pattern.
The Corporation is in discussions with potential Filipino partners for the
development of the Pamplona Sulphur Deposit as a stand-alone project. Although
sulphur is produced in vast amounts by gas and oil refineries, the transport
costs amount to a significant proportion of its value. There is currently no
sulphur domestically available in the Philippines and the Pamplona Sulphur
Deposit may offer the Corporation an advantage over its non-domestic
competitors.
R0ROS ZINC PROJECT, NORWAY
PROPERTY DESCRIPTION AND LOCATION
The Corporation initiated the R0ros Zinc project ("Roros Project") in 1998 when
management of the Corporation concluded that the district, well known for
historic copper mining for over 300 years, had an unrecognized potential for
commercial zinc deposits in portions of the associated massive sulfide deposits.
The R0ros Project is located in central Norway approximately 140 km east of
Trondheim, Norway's third largest city. Access to R0ros Project is through a
well developed public road system and railroads. A local airport in R0ros
receives regular domestic flights. Historic mines of 1 to 8 million tonnes were
mined for copper only, even though the zinc-content in the R0ros mines was equal
or often higher than that of copper. Zinc-rich portions of the former mines and
prospects were avoided due to a lack of viable flotation technology.
OWNERSHIP
The Corporation owns the Roros Project through Crew Norway. See Item 4.A
"Information of the Corporation - History and Development of the Corporation -
Crew Norway AS". The Corporation has claimed all prospects and areas around most
former producing mines within a 3,000 km2 area covering the R0ros and the
Meraker districts. The title is held through a number of strategic claims within
the vast area of interest between the towns of R0ros and Meraker. Currently the
title is secured through 55 claim titles in 7 different municipalities. The
titles are maintained for a fixed fee per year of $100 per claim for 7 years
(since 1999).
22
<Page>
GEOLOGY
The target is high-grade zinc mineralization with copper and possible gold
credits in stratiform, massive sulfide deposits hosted in low-grade metamorphic
sedimentary and volcanic host rocks of Caledonian (Ordov-Silurian) age. Typical
grades are 15-25% zinc, 1% Cu and 0.5 g/t gold. Lead is negligible. The
zinc-to-copper ratio for the mines ranges from 2 to 20.
All accessible sites including over 40 prospects and 16 abandoned mines were
examined and sampled and a geophysical ground survey conducted over a selected
number of targets. Subsequently, a new high-resolution helicopter-borne
geophysical survey was completed in 1999 covering 6,400 line-km. A supplementary
3,700 line-km survey from the Norwegian Geological Survey in 1992 was added
after being digitally refined to meet the same standards as the new survey. The
results outlined numerous new targets which are examined with ground magnetic
and electromagnetic very low frequency geophysics, deep soil geochemical
sampling, geological mapping and core drilling.
Three targets were initially selected for drilling. Winter drilling in 2000/2001
completed a total of 550m in 6 holes on the Tj0nnvolmyran target. The
Klinkenberg occurrence has zinc-rich sulfide mineralization outcropping on the
surface along 200m strike near the historic workings. The 9 hole drill program
totalling 610m in this target discovered a 10m mineralised interval with bands
of massive sulfides below the known ore body. At the Rodalen (Rosjoen) drill
target, four holes totalling about 460m were completed.
The three tested drill targets demonstrated the existence of stratiform massive
sulfide mineralization with potentially commercial dimensions and zinc-grades,
but which so far have been subeconomic in the drilled segments. The first drill
targets were selected because of coinciding geophysical and soil-geochemical
anomalies. These constitute only a fraction of a much larger array of anomalies
that still undergo geological and geophysical examinations as preparation for
drilling.
In addition, approximately 27 new targets have been ground surveyed and/or deep
soil-sampled. Several of these targets show combined geophysical and geochemical
anomalies, which merits follow-up investigation. About 660 new deep-soil
geochemical samples have been collected from the geophysical targets in the
Roros and Meraker districts. The assay results of these include valuable data
which will be used in the definition of drill targets for subsequent
investigations.
The current depressed zinc and copper prices have led the Corporation to suspend
further exploration activities. The Corporation has acquired valuable geological
data through more than 10,000 line km of detailed helicopter geophysics surveys,
which have been financed by Noranda Inc. during an earn-in campaign in 1999.
Noranda Inc. discontinued its engagement in 2000 for corporate reasons and all
data were transferred to the Corporation. The Roros Project may prove to be
valuable in the future but more grassroots exploration work is required and the
Corporation therefore has decided to reduce the value of this prospect until
specific targets have been located.
MINERAL RESOURCE AND RESERVE ESTIMATES
The Roros Project is at an exploration stage and currently has no defined
resources.
RINGVASS0Y GOLD PROJECT, NORWAY
PROPERTY DESCRIPTION AND LOCATION
The Ringvass0y gold project (the "Ringvassoy Gold Project") is located in an
Archaean Greenstone belt, covering 250 km2 in northern Norway. Access to
Ringvassoy Gold Project is by public paved roads from Troms, a major city with
Norwegian domestic air services. The gold mineralization is associated with
quartz veining and previous exploration by several groups, including the
Corporation, has revealed widespread occurrence of anomalous gold in stream
sediments.
OWNERSHIP
Crew Norway has entered into an agreement with Northern Shield Resources Inc., a
private Canadian junior exploration company, whereby 50% of the Ringvassoy Gold
Project can be earned-in by Northern Shield Resources Inc. by completing
exploration work amounting to $750,000 over two years. The property consists of
53 claims
23
<Page>
(about 14 km2) acquired by the Corporation in 1999. The Corporation will
maintain the claims and remains the holder of the property in the joint venture
partnership. Annual claim adjustments will reflect the results of the
exploration program. See Item 4.A "Information of the Corporation - History and
Development of the Corporation - Crew Norway AS".
WORK COMPLETED
The work in the summer of 2002 included a detailed helicopter-borne
multidisciplinary geophysical survey and geological mapping and sampling. The
results of the geophysical survey were encouraging as the data revealed a number
of large contrasting anomalies attributable to electrical and electromagnetic
conductors which may reflect potential mineralization. The results of sample
assaying is pending. The parties are pleased with the work and are planning to
drill several targets in the coming season.
MINERAL RESOURCE AND RESERVE ESTIMATES
The Ringvassoy Gold Project is an early exploration stage and currently has no
defined resources.
METOREX LIMITED, SOUTH AFRICA
OWNERSHIP
As of November 15, 2002, the Corporation's interest in Metorex, held through
Crew Norway, was 21%. Please see Item 4.A "Information of the Corporation -
History and Development of the Corporation - Crew Norway AS".
OPERATIONS OF METOREX
Metorex is a South African mining house that owns and operates the following
seven mines and two development projects in Africa:
CONSOLIDATED MURCHISON MINE
The Consolidated Murchison mine is a gold-antimony producer, which has been in
operation since 1937.
The mine was acquired by Metorex from JCI Limited in 1997 at a time when
declining markets, increasing operating costs and cost overruns on a new mine
shaft created serious financial challenges for Metorex.
The mining profit for the year ending June 30, 2002 of ZAR 12 million
(approximately $2.1 million) is a 53% improvement on the previous year.
CHIBULUMA MINES PLC
Production of copper and cobalt from the Chibuluma West underground operation
("Chibuluma West") was below that of the previous year due to tonnage and grade
shortfalls during the first half of the financial year. The decline in the
copper price resulted in the loss from mining operations of ZAR 6.5 million
(approximately $1.1 million) (2001: ZAR 24.5 million profit, approximately $4.2
million) for the year. Ongoing underground exploration drilling has indicated
the Chibuluma West reserves to represent a further life of approximately two
years.
The Chibuluma South project ("Chibuluma South") was placed on "care and
maintenance" status due to the deterioration in the copper price and high
operating and treatment costs of the oxide ore concentrate. The feasibility on
the development of the quality Chibuluma South sulphide orebody has been
reworked and investigations into introducing a joint venture partner to finance
the development of this ore reserve is underway.
VERGENOEG MINING COMPANY (PTY) LTD.
Vergenoeg Mining Company (Pty) Ltd. ("Vergenoeg") operates a fluorspar ore mine
approximately 65 km northeast of Pretoria in South Africa. Vergenoeg was
acquired by Metorex from Bayer AG in May 1999 following an international tender
process. According to current mining rates, the mine likely has a remaining life
in excess of 50 years.
24
<Page>
Vergenoeg is the single largest fluorspar resource in the world, representing
approximately 10% of the world's total fluorspar resources. Mining of this
deposit has taken place for 40 years and, as such, the deposit is well known.
Minerales Y Productos Derivados SA, a Spanish producer and consumer of
fluorspar, is a partner in this project alongside Metorex and holds 30% of
Vergenoeg.
MARANDA MINES LTD.
Metorex holds a 100% interest in Maranda Mines Ltd. ("Maranda"), which in turn
owns a zinc and copper mine situated in the Tzaneen area of South Africa's
Northern Province. The mine has been in operation since 1991. Zinc concentrate
is sold to Zincor Corporation of South Africa Limited, a zinc refinery in South
Africa. This production represents approximately 15% of the South African zinc
requirement. The copper concentrate produced by Maranda is transported to the
city of O'okiep, located near Springbok in the Northern Cape Province of South
Africa, for smelting and the blister copper produced there is sold into world
markets.
O'OKIEP COPPER CO. LTD.
In October 1998, Metorex acquired from Gold Fields of South Africa Limited a
100% interest in O'okiep Copper Co. Ltd ("O'okiep Copper"). O'okiep Copper holds
the rights to the Nigramoep underground copper mine and the nearby Nabakeep
smelter, at which the concentrate is smelted. The Nigramoep mine has been in
production since 1940.
In addition to smelting concentrates from the Nigramoep mine, Nabakeep smelts
toll and custom concentrates sourced from local and international markets
producing blister copper. In order to maintain smelting efficiencies, 40,000 to
50,000 tonnes of copper concentrate per annum is toll treated at the smelter.
WAKEFIELD INVESTMENTS (PTY) LTD.
Metorex holds a 100% interest in Wakefield Investments (Pty) Ltd. ("Wakefield").
Wakefield comprises three collieries, namely Leeuwfontein, Bankfontein and
Lakeside. The collieries are all situated in the Kendal area of Mpumulanga and
jointly produced 2.1 million run of mine tonnes of coal at an average yield of
60% to produce 1.3 million tonnes of saleable coal. This coal is mainly sold to
local industrial markets and domestic users.
METMIN (PTY) LTD.
In 1975, Metorex acquired a 65% interest in Metmin (Pty) Ltd. ("Metmin"). Metmin
operates the Ryedale open pit mine in the North West Province of South Africa
and produces about 24,000 tonnes of manganese dioxide annually. Manganese
dioxide is used as a catalyst for the extraction of uranium that is associated
with certain gold ores.
METOREX BURKINA FASO BV - PERKOA PROJECT
Effective September 30, 1999, and subject to certain conditions being fulfilled,
Metorex acquired from Billiton Plc 100% of Metorex Burkina Faso BV. This
acquisition was undertaken by Metorex with the intent of developing the Perkoa
zinc deposit in the country of Burkina Faso, located in western Africa.
A Memorandum of Understanding with the government of Burkina Faso has been
agreed to setting out the conditions pertaining to the development of the Perkoa
project. At the present world price for zinc, this project is not viable but
continued exploration is taking place to establish additional adjacent reserves.
ASIA PACIFIC RESOURCES LTD., CANADA
Asia Pacific is a British Columbia company listed on the Toronto Stock Exchange.
The Corporation presently holds 33 million shares in Asia Pacific representing
approximately 7.46% of the total number of issued and outstanding shares of Asia
Pacific. Asia Pacific holds a 90% interest in Asia Pacific Potash Corporation
Ltd., a Thai company which owns 100% of a major potash concession in
north-eastern Thailand. See Item 4.A "Information of the Corporation - History
and Development of the Corporation - Asia Pacific Resources Ltd.".
Since 1993, Asia Pacific has expended approximately US$21 million in exploration
expenditures on the potash concession. Asia Pacific has identified two
significant deposits to date. Extensive diamond drill hole and seismic
25
<Page>
survey programs have been carried out together with a variety of geological,
geotechnical, metallurgical and other programs in respect to the concession. The
gross in situ resource is estimated to contain 1.4 billion tonnes of sylvanite.
In 1998, a feasibility study by Kilborn Western Inc. was completed with respect
to the Somboon deposit, being the smaller of the two potash deposits. A
production rate of 2,000,000 tonnes annually over a project life of 23 years was
estimated. The overall direct and indirect capital costs for the Somboon project
were estimated at US$505 million. Including an allowance for costs, interest
during construction, and working capital, the total investment in the Somboon
deposit is estimated to be approximately US$646 million.
In June 2002, the board of directors of Asia Pacific engaged a team of
internationally recognized engineering consulting firms, AMEC PLC and SRK
Consulting, to review the economics of a staged project development to allow an
accelerated schedule and lower up-front capital expenditure, compared to the
1998 Feasibility Study which contemplated a US$540 million expenditure upfront
(1998 Dollars) for production of 2 million tonnes per year from the Udon South
deposit. Asia Pacific expects to be in a position to determine the specific
project development program by the end of 2003.
BREAKDOWN OF TOTAL REVENUES BY CATEGORY OF ACTIVITY AND GEOGRAPHIC MARKET
For a breakdown of total revenues by category of activity and geographic market
for each of the last three financial years, see Notes 22(a) and (b) to the
Consolidated Financial Statements.
C. ORGANIZATIONAL STRUCTURE
The following diagram sets forth the intercorporate relationships among the
Corporation and certain of the Corporation's subsidiaries as at June 30, 2002:
<Table>
----------------------------
Crew Development Corporation
(YUKON)
----------------------------
----------------------------------------------------------|-------------------------------------------------------
| | |
| 87% | 100% | 100%
- -------------------- ---------------------------- --------------
North Pacific Crew Development Crew Norway AS
GeoPower Corp. Corp. (Mauritius) Ltd (NORWAY)
(BRITISH COLUMBIA) (REPUBLIC OF MAURITIUS)
- -------------------- ---------------------------- --------------
| | |
| | |
| ------------------------------------------------------------------- |
| | | |
| 100% | 100% | 100% |
- -------------------- ----------------------- ----------------------- |
Meager Creek Crew Development Crew Development |
Development (Chib) Ltd (Kingsa) Ltd |
Corporation (REPUBLIC OF MAURITIUS) (REPUBLIC OF MAURITIUS) |
(BRITISH COLUMBIA) |
- -------------------- ----------------------- ----------------------- |
| | |
| | |
------------------------------------------------------------------- |
| |
| 21%(3) |
---------------------------- |
Metorex Limited |
(SOUTH AFRICA) |
---------------------------- |
|
|
------------------------------------------------------------------------------------------------------------------
| | | | |
| 100% | 100%(2) | 100% | 100% | 82%
- -------------------- --------------------- ---------------------------- ------------------------ --------------
Alubang Mining Corp. Alagag Mining Corp. Crew Minerals (Phil.) Inc. Hwini-Butre Minerals Ltd Nalunaq IS(1)
(PHILIPPINES) (PHILIPPINES) (PHILIPPINES) (REPUBLIC OF GHANA) (GREENLAND)
- -------------------- --------------------- ---------------------------- ------------------------ --------------
</Table>
NOTES:
(1) Joint Venture between the Corporation and Nunaminerals AS.
(2) 100% owned directly and indirectly.
(3) 21% owned in aggregate as of November 15, 2002.
26
<Page>
D. PROPERTY, PLANTS AND EQUIPMENT
For information regarding the material tangible fixed assets of the Corporation,
including leased properties, please see Notes 5, 9, 10 and 22(b) of the
Consolidated Financial Statements, and Item 4.B "Information of the Corporation
- - Business Overview". For a discussion of any environmental issues that may
affect the Corporation's utilization of the aforementioned assets, please see
Item 3.D "Key Information--Risk Factors--Mineral Exploration and Development".
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. OPERATING RESULTS
OVERVIEW
During the year the Corporation experienced a change of control of management of
the Corporation. New management has placed a new strategic focus on developing
and operating gold and precious metals assets directly owned by the Corporation.
For further information regarding the operating and financial prospects of the
Corporation, please see Item 4.A "Information of the Corporation--History and
Development of the Corporation".
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations should be read along with the Consolidated Financial Statements.
These reports have been prepared in accordance with Canadian GAAP, which
conforms to U.S. GAAP in all material respects, except as described in Note 25
to the Consolidated Financial Statements.
The results of operations for the last three fiscal years are summarized as
follows:
<Table>
<Caption>
YEAR ENDED JUNE 30
(IN THOUSANDS)
---------------------------------------------------------------------
2002 2001 2000
--------------------- ------------------- --------------------
Revenues $111,731 $79,702 $10,908
Cost of revenues (and amortization of
mining assets) (91,534) (70,494) (8,390)
Head office interest and other income 1,832 (187) 135
African operations - interest and other
income 1,213 3,369 1,572
Administrative costs (excluding African
operations) (10,069) (6,076) (3,493)
Administrative costs - African operations (7,512) (3,358) (1,766)
--------------------- ------------------- --------------------
INCOME (LOSS) BEFORE THE UNDERNOTED: 5,661 2,956 (1,034)
--------------------- ------------------- --------------------
Loss (gain) on investment in Metorex Limited (8,037) 3,541 4,031
Provision for impairment of Chibuluma South
Mine (8,451) - -
Provision for impairment of investment in
Asia Pacific Resources (19,593) - -
Provision for impairment of other mineral
property interests (5,010) - -
Loss on dilution of interest in South
Meager Geothermal Project (1,503) - -
Costs related to Mindoro Nickel Project (1,573) - -
Provision for decline in Mindoro Nickel
Project - (34,024) -
Provision for current and future taxes
(African operations (3,269) (3,622) (319)
Provision for current and future taxes
(excluding African operations) 2,623 7,969 -
Non - controlling interest in Metorex (1,599) (3,104) (288)
--------------------- ------------------- --------------------
$(40,751) $(26,284) 2,390
--------------------- ------------------- --------------------
--------------------- ------------------- --------------------
</Table>
27
<Page>
YEARS ENDED JUNE 30, 2002 AND 2001
For the year ended June 30, 2002, the Corporation incurred a net loss of $40.7
million ($0.31 per share), compared with a net loss of $26.3 million ($0.26 per
share) for the year ended June 30, 2001, on mineral sales of $111.7 million
($79.7 million in 2001). All of the Corporation's revenues arise from the
consolidation of the Metorex operations which are summarized below.
COMMODITY SALES - METOREX
<Table>
<Caption>
YEAR ENDED JUNE 30
---------------------------------------------------------------------
2002 2001 2000
-------------------- ----------------- -------------------
Copper tonnes 22,852 22,404 23,515
Coal tonnes 1,271,444 1,428,606 1,215,804
Zinc tonnes 12,929 12,554 12,451
Gold kilograms 949 1,146 1,055
Antimony mtu 542,934 409,202 462,712
Fluorspar wmt 141,360 137,160 140,848
Cobalt tonnes 100 116 91
Manganese tonnes 23,988 19,026 25,468
</Table>
REVENUES - METOREX
(IN THOUSANDS OF SOUTH AFRICAN RAND)
<Table>
<Caption>
YEAR ENDED JUNE 30
---------------------------------------------------------------------
2002 2001 2000
--------------------- -------------------- --------------------
Copper 328,217 284,435 223,124
Coal 122,928 116,685 86,591
Zinc 105,774 98,415 89,162
Gold and Antimony 121,661 109,597 84,723
Fluorspar 119,746 82,846 71,127
Cobalt 15,558 20,723 16,769
Other 6,441 7,557 7,452
820,325 720,258 578,948
Less: realization costs 127,895 106,460 127,143
Revenues 692,427 613,798 451,805
</Table>
The operating results of Metorex included in the consolidated financial
statements consist of the following revenues and net income:
REVENUES - METOREX
(IN THOUSANDS OF CANADIAN DOLLARS)
<Table>
<Caption>
YEAR ENDED JUNE 30
---------------------------------------------------------------------
Segment 2002 2001 2000
--------------------- -------------------- --------------------
Copper 44,520 33,222 7,649
Coal 15,735 13,743 -
Zinc 18,340 12,978 -
Gold and Antimony 16,011 10,897 -
Fluorspar and other 17,125 8,862 3,259
111,731 79,702 10,908
</Table>
NET INCOME (LOSS) - METOREX
(IN THOUSANDS OF CANADIAN DOLLARS)
<Table>
<Caption>
YEAR ENDED JUNE 30
---------------------------------------------------------------------
Segment 2002 2001 2000
--------------------- -------------------- --------------------
Copper 5,917 5,711 1,414
Coal (1,623) (1,061) -
Zinc 1,105 495 -
Gold and Antimony 814 285 -
Fluorspar and other 3,221 46 303
--------------------- -------------------- --------------------
9,434 5,476 1,717
--------------------- -------------------- --------------------
Provision for impairment of Chibuluma South
Mine (8,451) - -
Non-controlling interest (404) (2,983) -
(Loss) gain on investment in
Metorex Limited (8,037) 3,541 4,031
--------------------- -------------------- --------------------
Total (7,458) 6,034 5,748
===================== ==================== ====================
</Table>
28
<Page>
The principal reason for the increase in fiscal 2002 of mineral sales, cost of
mineral sales and amortization and administrative costs, as compared with 2001,
is that the results of operations of Metorex were consolidated for the 10 months
ended April 30, 2002, whereas the results for the previous year included
consolidated results for only 7 months (December 1, 2000 - June 30, 2001).
Operating performance of Metorex improved during the second half of fiscal 2002,
assisted by generally improved commodity prices and continued weakness of the
South African Rand against the U.S. Dollar.
During the year ended June 30, 2002, Metorex's Chibuluma South mining operations
were placed on care and maintenance due to low copper prices and high operating
costs. As a result, the Corporation recorded a provision for impairment of
Metorex's Chibuluma South mine of $8,450,857 (2001 - Nil). On April 24, 2002,
Metorex issued 18.1 million shares to other shareholders thus reducing the
Corporation's interest in Metorex from 53% to 46% and resulting in the
Corporation incurring a loss on dilution of its investment of $1,133,928. On
April 26, 2002, the Corporation disposed of 6.5 million shares of Metorex for
cash proceeds of $2,969,040 resulting in a loss on disposal of $1,071,479 (2001
- - Nil). The Corporation had equity earnings in Metorex from May 1, 2002 to June
30, 2002 of $1,549,819 (2001 - July 1 to November 2000 - $3,540,665). At June
30, 2002, the Corporation recorded a provision for impairment of $7,381,185
related to the permanent decline in value of its investment in Metorex.
The current year increase in "head office interest and other income" over 2001
is primarily a result of a realized foreign exchange gain of approximately
$1,634,000 (2001 - loss of $800,000) on Norwegian Kroners held at the beginning
of fiscal 2002. At June 30, 2002, most of the Corporation's funds were held in
Canadian Dollars, thereby reducing the foreign exchange exposure.
Administrative costs (excluding African operations) increased from $6.6 million
in 2001, to $10.1 million in 2002. Included in the current years administrative
costs were substantial non-recurring expenses in the period related to a change
in control of the board of directors and senior management of the Corporation.
Professional fees include $810,000 (2001 - Nil) of non-recurring professional
fees related to the change of management of the Corporation and related
litigation thereto. Also included in the professional fees are $222,000 (2001 -
Nil) of advisory fees related to corporate tax planning for the Corporation.
Administration, office and general expenses include $1,592,000 (2001- Nil) of
non-recurring contract termination payments to former officers and directors of
the Corporation and consulting and non-recurring engagement fees payable to the
Corporation's senior management.
Included in the loss for the year is a provision for impairment of the
Corporation's long-term investment in Asia Pacific in the amount of $18,048,177
net of future income tax recovery of $1,544,879 (2001 - Nil). Due to continued
weakness in Asia Pacific's stock price the Corporation determined that the
decline in value was other than temporary and as a result recognized a provision
for loss on this investment. Also included in the loss for the year is a
provision for impairment of mineral property interest relating to the R0ros
Project of $3,900,793, net of a future income tax recovery of $1,109,085 (2001 -
Nil). Due to current depressed zinc and copper prices the Corporation decided to
suspend further exploration activities and therefore has written down the value
of this project.
In addition, $1.6 million was invested in advancing the Mindoro Nickel Project
in the first quarter ended September 30, 2001. The majority of the costs relate
to technical field costs and were incurred prior to management's decision in
September 2001 to withdraw from all field activities related to the project
following the cancellation of the MPA. Effective April 2002, the Corporation has
withdrew from all activities related thereto and temporarily placed the project
on care and maintenance. The feasibility of future operations is dependent on
the favourable resolution of the Corporation's appeal to reinstate the MPA.
The Corporation prepared the Consolidated Financial Statements in accordance
with Canadian GAAP which differs in certain respects from those principles which
the Corporation would have followed had the Consolidated Financial Statements
been prepared in accordance with U.S. GAAP. The major differences between
Canadian and U.S. GAAP which effect the Corporation's consolidated financial
statements for the year-ended June 30, 2002 are as follows:
(a) $3.3 million greater provision for impairment of investment in
Asia Pacific (held by Botswana Diamondfields Incorporated),
caused by a higher pre-provision U.S. GAAP carrying value of
Botswana Diamondfields Incorporated;
(b) $10.0 million (2001 - $7.7 million) charge to earnings for
mining exploration expenditures expensed under U.S. GAAP and
capitalized under Canadian GAAP;
29
<Page>
(c) a $14.3 million lower provision for impairment of the
Corporation's investment in Asia Pacific as this amount was
recorded as a provision for impairment in the year-ended June
30, 2001 for U.S. GAAP purposes; and
(d) a $2.9 million lower loss on investment in Metorex due to a
previously lower carrying value of this investment under U.S.
GAAP.
Please see Note 25 of the Consolidated Financial Statements for full details of
the reconciliation to U.S. GAAP.
YEARS ENDED JUNE 30, 2001 AND 2000
For the year ended June 30, 2001, the Corporation incurred a net loss of $26.3
million ($0.26 per share), compared with a net income of $2.4 million ($0.04 per
share) for the year ended June 30, 2000, on mineral sales of $79.7 million
($10.9 million in 2000).
The principal reason for the increase in mineral sales, cost of mineral sales
and amortization, as compared with fiscal 2000, is that the results of
operations of Metorex were consolidated effective December 1, 2000. The
Corporation had previously proportionately consolidated its investment in
Metorex for the first six months of fiscal 2000, and had equity accounted for
its interest from January 1, 2000 to November 30, 2000, covering the last six
months of fiscal 2000 and the first five months of fiscal 2001.
Included above in "head office interest and other income" for the year is an
unrealized foreign exchange loss of approximately $800,000 (2000 - $nil) on
Norwegian Kroners held at June 30, 2001, which was not realized because of the
reversal in the Norwegian Kroner/Canadian Dollar exchange rate subsequent to the
year end.
Administrative costs (excluding African operations) increased from $3.5 million
in 2000, to $6.1 million in 2001, primarily as a result of the acquisition of
both Mindex and Botswana Diamondfields Incorporated in December 1999, together
with increased costs relating to travel, shareholder relations and professional
fees. "Pro-forma" administrative costs for fiscal 2000, including 12 months of
costs pertaining to Mindex and Botswana Diamondfields Incorporated, are
approximately $5.1 million.
The principal differences creating the larger loss for U.S. GAAP purposes than
for Canadian GAAP purposes during the year-ended June 30, 2001 are:
(a) a $10.0 million (2000 - nil) greater provision for the decline in
the carrying value of the Mindoro Nickel Project, caused by a higher
pre-provision U.S. GAAP carrying value of Mindex, partially offset
by a related future income tax recovery of $4.7 million;
(b) a $7.7 million (2000 - $4.2 million) charge to earnings for mining
exploration expenditures expensed under U.S. GAAP and capitalized
under Canadian GAAP, partially offset by a future income tax
recovery of 3.3 million; and
(c) a $14.3 million provision under U.S. GAAP for the decline in the
carrying value of the Corporation's investment in Asia Pacific, due
to differences in the criteria for determining impairment.
Please see Note 25 of the Consolidated Financial Statements for full details of
the reconciliation to U.S. GAAP.
CRITICAL ACCOUNTING POLICIES OF THE CORPORATION
The Consolidated Financial Statements include the accounts of the Corporation
and all of its subsidiaries, as referred to in Note 2(a) of the Consolidated
Financial Statements. The Corporation prepared the Consolidated Financial
Statements in conformity with Canadian GAAP, which conforms in all material
respects to U.S. GAAP, except for those items disclosed in Note 25 to the
Consolidated Financial Statements. The Corporation has detailed the differences,
and has also provided a reconciliation of the differences, between U.S. and
Canadian GAAP in Note 25 to the Consolidated Financial Statements.
30
<Page>
The preparation of the Consolidated Financial Statements requires the
Corporation to make estimates and judgments that affect its reported amounts of
assets, liabilities, revenues and expenses. The carrying values of the
Corporation's investments, mineral property interests and property, plant and
equipment are based on estimates. Furthermore, on an ongoing basis, the
Corporation evaluates its estimates, including those related to asset impairment
and contingencies. These estimates are all based on information that is
currently available to the Corporation and on various other assumptions that it
believes to be reasonable under the circumstances. By their nature, these
estimates are subject to measurement uncertainty and the impact on the
Consolidated Financial Statements of future periods could be material. Actual
results could vary from those estimates under different assumptions and
conditions.
The Corporation lists all of its significant accounting policies in Note 2 to
the Consolidated Financial Statements and has identified the following
accounting policies which are believed to be the most critical in fully
understanding and evaluating the reported financial results.
VALUATION OF MINERAL PROPERTY INTERESTS
All costs related to the acquisition and exploration of mineral properties are
capitalized until either commercial production is established or a property is
abandoned. At that time, such costs will either be amortized on a systematic
basis over the estimated productive life of the property or charged to earnings.
The Corporation reviews the carrying value of each property on a regular basis.
This review is made generally by reference to the timing of exploration work,
work programs proposed and the exploration results achieved by the Corporation
and others. When the carrying value of a property is estimated to exceed its net
recoverable amount, provision is made for the decline in value.
The carrying value of mineral property interests represent costs incurred to
date and does not reflect present or future values. The Corporation is in the
process of exploring the other mineral properties interests and has not yet
determined whether they contain ore reserves that are economically recoverable.
Accordingly, the recoverability of these capitalized costs is dependent upon the
existence of economically recoverable reserves, the ability of the Corporation
to obtain the necessary financing to complete their exploration and development
and upon future profitable production.
VALUATION OF INVESTMENTS
Management regularly reviews the carrying value of the Corporation's other
long-term investments, such as the investments in Metorex, Asia Pacific and the
South Meager Geothermal Project, to determine whether their carrying values, as
recorded in the consolidated financial statements of the Corporation, are
appropriate. These reviews, which are carried out on an annual basis and
whenever events or changes in circumstances indicate that the investment may
have suffered an other than temporary decline in value, are based on projections
of anticipated future cash flows to be generated from the investments. While
management believes that these estimates of future cash flows are reasonable,
different assumptions could materially affect the anticipated cash flows to be
generated by the investments, thereby affecting the evaluations of the carrying
values of the investments.
B. LIQUIDITY AND CAPITAL RESOURCES
During the year the Corporation used $7.0 million in cash from operating
activities. The net loss of $40.7 million included amortization of $4.4 million
and non-controlling interest of $1.6 million. This net loss included a non-cash
provision for impairment of investment in Asia Pacific of $19.6 million; a
provision for impairment of other mineral property interests of $5.0 million; a
provision for impairment of Chibuluma South of $8.5 million; a loss on
investment in Metorex of $ 8.0 million; a release in future income taxes related
to the provisions above of $4.2 million; unrealized foreign exchange loss of
$682,881 and a gain on sale of assets of $431,480. With respect to the changes
in working capital, the primary use of cash was due to a decrease in accounts
payable of $6.7 million and an increase in inventory of $1.6 million. The
majority of the movement in accounts payable and all of the movement in
inventory incurred in Metorex.
The Corporation's cash position at June 30, 2002 was $4.4 million (2001 - $40.1
million, of which $14.2 million was held by Metorex). As at June 30, 2002, Crew
had total assets of $82 million (2001 - $225 million) and shareholders' equity
of $74 million (2001 - $107 million).
31
<Page>
Working capital at June 30, 2002 amounted to $4.4 million (June 30, 2001 - $28.8
million, of which $5.7million arises on consolidation of Metorex).
The Corporation issued a total of 10,158,101 Common Shares during the latest
financial year for gross proceeds of $3,758,497 ($3,364,032 net of issue costs).
The Corporation also issued 3,750,000 warrants to purchase 3,750,000 Common
Shares of the Corporation for cash consideration of $275,250.
On October 22, 2002, the Corporation sold an additional 28 million shares of
Metorex for cash proceeds of $12.6 million. The proceeds from the sale of
Metorex shares will be used for working capital and further exploration of
existing projects and is consistent with the Corporation's new strategy to
acquire and hold assets directly and focus mainly on precious metals.
During the latest financial year, a total of $8.7 million was invested in
advancing the Corporation's exploration and development properties, of which
$8.5 million was spent in developing Nalunaq to the stage where the bankable
feasibility study, which commenced in November 2001, was completed in August
2002.
In addition, $1.6 million was invested in advancing the Mindoro Nickel Project
in the first quarter ended September 30, 2001. The majority of the costs related
to technical field costs and were incurred prior to the decision of management
of the Corporation in September 2001 to withdraw from all field activities
related to the Mindoro Nickel Project following the cancellation of the MPA in
July 2001. Effective April 2002, the Corporation withdrew from all activities
related to the Mindoro Nickel Project and temporarily placed the project on care
and maintenance. The feasibility of future operations is dependent on the
favourable resolution of the Corporation's appeal to reinstate the MPA.
During the fiscal 2002, Asia Pacific completed a financial restructuring which
included the conversion of all of its outstanding debentures to common shares
and the issuance of additional common shares through private placements. As part
of the restructuring, due to commitments entered into by former management of
the Corporation on October 8, 2001, the Corporation invested an additional $5
million into Asia Pacific. Due to the dilution of its interest and a substantial
decline in value of Asia Pacific, the Corporation determined that an impairment
had occurred and wrote down its investment to market value at June 30, 2002, and
recorded a provision for loss in value of investment of $19,593,056.
In the opinion of management of the Corporation, the working capital of the
Corporation is sufficient to meet its present requirements. At June 30, 2002,
the Corporation's cash position was $4.4 million.
FORWARD LOOKING STATEMENTS
Nalunaq and the remaining licenses represent substantial potential as only
1/30th of the estimated overall structure has been explored. It is management's
view that the Greenlandic concessions held by the Corporation and its partner,
Nunaminerals, may represent a new gold region. The Corporation will give high
priority to explore its concessions in Greenland in the immediate future.
The Corporation and Nunaminerals intend on transferring their respective
ownership in Nalunaq to a Greenlandic limited liability company, Nalunaq Gold
Mine AS, which will be the operator of the gold mine in Greenland and,
ultimately, the holder of the mining license. Environmental permitting in
Greenland must be approved by the Joint Committee, which is composed of members
from both the Danish and Greenlandic parliaments. The processing of the permits
for a mine in Greenland is new to the authorities and it is unknown how fast the
process can be completed. To the knowledge of management of the Corporation,
both the local communities and the national opinion in Greenland have a positive
interest in the project; the local communities welcome the new opportunity for
employment in a region with a record of high unemployment. The Greenlandic
Bureau of Mines and Petroleum is completing its review of the Corporation's
application for a mining permit and is currently scheduled for final processing
in the first quarter of 2003.
Certain information and statements in this discussion contain certain
forward-looking statements that involve a number of known and unknown risks,
uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in our forward-looking statements.
Actual outcomes and results may differ materially from those expressed in such
forward-looking statements. Furthermore, a forward-looking statement
32
<Page>
speaks only as of that date on which such statement is made. The Corporation
assumes no obligation to update or revise them to reflect new events or
circumstances.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
As the Corporation is a resource exploration company the information required by
this section is inapplicable.
D. TREND INFORMATION
For the Corporation's most significant trends in production and sales please see
Item 4.A "Information of the Corporation - History
and Development of the Corporation".
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth the name, municipality of residence, position
with the Corporation and principal occupation during the five preceding years
for each of the directors and executive officers of the Corporation:
<Table>
<Caption>
SERVED AS
NAME, MUNICIPALITY OF POSITION WITH THE PRINCIPAL OCCUPATION OR EMPLOYMENT DURING THE PAST 5 A DIRECTOR
RESIDENCE (1) CORPORATION YEARS (1) OR OFFICER
- ----------------------- ------------------- ------------------------------------------------------- ------------
HANS CHRISTIAN Chairman, Director Management consultant with Converto AS (a management 2002
QVIST (2) consulting company) since August 2001; President and
Jar, Norway Chief Executive Officer of SPCS Group (a business
services provider) between September 2000 and August
2001; President and Chief Executive Officer of YaTack
ASA (an e-commerce company) from May 1999 to September
2000; President and Chief Executive Officer of Tandberg
Data ASA (an information technology storage company)
from March 1998 to March 1999; prior thereto, President
and Chief Executive Officer of NIT/IBM Global Services
(an information technology company)
JAN VESTRUM (3) Chief Executive President and Chief Executive Officer of the 2002
Oslo, Norway Officer, Corporation since March 2002; founder, President and
President, Chief Executive Officer of Kirkwick Consultants (a
Director management consulting company) from July 1998 to
present; Chairman and Chief Executive Officer of Concept
SA (a software development and sales company) between June
2000 and March 2002; President and Chief Executive Officer
of Maritime Information Systems AS (a software development
and sales company) from February 1999 to May 2000; prior
thereto, Head of Equity Sales and Research of Nordea Bank
(formerly Christiania Bank)
KAI THOGERSEN (3) Director Partner, Thommessen Krefting Greve Lund AS, 2002
Oslo, Norway Advokatfirma
CAMERON BELSHER (2)(3) Director Partner, Farris, Vaughan, Wills & Murphy, Barristers 2002
New Westminster, BC and Solicitors
NORMAN HARDIE (2) Director Independent consultant since January 1998; prior 2002
Toronto, ON thereto, General Manager, North America of Normandy
Mining Limited (a mining company)
WOLF SEIDLER Chief Operating Chief Operating Officer of the Corporation since 2002
Orleans, France Officer September 2002; Independent mining consultant from
2001 to 2002; Director of Mining Operations for Normandy
Lasource (a mining company), from 1999 to 2000;
President & Chief Operating Officer of William Resources
Inc. (a mining company), from 1998 to 1999; prior
thereto, Vice President of Operations of Inmet Mining
Corporation
RUPI KHANUJA Acting Chief Acting Chief Financial Officer of the Corporation 2000
New Westminster, BC Financial Officer since August 2002; Corporate Controller of the
& Corporate Corporation since 1996; Corporate Secretary of the
Secretary Corporation since October 2000; prior thereto,
Controller of Asia Pacific and NPGP (then named South
Crofty Holdings Ltd.) from November 1996 to October
2000
</Table>
33
<Page>
<Table>
<Caption>
SERVED AS
NAME, MUNICIPALITY OF POSITION WITH THE PRINCIPAL OCCUPATION OR EMPLOYMENT DURING THE PAST 5 A DIRECTOR
RESIDENCE (1) CORPORATION YEARS (1) OR OFFICER
- ----------------------- ------------------- ------------------------------------------------------- ------------
JOSEPH RINGWALD Vice President, Vice President, Project Development of the 2001
New Westminster, BC Project Corporation since December 2001; Independent Mining
Development Consultant and Project Mining Engineer for Nalunaq
from July 2001 to December 2001; Senior Mining
Engineer with SRK Consulting from October 1999 to
December 2000; Senior Mining Engineer with Placer
Dome Technical Services Ltd., prior thereto, from
March 1996 to September 1999; Principal owner of
Geocomp Consulting (specializing in application of
computer based geoscience modelling systems and
techniques in the mining and environmental industries)
JON PETERSEN Vice President, Vice President, Exploration of the Corporation since 2000
Oslo, Norway Exploration January 2000; prior thereto, Vice President of
Exploration, Mindex
</Table>
NOTES:
(1) The information as to municipality of residence and principal
occupation, not being within the knowledge of the Corporation, has been
furnished by the respective directors and officers individually.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
B. COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during the periods
indicated to the individuals who served as Chief Executive Officer of the
Corporation during the financial year ended June 30, 2002 and the other four
most highly compensated executive officers of the Corporation whose total salary
and bonus was $100,000 or more for the financial year ended June 30, 2002 and
any individual who would have satisfied this criteria but for the fact that
individual was not serving as such an officer at June 30, 2002 (collectively,
the "Named Executive Officers"):
<Table>
<Caption>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------ ----------------------------------
AWARDS PAYOUTS
------------------------ ---------
OTHER SECURITIES RESTRICTED
ANNUAL UNDER SHARES OR
COMPEN- OPTIONS RESTRICTED LTIP ALL OTHER
NAME AND SALARY BONUS SATION GRANTED SHARE UNITS PAYOUTS COMPEN-SATION
PRINCIPAL POSITION YEAR ($) ($) ($) (#)(1) ($) ($) ($)
- --------------------- ---- ------------ ----------- ----------- ------------- ---------- --------- ----------------
JAN VESTRUM(2) 2002 $153,141(7) $280,513(7) $111,846(7) 3,750,000(9) Nil N/A Nil
Chief Executive 2001 Nil Nil Nil Nil Nil N/A Nil
Officer and 2000 Nil Nil Nil Nil Nil N/A Nil
President
PETER BARNES(3) 2002 $187,500 $12,500 $7,500 Nil Nil N/A $276,843(11)
Former President 2001 225,000 Nil 21,250 Nil Nil N/A Nil
and former Chief 2000 150,000 Nil 17,500 130,000 Nil N/A Nil
Financial Officer
JOHN DARCH(4) 2002 $248,766(8) $25,000 $9,667 Nil Nil N/A $632,000(8)(11)
Former Chief 2001 347,310(8) Nil 25,000 Nil Nil N/A Nil
Executive Officer 2000 213,000(8) Nil 20,650 130,000 Nil N/A Nil
and former Chairman
JON PETERSEN 2002 $186,040 Nil $13,326 Nil Nil N/A Nil
Vice-President, 2001 147,110 Nil 17,665 Nil Nil N/A Nil
Exploration 2000 75,000 Nil 5,500 450,000 Nil N/A Nil
ANDREAS QVALE(5) 2002 $125,720 Nil Nil Nil Nil N/A Nil
Former 2001 77,455 Nil Nil Nil Nil N/A Nil
Vice-President, 2000 Nil Nil Nil Nil Nil N/A Nil
Corporate Affairs
HANS CHRISTIAN 2002 $91,262 $287,793 $116,746 2,750,000(10) Nil N/A Nil
QVIST(6) 2001 Nil Nil Nil Nil Nil N/A Nil
Chairman 2000 Nil Nil Nil Nil Nil N/A Nil
</Table>
34
<Page>
NOTES:
(1) All securities under options are for Shares. No stock appreciation rights
("SARs") are outstanding.
(2) Mr. Vestrum was appointed Chief Executive Officer and President on March
3, 2002.
(3) Mr. Barnes resigned as President and Chief Financial Officer on March 3,
2002.
(4) Mr. Darch resigned as Chief Executive Officer on March 3, 2002 and as
Chairman on January 21, 2002.
(5) Mr. Qvale resigned as Vice-President, Corporate Affairs on February 28,
2002. (6) Mr. Qvist was appointed Chairman on January 21, 2002.
(7) Certain of these amounts were paid to Kirkwick Consultants, a company
controlled by Mr. Vestrum.
(8) Paid to Western Investment Consultants Ltd. ("WIC"), a personal holding
company of Mr. Darch.
(9) Includes 2,000,000 call options purchased by Mr. Vestrum from the
Corporation for an aggregate of $146,800.
(10) Includes 1,750,000 call options purchased by Mr. Qvist from the
Corporation for an aggregate of $128,450.
(11) See Item 6.B "Directors, Senior Management and Employees - Compensation -
Termination of Employment, Change of Responsibilities and Employment
Contracts".
(12) In addition to the Named Executive Officers, the following persons who
were officers of the Corporation as at June 30, 2002 received an aggregate
renumeration in excess of $40,000 for the financial year ended June 30,
2002: Rupi Khanuja, Corporate Secretary & Corporate Controller, received
aggregate salary and bonuses of $130,000; Paul Mann, former
Vice-President, Comptroller, received aggregate salary and bonuses of
$79,231; Joe Ringwald, Vice-President, Project Development, received
aggregate salary and bonuses of $64,667; and, Ian Simpson, former
Vice-President, Investor Relations, received aggregate salary and bonuses
of $120,000. No other remuneration or pension amounts were paid to such
persons.
The Corporation does not have a long-term incentive plan pursuant to which
compensation was paid or distributed to the Named Executive Officers during the
financial year ended June 30, 2002. A "long-term incentive plan" means any plan
providing compensation intended to serve as incentive for performance to occur
over a period longer than one financial year, but does not include option or SAR
plans or plans for compensation through restricted shares or restricted share
units.
A summary of stock options granted to the Named Executive Officers during the
financial year ended June 30, 2002 is set out in the table below. All stock
options are for Common Shares in the capital stock of the Corporation
("Corporation Common Shares") and were granted in accordance with the
Corporation's 1995 Stock Incentive Plan, as amended. No SARs are outstanding,
and it is currently intended that none be issued.
<Table>
<Caption>
MARKET VALUE OF
% OF TOTAL SECURITIES
OPTIONS/SARS UNDERLYING
NUMBER OF GRANTED TO OPTIONS/SARS ON
SECURITIES EMPLOYEES IN EXERCISE OR THE DATE OF
UNDER OPTION FINANCIAL YEAR BASE PRICE GRANT EXPIRATION
NAME (#)(1) (%) ($/SECURITY)(2) ($/SECURITY)(3) DATE
- ------------------------- -------------- ----------------- ---------------- ----------------- ----------------
JAN VESTRUM 1,750,000 27% $0.40 $0.40 March 5, 2007(4)
2,000,000 31% 0.42 0.40 May 1, 2003(5)
HANS CHRISTIAN QVIST 1,000,000 15% $0.40 $0.40 March 5, 2007(6)
1,750,000 27% 0.42 0.40 May 1, 2003(7)
</Table>
NOTES:
(1) All securities under option are Corporation Common Shares.
(2) The Corporation's 1995 Stock Incentive Plan provides that the exercise
price of any options granted is to be greater than or equal to the fair
market value of Corporation Common Shares on the date the option is
granted.
(3) The market value of securities underlying options on the date of grant is
the closing price of Corporation Common Shares on the Toronto Stock
Exchange on the trading day preceding the grant.
(4) These options were granted on March 5, 2002 for no consideration; the
price range of Corporation Common Shares for the 30 days preceding the
grant was $0.40 to $0.54.
(5) These call options were granted on May 1, 2002 for an aggregate
consideration of $146,800; the price range of Corporation Common Shares
for the 30 days preceding the grant was $0.37 to $0.48.
(6) These options were granted on March 5, 2002 for no consideration; the
price range of Corporation Common Shares for the 30 days preceding the
grant was $0.40 to $0.54.
(7) These call options were granted on May 1, 2002 for an aggregate
consideration of $128,450; the price range of Corporation Common Shares
for the 30 days preceding the grant was $0.37 to $0.48.
35
<Page>
The following table sets forth information concerning the exercise of options
during the financial year ended June 30, 2002 and the value at June 30, 2002 of
unexercised in the money options held by the Named Executive Officers:
<Table>
<Caption>
SECURITIES AGGREGATE VALUE OF UNEXERCISED
ACQUIRED ON VALUE UNEXERCISED OPTIONS IN THE MONEY OPTIONS
EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME (#) ($)(2) (#) ($)(3)
- ------------------------- ------------ ----------- ----------------------------- -----------------------------
JAN VESTRUM Nil N/A 2,583,333/1,166,667 $5,833/$11,667
PETER BARNES Nil N/A 250,000/Nil Nil/Nil
JOHN DARCH Nil N/A 300,000/Nil Nil/Nil
JON PETERSEN Nil N/A 450,000/Nil Nil/Nil
ANDREAS QVALE Nil N/A Nil/Nil Nil/Nil
HANS CHRISTIAN QVIST Nil N/A 2,083,333/666,667 $3,333/$6,667
</Table>
NOTES:
(1) All securities acquired on exercise of options are Corporation Common
Shares.
(2) Based on the closing trading price of the Corporation Common Shares on the
Toronto Stock Exchange on the date of exercise.
(3) Based on the closing trading price of the Corporation Common Shares on the
Toronto Stock Exchange on June 30, 2002, being $0.41.
During the financial year ended June 30, 2002, the Corporation did not reprice
downward any options or SARs held by the Named Executive Officers.
The Corporation does not have a defined benefit or actuarial plan for the Named
Executive Officers under which benefits are determined primarily by final
compensation (or average final compensation) and years of service.
TERMINATION OF EMPLOYMENT, CHANGE OF RESPONSIBILITIES AND EMPLOYMENT
CONTRACTS
On February 28, 2002, the Corporation entered into a settlement agreement, as
amended, (the "Darch/WIC Settlement Agreement") with John M. Darch and WIC to
formalize the terms of the termination of an engagement agreement ("Darch/WIC
Engagement Agreement") dated July 1, 2001 between the Corporation, WIC and Mr.
Darch and the termination of Mr. Darch's position as Chief Executive Officer and
Chairman of the Corporation. Under the Darch/WIC Settlement Agreement, the
Corporation agreed to pay WIC $400,000 on March 1, 2002, of which $200,000 would
be used by WIC to subscribe for Corporation Common Shares. Pursuant to the
Darch/WIC Settlement Agreement, all unexercised stock options of the Corporation
held by Darch and WIC will expire on March 1, 2003, provided that such date will
be extended to March 1, 2004 if permitted by the relevant regulatory
authorities. The Darch/WIC Settlement Agreement further provides that NPGP will
enter into a consulting agreement with WIC for a two year term at $100,000 per
year and that Crew will transfer to WIC 800,000 shares of NPGP.
On February 28, 2002, the Corporation entered into a settlement agreement (the
"Barnes Settlement Agreement") with Peter D. Barnes to formalize the terms of
the termination of an engagement agreement (the "Barnes Engagement Agreement")
dated July 1, 2002 between the Corporation and Mr. Barnes and the termination of
Mr. Barnes' position as President and Chief Financial Officer of the
Corporation. Under the Barnes Settlement Agreement, the Corporation agreed to
pay Mr. Barnes $276,843 on April 1, 2002, representing his then current base
salary for approximately 57 weeks. If Mr. Barnes does not find other employment
by April 1, 2003, he will be entitled to five monthly payments of $20,833. If
Mr. Barnes has found alternative employment prior to April 1, 2002, the five
monthly payments will be reduced by the amount which Mr. Barnes receives as base
salary from his new employer. Pursuant to the Barnes Settlement Agreement, all
unexercised stock options for the Corporation held by Barnes will expire on
April 1, 2003.
Except for the above, the Corporation and its subsidiaries have no compensatory
plan or arrangement in respect of compensation received or that may be received
by the Named Executive Officers.
36
<Page>
COMPENSATION OF DIRECTORS
Effective May, 2002, an annual honorarium of US$10,000 is paid to each director
of the Corporation for their services as a director. A fee of US$1,000 is paid
to each director for each directors' meeting or committee meeting attended in
person, or US$500 if such meeting is attended by the director by conference
phone. Directors receive a disbursement of US$500 per day for travel time, plus
reimbursement of expenses. Prior to May 2002, an annual honorarium of CAD$10,000
was paid to directors, plus reimbursement of expenses. Directors may also
receive compensation in the form of incentive stock options, at the discretion
of the board of directors, for serving as directors of the Corporation.
During the financial year ended June 30, 2002, Farris, Vaughan, Wills & Murphy,
a law firm of which Cameron G. Belsher is a partner, received aggregate fees of
$270,245 for legal services performed at the request of the Corporation.
During the financial year ended June 30, 2002, Thommesson Krefting Greve Lund
AS, a law firm of which Kai Th0gersen is a partner, received aggregate fees of
$194,779 for legal services performed at the request of the Corporation.
During the financial year ended June 30, 2002, Jan A. Vestrum and Hans Christian
Qvist received compensation from the Corporation as described in "Statement of
Executive Compensation - Annual Compensation".
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
Under existing policies of insurance, the Corporation is entitled to be
reimbursed for indemnity payments which it is required or permitted to make to
the Corporation's directors and officers. Directors and officers of the
Corporation, as individuals, are insured for losses arising from claims against
them for certain of their acts, errors or omissions. The policy provides maximum
coverage in any one policy year of $15,000,000 in annual claims (subject to a
deductible of $25,000 to $100,000 per claim, payable by the Corporation). The
annual premium in the current financial year is $167,532 which is paid by the
Corporation. The premiums for the policies are not allocated between directors
and officers as separate groups.
C. BOARD PRACTICES
Each director of the Corporation is appointed at the Corporation's annual
general meeting to hold office until the earlier of the next annual general
meeting or their resignation.
Except as described elsewhere in this Annual Report, neither the Corporation nor
any of its subsidiaries have entered into an agreement with any director of the
Corporation which provides for benefits upon termination of such director's
employment with the Corporation.
The board of directors of the Corporation may appoint additional directors which
shall not exceed in number one-third of the number of directors appointed at the
annual general meeting.
The board of directors of the Corporation has two committees: the Audit
Committee and the Compensation Committee. The mandate of the Audit Committee
is, among other things, to:
(a) ensure that at all times there are direct communication channels
between the Audit Committee and the Corporation's auditors;
(b) periodically review and report to the board of directors whether
management of the Corporation has designed and implemented an
effective internal control system; and
(c) review and comment to the board of directors on financial statements
prepared by the Corporation.
The Audit Committee reports periodically to the board of directors of the
Corporation on all of the foregoing matters.
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<Page>
The mandate of the Compensation Committee is, among other things, to review the
Corporation's executive compensation program, which consists of an annual
management fee or salary, and a longer term component consisting of stock
options. In determining the compensation of senior officers of the Corporation,
the board of directors gives consideration to the present development stage of
the Corporation and its long term objectives, as well as the achievements of the
senior officers as demonstrated by the progress achieved towards its business
plan.
At this stage of the Corporation's development, apart from the functions of the
Audit Committee and Compensation Committee, the board of directors of the
Corporation performs all functions which might otherwise be delegated to a
committee such as a corporate governance or stock option committee.
D. EMPLOYEES
The Corporation has 7 employees at its headquarters in Vancouver, Canada,
providing technical, financial and administrative services. In addition, the
Corporation has 10 employees at its Oslo, Norway, office, providing technical,
management and administrative support services, together with 5 employees in the
Philippines providing technical support services.
E. SHARE OWNERSHIP
The following table shows the number of Corporation Common Shares beneficially
owned by each director and Named Executive Officer, as of November 15, 2002:
<Table>
<Caption>
COMMON SHARES OPTIONS TO PURCHASE COMMON SHARES
----------------------------- --------------------------------------------------------
AMOUNT AND
NATURE OF
NAME OF BENEFICIAL BENEFICIAL PERCENTAGE EXERCISE PRICE
OWNER OWNERSHIP OF CLASS (%) NUMBER GRANTED ($) EXPIRY DATE
- --------------------- ------------ ------------- ---------------- --------------- -----------------
JAN VESTRUM 0 0 1,750,000 0.40 March 6, 2007
2,000,000 0.42 May 1, 2003
HANS CHRISTIAN QVIST 0 0 1,000,000 0.40 March 6, 2007
1,750,000 0.42 May 1, 2003
KAI THOGERSEN 0 0 500,000 0.40 March 6, 2007
CAMERON BELSHER 0 0 500,000 0.40 March 6, 2007
NORMAN HARDIE 0 0 500,000 0.40 March 6, 2007
RUPI KHANUJA 0 0 10,000 1.00 October 21, 2003
100,000 1.33 June 26, 2005
JON PETERSEN 1,338,607 1 450,000 1.33 June 26, 2005
</Table>
STOCK OPTION PLAN
The Corporation's 1995 Stock Incentive Plan, as amended, permits the grant of
options to purchase Corporation Common Shares to full-time, seasonal full-time
or part time employees and directors of the Corporation or any of its
subsidiaries. Options may also be granted in substitution for outstanding
options of another company in connection with a merger, consolidation,
acquisition of property or stock, or other reorganization involving the
Corporation or any of its subsidiaries. The number of shares made available for
the stock option plan will be determined by the board of directors of the
Corporation subject to the approval of the Toronto Stock Exchange; provided
that, the aggregate maximum number of shares that the Corporation may at any
time reserve for issuance under the plan is 15,000,000, and the aggregate number
of shares reserved for issuance to any one person must not exceed 5% of the
Corporation's issued and outstanding shares. Any options that are surrendered,
terminate or expire without being exercised will again be available for further
awards by the Corporation under the plan. The number and price of issued and
outstanding options is subject to proportional adjustment for any increase or
decrease in the number of issued shares of the Corporation resulting, for
example, from a subdivision or consolidation of shares or payment of a stock
dividend.
38
<Page>
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
To the best of the knowledge of the Corporation, as of November 15, 2002, the
Shareholders listed below are the only Shareholders to beneficially hold more
that 5% of the total outstanding Corporation Common Shares:
<Table>
<Caption>
COMMON SHARES
---------------------------------------------------------------
BENEFICIAL SHAREHOLDER AMOUNT OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
- --------------------------------------------------- ------------------------------- ---------------------------
Nordea Asset Management 12,700,000 9.2
Capital International, Inc. 9,005,000 7.2
Emerging Markets Growth Fund, Inc. 6,525,000 5.2
</Table>
To the best of the knowledge of the management of the Corporation, the
Corporation is not directly or indirectly owned or controlled by another
corporation or any foreign government.
B. RELATED PARTY TRANSACTIONS
In addition to the related party transactions entered into by the Corporation as
described elsewhere in this Annual Report, during the preceding three financial
years, the Corporation entered into the following related party transactions:
(a) the Corporation paid management fees during the years ended June 30,
2002, 2001 and 2000 of $215,433 (along with termination fees of
$632,000), $443,805 and $339,000, respectively, to companies
controlled by certain directors of the Corporation;
(b) the Corporation made payments to a public company having certain
directors in common with those of the Corporation. The payments,
which represent reimbursements of amounts paid on behalf of the
Corporation, were as follows:
<Table>
<Caption>
YEAR ENDED JUNE 30
---------------------------------------------------------------------------
2002 2001 2000 1999
--------------- -------------- ---------------- -----------------
SALARIES - $440,155 $390,259 $222,067
RENT - 77,742 67,856 45,207
OTHER ADMINISTRATIVE
COSTS $3,432 96,735 141,140 97,433
=============== ============== ================ =================
$3,432 $614,632 $599,255 $364,707
=============== ============== ================ =================
</Table>
(c) the Corporation paid management fees during the year ended June 30,
2002 of $253,591 and a bonus of $280,513 to a company controlled by
a new director and President & CEO of the Corporation;
(d) during the year ended June 30, 2002, law firms of which directors of
the Corporation were partners received total legal fees of $465,024
from the Corporation; and
(e) The Corporation paid share issue costs during the year ended June
30, 2000 of $305,600 to a company controlled by a director of the
Corporation.
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
39
<Page>
ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
Item 19 "Exhibits - Consolidated Financial Statements" contains the Auditor's
Report and Consolidated Financial Statements for the Corporation for the fiscal
years ended June 30, 2002 and 2001 which contain an Auditor's Report dated
September 12, 2002 (except for Note 24 which is as of October 22, 2002), Balance
Sheets as of June 30, 2002 and 2001, Statements of Loss and Deficit for the
Fiscal Years Ended June 30, 2002, 2001 and 2000, Statements of Cash flows for
the Fiscal Years Ended June 30, 2002, 2001 and 2000 and Notes to the
Consolidated Financial Statements.
B. SIGNIFICANT CHANGES
The only significant changes to have occurred since the date of the Consolidated
Financial Statements, being June 30, 2002, are as follows:
(a) as at September 24, 2002, the Corporation had received cash payments
of $1,395,067 against the amount due from Metorex at June 30, 2002;
and
(b) on October 22, 2002, the Corporation sold 28,208,412 shares of
Metorex for cash proceeds of $12.6 million. As a result of this
transaction, the Corporation's interest in Metorex was reduced to
21%.
ITEM 9. THE OFFER AND LISTING
A. OFFER AND LISTING DETAILS
The high and low sale prices for the Corporation Common Shares on the Toronto
Stock Exchange for each of the last six months, each fiscal quarter in each of
the last two full financial years and each of the last five full financial years
are as follows:
<Table>
<Caption>
HIGH LOW
TIME PERIOD $/SHARE $/SHARE
----------- ------- -------
6 MONTHS ENDED OCTOBER 31, 2002
October 0.32 0.25
September 0.38 0.27
August 0.39 0.30
July 0.42 0.30
June 0.52 0.37
May 0.64 0.40
YEAR ENDED JUNE 30, 2002 1.00 0.34
Second Quarter, 2002 0.64 0.34
First Quarter, 2002 0.59 0.35
Fourth Quarter, 2001 0.70 0.46
Third Quarter, 2001 1.00 0.49
YEAR ENDED JUNE 30, 2001 1.35 0.81
Second Quarter, 2001 1.29 0.95
First Quarter, 2001 1.20 0.81
Fourth Quarter, 2000 1.30 0.82
Third Quarter 2000 1.35 1.00
YEAR ENDED JUNE 30, 2000 1.80 0.75
YEAR ENDED JUNE 30, 1999 1.75 0.35
YEAR ENDED JUNE 30, 1998 2.60 1.25
</Table>
The closing price of the Corporation Common Shares on the Toronto Stock Exchange
on November 15, 2002 was $0.28.
40
<Page>
The high and low sale prices for the Corporation Common Shares on the Oslo Stock
Exchange for each of the six months, each fiscal quarter in each of the last two
full financial years and each of the last full financial years since its listing
of Corporation Common Shares thereon in January 2000 are as follows:
<Table>
<Caption>
HIGH LOW
TIME PERIOD NOK/SHARE NOK/SHARE
----------- ----------- -----------
6 MONTHS ENDED OCTOBER 31, 2002
October 1.57 1.32
September 1.64 1.34
August 1.75 1.55
July 2.08 1.50
June 2.44 2.08
May 2.86 2.07
YEAR ENDED JUNE 30, 2002
Third Quarter (3 months Jan - Mar 2002) 3.23 1.95
Second Quarter (3 months Oct 1 - Dec 31, 3.86 2.72
2001)
First Quarter (Jul 1 - Sept 2001) 5.84 2.60
Fourth Quarter, 2001 (Apr - Jun 2002) 2.86 2.04
YEAR ENDED JUNE 30, 2001
Third Quarter, 2001 6.82 4.90
Second Quarter, 2001 7.19 4.79
First Quarter, 2001 7.50 6.40
Fourth Quarter, 2000 6.98 5.70
6 MONTHS ENDED JUNE 30, 2000 7.60 5.70
</Table>
The closing price of the Corporation Common Shares on the Oslo Stock Exchange on
November 15, 2002 was NOK 1.44.
B. PLAN OF DISTRIBUTION
Not applicable.
C. MARKETS
The Corporation Common Shares trade on the Toronto Stock Exchange and the Oslo
Stock Exchange under the trading symbol "CRU", the OTC Bulletin Board in the
United States under the trading symbol "CRWVF" and on the Frankfurt Stock
Exchange under the symbol "KNC".
D. SELLING SHAREHOLDERS
Not applicable.
E. DILUTION
Not applicable.
F. EXPENSES OF THE ISSUER
Not applicable.
41
<Page>
ITEM 10. ADDITIONAL INFORMATION
A. SHARE CAPITAL
Not applicable.
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
The Corporation was incorporated on March 31, 1980 by Memorandum and Articles
under the CORPORATION ACT of the Province of British Columbia under number
207507 under the name "Ryan Energy Corp. (N.P.L.)", and subsequently changed its
name to "Crew Development Corporation". The Corporation was continued on January
28, 2000, by Articles of Continuance (the "Articles") and Bylaws (the "Bylaws")
into the Yukon Territory, Canada, under Corporate Access Number 27703.
The Corporation's Articles and Bylaws do not outline the Corporation's objects
or purposes.
The following is a summary of certain provisions of the Corporation's Articles
and Bylaws and contain references to the BUSINESS CORPORATIONS ACT (Yukon) (the
"Yukon Act") applicable to the Corporation. Please note that this is only a
summary and is not intended to be exhaustive; for further information please
refer to the full version of the Corporation's Articles and Bylaws, which are
available at the Corporation's registered office located at Suite 400 - 837 West
Hastings Street, Vancouver, British Columbia V6C 3N6.
DIRECTOR'S POWER TO VOTE ON A PROPOSAL, ARRANGEMENT OR CONTRACT IN WHICH
THE DIRECTOR IS MATERIALLY INTERESTED
A director or officer who is a party to, or who is a director or officer of or
has a material interest in any entity which is a party to, a material contract
or proposed material contract with the Corporation must disclose to the board of
directors of the Corporation the nature and extent of his interest in accordance
with the Yukon Act. A director who holds such material interest may not vote on
resolutions authorizing the Corporation to enter into such material contract but
will be counted in the quorum present at the meeting at which such vote is
taken. A director that is party to a material contract or proposed material
contract cannot vote on any resolution to approve the contract unless the
contract is:
(a) an arrangement by way of security for money lent to or obligations
undertaken by a director, or by a body corporate in which a director
has an interest, for the benefit of the corporation or an affiliate;
(b) a contract relating primarily to a director's remuneration as a
director, officer, employee or agent of the corporation or an
affiliate;
(c) a contract for purchasing and maintaining insurance to cover
directors against liability incurred by them as directors as
specified under the Yukon Act;
(d) a contract for the indemnification of a director by the corporation
as specified under the Yukon Act; or
(e) a contract with an affiliate.
If a director fails to disclose their interest either at the meeting where the
proposed transaction is first considered or at the first directors' meeting
after the relevant facts become known to the director, the director may be held
to account to the Corporation for any profit made as a consequence of the
Corporation entering into or performing the proposed contract or transaction,
unless:
(a) the director discloses their interest as required; and
(b) after such disclosure the proposed contract or transaction is
approved by the directors, and the interested director abstains from
voting on the approval of the proposed contract or transaction,
unless the contract or transaction was fair and reasonable to the
Corporation at the time it was
42
<Page>
entered into, and, after full disclosure, the director's interest is
approved by a special resolution of the shareholders.
DIRECTOR'S POWER TO DETERMINE THE COMPENSATION OF DIRECTORS
The compensation of the directors is governed by the Bylaws, which allows the
board of directors of the Corporation to determine such compensation. The
directors shall also be entitled to be reimbursed for travelling and other
expenses properly incurred by them in attending meetings of the board of
directors on any committee thereof.
BORROWING POWERS EXERCISABLE BY THE DIRECTORS
Without limiting the borrowing powers of the Corporation as set forth in the
Yukon Act, the board of directors is authorized from time to time:
(a) to borrow money upon the credit of the Corporation in such amounts
and on such terms as may be deemed expedient by obtaining loans or
advances or by way of overdraft or otherwise;
(b) to issue, re-issue, sell or pledge bonds, debentures, notes or other
evidence of indebtedness or guarantees of the Corporation, whether
secured or unsecured for such sums and at such prices as may be
deemed expedient;
(c) subject to the Yukon Act, to issue guarantees on behalf of the
Corporation to secure the performance of the obligations of any
person; and
(d) to charge, mortgage, hypothecate, pledge or otherwise create a
security interest in all or any currently owned or subsequently
acquired real or personal, movable or immovable, property and
undertaking of the Corporation, including book debts, rights, powers
and franchises for the purpose of securing any such bonds,
debentures, notes or other evidences of indebtedness or guarantee or
any other present or future indebtedness or liability of the
Corporation.
Nothing above limits or restricts the borrowing of money by the Corporation on
bills of exchange or promissory notes made, drawn, accepted or endorsed by or on
behalf of the Corporation.
RETIREMENT AND NON-RETIREMENT OF DIRECTORS UNDER AN AGE LIMIT REQUIREMENT
There are no such provisions applicable to the Corporation under its Articles,
Bylaws or the Yukon Act.
NUMBER OF SHARES REQUIRED TO BE OWNED BY A DIRECTOR
A director of the Corporation is not required to hold a share in the capital
stock of the Corporation as qualification of his office.
DESCRIPTION OF CORPORATION COMMON SHARES
The authorized capital of the Corporation consists of 200,000,000 Corporation
Common Shares without par value. A complete description of the rights and
restrictions of Corporation Common Shares is contained in the Articles.
Of the Corporation's authorized share capital, a total of 138,664,295
Corporation Common Shares were issued and outstanding as of November 15, 2002.
All Corporation Common Shares rank equally as to voting rights, participation in
a distribution of the assets of the Corporation upon a liquidation, dissolution
or winding-up of the Corporation and the entitlement of dividends. The holders
of Corporation Common Shares are entitled to receive notice of all shareholder
meetings and to attend and vote at such meetings. Shareholders are not entitled
to cumulative voting. Each Common Share carries with it the right to one vote.
Corporation Common Shares do not have pre-emptive or conversion rights. In
addition, there are no sinking fund or redemption provisions applicable to
Corporation Common Shares.
43
<Page>
The declaration of dividends on Corporation Common Shares is within the
discretion of the Corporation's board of directors. The Corporation has not paid
any dividends on its Corporation Common Shares and has no policy with respect to
the payment of dividends.
The Corporation Common Shares issued and outstanding are not subject to further
capital calls by the Corporation and there are no provisions in the
Corporation's Articles or Bylaws or the Yukon Act discriminating against any
existing or prospective holder of Corporation Common Shares as a result of such
shareholder owning a substantial number of shares.
Neither the Articles nor the Bylaws have any limitations on non-resident or
foreign ownership of Corporation Common Shares.
The Yukon Act provides that the rights and provisions attached to any class of
shares may not be amended unless consented to by a separate resolution passed by
a majority of not less than 2/3 of the votes cast, in person or by proxy, by
holders of shares of that class.
Neither the Corporation's Articles nor Bylaws contain any provision which would
have an effect of delaying, deferring or preventing a change in control of the
Corporation in the event of a merger, acquisition or corporate restructuring
involving the Corporation or any of its subsidiaries.
SHAREHOLDER MEETINGS
The Corporation's annual meeting of shareholders shall take place within
eighteen months of the date of its incorporation and subsequently not later than
fifteen months from the last annual meeting of shareholders.
A meeting of the shareholders of the Corporation may be held in Vancouver,
British Columbia, or London, England or at such other place as may be determined
by the board of directors of the Corporation.
The board of directors may fix in advance a record date, preceding the date of
any meeting of the shareholders by not more than 50 days and not less than 21
days, for the determination of the shareholders entitled to notice of the
meeting; provided that, notice of such record date shall be given not less than
seven days before such record date.
A quorum for the transaction of business at a meeting of shareholders of the
Corporation is two shareholders present in person or represented by proxy.
Only members who are registered holders of the Corporation's shares at the close
of business on the record date who either attend the meeting of shareholders or
who have completed and delivered a form of proxy in the prescribed manner shall
be entitled to vote or to have their shares voted at the meeting.
On a show of hands, every person who is present at a meeting of shareholders and
entitled to vote thereat shall have one vote. Whenever a vote by show of hands
shall have been taken upon a question, unless a ballot thereon is so required or
demanded, a declaration by the chairman of the meeting that the vote upon the
question has been carried or carried by a particular majority or not carried, an
entry to that effect in the minutes of the meeting shall be conclusive evidence
of the fact without proof of the number or proportion of the votes recorded in
favour of or against any resolution or other proceeding in respect of the said
question, and the result of the vote so taken shall be the decision of the
members upon the said question.
C. MATERIAL CONTRACTS
During the two years ended November 15, 2002, the Corporation entered into the
following material contracts:
1. Share purchase agreement ("South Crofty Share Purchase Agreement") dated
May 2, 2001, whereby the Corporation agreed to sell to South Crofty
Holdings Ltd. (now renamed "North Pacific GeoPower Corp.") the
Corporation's 100% interest in MCDC in consideration of 97,378,558 South
Crofty shares at a deemed price of $0.12 per share. The transaction was
approved by the disinterested South Crofty shareholders at an
Extraordinary General Meeting scheduled for November 22, 2001. Please see
Item 4.A "Information of the Corporation - History and Development of the
Corporation - North Pacific GeoPower Corp.".
44
<Page>
2. Darch/WIC Engagement Agreement. Under the Darch/WIC Engagement Agreement,
the Corporation engaged WIC and Darch to carry out and provide management
and consulting services to the Corporation for annual compensation of
$375,000 for the period July 1, 2001 to and including June 30, 2002, and
$425,000 for the period July 1, 2002 to and including June 30, 2003. The
parties agreed that the Corporation will review the compensation payable
for the period July 1, 2003 to and including June 30, 2004, subject to
certain adjustments. Please see Item 6.B "Directors, Senior Management and
Employees - Compensation Termination of Employment, Change of
Responsibilities and Employment Contracts".
3. Barnes Engagement Agreement. Under the Barnes Engagement Agreement, Barnes
agrees to serve the Corporation in the capacity of President and Chief
Financial Officer for annual compensation in the amount $250,000. Please
see Item 6.B "Directors, Senior Management and Employees - Compensation -
Termination of Employment, Change of Responsibilities and Employment
Contracts".
4. Darch/WIC Settlement Agreement. Please see Item 6.B "Directors, Senior
Management and Employees - Compensation - Termination of Employment,
Change of Responsibilities and Employment Contracts".
5. Barnes Settlement Agreement. Please see Item 6.B "Directors, Senior
Management and Employees - Compensation - Termination of Employment,
Change of Responsibilities and Employment Contracts".
D. EXCHANGE CONTROLS
Limitations on the ability to acquire and hold shares of the Corporation may be
imposed by the COMPETITION ACT (Canada). This legislation permits the
Commissioner of Competition to review any acquisition of a significant interest
in the Corporation. This legislation grants the Commissioner jurisdiction, for
up to three years, to challenge this type of acquisition before the Competition
Tribunal if the Commissioner believes that it would, or would be likely to,
result in a substantial lessening or prevention of competition in any market in
Canada.
This legislation also requires any person who intends to acquire shares to file
a notification with the Competition Bureau if certain financial thresholds are
exceeded, and that person would hold more than 20% of the Corporation's shares.
If a person already owns 20% or more of the Corporation's shares, a notification
must be filed when the acquisition would bring that person's holdings over 50%.
Where a notification is required, the legislation prohibits completion of the
acquisition until the expiration of a statutory waiting period, unless the
Commissioner provides written notice that he does not intend to challenge the
acquisition.
There is no law, governmental decree or regulation in Canada that restricts the
export or import of capital, or which would affect the remittance of dividends
or other payments by the Corporation to non-resident holders of the
Corporation's shares, other than withholding tax requirements.
There are no specific limitations imposed by Canadian law or the Corporation's
Articles of Incorporation or By-Laws on the right of non-residents of Canada to
hold or to vote the Corporation's shares, other than those imposed by the
INVESTMENT CANADA ACT (Canada). This legislation subjects an acquisition of
control of the Corporation by a non-Canadian to government review if the value
of the Corporation's assets as calculated pursuant to the legislation exceeds a
threshold amount. The threshold amount is adjusted annually to reflect inflation
and the Canadian real growth rate. A reviewable acquisition may not proceed
unless the relevant minister is satisfied or is deemed to be satisfied that
there is likely to be a net benefit to Canada from the transaction.
The acquisition of a majority of the Corporation's voting shares is deemed to be
an acquisition of control under the INVESTMENT CANADA ACT (Canada). The
acquisition of less than a majority but more than one-third of the Corporation's
voting shares is presumed to be an acquisition of control unless the acquirer
can establish that there is no control in fact by the acquirer through the
ownership of voting shares. The acquisition of less than one-third of the
Corporation's voting shares is deemed not to be an acquisition of control. Share
acquisitions in the ordinary course of an acquirer's business as a trader or
dealer in securities are exempt from review under this legislation.
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E. TAXATION
The following is a general discussion of certain possible Canadian and United
Sates federal income tax consequences, under current law, generally applicable
to a U.S. Holder (as hereinafter defined) of Corporation Common Shares. This
discussion does not address all potentially relevant federal income tax matters
and it does not address consequences peculiar to persons subject to special
provisions of federal income tax law, such as those described below as excluded
from the definition of a U.S. Holder. In addition, this discussion does not
cover any state, local, or foreign tax consequences.
THE DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IT IS NOT INTENDED TO BE, NOR
SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY HOLDER OR PROSPECTIVE
HOLDER OF CORPORATION COMMON SHARES AND NO OPINION OR REPRESENTATION WITH
RESPECT TO THE CANADIAN OR UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO ANY
SUCH HOLDER OR PROSPECTIVE HOLDER IS MADE. ACCORDINGLY, HOLDERS AND PROSPECTIVE
HOLDERS OF CORPORATION COMMON SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS ABOUT
THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF PURCHASING, OWNING
AND DISPOSING OF CORPORATION COMMON SHARES.
CANADIAN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon the current provisions of the CANADA TAX
ACT and the regulations (the "Regulations") enacted thereunder as at the date
hereof, the Corporation's understanding of the current published administrative
and assessing policies of the Canada Customs and Revenue Agency, all specific
proposals to amend the CANADA TAX ACT and the Regulations publicly announced by
the Minister of Finance before the date hereof (the "Proposed Amendments") and
the provisions of the Convention as at the date hereof. This summary does not
take into account provincial, territorial or foreign income tax considerations
(see "United States Federal Income Tax Consequences" below), and does not take
into account or anticipate any changes in law, whether by judicial, governmental
or legislation decision or action except to the extent of the Proposed
Amendments. No assurance can be given that any of the Proposed Amendments will
be enacted into law or that legislation will implement the Proposed Amendments
in the manner now proposed.
DIVIDENDS ON CORPORATION COMMON SHARES
Under the Convention, dividends which are paid or credited, or are deemed to be
paid or credited, to a U.S. Resident in respect of Corporation Common Shares
will generally be subject to Canadian withholding tax at a rate of 5% of the
gross amount of the dividends if the beneficial owner of the dividends is a
company which owns at least 10% of the voting stock of the Corporation or 15% of
the gross amount of the dividends if the beneficial owner of the dividends is
any other U.S. Resident (other than certain exempt organizations referred to in
Article XXI of the Convention).
DISPOSITION OF CORPORATION COMMON SHARES
A U.S. Resident will generally not be subject to tax under the CANADA TAX ACT in
respect of any capital gain realized on the disposition or deemed disposition of
Corporation Common Shares unless such Corporation Common Shares are "taxable
Canadian property", as defined in the Canada Tax Act, to the U.S. Resident.
Corporation Common Shares will not generally constitute taxable Canadian
property to a U.S. Resident unless either (i) at any time during the five -year
period ending at the time of the disposition of Corporation Common Shares by
such U.S. Resident, 25% or more of the issued shares (and in the view of the
Canada Customs and Revenue Agency, taking into account any rights to acquire
shares) of any class or series of the capital stock of the Corporation were
owned by such U.S. Resident, persons with whom the U.S. Resident did not deal at
arm's length or such U.S. Resident together with such persons, or (ii) the U.S.
Resident's Corporation Common Shares are otherwise deemed to be taxable Canadian
property. Capital gains realized on the disposition of Corporation Common Shares
that constitute taxable Canadian property to a U.S. Resident will nevertheless,
by virtue of the Convention, not be subject to tax under the Canadian Tax Act,
provided that shares of the Corporation do not derive their value principally
from real property, including the right to explore for or exploit natural
resources and rights to amounts computed by reference to production, situated in
Canada at the time of disposition.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations, published Internal
Revenue Service ("IRS") rulings, published administrative positions of the IRS
and court decisions that are currently applicable, any or all of which could be
materially and adversely changed, possibly on a retroactive basis, at any time.
This discussion does not consider the potential effects, both adverse and
beneficial, of any recently proposed legislation which, if enacted, could be
applied, possibly on a retroactive basis, at any time.
U.S. HOLDERS
As used herein, a "U.S. Holder" means a holder of Corporation Common Shares who
is a citizen or individual resident of the United States, a company or
partnership created or organized in or under the laws of the United States or of
any political subdivision thereof or a trust whose income is taxable in the
United States irrespective of source. This summary does not address the tax
consequences to, and U.S. Holder does not include, persons subject to specific
provisions of federal income tax law, such as tax-exempt organizations,
qualified retirement plans, individual retirement accounts and other
tax-deferred accounts, financial institutions, insurance companies, real estate
investment trusts, regulated investment companies, broker-dealers, non-resident
alien individuals, persons or entities that have a "functional currency" other
than the U.S. Dollar, shareholders who hold Corporation Common Shares as part of
a straddle, hedging or a conversion transaction, and shareholders who acquired
their Corporation Common Shares through the exercise of employee stock options
or otherwise as compensation for services.
A "U.S. Resident" means a U.S. Holder who (i) is a resident of the United States
for the purposes of the Canada-United States Income Tax Convention, 1980 (the
"Convention"); (ii) is not currently, nor has previously been a resident of
Canada or deemed to be a resident of Canada for the purposes of the INCOME TAX
ACT (Canada) (herein referred to as the "Canada Tax Act") at any time while the
holder has held Corporation Common Shares; (iii) holds his or her Corporation
Common Shares as capital property; (iv) deals at arm's length with the
Corporation for the purposes of the Canada Tax Act; and (v) does not use or
hold, and is not deemed under the CANADA TAX ACT to use or hold, such
Corporation Common Shares in carrying a business or performing independent
services in Canada. Corporation Common Shares will generally be considered to be
capital property to a U.S. Resident unless they are held as inventory in the
course of carrying on a business or were acquired in a transaction considered to
be an adventure or concern in the nature of trade.
This summary is limited to U.S. Holders who own Corporation Common Shares as
capital assets. This summary does not address the consequences to a person or
entity holding an interest in a shareholder or the consequences to a person of
the ownership, exercise or disposition of any options, warrants or other rights
to acquire Corporation Common Shares.
DIVIDENDS ON CORPORATION COMMON SHARES
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to Corporation Common Shares of are required to include in gross
income for United States federal income tax purposes the gross amount of such
distributions equal to the U.S. Dollar value of such dividends on the date of
receipt (based on the exchange rate on such date) to the extent that the
Corporation has current or accumulated earnings and profits, without reduction
for any Canadian income tax withheld from such distributions. Such Canadian tax
withheld may be credited, subject to certain limitations, against the U.S.
Holder's federal income tax liability or, alternatively, may be deducted in
computing the U.S. Holders' federal taxable income by those who itemize
deductions. (See more detailed discussion at "Foreign Tax Credit" below). To the
extent that distributions exceed current or accumulated earnings and profits of
the Corporation, they will be treated first as a return of capital up to the
U.S. Holder's adjusted basis in the Corporation Common Shares and thereafter as
gain from the sales or exchange of the Corporation Common Shares. Preferential
tax rates for long-term capital gains are applicable to a U.S. Holder which is
an individual, estate or trust. There are currently no preferential tax rates
for long-term capital gains for a U.S. Holder which is a corporation.
In the case of foreign currency received as a dividend that is not converted by
the recipient into U.S. Dollars on the date of receipt, a U.S. Holder will have
a tax basis in the foreign currency equal to its U.S. Dollar value on the date
of receipt. Generally, any gain or loss recognized upon a subsequent sale or
other disposition of the foreign currency, including the exchange for U.S.
Dollars, will be ordinary income or loss. However, an individual whose
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realized gain does not exceed $200 will not recognize that gain, to the extent
that there are no expenses associated with the transaction that meet the
requirement for deductibility as a trade or business expense (other than travel
expenses in connection with a business trip) or as an expense for the production
of income.
Dividends paid on Corporation Common Shares will not generally be eligible for
the dividends received deduction provided to companies receiving dividends from
certain United States companies. A U.S. Holder which is a company may, under
certain circumstances, be entitled to a 70% or 80% deduction of the United
States source portion of dividends received from the Corporation (unless the
Corporation qualifies as a "foreign personal holding company" or a "passive
foreign investment company", as defined below) if such U.S. Holder owns shares
representing at least 10% or 20%, respectively, of the voting power and value of
the Corporation. The availability of this deduction is subject to several
complex limitations which are beyond the scope of this discussion.
Under current temporary Treasury Regulations, dividends paid, and the proceeds
of a sales of Corporation Common Shares, will be subject to U.S. information
reporting requirements and may also be subject to the 31% U.S. backup
withholding tax, unless the Corporation or paying agent is furnished with a duly
completed and signed Form W-9. Any amounts withheld under the U.S. backup
withholding tax rules will be allowed as a refund or a credit against the U.S.
Holder's U.S. federal income tax liability, provided the required information is
furnished to the IRS.
FOREIGN TAX CREDIT
A U.S. Holder who pays (or has withheld from distributions) Canadian income
tax with respect to the ownership of Corporation Common Shares may be
entitled, at the option of the U.S. Holder, to either receive a deduction or
a tax credit for such foreign tax paid or withheld. Generally, it will be
more advantageous to claim a credit because a credit reduces United States
federal income taxes on a Dollar-for-Dollar basis, while a deduction merely
reduces the taxpayer's income subject to tax. This election is made on a
year-by-year basis and applies to all foreign taxes paid by (or withheld
from) the U.S. Holder during that year. There are significant and complex
limitations which apply to the credit, amount which is the general limitation
that the credit cannot exceed the proportionate shares of the U.S. Holder's
United States income tax liability that the U.S. Holder's foreign sources
income bears to his or its worldwide taxable income. In the determination of
the application of this limitation, the various items of income and deduction
must be classified into foreign and domestic sources. Complex rules govern
this classification process. In addition, this limitation is calculated
separately with respect to specific classes of income such as "passive
income", "high withholding tax interest", "financial services income",
"shipping income", and certain other classifications of income. Dividends
distributed by the Corporation will generally constitute "passive income" or,
in the case of certain U.S. Holders, "financial services income" for these
purposes. The availability of the foreign tax credit and the application of
the limitations on the credit are fact specific, and U.S. Holders of
Corporation Common Shares should consult their own tax advisors regarding
their individual circumstances.
DISPOSITION OF CORPORATION COMMON SHARES
A U.S. Holder will recognize a gain or loss upon the sale of Corporation Common
Shares equal to the difference, if any, between (i) the amount of cash plus the
fair market value of any property received, and (ii) the shareholder's tax basis
in the Corporation Common Shares. This gain or loss will be a capital gain or
loss if the Corporation Common Shares are a capital asset in the hands of the
U.S. Holder, which will be long-term capital gain or loss if the Corporation
Common Shares are held for more than one year. Lower long-term capital gain
rates will apply if the U.S. Holder is an individual, estate or trust and such
U.S. Holder has held the Corporation Common Shares for more than eighteen
months. Deduction for net capital loss may be carried over to be used in later
tax years until such net capital loss is thereby exhausted. For U.S. Holders
that are corporations (other than corporations subject to Subchapter S of the
Code), an unused net capital loss may be carried back three years and carried
forward five years from the loss year to be offset against capital gains until
such net capital loss is thereby exhausted.
OTHER CONSIDERATIONS
In the following circumstances, the above sections of this discussion may not
describe the United States federal income tax consequences resulting from the
holding and disposition of Corporation Common Shares:
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FOREIGN PERSONAL HOLDING COMPANY
If at any time during a taxable year more than 50% of the total combined voting
power or the total value of the Corporation's outstanding shares is owned,
directly or indirectly, by five or fewer individuals who are citizens or
residents of the United States and 50% (60% in the first year) or more of the
Corporation's gross income for such year was derived from certain passive
sources (e.g., from dividends received from its subsidiaries), the Corporation
may be treated as a "foreign personal holding company". In that event, U.S.
Holders that hold Corporation Common Shares would be required to include in
gross income for such year their allocable portions of such passive income to
the extent the Corporation does not actually distribute such income.
FOREIGN INVESTMENT COMPANY
If 50% or more of the combined voting power or total value of the Corporation's
outstanding shares are held, directly or indirectly, by citizens or residents of
the United States, United States domestic partnerships or corporations, or
estates or trusts other than foreign estates or trusts (as defined by the Code
Section 7701(a)(31)), and the Corporation is found to be engaged primarily in
the business of investing, reinvesting, or trading in securities, commodities,
or any interest therein, it is possible that the Corporation may be treated as a
"foreign investment company" as defined in Section 1246 of the Code, causing all
or part of any gain realized by a U.S. Holder selling or exchanging Corporation
Common Shares to be treated as ordinary income rather than capital gain.
PASSIVE FOREIGN INVESTMENT COMPANY
Certain United States income tax legislation contains rules governing "passive
foreign investment companies" ("PFIC") which can have significant tax effects on
U.S. Holders of foreign corporations. These rules do not apply to non-U.S.
Holders. Section 1297 of the Code defines a PFIC as a corporation that is not
formed in the United States and, for any taxable year, either (i) 75% or more of
its gross income is "passive income", which includes interest, dividends and
certain rents and royalties or (ii) the average percentage, by fair market value
(or, if the Corporation is a controlled foreign company or makes an election,
adjusted tax basis) of its assets that produce or are held for the production of
"passive income" is 50% or more. The Corporation believes that it qualified as a
PFIC for the current fiscal year and may qualify as a PFIC in subsequent years.
There can be no assurance that the Corporation's determination concerning its
PFIC status will not be challenged or that it will able to satisfy record
keeping requirements which will be imposed on a Qualified Electing Fund ("QEF").
Each U.S. Holder of the Corporation is urged to consult a tax advisor with
respect to how the PFIC rules affect their tax situation.
A U.S. Holder who holds stock in a foreign corporation during any year in which
such company qualifies as a PFIC may elect to be subject to United States
federal income taxation under one of two alternative tax regimes. In the event
that no such election is made, the PFIC rules will apply. The following is a
discussion of the two alternative elective tax regimes applied to such U.S.
Holders of the Corporation. In addition, special rules apply if a foreign
corporation qualifies as both a PFIC and a "controlled foreign company" (as
defined below) and a U.S. Holder owns, directly and indirectly, ten percent
(10%) or more of the total combined voting power of classes of shares of such
foreign corporation (See more detailed discussion at "Controlled Foreign
Company" below).
Assuming that the Corporation satisfies record-keeping requirements, a U.S.
Holder who elects in a timely manner to treat the Corporation as a QEF (an
"Electing U.S. Holder") will be subject, under Section 1293 of the Code, to
current federal income tax for any taxable year in which the Corporation
qualifies as a PFIC on his pro rata share of the Corporation's (i) "net capital
gain" (the excess of net long-term capital gain over net short-term capital
loss), which will be taxed as long-term capital gain to the Electing U.S. Holder
and (ii) "ordinary earnings" (the excess of earnings and profits over net
capital gain), which will be taxed as ordinary income to the Electing U.S.
Holder, in each case, for the shareholder's taxable year in which (or with
which) the Corporation's taxable year ends, regardless of whether such amounts
are actually distributed.
The effective QEF election also allows the Electing U.S. Holder to (i) generally
treat any gain realized on the disposition of Corporation Common Shares (or
deemed to be realized on the pledge of his shares) as capital gain; (ii) treat
his share of the Corporation's net capital gain, if any, as long-term capital
gain instead of ordinary income; and (iii) either avoid interest charges
resulting from PFIC status altogether, or make an annual election, subject to
certain limitations, to defer payment of current taxes on his share of the
Corporation's annual realized net capital gain and ordinary earnings subject,
however, to an interest charge. If the Electing U.S. Holder is not a
corporation, such an interest charge would be treated as "personal interest"
that is not deductible.
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The procedure a U.S. Holder must comply with in making an effective QEF election
will depend on whether the year of the election is the first year in the U.S.
Holder's holding period in which the Corporation is a PFIC. If the U.S. Holder
makes a QEF election in such first year, i.e., a timely QEF election, then the
U.S. Holder may make the QEF election by simply filing the appropriate documents
at the time the U.S. Holder files his tax return for such first year. If,
however, the Corporation qualified as a PFIC in a prior year, then in addition
to filing documents, the U.S. Holder must elect to recognize (i) under the rules
of Section 1291 of the Code (discussed below), any gain that he would otherwise
recognize if the U.S. Holder sold his stock on the qualification date or (ii) if
the Corporation is a controlled foreign corporation, the U.S. Holder's pro rata
share of the Corporation's post-1986 earnings and profits as of the
qualification date. The qualification date is the first day of the Corporation's
first tax year in which the Corporation qualified as a "qualified electing fund"
with respect to such U.S. Holder. The elections to recognize such gain or
earnings and profits can only be made if such U.S. Holder's holding period for
the Corporation Common Shares includes the qualification date. By electing to
recognize such gain or earnings and profits, the U.S. Holder will be deemed to
have made a timely QEF election. A U.S. Holder who made elections to recognize
gain or earnings and profits after May 1, 1992 and before January 27, 1997 may,
under certain circumstances, elect to change such U.S. Holder's qualification
date to the first day of the first QEF year. U.S. Holders are urged to consult a
tax advisor regarding the availability of and procedure for electing to
recognize gain or earnings and profits under the foregoing rules. In addition,
special rules apply if a foreign corporation qualifies as both a PFIC and a
"controlled foreign corporation" (as defined below) and a U.S. Holder owns,
directly and indirectly, ten percent (10%) or more of the total combined voting
power of classes of shares of such foreign corporation (See more detailed
discussion at "Controlled Foreign Corporation" below).
If the Corporation no longer qualifies as a PFIC in a subsequent year, a timely
QEF election will remain in effect, although not applicable, during those years
that the Corporation is not a PFIC. Therefore, if the Corporation requalifies as
a PFIC, the QEF election previously made is still valid, and the U.S. Holder is
required to satisfy the requirements of that election. Furthermore, a QEF
election remains in effect with respect to a U.S. Holder, although dormant,
after a U.S. Holder disposes of its entire interest in the Corporation. Upon the
U.S. Holder's reacquisition of an interest in the Corporation, the QEF election
will apply to the newly acquired stock of the Corporation.
Effective for tax years of U.S. Holders beginning after December 31, 1997, U.S.
Holders who hold (actually or constructively) marketable stock of a foreign
corporation that qualifies as a PFIC, may annually elect to mark such stock to
the market (a "mark-to-market election"). If such an election is made, such U.S.
Holder will not be subject to the special taxation rules of Section 1291
described below for the taxable year for which the mark-to-market election is
made. A U.S. Holder who makes such an election will include in income for the
taxable year for which the election was made in an amount equal to the excess,
if any, of the fair market value of the Corporation Common Shares as of the
close of such tax year over such U.S. Holder's adjusted basis in such
Corporation Common Shares. In addition, the U.S. Holder is allowed a deduction
for the lesser of (i) the excess, if any, of such U.S. Holder's adjusted tax
basis in the Corporation Common Shares over the fair market value of such shares
as of the close of the tax year, or (ii) the excess, if any, of (A) the
mark-to-market gains for the Corporation Common Shares included by such U.S.
Holder for prior tax years, including any amount which would have been included
for any prior tax year but for Section 1291 interest on tax deferral rules
discussed below with respect to Non-Electing U.S. Holders, over (B) the
mark-to-market losses for shares that were allowed as deductions for prior tax
years. U.S. Holder's adjusted tax basis in the Corporation Common Shares will be
increased to reflect the amount included or deducted as a result of a
mark-to-market election. A mark-to-market election only applies to the taxable
year in which the election was made. Once made, the mark-to-market election
continues unless revoked by the Internal Revenue Service or such stock ceases to
be marketable stock. U.S. Holders should consult their tax advisors regarding
the manner of making such an election.
If a U.S. Holder does not make a timely QEF or mark-to-market election during a
year in which it holds (or is deemed to have held) the shares in question and
the Corporation is a PFIC (a "Non-electing U.S. Holder"), then special taxation
rules under Section 1291 of the Code will apply to (i) gains realized on the
disposition (or deemed to be realized by reasons of a pledge) of his Corporation
Common Shares and (ii) certain "excess distributions", as specifically defined,
by the Corporation.
A Non-electing U.S. Holder generally would be required to pro rate all gains
realized on the disposition of his Corporation Common Shares and all excess
distributions on his Corporation Common Shares over the entire holding period
for the Corporation. All gains or excess distributions allocated to prior years
of the U.S. Holder (other than years prior to the first taxable year of the
Corporation during such U.S. Holder's holding period and beginning after January
1, 1987 for which it was a PFIC) would be taxed at the highest tax rate for each
such prior year applicable to
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ordinary income. The Non-electing U.S. Holder also would be liable for interest
on the foregoing tax liability for each such prior year calculated as if such
liability had been due with respect to each such prior year. A Non-electing U.S.
Holder that is not a corporation must treat this interest charge as "personal
interest" which, as discussed above, is wholly nondeductible. The balance of the
gain or the excess distribution will be treated as ordinary income in the year
of the disposition or distribution, and no interest charge will be incurred with
respect to such balance.
If the Corporation is a PFIC for any taxable year during which a Non-electing
U.S. Holder holds Corporation Common Shares, then the Corporation will continue
to be treated as a PFIC with respect to such Corporation Common Shares, even if
it is no longer definitionally a PFIC. A Non-electing U.S. Holder may terminate
this deemed PFIC status by electing to recognize a gain (which will be taxed
under the rules discussed above for Non-electing U.S. Holders) as if such
Corporation Common Shares had been sold on the last day of the last taxable year
for which it was a PFIC.
Under Section 1291(f) of the Code, the IRS has issued proposed regulations that,
subject to certain exceptions, would treat as taxable certain transfers of PFIC
stock by Non-Electing U.S. Holders that are generally not otherwise taxed, such
as gifts, exchanges pursuant to corporate reorganizations, and transfers at
death. Generally, in such cases the basis of Corporation Common Shares in the
hands of the transferee and the basis of any property received in the exchange
for those Corporation Common Shares would be increased by the amount of gain
recognized. An Electing U.S. Holder would not be taxed on certain transfers of
PFIC stock, such as gifts, exchanges pursuant to corporate reorganizations, and
transfers at death. The transferee's basis in this case will depend on the
manner of the transfer. In a transfer at death, for example, the transferee's
basis is equal to (i) the fair market value of the Electing U.S. Holder's
Corporation Common Shares, less (ii) the excess of the fair market value of the
Electing U.S. Holder's Corporation Common Shares reduced by the U.S. Holder's
adjusted basis in these Corporation Common Shares at death. The specific tax
effect to the U.S. Holder and the transferee may vary based on the manner in
which Corporation Common Shares are transferred. Each U.S. Holder of the
Corporation is urged to consult a tax advisor with respect to how the PFIC rules
affect their tax situation.
Certain special, generally adverse, rules will apply with respect to Corporation
Common Shares while the Corporation is a PFIC whether or not it is treated as a
QEF. For example under Section 1298(b)(6) of the Code, a U.S. Holder who uses
PFIC stock as security for a loan (including a margin loan) will, except as may
be provided in regulations, be treated as having made a taxable disposition of
such shares.
CONTROLLED FOREIGN COMPANY
If more than 50% of the voting power of all classes of shares or the total value
of the shares of the Corporation is owned, directly and indirectly, by citizens
or residents of the United States, United States domestic partnerships and
companies or estates or trusts other than foreign estates or trusts, each of
whom own 10% or more of the total combined voting power of all classes of shares
of the Corporation ("United States shareholder"), the Corporation could be
treated as a "controlled foreign company" under Subpart F of the Code. This
classification would effect many complex results one of which is the inclusion
of certain income of a CFC which is subject to current U.S. tax. The United
States generally taxes a United States shareholder of a CFC currently on their
pro rata shares of the Subpart F income of the CFC. Such U.S. shareholders are
generally treated as having received a current distribution out of the CFC's
Subpart F income and are also subject to current U.S. tax on their pro rata
shares of the CFC's earnings invested in U.S. property. The foreign tax credit
described above may reduce the U.S. tax on these amounts. In addition, under
Section 1248 of the Code, gain from the sale or exchange of shares by a U.S.
Holder of Corporation Common Shares who is or was a United States shareholder at
any time during the five-year period ending with the sale or exchange is treated
as ordinary income to the extent of earnings and profits of the Corporation
attributable to the shares sold or exchanged. If a foreign corporation is both a
PFIC and CFC, the foreign corporation generally will not be treated as a PFIC
with respect to United States shareholders beginning after 1997 and for taxable
years of foreign corporations ending with or within such taxable years of United
States shareholders. Special rules apply to United States shareholders who are
subject to the special taxation rules under Section 1291 discussed above with
respect to PFIC. Because of the complexity of Subpart F, and because it is not
clear that Subpart F would apply to U.S. Holders of Corporation Common Shares, a
more detailed review of these rules is outside of the scope of this discussion.
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F. DIVIDENDS AND PAYING AGENTS
Not applicable.
G. STATEMENTS BY EXPERTS
Not applicable.
H. DOCUMENTS ON DISPLAY
Any documents referred to in this Annual Report may be inspected at the head
office of the Corporation at Suite 400-837 West Hastings
Street, Vancouver, British Columbia, V6C 3N6.
I. SUBSIDIARY INFORMATION
There is no information relating to the Corporation's subsidiaries which must be
provided in Canada and which is not otherwise called for Canadian GAAP.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of its operations, the Corporation is exposed to commodity
price, currency, interest rate, liquidity and credit risk. In order to manage
these risks, the Corporation has developed a comprehensive risk management
process to facilitate control and monitoring of these risks. General corporate
hedging unrelated to any specific project is not undertaken.
The Corporation's credit risk is primarily attributable to its trade
receivables. The amounts presented in the balance sheet are net of allowances
for doubtful receivables, estimated by the Corporation's management based on the
current economic environment.
The credit risk on liquid funds is limited because the counter-parties are banks
with high credit ratings.
Certain of the Corporation's subsidiaries have, on certain occasions, entered
into future contracts in order to hedge its exposure to fluctuations in
commodity prices and foreign exchange rates on specific transactions. The
contracts are matched with anticipated future cash flows from mineral sales.
In the normal course of business, the Corporation enters into transactions for
the sale of its commodities in foreign currency. As a result, the Corporation is
subject to foreign exchange risk from fluctuations in foreign exchange rates.
Fluctuations in interest rates impact on the value of short-term investment and
financing activities, giving rise to interest rate risk.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
-------
ITEM 13. DEFAULTS, DIVIDEND ARREARS AND DELINQUENCIES
There has not been a material default in the payment of principal, interest, a
sinking or purchase fund instalment, or any other material default not cured
within thirty days, relating to indebtedness of the Corporation or any of its
significant subsidiaries. There are no payments of dividends by the Corporation
in arrears, nor has there been any other material delinquency relating to any
class of preference shares of the Corporation.
52
<Page>
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
Under the supervision and with the participation of management of the
Corporation, including the Chief Executive Officer and Acting Chief Financial
Officer, the Corporation has evaluated the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange Act
Rule 13a-14(c) within 90 days of the filing date of this Annual Report. Based on
that evaluation, the Chief Executive Officer and Acting Chief Financial Officer
have concluded that these disclosure controls and procedures are effective.
There were no significant changes in the internal controls of the Corporation or
in other factors that could significantly affect such internal controls
subsequent to the date of their evaluation.
ITEM 16. [RESERVED]
PART III
--------
ITEM 17. FINANCIAL STATEMENTS
See the Consolidated Financial Statements listed in Item 19 "Exhibits -
Consolidated Financial Statements" filed as part of this Annual Report.
The Consolidated Financial Statements were prepared in accordance with Canadian
GAAP and are expressed in Canadian Dollars. The Consolidated Financial
Statements have been reconciled to U.S. GAAP (see Note 25 therein). For a
history of exchange rates in effect for Canadian Dollars as against U.S.
Dollars, see Item 3.A "Key Information - Selected Financial Data".
ITEM 18. FINANCIAL STATEMENTS
Not applicable.
ITEM 19. EXHIBITS
A. CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
DESCRIPTION OF DOCUMENT PAGE NUMBER
----------------------- -----------
Cover Sheet 58
Auditors' Report dated September 12, 2002 (except for Note 24 which is as of October 22, 59
2002)
Consolidated Balance Sheets as at June 30, 2002 and 2001 60
Consolidated Statements of Loss and Deficit for the Fiscal Years Ended June 30, 2002, 61
2001 and 2000
Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2002, 2001 and 62
2000
Notes to the Consolidated Financial Statements 63
</Table>
53
<Page>
B. MISCELLANEOUS EXHIBITS
<Table>
<Caption>
DESCRIPTION OF DOCUMENT PAGE NUMBER
----------------------- -----------
Darch/WIC Engagement Agreement 96
Barnes Engagement Agreement 102
Darch/WIC Settlement Agreement 107
Barnes Settlement Agreement 109
THE FOLLOWING DOCUMENT IS CONTAINED IN THE CORPORATION'S FORM 20-F FILING FOR THE FISCAL
YEAR ENDED JUNE 30, 2001 AND IS HEREBY INCORPORATED BY REFERENCE IN ITS ENTIRETY.
South Crofty Share Purchase Agreement NA
</Table>
54
<Page>
SIGNATURES
The Corporation hereby certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused and authorized the undersigned to sign
this Annual Report on its behalf.
Dated November 15, 2002.
By: /s/ JAN VESTRUM
-----------------------------------
Jan Vestrum
Chief Executive Officer, Crew Development Corporation
55
<Page>
CERTIFICATIONS
--------------
I, Jan Vestrum, certify that:
1. I have reviewed this annual report on Form 20-F of Crew Development
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the consolidated financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Dated November 15, 2002.
/s/ JAN VESTRUM
- ----------------------------------------
Jan Vestrum
Chief Executive Officer, Crew Development Corporation
56
<Page>
I, Rupi Khanuja, certify that:
1. I have reviewed this annual report on Form 20-F of Crew Development
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the consolidated financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Dated November 15, 2002.
/s/ RUPI KHANUJA
- ---------------------------------
Rupi Khanuja
Acting Chief Financial Officer,
Crew Development Corporation
57
<Page>
AUDITORS' REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF
CREW DEVELOPMENT CORPORATION
JUNE 30, 2002 AND 2001
58
<Page>
AUDITORS' REPORT
To the Shareholders of
Crew Development Corporation
We have audited the consolidated balance sheets of Crew Development Corporation
as at June 30, 2002 and 2001 and the consolidated statements of loss and deficit
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
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 consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at June 30, 2002 and
2001 and the results of its operations and its cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
- ---------------------------------
Chartered Accountants
Vancouver, British Columbia
September 12, 2002 (except as to Note 24 which is as of October 22, 2002)
COMMENTS BY AUDITOR ON CANADA - UNITED STATES REPORTING DIFFERENCES
United States reporting standards for auditors require the addition of an
explanatory paragraph when the financial statements reflect changes in
accounting policies, such as those described in Notes 2 (j) and 2 (n) to the
financial statements. During the year ended June 30, 2001, the Company
retroactively adopted new accounting policies for income taxes and employee
future benefits with no restatement of the prior year's amounts. The impact of
these changes in accounting policies is set out in the aforementioned Notes.
Although we conducted our audits in accordance with both Canadian generally
accepted auditing standards and United States generally accepted auditing
standards, our report to the Shareholders dated September 12, 2002 (except as to
Note 24 which is as of October 22, 2002) is expressed in accordance with
Canadian reporting standards which do not permit a reference to such conditions
and events in the auditors' report when these are adequately disclosed in the
financial statements.
/s/ DELOITTE & TOUCHE LLP
- ----------------------------------
Chartered Accountants
Vancouver, British Columbia
September 12, 2002 (except as to Note 24 which is as of October 22, 2002)
59
<Page>
CREW DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
AS AT JUNE 30
(EXPRESSED IN CANADIAN DOLLARS)
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------------------------
2002 2001
$ $
ASSETS
CURRENT
Cash $ 4,376,481 40,156,933
Accounts receivable (Note 3) 198,812 23,396,808
Inventories (Note 4) - 8,693,470
Prepaid expenses 250,389 295,823
Due from Metorex Limited 2,263,232 -
Future income taxes (Note 13) - 1,044,899
- -----------------------------------------------------------------------------------------------------------------------
7,088,914 73,587,933
NALUNAQ MINERAL PROPERTY INTEREST (Note 5) 34,460,247 25,994,352
INVESTMENT IN METOREX LIMITED (Note 6) 28,809,532 -
GEOTHERMAL PROJECT (Note 7) 2,613,596 249,853
INVESTMENT IN ASIA PACIFIC RESOURCES (Note 8) 4,950,000 19,543,056
PROPERTY, PLANT AND EQUIPMENT (Note 9) 891,347 93,512,669
OTHER MINERAL PROPERTY INTERESTS (Note 10) 3,245,298 8,106,818
REHABILITATION TRUST FUND (Note 18) - 3,763,882
OTHER 27,000 396,723
- -----------------------------------------------------------------------------------------------------------------------
$ 82,085,934 $ 225,155,286
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT
Bank indebtedness (Note 11) $ - $ 1,361,120
Accounts payable and accrued liabilities 2,648,712 29,584,363
Income taxes payable - 2,567,968
Current portion of long-term debt (Note 12) - 7,748,460
Current portion of provisions (Note 14) - 3,482,998
- -----------------------------------------------------------------------------------------------------------------------
2,648,712 44,744,909
LONG-TERM DEBT (Note 12) - 10,484,144
FUTURE INCOME TAXES (Note 13) 3,338,484 16,412,842
PROVISIONS (Note 14) - 6,453,365
EMPLOYEE FUTURE BENEFITS - 2,781,730
NON-CONTROLLING INTEREST 2,324,649 36,995,376
- -----------------------------------------------------------------------------------------------------------------------
8,311,845 117,872,366
- -----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital (Note 15) 160,114,934 156,750,902
Share purchase warrants (Note 15 (h)) 275,250 -
Deficit (83,846,598) (42,697,223)
Cumulative translation adjustment (Note 16) (2,769,497) (6,770,759)
- -----------------------------------------------------------------------------------------------------------------------
73,774,089 107,282,920
- -----------------------------------------------------------------------------------------------------------------------
$ 82,085,934 $ 225,155,286
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</Table>
COMMITMENTS AND CONTINGENCIES (Note 18 and 19)
ON BEHALF OF THE BOARD:
/s/ JAN VESTRUM /s/ CAM BELSHER
- -------------------------------------- -------------------------------------
Jan Vestrum, Director Cam Belsher, Director
See accompanying Notes to the Consolidated Financial Statements.
60
<Page>
CREW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
FOR THE YEARS ENDED JUNE 30,
(EXPRESSED IN CANADIAN DOLLARS)
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------
2002 2001 2000
MINERAL SALES $ 111,730,701 $ 79,702,138 $ 10,908,252
DIRECT COSTS OF MINERAL SALES (87,425,868) (66,508,590) (8,014,103)
AMORTIZATION (4,108,590) (3,985,344) (375,975)
- ----------------------------------------------------------------------------------------------------------------------
20,196,243 9,208,204 2,518,174
- ----------------------------------------------------------------------------------------------------------------------
EXPENSES
Administration, office and general (13,798,260) (8,132,725) (4,511,720)
Amortization (242,525) (83,138) (128,450)
Interest (1,530,963) (634,274) (171,717)
Professional fees (1,857,503) (795,648) (408,799)
- ----------------------------------------------------------------------------------------------------------------------
(17,429,251) (9,645,785) (5,220,686)
- ----------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSES)
(Loss) gain on investment in Metorex Limited (Note 6
(d)) (8,036,773) 3,540,665 4,031,132
Provision for impairment of Chibuluma South Mine (Note
6 (b)) (8,450,857) - -
Loss on dilution of interest in geothermal asset (Note
7) (1,503,055) - -
Provision for impairment of investment in Asia Pacific
Resources (Note 8) (19,593,056) - -
Provision for decline in value of investment in
Mindoro Nickel Project (Note 10) - (34,024,132) -
Costs related to Mindoro Nickel Project (Note 10) (1,572,585) - -
Provision for impairment of other mineral property
interests (Note 10) (5,009,878) - -
Foreign exchange gain (loss) 736,095 (1,043,032) (112,088)
Gain on sale of other assets 431,480 211,113 751,287
Interest and other income 1,726,067 4,225,236 1,029,735
- ----------------------------------------------------------------------------------------------------------------------
(41,272,562) (27,090,150) 5,700,066
- ----------------------------------------------------------------------------------------------------------------------
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES AND
NON-CONTROLLING INTEREST (38,505,570) (27,527,731) 2,997,554
- ----------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES (Note 13)
Current 4,875,053 3,151,223 319,114
Future (4,228,918) (7,499,169) -
- ----------------------------------------------------------------------------------------------------------------------
646,135 (4,347,946) 319,114
- ----------------------------------------------------------------------------------------------------------------------
(LOSS) INCOME BEFORE NON-CONTROLLING INTEREST (39,151,705) (23,179,785) 2,678,440
NON-CONTROLLING INTEREST (1,598,984) (3,103,752) (288,380)
- ----------------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME (40,750,689) (26,283,537) 2,390,060
DEFICIT, BEGINNING OF YEAR (42,697,223) (14,951,424) (17,341,484)
DIVIDEND (Note 7) (228,284) - -
NET LIABILITIES ACQUIRED ON REVERSE TAKEOVER OF NORTH
PACIFIC GEOPOWER CORP. (Note 7) (170,402) - -
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING POLICIES
(Notes 2 (j) and 2 (n)) - (1,462,262) -
- ----------------------------------------------------------------------------------------------------------------------
DEFICIT, END OF YEAR $(83,846,598) $ (42,697,223) $ (14,951,424)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
(LOSS) EARNINGS PER SHARE - BASIC AND DILUTED $ (0.31) $ (0.26) $ 0.04
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 131,790,183 101,708,357 54,471,076
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to the Consolidated Financial Statements
61
<Page>
CREW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, (EXPRESSED IN CANADIAN DOLLARS)
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------
2002 2001 2000
OPERATING ACTIVITIES
Net (loss) income $ (40,750,689) $ (26,283,537) $ 2,390,060
Add (deduct) items not affecting cash:
Amortization 4,351,115 4,068,482 504,425
Loss (gain) on investment in Metorex 8,036,773 (3,540,665) (4,031,132)
Provision for impairment of Chibuluma South Mine 8,450,857 - -
Provision for decline in value of investment in
Mindoro Nickel Project - 34,024,132 -
Provision for impairment of investment in Asia Pacific 19,593,056 - -
Provision for impairment of other mineral property
interests 5,009,878 - -
Gain on sale of other assets (431,480) (211,113) (751,287)
Foreign exchange loss 682,881 1,043,032 -
Future income taxes (4,228,918) (7,499,169) -
Dividends received from associated companies - 805,454 759,340
Non-controlling interest 1,598,984 3,103,752 288,380
Other (560,823) - (154,446)
- ----------------------------------------------------------------------------------------------------------------------
Change in non-cash operating working capital items (Note
20 (a)) (8,801,059) (1,609,007) 828,526
- ----------------------------------------------------------------------------------------------------------------------
(7,049,425) 3,901,361 (166,134)
FINANCING ACTIVITIES
Issuance of common shares 3,364,032 42,920,892 18,095,801
Issuance of share purchase warrants 275,250 - -
Repayments of amount due from Metorex Limited 797,419 - -
Dividends paid (98,666) - -
Increase (decrease) in long-term debt 5,011,805 11,152,116 (493,974)
Paid to non-controlling interest of subsidiaries (1,670,765) (1,100,553) -
- ----------------------------------------------------------------------------------------------------------------------
7,679,075 52,972,455 17,601,827
- ----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of Metorex, net of cash acquired (Note 6 (a)) - 3,718,938 (434,373)
Acquisition of Nalunaq, net of cash acquired (Note 5) - 51,605 -
Proceeds on disposal of interest in Metorex (Note 6 (d)
(iii)) 2,969,040 - -
Reduction of cash on de-consolidation of Metorex (Note 6
(c)) (8,071,066) - -
Investment in Asia Pacific Resources (Note 8) (5,000,000) (2,974,947) (1,570,184)
Expenditures on geothermal project (2,493,362) (249,853) -
Acquisition of property, plant and equipment (14,607,230) (18,086,429) (613,912)
Expenditures on Nalunaq mineral property interest (8,465,895) (8,099,734) (3,558,160)
Expenditures on other mineral property interests (224,225) (4,449,617) (602,583)
Proceeds on disposition of capital assets 843,756 207,566 -
Proceeds on disposition of investments - - 4,615,505
Acquisition of interest in Mindex ASA, net of cash
acquired - - (5,219,762)
Acquisition of interest in Botswana Diamondfields Inc.,
net of cash acquired - - 238,947
Disposal of cash on disposition of interest in Metorex - - (4,021,000)
- ----------------------------------------------------------------------------------------------------------------------
(35,048,982) (29,882,471) (11,165,522)
- ----------------------------------------------------------------------------------------------------------------------
NET CASH (OUTFLOW) INFLOW (34,419,332) 26,991,345 6,270,171
CASH POSITION, BEGINNING OF YEAR 38,795,813 11,804,468 5,534,297
- ----------------------------------------------------------------------------------------------------------------------
CASH POSITION, END OF YEAR $ 4,376,481 $ 38,795,813 $ 11,804,468
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
REPRESENTED BY:
Cash $ 4,376,481 $ 40,156,933 $ 11,804,468
Bank indebtedness - (1,361,120) -
- ----------------------------------------------------------------------------------------------------------------------
$ 4,376,481 $ 38,795,813 $ 11,804,468
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTE 20 FOR SUPPLEMENTAL CASH FLOW INFORMATION.
See accompanying Notes to the Consolidated Financial Statements
62
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS
- -------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
Crew Development Corporation ("Crew" or the "Company") is an
international mining exploration, development and operating company
focused on identifying, acquiring and developing resource projects
world-wide. At present, Crew controls four development projects in
Canada, Greenland, Norway and the Philippines. The Company's shares are
traded on the Toronto, Oslo and Frankfurt Stock Exchanges and on the
over the counter market in the United States.
2. SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles. The
significant accounting policies used in these consolidated financial
statements are as follows:
(a) BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of
the Company and all of its subsidiaries. The principal
subsidiaries of the Company as at June 30, 2002 are as
follows:
SUBSIDIARY % INTEREST
Nalunaq I/S (Greenland) ("Nalunaq") 82%
Crew Norway AS (formerly Mindex ASA) 100%
North Pacific GeopowerCorp. (Canada) 86.8%
The Company's investment in Nalunaq was subject to joint
control, and was therefore proportionately consolidated, until
June 2001 when the Company acquired effective control of this
entity (see Note 5). Effective June 5, 2001, the results of
operations and assets and liabilities of Nalunaq have been
consolidated with the accounts of the Company.
The Company's investment in Metorex Limited ("Metorex") was
recorded using the equity method until November 24, 2000, on
which date the Company increased its interest to 52% and
acquired control of Metorex. The Company then consolidated the
results of operations and financial position of Metorex, until
its interest was reduced to 41.4% on April 30, 2002, at which
time the Company reverted back to the equity method (see Note
6).
(b) 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 reported amounts of revenue and expenses
during the reporting periods. Actual results may differ from
those estimates.
(c) REVENUE RECOGNITION
Revenue from mineral sales is based on the value of minerals
sold, excluding value added tax, and is recognized at the time
that mineral ore is delivered to the customer, risks of
ownership have passed and collectability is reasonably
assured.
63
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d) FOREIGN CURRENCY TRANSLATION
For operations considered financially and operationally
integrated with the Company, foreign currency monetary assets
and liabilities are translated into Canadian dollars at the
exchange rate in effect at the balance sheet date.
Non-monetary assets, liabilities, revenues and expenses are
translated into Canadian dollars at the rate of exchange
prevailing on the respective dates of the transactions.
Exchange gains and losses are included in earnings.
For operations considered self-sustaining, foreign currency
assets and liabilities are translated into Canadian dollars at
the exchange rate in effect at the balance sheet date.
Revenues and expenses are translated at the average rate for
the fiscal period. The resulting exchange gains and losses are
accumulated in a separate component of shareholders' equity
until there has been a realized reduction in the net
investment in such operations.
(e) CASH
Cash includes short-term money market instruments with terms
to maturity, at the date of acquisition, not exceeding ninety
days.
(f) INVENTORIES
Consumable supplies are valued at the lower of cost,
determined on an average basis, and estimated net realizable
value. Mineral stocks are valued at the lower of average cost
and estimated net realizable value. Costs include direct
mining costs and mine overheads.
(g) INVESTMENTS
Investments in companies 20% to 50% owned, where the Company
has the ability to exercise significant influence, are
accounted for using the equity method. Under this method, the
Company's share of the company's earnings or losses is
included in operations and its investments therein is adjusted
by a like amount. Dividends received are credited to the
investment accounts.
Other investments are accounted for using the cost method,
whereby income is included in operations when received or
receivable.
Provisions for impairment of investments are made, where
necessary, to recognize other than temporary declines in
value.
(h) PROPERTY, PLANT AND EQUIPMENT
Mining assets, including mine development costs, mineral and
surface rights and mine plant facilities are recorded at cost
and amortized on a units of production method based on
estimated proved and probable ore reserves or, where such
information is not available, a straight-line basis using
management's estimates subject to a maximum mine life of 20
years. Other mining assets are depreciated on a straight-line
or diminishing balance basis over their estimated useful
lives.
64
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Details of the method and estimated useful lives are as
follows:
<Table>
<Caption>
Land, rights and buildings - unit of production or straight
line basis over periods from 3-20
years
Plant and equipment - unit of production or straight
line basis over periods from 3-20
years
Vehicles - straight line basis over 5 years
Office equipment, furniture and fixtures - diminishing balance basis at annual
rates of between 20% and 30%
</Table>
Management reviews the carrying values of its mining property,
plant and equipment on a regular basis, primarily by reference
to estimated future operating results and undiscounted net
cash flows. When the carrying values of these assets exceed
their estimated net recoverable amounts, an impairment
provision is made for the other than temporary decline in
value.
(i) MINERAL PROPERTY INTERESTS
All costs related to the acquisition and exploration of
mineral properties are capitalized until either commercial
production is established or a property is abandoned. At that
time, such costs will either be amortized on a systematic
basis over the estimated productive life of the property or
charged to earnings. The Company reviews the carrying value of
each property on a regular basis. This review generally is
made by reference to the timing of exploration work, work
programs proposed and the exploration results achieved by the
Company and others. When the carrying value of a property is
estimated to exceed its net recoverable amount, provision is
made for the decline in value.
The carrying value of mineral property interests represent
costs incurred to date and do not reflect present or future
values. The Company is in the process of exploring the other
mineral properties interests and has not yet determined
whether they contain ore reserves that are economically
recoverable. Accordingly, the recoverability of these
capitalized costs is dependent upon the existence of
economically recoverable reserves, the ability of the Company
to obtain the necessary financing to complete their
exploration and development, and upon future profitable
production.
(j) INCOME TAXES
Effective July 1, 2000, the Company adopted the new accounting
recommendations for income taxes issued by the Canadian
Institute of Chartered Accountants ("CICA"), whereby future
income tax assets and liabilities are computed based on
differences between the carrying amount of assets and
liabilities on the balance sheet and their corresponding tax
values, generally using the enacted income tax rates at each
balance sheet date. Future income tax assets also result from
unused loss carryforwards and other deductions. The valuation
of future income tax assets is adjusted, if necessary, by use
of a valuation allowance to reflect the estimated realizable
amount.
Until June 30, 2000, the Company followed the deferral method
of accounting for income taxes, whereby deferred taxes
resulted from timing differences between accounting and
taxable income. The change in accounting policy was adopted
retroactively, effective July 1, 2000, with no restatement of
prior year amounts. As a result, the opening deficit of July
1, 2000 has been increased by $467,319 and the carrying value
of the investment in Metorex Limited at that date has been
reduced by $467,319.
65
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) STOCK OPTIONS
The Company provides options to directors, officers and
employees to buy shares of the Company, thereby allowing them
the opportunity to participate in the progress of the Company.
No compensation expense is recognized when the stock options
are granted or exercised. Any consideration received by the
Company on the exercise of stock options is credited to share
capital. If the stock options are repurchased by the Company,
the consideration paid would be charged to the deficit.
(l) EARNINGS (LOSS) PER SHARE
Basic loss per share is computed using the weighted average
number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted average
number of common and common equivalent shares outstanding
during the period using the treasury stock method. Common
equivalent shares consist of the incremental common shares
issuable upon the exercise of stock options and warrants, and
are excluded from the computation if their effect is
antidilutive.
(m) PROVISION FOR ENVIRONMENTAL REHABILITATION AND CLOSURE COSTS
Long-term environmental and closure obligations are based on
the Company's environmental plans, in compliance with current
environmental and regulatory requirements.
Full provision is made based on the net present value of the
estimated cost of restoring the environmental disturbance that
has occurred up to the balance sheet date. Increases due to
additional environmental disturbances as a result of
operations are capitalized and amortized over the remaining
lives of the mines.
The estimated costs of rehabilitation or closure are reviewed
annually and adjusted as appropriate for changes in
legislation or technology. Cost estimates are not reduced by
the potential proceeds from the sale of assets in view of the
uncertainty of estimating the potential future proceeds.
(n) EMPLOYEE FUTURE BENEFITS
Until June 30, 2000, the Company's subsidiary, Metorex, did
not recognize a liability for employee future benefits other
than pensions. Effective July 1, 2000, Metorex changed its
accounting policy, in accordance with the new CICA accounting
standard for employee future benefits, to accrue the cost of
post-employment benefits other than pensions during the
participants' actual service periods, up to the date they
become eligible for full benefits. This change in accounting
policy was applied retroactively with no restatement of the
prior year's amounts, with the effect that the carrying value
of the Company's investment in Metorex at July 1, 2000 was
decreased by $994,943 and the opening deficit at that date
increased by $994,943.
(o) COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to
conform with the current year's presentation.
66
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
3. ACCOUNTS RECEIVABLE
2002 2001
----------- ------------
Trade $ -- $ 14,469,064
Other 198,812 8,927,744
-----------------------------------------------------------------
$ 198,812 $ 23,396,808
-----------------------------------------------------------------
-----------------------------------------------------------------
4. INVENTORIES
2002 2001
----------- ------------
Consumable supplies $ -- $ 3,898,865
Mineral stocks -- 4,794,605
-----------------------------------------------------------------
$ -- $ 8,693,470
-----------------------------------------------------------------
-----------------------------------------------------------------
5. NALUNAQ MINERAL PROPERTY INTEREST
The following table shows the continuity of the Nalunaq mineral
property interest during the years ended June 30:
2002 2001
----------- ------------
Balance, beginning of year $ 25,994,352 $ 16,407,132
Acquisition of interest -- 1,487,486
Expenditures incurred during
the year 8,465,895 8,099,734
-----------------------------------------------------------------
Balance, end of year $ 34,460,247 $ 25,994,352
-----------------------------------------------------------------
-----------------------------------------------------------------
During the year ended June 30, 2000, the Company acquired a 57%
interest in the Nalunaq I/S joint venture whose principal asset is a
gold development project located in Greenland.
During the year ended June 30, 2001, the Company increased its interest
in Nalunaq to 67% through additional capital contributions. On June 5,
2001, pursuant to an agreement with the joint venture partner, the
Company increased its interest to 82% for no additional cash
consideration and obtained operational control of the investment in
exchange for various commitments including an agreement to fully fund
future development until completion of a final feasibility study. This
feasibility study was completed in August 2002.
The acquisition of the additional interest in Nalunaq has been
accounted for using the purchase method of accounting with the effect
that the Company consolidated the assets, liabilities and results of
operations of Nalunaq from June 5, 2001. The total consideration paid
was allocated based on the estimated fair value of the assets acquired
and the liabilities assumed at June 5, 2001 as follows:
67
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
5. NALUNAQ MINERAL PROPERTY INTEREST (CONTINUED)
<Table>
<Caption>
Assets acquired
Current assets (including cash of $51,605) $ 156,379
Mining property and equipment 25,395,539
--------------------------------------------------------------------------
25,551,918
--------------------------------------------------------------------------
Liabilities acquired
Current liabilities 1,882,709
Non-controlling interest 2,171,957
--------------------------------------------------------------------------
4,054,666
--------------------------------------------------------------------------
Net assets 21,497,252
Less: Crew's existing investment in Nalunaq 21,497,252
--------------------------------------------------------------------------
Cash consideration $ --
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</Table>
Prior to June 5, 2001, the Company had proportionately consolidated its
interest in Nalunaq. These financial statements include the following
income, expenses and cash flows related to the proportionate
consolidation of Nalunaq:
<Table>
<Caption>
2002 2001 2000
----------- ------------- -------------
Interest and other income $ -- $ 360 $ 77,742
Expenses -- (62,498) (21,571)
------------------------------------------------------------------------------------------
Net loss $ -- $ (62,138) $ 56,171
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
Cash flows from operating activities $ -- $ 439,016 $ 1,314,954
Cash flows from investing activities -- (7,115,332) (3,254,242)
Cash flows from financing activities -- 6,006,572 2,687,048
------------------------------------------------------------------------------------------
$ -- $ (669,744) $ 747,760
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</Table>
6. INVESTMENT IN METOREX LIMITED
A continuity of the investment in Metorex for the two years ended June
30, 2002 is as follows:
<Table>
<Caption>
Balance, June 30, 2000 $ 27,120,223
Equity earnings from investment in Metorex (Note 6 (d)) 3,540,665
Translation adjustment 53,576
Additional investment (Note 6 (a)) 9,924,287
Adjustment to reflect consolidation of investment (Note 6 (a)) (40,638,751)
---------------------------------------------------------------------------------
Balance, June 30, 2001 --
Adjustment to reflect de-consolidation of investment on
April 30, 2002 (Note 6 (c)) 39,815,345
Dilution loss (Note 6 (d) (ii)) (1,133,928)
Disposal of investment (Note 6 (d) (iii)) (4,040,519)
Equity earnings from investment (Note 6 (d) (i)) 1,549,819
Provision for impairment of investment (Note 6 (d) (iv)) (7,381,185)
---------------------------------------------------------------------------------
Balance, June 30, 2002 $ 28,809,532
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
</Table>
68
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
6. INVESTMENT IN METOREX LIMITED (CONTINUED)
(a) Effective March 1, 1997, the Company acquired a 50% interest
in Metorex (Proprietary) Limited, a South African company
owning shares in, and providing strategic direction to,
operating companies mining gold, coal and base metals. The
Company's interest was structured to obtain joint control, and
accordingly the investment was recorded on a proportionate
consolidation basis.
As a result of a consolidation of interests, which closed on
December 6, 1999, the Company's joint control over Metorex
(Proprietary) Limited ceased and its previous 50% interest was
replaced by a 41% interest in Consolidated Murchison Ltd. (now
renamed "Metorex Limited"), an affiliated company listed on
the London and Johannesburg Stock Exchanges. As a result of
this loss of joint control, the Company ceased to
proportionately consolidate its investment in Metorex Limited
and commenced recording this investment using the equity
method, effective January 1, 2000.
During November 2000, the Company increased its interest in
Metorex from 41% to 52% through the acquisition of an
additional 11% from existing shareholders. The acquisition has
been accounted for using the purchase method of accounting and
the financial position and results of operations of Metorex
were consolidated from November 24, 2000. At June 30, 2001,
the Company held a 53% interest in Metorex.
The acquisition of Metorex on November 24, 2000 was accounted
using the purchase method of accounting. The total
consideration paid was allocated based on the estimated fair
value of the assets acquired and the liabilities assumed at
the dates of acquisition as follows:
<Table>
<Caption>
ASSETS ACQUIRED
Current assets (including cash of $13,643,225) $ 43,731,919
Mining properties, plant and equipment 82,524,795
----------------------------------------------------------------------------
126,256,714
----------------------------------------------------------------------------
LIABILITIES ACQUIRED
Current liabilities 33,225,636
Long-term obligations 19,142,893
Non-controlling interest in subsidiaries of Metorex 3,178,394
----------------------------------------------------------------------------
55,546,923
----------------------------------------------------------------------------
NET ASSETS 70,709,791
Non-controlling interest in Metorex 30,071,040
----------------------------------------------------------------------------
Crew's investment in Metorex 40,638,751
Crew's existing investment in Metorex immediately prior to
the date of acquisition 30,714,464
----------------------------------------------------------------------------
Cash consideration $ 9,924,287
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</Table>
(b) During the year ended June 30, 2002, Metorex's Chibuluma South
mining operations were placed on care and maintenance basis
due to low copper prices and high operating costs. As a
result, the Company recorded a provision for impairment of
Metorex's Chibuluma South Mine of $8,450,857.
(c) In April 2002, the Company's interest in Metorex was reduced
from 53% to 41% through the sale of shares and a concurrent
private placement by Metorex with other shareholders. As a
result of the dilution of the Company's interest and resulting
loss of control, the Company ceased to consolidate the
investment effective April 30, 2002 and commenced recording
its investment in Metorex Limited using the equity method,
effective May 1, 2002.
69
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
6. INVESTMENT IN METOREX LIMITED (CONTINUED)
(d) The (loss) gain on the Company's investment in Metorex during
the period it was accounted for using the equity method during
the years ended June 30, 2002, 2001 and 2000 consists of the
following:
<Table>
<Caption>
2002 2001 2000
------------- ------------- -------------
Equity earnings from
investment (i) $ 1,549,819 $ 3,540,665 $ 1,942,342
Dilution (loss) gain (ii) (1,133,928) -- 2,088,790
Loss on disposal of interest (iii) (1,071,479) -- --
Provision for impairment of
investment (iv) (7,381,185) -- --
----------------------------------------------------------------------------------------
$(8,036,773) $ 3,540,665 $ 4,031,132
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</Table>
(i) The equity earnings for the year ended June 30, 2002
represent the Company's proportionate share of
Metorex's net earnings from May 1, 2002 to June 30,
2002. The equity earnings for the year ended June 30,
2001 represent the Company's proportionate share of
Metorex's net earnings from July 1, 2000 to November
24, 2000. The equity earnings for the year ended June
30, 2000 represent the Company's proportionate share
of Metorex's net earnings from January 1, 2000 to
June 30, 2000.
(ii) In a private placement completed on April 24, 2002,
Metorex issued 18,100,000 shares to other
shareholders for proceeds of $8,515,978. This
transaction reduced the Company's interest in Metorex
from 53% to 46% and resulted in the Company incurring
a loss on dilution of its investment of $1,133,928.
Under the terms of the consolidation of interests,
which closed on December 6, 1999 (see Note 6 (a)),
the Company recorded a dilution gain on the exchange
of its former interest in Metorex (Proprietary)
Limited for shares in Metorex Limited. This exchange
resulted in the loss of joint control and a
substantive change in the Company's ownership of the
former Metorex assets. The gain was therefore
calculated based on the fair value of Metorex Limited
shares received that were applicable to the portion
of the interest effectively sold to third parties.
(iii) On April 26, 2002, the Company disposed of 6,500,000
shares of Metorex for cash proceeds of $2,969,040
resulting in a loss on disposal of $1,071,479. This
disposal reduced the Company's interest in Metorex
from 46% to 41%.
(iv) As at June 30, 2002, management determined that the
Company's investment in Metorex had experienced a
permanent decline in value and that this decline
related to the assets and operations of Metorex. As a
result the Company recorded a provision for
impairment of $7,381,185.
(e) The following is a summary of the assets, liabilities and
results of operations of Metorex Limited prepared according to
International Accounting Standards and converted from South
African Rand ("Rand") to Canadian Dollars ("CDN") using the
exchange rate at June 30, 2002 and 2001 of Rand 0.147 to CDN$1
and Rand 0.188 to CDN$1, respectively.
70
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
6. INVESTMENT IN METOREX LIMITED (CONTINUED)
<Table>
<Caption>
2002 2001
-------------- -------------
Current assets $ 39,832,149 $ 45,604,288
Producing mining property,
plant and equipment 70,561,617 79,472,488
Other assets 8,259,930 19,090,460
--------------------------------------------------------------
118,653,696 144,167,236
--------------------------------------------------------------
Current liabilities 28,655,886 38,387,532
Long-term debt 12,481,329 12,818,028
Other liabilities 17,598,399 23,394,344
--------------------------------------------------------------
58,735,614 74,599,904
--------------------------------------------------------------
Net shareholders' equity $ 59,918,082 $ 69,567,332
--------------------------------------------------------------
--------------------------------------------------------------
</Table>
Results of operations and cash flows for the years ended June
30:
<Table>
<Caption>
2002 2001
--------------- --------------
Mineral sales $ 120,587,775 $ 135,408,504
Cost of sales 103,975,746 113,593,548
----------------------------------------------------------------------------
16,612,029 21,814,956
Other income (expenses) (20,986,749) (522,640)
Provision for income taxes (982,842) (4,638,900)
----------------------------------------------------------------------------
Net (loss) income $ (5,357,562) $ 16,653,416
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flows from operating activities $ 3,159,618 $ 21,769,084
Cash flows from investing activities (13,826,967) (28,569,608)
Cash flows from financing activities 11,636,667 14,730,928
----------------------------------------------------------------------------
$ 969,318 $ 7,930,404
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</Table>
7. GEOTHERMAL PROJECT
Effective November 22, 2001, South Crofty Holdings Ltd. (now renamed
North Pacific Geopower Corp., ("NPGP") acquired all of the issued and
outstanding common shares of Meager Creek Development Corporation
("MCDC") from the Company in exchange for 97,378,558 common shares (or
82%) of NPGP's common shares. MCDC held a licence of occupation granted
by the British Columbia Ministry of Lands and Parks, giving surface
tenure to property at a geothermal site, and a geothermal lease granted
by the British Columbia Ministry of Energy, Mines and Petroleum
Resources relating to the geothermal site. The licence of occupation
and the geothermal lease expire December 17, 2017.
This business combination has been accounted for as a reverse takeover
using the purchase method of accounting with the Company identified as
the acquirer and NPGP being the acquiree. The results of operations of
NPGP have been consolidated from November 22, 2001, being the date that
the Company obtained control. The fair value of the net liabilities of
NPGP assumed by the Company at November 22, 2001 of $170,402 was
recorded as a charge to deficit.
71
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
7. GEOTHERMAL PROJECT (CONTINUED)
Concurrent with the reverse takeover, the Company acquired 10,030,823
shares of NPGP from the son of the former chairman of the Company for
cash consideration of $1,203,699. The net effect of the reverse
takeover and concurrent acquisition of 10,030,823 shares of NPGP was
the acquisition of NPGP and the dilution of the Company's interest in
the Meager Creek property. The Company subsequently participated in a
private placement for 16,700,000 shares of NPGP for cash consideration
of $2,004,000 which had the effect of further increasing its interest
to 91%. As a result of these transactions, the Company has recorded a
loss on dilution of geothermal asset of $1,503,055, which includes the
$1,203,699 of cash paid to the related party.
The Company then issued a dividend of approximately 6,400,000 shares of
NPGP, being one share of NPGP for each 20 shares held of Crew. The
accounting value of the dividend of $228,284 was determined based on
the carrying value of the NPGP shares at that time and included the
amount of the dividend withholding taxes which the Company paid on
behalf of foreign shareholders.
At June 30, 2002, the Company owned 86.8% of NPGP's common shares.
8. INVESTMENT IN ASIA PACIFIC RESOURCES
At June 30, 2002, the Company holds approximately 7% (2001 - 13%) of
Asia Pacific Resources Ltd. ("APR") with a carrying value of $4,950,000
(2001 - $19,543,056) as a long-term investment. During the year, Asia
Pacific completed a financial restructuring which included the
conversion of all of its outstanding debentures into common shares and
the issuance of additional common shares through private placements. As
part of this restructuring, due to commitments entered into on October
8, 2001, the Company invested an additional $5 million into Asia
Pacific. Due to the dilution of its interest as a result of the
debenture conversion during 2002 and the prolonged period in which
there had been a substantial decline in value of Asia Pacific shares,
the Company determined that an indication of impairment had occurred
and recorded a provision for loss in value of the investment of
$19,593,056.
9. PROPERTY, PLANT AND EQUIPMENT
<Table>
<Caption>
2002 2001
----------------------------------------------- -------------
Accumulated Net Book Net Book
Cost Amortization Value Value
------------ -------------- -------------- -------------
Producing mining assets
Land, rights and buildings $ -- $ -- $ -- $58,813,519
Plant and equipment -- -- -- 7,605,031
Capital work in progress -- -- -- 25,814,211
Land and buildings 180,175 10,857 169,318 172,935
Exploration equipment 520,229 366,795 153,434 257,154
Vehicles 18,292 16,016 2,276 13,272
Office and equipment,
furniture and fixtures 925,268 358,949 566,319 836,547
----------------------------------------------------------------------------------------------------
$ 1,643,964 $ 752,617 $ 891,347 $93,512,669
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
</Table>
10. OTHER MINERAL PROPERTY INTERESTS
The carrying value of other mineral property interests includes
acquisition costs and deferred exploration expenditures relating to
properties in which mining of an ore reserve has not commenced. Details
are as follows:
72
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
10. OTHER MINERAL PROPERTY INTERESTS (CONTINUED)
<Table>
<Caption>
2002 2001
-------------- --------------
Other mineral property interests, beginning
of year $ 8,106,818 $ 37,681,333
Acquisition of exploration and
development properties -- 54,720
Expenditures incurred during the year 224,225 4,394,897
Provision for impairment in value of
Roros Project (4,688,918) --
Provision for impairment of other properties (320,960) --
Provision for decline in value of investment
in Mindoro Nickel Project -- (34,024,132)
Metorex development properties no
longer consolidated (75,867) --
--------------------------------------------------------------------------------------
Other mineral property interests, end of year $ 3,245,298 $ 8,106,818
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</Table>
Consisting of:
<Table>
<Caption>
2002 2001
-------------- --------------
Hwini-Butre Gold Project (Ghana) $ 3,181,803 $ 3,181,803
Roros Project (Norway) 1 4,502,645
Mindoro Nickel Project (Philippines) 1 1
Other $ 63,493 422,369
--------------------------------------------------------------------------------------
$ 3,245,298 $ 8,106,818
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</Table>
MINDORO NICKEL PROJECT
During July 2001, the Company received from the Department of
Environment and Natural Resources ("DENR") in the Philippines a notice
of cancellation of the Mineral Production Agreement ("MPSA") for a
significant section of its Mindoro nickel laterite project, which had
been issued by the previous administration.
This action by the DENR was unexpected and the notice issued without
prior consultation with the Company. Based upon a full evaluation of
the situation with its legal advisors, the Company is confident that
the Philippine government had no legal basis for cancellation of the
MPSA, which was made without due process. The Company has filed a
formal appeal to the Office of the President of the Philippines. If
rejected, recovery of the MPSA shall be vigorously pursued, both
through the Philippine courts and under the Foreign Investment
Protection Agreement signed between Canada and the Philippines in 1995.
While the Company believes that it shall ultimately re-establish its
rights under the MPSA, if necessary through legal action, there can be
no absolute assurance that it will be successful. Therefore, at June
30, 2001 the Company recorded an impairment provision of $34,024,132
against its investment in the project to reduce the carrying value to a
nominal amount of $1.
During the year ended June 30, 2002, the Company expensed further costs
of $1,572,585 related to the Mindoro Nickel Project. The majority of
these costs relate to technical field costs and were incurred prior to
management's decision in September 2001 to withdraw from all field
activities relating to the project, pending the reinstatement of the
MPSA. Effective April 2002, the Company has withdrawn all activities
and temporarily placed the Mindoro Nickel Project on care and
maintenance. The feasibility of future operations is dependent on the
favourable resolution of the Company's appeal to reinstate the MPSA.
73
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
10. OTHER MINERAL PROPERTY INTERESTS (CONTINUED)
ROROS PROJECT
Title to the Roros Project is secured through 55 mineral claims in
seven different municipalities in Central Norway. Due to the current
depressed zinc and copper prices the Company decided to suspend further
exploration activities and therefore has written down the value of this
project during the year ended June 30, 2002.
11. BANK INDEBTEDNESS
The bank indebtedness of $1,361,120 arose from consolidation of Metorex
at June 30, 2001 and is payable in South African Rand. Metorex had
aggregate short-term bank credit facilities of approximately $4.4
million (Rand 23.5 million) at June 30, 2001.
74
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
12. LONG TERM DEBT
Long term debt, all of which arose on consolidation of Metorex at June
30, 2001, comprises:
<Table>
<Caption>
2002 2001
---------------- --------------
REVOLVING TRADE FINANCE FACILITY AND TERM LOAN
A loan of U.S.$8 million to Chibuluma from Investec Bank Limited is
denominated in U.S. dollars. The loan is repayable in 10 equal
six-month installments, commencing six months after the end of the
disbursement period, or the end of the last draw down, whichever is the
earlier, and matures in May 2006. Interest is payable at 7.5% per annum.
A further loan to Chibuluma from Investec Bank Limited represents draw
downs under a 180 day revolving trade finance facility amounting to
U.S.$3 million. Interest is calculated according to the bank's cost of
funds plus 0.5% per annum payable six-months in arrears.
The Investec Bank facilities are secured by:
- a cession of copper and cobalt produced by the
Company; and
- a cession of the Chibuluma marketing contracts and
mineral export proceeds; and
- a Metorex Limited guarantee. $ -- $ 16,955,072
TERM LOANS
The loans are unsecured, bear interest at bank prime
rate and are repayable in monthly installments
of Rand("R")108,933. -- 88,294
MORTGAGE BOND
Secured by first mortgage bond over land and building with
a cost of R390,000. Interest is charged at 14.5% and the
bond is repayable in monthly installments of R4,000. -- 25,039
HIRE PURCHASE AGREEMENTS
Secured by plant and equipment with a cost of R3.2 million and bears
interest at bank prime rate.
Repayments are in varying monthly installments. -- 323,807
INSTALLMENT FINANCE AND TERM LOAN
Secured by plant and equipment with a cost of R5.8 million and limited
suretyships from Metorex Limited, Side Minerals (Pty) Limited and
Wakefield Investments (Pty) Limited. The loans are repayable in 42 equal
installments and bear interest at bank prime rate. -- 840,392
---------------------------------------------------------------------------------------------------------------------
-- 18,232,604
Less: Current portion -- 7,748,460
---------------------------------------------------------------------------------------------------------------------
$ -- $ 10,484,144
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
</Table>
75
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
13. INCOME TAXES
Future income tax assets and liabilities arise at June 30 from the
following:
<Table>
<Caption>
2002 2001
------------- -------------
Future income tax assets
Investments $ 4,969,756 $ 335,023
Mineral property interests 10,447,295 7,573,714
Property, plant and equipment 273,880 2,743,293
Provisions -- 2,160,095
Loss carry-forwards 16,183,218 13,477,277
Share issue costs 1,030,328 1,520,289
Other -- 92,436
---------------------------------------------------------------------------
32,904,477 27,902,127
Valuation allowance (32,904,477) (25,828,820)
---------------------------------------------------------------------------
Future income tax assets -- 2,073,307
---------------------------------------------------------------------------
Future income tax liabilities
Mineral property interests (3,338,484) (4,447,569)
Property, plant and equipment -- (9,119,460)
Investments -- (1,544,879)
Unrealized foreign exchange loss -- (2,329,342)
---------------------------------------------------------------------------
Future income tax liabilities (3,338,484) (17,441,250)
---------------------------------------------------------------------------
Future income tax liabilities, net $ (3,338,484) $(15,367,943)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</Table>
Disclosed on the Consolidated Balance Sheets as:
<Table>
<Caption>
Future income tax assets - current $ -- $ 1,044,899
Future income tax liabilities - long-term, net (3,338,484) (16,412,842)
-------------------------------------------------------------------------------------
Future income tax liabilities, net $ (3,338,484) $(15,367,943)
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Future income tax assets consist of:
Current portion $ -- $ 1,044,899
Long-term -- 1,028,408
-------------------------------------------------------------------------------------
$ -- $ 2,073,307
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</Table>
A reconciliation of the provision for (recovery of) income taxes is as
follows:
<Table>
<Caption>
2002 2001 2000
-------------- -------------- --------------
Recovery of income taxes based on
Canadian statutory tax rate of 42%
(2001 - 45%; 2000 - 45%) $(16,218,546) $(12,387,479) $ 1,348,899
Add (deduct)
Dilution gain not taxable -- -- (939,956)
Lower foreign tax rates (384,139) 4,002,121 (298,950)
Tax effect of losses not recognized 19,429,203 3,273,289 1,083,175
Reassessment of Metorex's prior year
taxes (736,490) -- --
Other (1,443,893) 764,123 (874,054)
---------------------------------------------------------------------------------------------------
Provision for (recovery of) income taxes $ 646,135 $ (4,347,946) $ 319,114
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
</Table>
76
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
13. INCOME TAXES (CONTINUED)
As at June 30, 2002, the Company and its subsidiaries have estimated
non-capital losses carried forward for Canadian income tax purposes of
approximately $23,100,000 (2001 - $15,400,000), which can be applied to
reduce future Canadian income taxes payable and will expire in 2003 to
2009. As at June 30, 2002 the Company's subsidiaries also have
estimated non-capital losses carried forward for Norwegian and
Philippine income tax purposes of approximately Norwegian Krone
101,000,000 ($20,400,000) (2001 - 38,500,000 ($6,250,000)) and
Philippine Peso 43,900,000 ($1,300,000) (2001 - 58,000,000
($1,700,000)), respectively, which can be applied to reduce future
income taxes payable and will expire in 2006 to 2012 for Norway and
2003 to 2005 for the Philippines. The potential tax benefits of these
loss carry-forwards have been offset by recognition of a valuation
allowance in these financial statements.
14. PROVISIONS
The following provisions arose on consolidation of Metorex at June 30,
2001:
<Table>
<Caption>
2002 2001
------------- ------------
Termination benefits $ -- $1,517,187
Rehabilitation and closure costs -- 6,360,177
Vacation pay and bonuses -- 2,058,999
----------------------------------------------------------------
-- 9,936,363
Less: Current portion -- 3,482,998
----------------------------------------------------------------
$ -- $6,453,365
----------------------------------------------------------------
----------------------------------------------------------------
</Table>
15. SHARE CAPITAL
(a) The authorized share capital at June 30, 2002 is 250,000,000
common shares without par value (2001 and 2000 - 200,000,000
common shares without par value).
(b) Details of changes in the issued share capital since June 30,
1999 are as follows:
<Table>
<Caption>
Number
of shares Amount
----------------- ---------------
Balance, June 30, 1999 32,232,122 $ 49,738,903
Issued for cash on exercise of warrants 1,835,000 1,651,500
Issued for cash on private placements ((c) and (d)) 15,200,000 16,414,301
Issued for cash on exercise of stock options 30,000 30,000
Issued on acquisition of Mindex ASA (Note 17 (a)) 27,127,908 32,569,670
Issued on acquisition of Botswana Diamondfields
Inc. (Note 17 (b)) 11,188,030 13,425,636
-------------------------------------------------------------------------------------------
Balance, June 30, 2000 87,613,060 113,830,010
Issued for cash on exercise of warrants (d) 1,600,000 1,597,896
Issued for cash on private placements ((e) and (f)) 39,173,134 41,202,996
Issued for cash on exercise of stock options 120,000 120,000
-------------------------------------------------------------------------------------------
Balance, June 30, 2001 128,506,194 156,750,902
Issued for cash on private placement (g) 10,158,101 3,364,032
-------------------------------------------------------------------------------------------
Balance, June 30, 2002 138,664,295 $160,114,934
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</Table>
(c) During the year ended June 30, 2000, the Company issued
12,000,000 common shares for proceeds of $12,633,512 (net of
issue costs of $862,488) in two transactions.
77
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
15. SHARE CAPITAL (CONTINUED)
(d) During the year ended June 30, 2000, the Company issued
3,200,000 units for proceeds of $3,780,789 (net of issue costs
of $219,211). Each unit consisted of one common share and one
share purchase warrant of the Company. Each whole share
purchase warrant entitles the holder to purchase one
additional common share at $1.50 per share from the date of
issue until February 17, 2001. During the year ended June 30,
2001, these share purchase warrants were repriced to $1.00 per
share and 1,600,000 share purchase warrants were exercised for
aggregate proceeds of $1,597,896 (net of issue costs of
$2,104). The balance of 1,600,000 warrants expired
unexercised.
(e) During the year ended June 30, 2001, the Company issued
13,800,000 common shares for proceeds of $14,499,878 (net of
issue costs of $1,094,122).
(f) During the year ended June 30, 2001, the Company issued
25,373,134 units for proceeds of $26,703,118 (net of issue
costs of $1,974,941). Each unit consisted of one common share
and one-half of a share purchase warrant of the Company. Each
whole share purchase warrant entitles the holder to purchase
one additional common share at $1.47 per share from the date
of issue until May 21, 2002. During the year ended June 30,
2002, all of these share purchase warrants were repriced to
$0.43 per share and then expired unexercised.
(g) During the year ended June 30, 2002, the Company issued
10,158,101 units for proceeds of $3,364,032 (net of issue
costs of $394,465). Each unit is convertible into one common
share of the Company for no additional consideration.
(h) During the year ended June 30, 2002, the Company issued
3,750,000 warrants to purchase 3,750,000 shares of the Company
at an exercise price of $0.42 per share. Of these warrants,
1,750,000 were issued to the Chairman and 2,000,000 were
issued to the President & CEO of the Company in exchange for
total cash consideration of $275,250.
(i) The Company has a Share Option Plan which authorizes the Board
of Directors of the Company to grant up to 15,000,000 options
to directors, officers and employees of Crew and any of its
subsidiaries, to acquire common shares of the Company at a
price which is greater than or equal to the fair market value
of each common share on the date the option is granted. The
options are generally exercisable for up to five years from
the date of grant. At June 30, 2002, there were 4,850,000
options available for grant.
The following table summarizes share option activity since
June 30, 2000:
<Table>
<Caption>
Options outstanding
--------------------------------
Weighted
Number of average
shares exercise price
-------------- --------------
Balance, June 30, 2000 6,160,000 $ 1.22
Cancelled (580,000) 1.24
Exercised (120,000) 1.00
----------------------------------------------------------
Balance, June 30, 2001 5,460,000 1.22
Granted 8,000,000 0.41
Cancelled (3,310,000) 1.19
----------------------------------------------------------
Balance, June 30, 2002 10,150,000 $ 0.59
----------------------------------------------------------
----------------------------------------------------------
</Table>
78
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
15. SHARE CAPITAL (CONTINUED)
The following table summarizes outstanding and exercisable
share options at June 30, 2002:
<Table>
<Caption>
Number of Weighted
Share Options Expiry Average
Outstanding Date Exercise Price
- -------------------- ---------------------- ------------------
130,000 February 28, 2003 $ 1.33
170,000 February 28, 2003 1.00
230,000 March 4, 2003 1.33
240,000 March 4, 2003 1.00
3,750,000 May 1, 2003 0.42
50,000 October 21, 2003 1.00
1,330,000 June 26, 2005 1.33
3,750,000 March 6, 2007 0.40
500,000 May 2, 2007 0.41
- --------------------------------------------------------------------------------------------------
10,150,000 $ 0.59
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</Table>
16. CUMULATIVE TRANSLATION ADJUSTMENT
The cumulative translation adjustment comprises:
<Table>
<Caption>
2002 2001
--------------- --------------
Cumulative effect of unrealized losses on foreign
exchange translation in prior periods $(6,770,759) $(2,333,678)
Reduction for portion of translation adjustment
related to disposal and dilution of interest
in Metorex (Note 6) 774,725 --
Decrease (increase) in unrealized loss on translation
of net assets 3,226,537 (4,437,081)
-------------------------------------------------------------------------------------------
Cumulative unrealized losses on foreign exchange
translation at end of year $(2,769,497) $(6,770,759)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</Table>
This balance represents the net unrealized foreign currency translation
losses on the Company's net investment in Metorex.
17. ACQUISITION OF OTHER SUBSIDIARIES
(a) MINDEX ASA ("MINDEX")
Effective December 23, 1999, the Company completed its
voluntary offer to acquire in excess of 90% of the shares of
Mindex, a Norwegian company listed on the Oslo Stock Exchange
by the issue of 27,127,908 common shares of the Company.
During the period January 2000 to May 2000, the Company
acquired the remaining Mindex shares. As a result, the Company
owns 100% of the issued and outstanding shares of Mindex and
the shares of Mindex have been delisted from trading.
The acquisition of Mindex has been accounted for using the
purchase method of accounting, and the financial position and
results of operations of Mindex have been consolidated from
December 31, 1999. The total consideration paid was allocated
based on the estimated fair value of the assets acquired and
the liabilities assumed at the date of acquisition as follows:
79
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
17. ACQUISITION OF OTHER SUBSIDIARIES (CONTINUED)
(a) MINDEX ASA ("MINDEX")(CONTINUED)
<Table>
<Caption>
Current assets (including cash of $582,811) $ 807,344
Mining properties 36,994,710
Other non-current assets 2,504,434
-------------------------------------------------------------
40,306,488
Current liabilities (1,934,245)
-------------------------------------------------------------
Net assets $ 38,372,243
-------------------------------------------------------------
-------------------------------------------------------------
Consideration
27,127,908 common shares $ 32,569,670
Cash 2,557,278
Transaction costs 3,245,295
-------------------------------------------------------------
$ 38,372,243
-------------------------------------------------------------
-------------------------------------------------------------
</Table>
(b) BOTSWANA DIAMONDFIELDS INC. ("BOTSWANA")
Effective December 31, 1999, the Company completed its
acquisition of Botswana. Pursuant to a Plan of Arrangement
between the Company and Botswana, the Company issued
11,188,030 common shares to shareholders of Botswana on the
basis of 2 common shares of the Company for every 3 shares of
Botswana. As a result, Botswana is now a wholly-owned
subsidiary of the Company and has been delisted from trading.
The acquisition of Botswana has been accounted for using the
purchase method of accounting, and the financial position and
results of operations of Botswana have been consolidated from
December 31, 1999. The total consideration paid was allocated
based on the estimated fair value of the assets acquired and
the liabilities assumed at the date of acquisition as follows:
<Table>
<Caption>
Current assets (including cash of $351,043) $ 410,563
Long term investments * 13,262,569
Other non-current assets 459,747
--------------------------------------------------------------
14,132,879
Current liabilities (595,147)
--------------------------------------------------------------
Net assets $ 13,537,732
--------------------------------------------------------------
--------------------------------------------------------------
Consideration
11,188,030 common shares $ 13,425,636
Transaction costs 112,096
--------------------------------------------------------------
$ 13,537,732
--------------------------------------------------------------
--------------------------------------------------------------
</Table>
* Long-term investments included 2,250,000 common shares of
Crew which were previously held by Botswana and were recorded
on acquisition by Crew at their fair value of $2,700,000 as
treasury shares. These shares were subsequently sold to third
parties with no material gain or loss on this capital
transaction.
80
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
18. COMMITMENTS
The Company is committed to minimum annual non-cancelable future
operating lease payments as follows:
<Table>
<Caption>
2002 2001
--------------- ----------------
Within one year $ 173,227 $ 578,884
Years two to five 445,311 1,208,575
--------------------------------------------------------------------------------
$ 618,538 $ 1,787,459
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</Table>
Pursuant to a consulting agreement between NPGP and the former
Chairman, NPGP is committed to pay $100,000 per year in consulting fees
for the next two years.
19. CONTINGENCIES
(a) A subsidiary of the Company has been named as a defendant in
an action brought by a third party claiming that the mineral
concessions of the Company in Ghana, with a book value of $3.2
million, were not properly transferred to the Company. The
Company is confident that it has proper title to the
concession and is vigorously defending its title; however, the
ultimate outcome of this action is currently not determinable.
(b) The Company's associate, Metorex, by virtue of its mining
operations, is exposed to rehabilitation and other
environmental liabilities. Estimates of the cost of
environmental and other remedial work are made on an annual
basis and payments are made into a rehabilitation trust fund
to ensure that, by the end of the useful life of the mine,
sufficient funds are available to satisfy such liabilities.
The rehabilitation trust fund (the "Fund") is established as
required by the South Africa Minerals Act and Regulations. As
the assets and liabilities of Metorex are no longer
individually consolidated with the accounts of the Company at
June 30, 2002, the Fund no longer appears as an asset of the
Company.
20. CASH FLOW STATEMENT INFORMATION
(a) CHANGE IN NON-CASH OPERATING WORKING CAPITAL ITEMS
<Table>
<Caption>
2002 2001 2000
------------- ------------- --------------
(Decrease) increase in
Accounts receivable $ 1,419,210 $(5,661,015) $ (124,272)
Inventories (1,594,979) 2,138,770 885,189
Prepaid expenses (67,528) (144,874) (163,168)
Mining assets held for sale -- 209,795 (209,795)
Due from associated companies (1,722,266) -- (67,899)
(Decrease) increase in
Accounts payable
and accrued liabilities (6,749,043) 1,845,203 490,963
Due to associated companies (86,453) 3,114 17,508
-----------------------------------------------------------------------------------------
$(8,801,059) $(1,609,007) $ 828,526
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</Table>
81
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
20. CASH FLOW STATEMENT INFORMATION (CONTINUED)
(b) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<Table>
<Caption>
2002 2001 2000
-------------- ------------- -------------
Cash payments for interest $1,531,359 $ 471,032 $ 171,717
Cash payments for income taxes 4,620,470 1,744,801 621,974
</Table>
(c) SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
INFORMATION
<Table>
<Caption>
2002 2001 2000
--------------- --------------- --------------
Investing activities:
Shares issued on acquisition of
Mindex (Note 23 (a)) $ -- $ -- $32,569,670
Shares issued on acquisition of
Botswana (Note 23 (b)) -- -- 13,425,636
Exchange of interest in shares of
Metorex (Proprietary) Limited
for shares of Metorex Limited
(Note 6 (a)) -- -- 7,773,992
------------------------------------------------------------------------------------------
$ -- $ -- $53,769,298
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</Table>
21. RELATED PARTY TRANSACTIONS
Related party transactions, not disclosed elsewhere in these financial
statements, comprise:
The Company made payments to a public company having certain directors
in common. The payments, which represent reimbursements of amounts paid
on behalf of the Company, were as follows:
<Table>
<Caption>
2002 2001 2000
------------ ----------- -----------
Salaries $ -- $440,155 $390,259
Rent -- 77,742 67,856
Other administrative costs 3,432 96,735 141,140
---------------------------------------------------------------------
$ 3,432 $614,632 $599,255
---------------------------------------------------------------------
---------------------------------------------------------------------
</Table>
The Company paid management fees during the year ended June 30, 2002 of
$215,433 (2001 - $443,805; 2000 - $339,000) and termination fees of
$632,000 to a company controlled by the former CEO and Chairman of the
Company.
The Company also paid management fees during the year ended June 30,
2002 of $253,591 and a bonus of $280,513 (2001 - $Nil; 2000 - $Nil) to
a company controlled by a new director and President & CEO of the
Company.
During the year ended June 30, 2002, law firms of which directors of
the Company were partners received total legal fees of $465,024 from
the Company (2001 - $Nil; 2000 - $Nil).
82
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
22. SEGMENTED INFORMATION
(a) OPERATING SEGMENTS
The Company manages its commercial mining operations by the
type of commodity produced. As a result of the loss of control
of the investment in Metorex, management considers that the
Company commenced operating in one operating segment as of
July 1, 2002, being the exploration and development of mineral
properties. Segment information is as follows:
(i) Year ended June 30, 2002:
<Table>
<Caption>
Fluorospar
Antimony/ and other
Gold Coal Zinc Copper minerals
--------------- -------------- -------------- -------------- --------------
Mineral sales $ 16,011,005 $ 15,734,815 $ 18,339,827 $ 44,520,523 $ 17,124,531
- ------------------------------------------------------------------------------------------------------------
Interest income 39,612 -- 184,753 423,522 196,808
Amortization of
capital assets (566,306) (1,016,452) (1,830,930) -- (694,902)
Provisions for
asset impairments -- -- -- (8,450,857) --
Loss on investment in
Metorex Limited -- -- -- -- --
Loss on dilution of
interest in
geothermal asset -- -- -- -- --
Costs related to
Mindoro Nickel
Project -- -- -- -- --
Interest expense -- (282,609) (51,198) (1,089,101) (107,877)
Other income
(expenses) (14,832,347) (16,058,602) (15,068,611) (36,758,408) (10,319,745)
Non-controlling interest -- -- -- -- (1,195,569)
Income taxes 162,338 -- (468,771) (1,179,822) (1,782,597)
- -------------------------------------------------------------------------------------------------------------
Net income (loss) $ 814,302 $ (1,622,848) $1,105,070 $ (2,534,143) $ 3,220,649
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Additions to capital
assets $ 132,771 $ 1,966,989 $ 215,440 $ 10,246,254 $ 1,598,267
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Total assets at
June 30, 2002 $ -- $ -- $ -- $ -- $ --
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
Exploration
and Unallocated
development corporate
activities items Total
--------------- ------------- ---------------
Mineral sales $ - $ - $ 111,730,701
- ---------------------------------------------------------------------------
Interest income 187,301 831,545 1,863,541
Amortization of
capital assets (155,895) (86,630) (4,351,115)
Provisions for
asset impairments (24,602,934) - (33,053,791)
Loss on investment in
Metorex Limited - (8,036,773) (8,036,773)
Loss on dilution of
interest in
geothermal asset - (1,503,055) (1,503,055)
Costs related to
Mindoro Nickel
Project (1,572,585) - (1,572,585)
Interest expense - (178) (1,530,963)
Other income
(expenses) (2,150,176) (6,863,641) (102,051,530)
Non-controlling interest 84,372 (487,787) (1,598,984)
Income taxes 1,109,085 1,513,632 (646,135)
- ---------------------------------------------------------------------------
Net income (loss) (27,100,832) $ (14,632,887) $ (40,750,689)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Additions to capital
assets $ 8,733,637 $ 404,083 $ 23,297,441
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Total assets at
June 30, 2002 $ 46,659,056 $ 35,426,878 $ 82,085,934
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</Table>
83
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
22. SEGMENTED INFORMATION (CONTINUED)
(a) OPERATING SEGMENTS (CONTINUED)
(ii) Year ended June 30, 2001:
<Table>
<Caption>
Fluorospar
Antimony/ and other
Gold Coal Zinc Copper minerals
-------------- ------------ ------------- ------------- ------------
Mineral sales $ 10,897,227 $ 13,742,753 $ 12,977,637 $ 33,222,423 $ 8,862,098
- -------------------------------------------------------------------------------------------------
Interest income 61,994 972 144,200 327,851 256,140
Amortization of
capital assets (382,655) (1,041,468) (1,351,246) (350,006) (489,931)
Provision for decline in
value of Mindoro
nickel project - - - - -
Equity earnings from
investment in
Metorex - - - - -
Interest expense - (231,265) (1,166) (336,597) (48,390)
Other income
(expenses) (10,318,288) (13,531,506) (11,070,772) (25,398,683) (6,322,463)
Non-controlling interest - - - 122,046 (242,731)
Income taxes - - (589,628) (1,876,158) (685,437)
- --------------------------------------------------------------------------------------------------
Net income (loss) $ 258,278 $ (1,060,514) $ 109,025 $ 5,710,876 $1,329,286
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Additions to capital
assets $ 551,500 $ 1,736,699 $ 267,517 $ 13,372,861 $ 2,257,526
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Total assets at
June 30, 2001 $ 10,969,780 $ 13,552,649 $11,190,362 $ 77,250,797 $31,872,231
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
Exploration
and Unallocated
development corporate
activities items Total
-------------- -------------- ---------------
Mineral sales $ - $ - $ 79,702,138
- --------------------------------------------------------------------------
Interest income 15,253 543,606 1,350,016
Amortization of
capital assets (48,479) (404,697) (4,068,482)
Provision for decline in
value of Mindoro
nickel project (34,024,132) - (34,024,132)
Equity earnings from
investment in
Metorex - 3,540,665 3,540,665
Interest expense (20,017) 3,161 (634,274)
Other income
(expenses) (2,175,300) (4,576,650) (73,393,662)
Non-controlling interest - (2,983,067) (3,103,752)
Income taxes 7,499,169 - 4,347,946
- --------------------------------------------------------------------------
Net income (loss) $(28,753,506) $ (3,876,982) $(26,283,537)
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Additions to capital
assets $ 12,377,822 $ 71,856 $ 30,635,781
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Total assets at
June 30, 2001 $53,142,782 $ 27,176,685 $225,155,286
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</Table>
84
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
22. SEGMENTED INFORMATION (CONTINUED)
(a) OPERATING SEGMENTS (CONTINUED)
(iii) Year ended June 30, 2000:
<Table>
<Caption>
Exploration
Fluorospar and Unallocated
and other development corporate
Copper minerals activities items Total
--------------- --------------- --------------- ------------- --------------
Mineral sales $ 7,648,947 $ 3,259,305 $ -- $ -- $ 10,908,252
--------------------------------------------------------------------------------------------------------
Interest income 207,286 15,495 32,918 85,320 341,019
Amortization of
capital assets (85,813) (290,161) (56,824) (71,627) (504,425)
Gain on investment
in Metorex
Limited -- -- -- 4,031,132 4,031,132
Interest expense -- (2,621) (3,197) (165,899) (171,717)
Other income
(expenses) (6,286,580) (2,290,030) (981,667) (2,048,430) (11,606,707)
Non-controlling interest (156,666) (131,714) -- -- (288,380)
Income taxes (62,101) (257,013) -- -- (319,114)
--------------------------------------------------------------------------------------------------------
Net income $ 1,265,073 $ 303,261 $ (1,008,770) $ 1,830,496 $ 2,390,060
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
Additions to capital
assets $ 67,286 $ 28,672 $ 4,649,686 $ 29,011 $ 4,774,655
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
</Table>
(b) GEOGRAPHIC SEGMENTS
All of the Company's mineral sales revenues are derived from
the African geographic segment.
Capital assets consist of property, plant and equipment,
geothermal project and mineral property interests in the
following locations:
<Table>
<Caption>
2002 2001
------------- -------------
Greenland $ 34,460,247 $ 25,994,352
South Africa -- 46,460,816
Zambia -- 46,455,979
Ghana 3,181,803 3,181,803
Botswana 169,319 172,936
Norway 143,405 4,929,147
Philippines 175,365 309,089
Canada 3,080,349 359,570
------------------------------------------------
$ 41,210,488 $127,863,692
------------------------------------------------
------------------------------------------------
</Table>
In addition, the Company had an investment in an associated
company in Africa with a carrying value of $28,809,532 at June
30, 2002 ($Nil at June 30, 2001).
85
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
23. FINANCIAL INSTRUMENTS
(a) RISK MANAGEMENT OBJECTIVES AND POLICIES
In the normal course of its operations, the Company is exposed
to commodity price, currency, interest rate, liquidity and
credit risk. In order to manage these risks, the Company may
enter into derivative contracts for the purpose of hedging
these risks. General corporate hedging unrelated to any
specific project is not undertaken.
(b) CREDIT RISK
The Company's credit risk is primarily attributable to its
trade receivables. The amounts presented in the balance sheet
are net of allowances for doubtful receivables, estimated by
the Company's management based on the current economic
environment.
The credit risk on liquid funds is limited because the
counter-parties are banks with high credit ratings.
(c) FOREIGN CURRENCY AND COMMODITY PRICE RISK
The Company enters into futures contracts in order to hedge
its exposure to fluctuations in commodity prices and foreign
exchange rates on specific transactions. The contracts are
matched with anticipated future cash flows from mineral sales.
In the normal course of business, the Company enters into
transactions for the sale of its commodities denominated in
U.S. dollars. In addition, the Company has some U.S. dollar
investments and liabilities. As a result, the Company is
subject to foreign exchange risk from fluctuations in foreign
exchange rates.
(d) INTEREST RATE AND LIQUIDITY RISK
Fluctuations in interest rates impact on the value of
short-term investment and financing activities, giving rise to
interest rate risk.
In the ordinary course of business, the Company receives cash
proceeds from its operations and is required to fund working
capital and capital expenditure requirements. The cash is
managed to ensure that surplus funds are invested to maximize
returns while ensuring that capital is safeguarded to the
maximum extent by only investing with high quality financial
institutions.
Contractual arrangements for committed borrowing facilities
are maintained with several banking counterparties to meet the
Company's normal and contingency funding.
(e) FAIR VALUE OF FINANCIAL INSTRUMENTS
(i) ON-BALANCE SHEET FINANCIAL INSTRUMENTS
The carry values of the Company's financial
instruments, which include cash, accounts receivable,
accounts payable and accrued liabilities, income
taxes payable and long-term debt, approximate their
respective fair values.
86
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
23. FINANCIAL INSTRUMENTS (CONTINUED)
(e) FAIR VALUE OF FINANCIAL INSTRUMENTS
(ii) OFF-BALANCE SHEET FINANCIAL STATEMENTS
The following forward sale contract values are held
by the Company's investee, Metorex, at year end and
represent the aggregate settlement value at the
forward rate for the tonnes delivered:
<Table>
<Caption>
2002 2001
------------ ------------
Copper (value)
U.S $2,338,000 $ 857,000
------------------------------------------------
Copper (tonnes) 1,400 500
------------------------------------------------
------------------------------------------------
Gold (value)
U.S $ -- $2,256,000
------------------------------------------------
Gold (kg's) -- 240
------------------------------------------------
------------------------------------------------
</Table>
24. SUBSEQUENT EVENTS
As at September 24, 2002, the Company had received cash payments of
$1,395,067 against the amount due from Metorex at June 30, 2002.
On October 22, 2002, the Company announced that it had sold additional
shares of Metorex for cash proceeds of approximately $12.6 million. As
a result of this transaction, the Company's interest in Metorex was
reduced from 41% to 21%.
25. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in
accordance with Canadian GAAP which, in the case of the Company, differ
in some respects from U.S. GAAP. The differences between Canadian and
U.S. GAAP and their effect on the Company's consolidated financial
statements are summarized below:
87
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
25. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
Consolidated Balance Sheets
<Table>
<Caption>
2002 2001
--------------- ---------------
Total assets under Canadian GAAP $ 82,085,934 $ 225,155,286
Excess of purchase price over fair value of net assets acquired (a) -- 3,311,657
Decrease in mineral property interests due to expensing
of exploration costs (b) (22,009,348) (11,975,980)
Decrease in property, plant and equipment (c) -- (4,118,302)
Effect of application of foreign exchange translation (d)
Increase (decrease) in carrying value of
Mineral property interests 1,960,894 (1,167,111)
Property, plant and equipment (50,152) (173,384)
Decrease in investment in Asia Pacific Resources classified
as "available for sale" (e) -- (14,272,054)
Increase in other current assets for unrealized gain on derivatives (f) -- 343,099
-----------------------------------------------------------------------------------------------------------------------
Total assets under U.S. GAAP $ 61,987,328 $ 197,103,211
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Total liabilities under Canadian GAAP $ 8,311,845 $ 117,872,366
Reduction of future tax liability related to expensing of exploration costs (b) (3,156,681) (3,257,366)
Reduction of future income tax liability related to decrease
in property, plant and equipment (c) -- (1,235,490)
Effect of the unrealized gain on derivatives on carrying value of: (f)
Non-controlling interest -- 112,880
Future income tax liability -- 102,930
-----------------------------------------------------------------------------------------------------------------------
Total liabilities under U.S. GAAP $ 5,155,164 $ 113,595,320
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity under Canadian GAAP $ 73,774,089 $ 107,282,920
Net effect on shareholders' equity of accounting for acquisition
of subsidiaries (a) -- 3,311,657
Cumulative adjustment to mineral property interests,
net of future income taxes (b) (18,852,667) (8,718,614)
Effect of different treatment of the Metorex consolidation of
interests on: (c)
Cumulative other comprehensive income (1,236,750) (1,236,750)
Deficit 1,236,750 (1,646,061)
Effect of application of foreign exchange translation on: (d)
Cumulative other comprehensive income 2,234,808 (1,194,218)
Deficit (324,066) (146,277)
Effect of the decline in value of investment in Asia Pacific Resources
classified as "available for sale" (e) -- (14,272,054)
Unrealized gain on derivatives, net of non-controlling interest and
future income taxes (f) -- 127,289
-----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity under U.S. GAAP $ 56,832,164 $ 83,507,892
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
</Table>
88
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
25. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
Consolidated Statements of Income
<Table>
<Caption>
2002 2001 2000
----------------- ----------------- ----------------
Net (loss) income under Canadian GAAP $ (40,750,689) $ (26,283,537) $ 2,390,060
Write-off and amortization of excess of purchase
price over fair value of net assets acquired (a) (3,311,657) (10,849,060) (413,957)
Release of future income tax liability related to
write-off of excess purchase price allocated to
Mindex ASA (a) -- 4,715,834 --
Mining exploration expenditures expensed
in current period (b) (10,033,368) (7,701,184) (4,160,743)
Future income tax recovery (expense) related to
expensing of exploration costs (b) (100,685) 3,257,366 --
Effect of different treatment of the Metorex
consolidation of interests on: (c)
Loss (gain) on investment in Metorex Limited 2,882,811 -- (2,088,790)
Amortization -- 632,470 --
Provision for future income taxes -- (189,741) --
Effect of application of foreign exchange
translation on: (d)
Amortization -- 4,283 (1,357)
Provision for impairment of other mineral
property interests and Mindoro Nickel
Project (177,789) 672,779 --
Foreign exchange -- (543,961) 280,736
Write-down of investment in Asia Pacific
Resources (e) 14,272,054 (14,272,054) --
Effect of unrealized gain on derivatives on: (f)
Interest and other income (343,099) 343,099 --
Provision for future income taxes 102,930 (102,930) --
Non-controlling interest 112,880 (112,880) --
-----------------------------------------------------------------------------------------------------------------
Net loss under U.S. GAAP $ (37,346,612) $ (50,429,516) $ (3,994,051)
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Fair value of the re-priced warrants (k) $ (1,035,907) $ (456,556) $ --
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Net loss for the period attributable to common
shareholders under U.S. GAAP $ (38,382,519) $ (50,886,072) $ (3,994,051)
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Net loss per share under U.S. GAAP $ (0.29) $ (0.50) $ (0.07)
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Fully diluted net loss per share under U.S. GAAP $ (0.29) $ (0.50) $ (0.07)
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding under U.S. GAAP 131,790,183 101,708,357 54,471,076
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
</Table>
89
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
25. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
Consolidated Statements of Cash Flows
<Table>
<Caption>
2002 2001 2000
--------------- --------------- ----------------
Cash flows from operating activities
under Canadian GAAP $ 7,049,425 $ 3,901,361 $ (660,108)
Reclassification of exploration
expenditures (b) (11,183,482) (7,701,184) (4,160,743)
----------------------------------------------------------------------------------------------
Cash flows from operating activities
under U.S. GAAP $ (4,134,057) $ (3,799,823) $ (4,820,851)
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Cash flows from financing activities
under Canadian GAAP $ 7,679,075 $ 52,972,455 $ 18,095,801
Reclassification of
bank indebtedness (j) -- 1,361,120 --
----------------------------------------------------------------------------------------------
Cash flows from financing activities
under U.S. GAAP $ 7,679,075 $ 54,333,575 $ 18,095,801
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Cash flows from investing activities
under Canadian GAAP $ 35,048,982 $(29,882,471) $(11,165,522)
Reclassification of exploration
expenditures (b) 11,183,482 7,701,184 4,160,743
----------------------------------------------------------------------------------------------
Cash flows from investing activities
under U.S. GAAP $ 46,232,464 $(22,181,287) $ (7,004,779)
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
</Table>
(a) ACQUISITION OF SUBSIDIARIES
During the year ended June 30, 1999, the Company issued common
shares to acquire 100% of the issued and outstanding shares of
Mindex ASA and Botswana Diamondfields Inc (Note 17).
Under U.S. GAAP, the fair value of the share consideration
paid in an acquisition is determined as of the date the terms
are agreed to and announced based on an evaluation of the
trading prices of the Company's shares and other relevant
market conditions for a reasonable period of time before and
after the announcement date. In accordance with Canadian GAAP
at the time of these acquisitions, the fair value of the share
consideration paid was determined as of the date that assets
were received and consideration given unless control was
effectively transferred at an earlier date. As a result, the
consideration paid for the Mindex ASA and Botswana
Diamondfields Inc. acquisitions increased by $10,021,146 and
$4,553,528, respectively, under U.S. GAAP, these amounts being
allocated to mineral property interests and excess of purchase
price over fair value of assets acquired, respectively.
During the year ended June 30, 2001, the additional
consideration allocated to Mindex ASA under U.S. GAAP was
written off due to the decline in value of the Mindoro Nickel
Project (Note 10). During the year ended June 30, 2002, the
additional consideration allocated to Botswana Diamondfields
Inc. was written off due to the impairment of its investment
in Asia Pacific Resources (Note 8).
90
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
25. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
(b) DEFERRED EXPLORATION COSTS
Under U.S. GAAP, exploration costs related to mineral
properties are expensed until there is substantial evidence
that a commercial body of ore has been located and can be
exploited by the Company.
In March 2000, the Accounting Standards Board of the Canadian
Institute of Chartered Accountants ("CICA") issued Accounting
Guideline No. 11 entitled ENTERPRISES IN THE DEVELOPMENT STAGE
- ("AcG 11"). The guideline addresses three distinct issues
including (i) capitalization of costs/expenditures, (ii)
impairment and (iii) disclosure. Prior to its issuance,
development stage entities were exempt from certain aspects of
Canadian GAAP.
In March 2002, the Emerging Issues Committee issued Abstract
126, ACCOUNTING BY MINING Enterprises FOR EXPLORATION COSTS,
which provided further guidance on AcG 11. Abstract 126
concluded that a mining enterprise that has not commenced
operations or objectively established mineral reserves is not
precluded from considering exploration costs to have the
characteristics of property, plant and equipment. In
accordance with this guidance, under Canadian GAAP the Company
capitalizes all costs related to the acquisition and
exploration of mineral properties until either commercial
production is established or a property is abandoned.
(c) CARRYING VALUE OF THE INVESTMENT IN METOREX LIMITED
In 2000, under U.S. GAAP, the Company accounted for the
consolidation of interests held by Metorex Limited as
described in Note 6 (a) in accordance with the principles
outlined in EITF 98-7, ACCOUNTING FOR EXCHANGES OF SIMILAR
EQUITY METHOD INVESTMENTS, which resulted in no dilution gain
being recognized on the transaction. Under Canadian GAAP, the
transaction was measured at fair value as it represented a
substantive change in ownership and the culmination of the
earnings process, which resulted in the recognition of a
dilution gain.
In 2001 when the Company began to consolidate its investment
in Metorex, the purchase consideration under U.S. GAAP was
lower than under Canadian GAAP. As a result, the excess
purchase price allocated to property, plant and equipment was
lower under U.S. GAAP than Canadian GAAP, with a related
adjustment necessary to reduce amortization expense and future
income tax liabilities. However, in 2002 when the Company
recorded a loss on the investment in Metorex, the amount of
the loss was lower under U.S. GAAP than Canadian GAAP. As a
result, the carrying value of the Company's investment in
Metorex at June 30, 2002 is the same under U.S. GAAP and
Canadian GAAP and no further adjustment is required.
(d) FOREIGN EXCHANGE
Under U.S. GAAP, the Company is required to account for
foreign exchange gains and losses arising from translation of
its foreign subsidiaries' financial statements in accordance
with the provisions of SFAS No. 52, FOREIGN CURRENCY
TRANSLATION. Accordingly, all assets and liabilities on the
foreign financial statements are translated using the current
exchange rate with gains and losses resulting from the
translation being recorded as a separate component of
shareholders' equity. Under Canadian GAAP, Crew Norway AS and
Nalunaq I/S are considered integrated subsidiaries and
accordingly, the temporal method of foreign currency
translation is used whereby non-monetary assets and
liabilities are translated using the exchange rates prevailing
on the respective dates of the transactions.
91
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
25. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
(e) INVESTMENT IN ASIA PACIFIC RESOURCES
Under U.S. GAAP, the Company is required to account for its
investment in Asia Pacific Resources in accordance with the
provisions of SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS
IN DEBT AND EQUITY SECURITIES. In accordance with this
standard, this investment is classified as "available for
sale" and is carried at its market value with the unrealized
holding loss being included as a separate component of
shareholders' equity unless there is an other-than-temporary
decline in fair value as determined by reference to recent SEC
guidance, in which case the investment is written down to fair
value through the statement of income. This writedown was
recorded under U.S. GAAP during the year ended June 30, 2001.
Under Canadian GAAP, this investment is carried at cost less
any provision for other than temporary decline in value as
determined by reference to the criteria for determining
impairment under Canadian GAAP. As at June 30, 2002 the
carrying value of the Company's investment in Asia Pacific
Resources is the same under Canadian and U.S. GAAP.
(f) FINANCIAL INSTRUMENTS
In accordance with SFAS 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, which was subsequently
amended by SFAS 138, ACCOUNTING FOR CERTAIN DERIVATIVE
INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES, the Company
recognizes the fair value of derivatives, which do not meet
the definition of hedges under SFAS 133, on the balance sheet
as assets or liabilities. The gain or loss that results from
revaluing derivatives, which do not meet the definition of
hedges under SFAS 133, each period is credited or charged to
the statement of income. Under Canadian GAAP, the Company's
derivatives have been designated as hedges on future copper
and gold revenues, therefore no financial statement
recognition is required. The fair value of the derivatives
held by the Company's investee, Metorex Limited, is disclosed
in Note 23 (e).
(g) COMPREHENSIVE INCOME
SFAS No. 130, REPORTING COMPREHENSIVE INCOME, established
standards for the reporting and display of comprehensive
income and its components. The impact of SFAS No. 130 on the
Company's financial statements is as follows:
92
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
25. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
(g) COMPREHENSIVE INCOME (CONTINUED)
<Table>
<Caption>
2002 2001 2000
-------------- -------------- --------------
Net loss under U.S. GAAP $(38,382,519) $(50,886,072) $ (3,994,051)
Other comprehensive income
Effect of application of foreign
exchange translation 7,430,288 (5,632,104) (728,950)
Adjustment of unrealized loss
on "available for sale"
investments -- 11,456,235 (11,456,235)
----------------------------------------------------------------------------------------------
Comprehensive net loss under
U.S. GAAP $(30,952,231) $(45,061,941) $(16,179,236)
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Comprehensive loss per share
under U.S. GAAP $ (0.23) $ (0.44) $ (0.30)
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
</Table>
(h) INVESTMENTS IN NALUNAQ I/S AND METOREX LIMITED
U.S. GAAP requires investments in incorporated joint ventures
to be accounted for under the equity method, while under
Canadian GAAP, the accounts of incorporated investees subject
to joint control are proportionately consolidated. However,
under rules promulgated by the United States Securities and
Exchange Commission ("SEC"), the Company may, subject to the
provision of additional information, continue to use the
proportionate consolidation method for purposes of U.S. GAAP
disclosures in its financial statements. Prior to the
acquisition of control of Nalunaq in June 2001, the Company
recorded its investment in Nalunaq using the proportionate
consolidation method. Additional information concerning the
Company's investment in Nalunaq I/S is presented in Note 5.
(i) STOCK-BASED COMPENSATION
The Company has adopted, for U.S. GAAP purposes, the
accounting for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board ("APB")
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES.
Accordingly, since stock options are granted at the quoted
market value of the Company's common shares at the date of the
grant, there is no compensation cost to be recognized by the
Company.
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
requires the use of the fair value based method of accounting
for stock options. Under this method, compensation cost is
measured at the grant date based on the fair value of the
options granted and is recognized over the vesting period.
SFAS No. 123, however allows the Company to continue to
measure the compensation cost of employees in accordance with
APB No. 25. The Company has adopted the disclosure-only
provisions of SFAS No. 123.
93
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
25. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
(i) STOCK-BASED COMPENSATION (CONTINUED)
The following pro forma financial information presents the net
loss and the loss per share had the Company adopted SFAS 123
for all stock options issued to directors, officers and
employees in the years ended June 30,
<Table>
<Caption>
2002 2001 2000
-------------- -------------- --------------
Net loss for the year under
U.S. GAAP $(38,382,519) $(50,886,072) $ (3,994,051)
Additional stock based
compensation cost (678,675) (941,362) (1,971,938)
-------------------------------------------------------------------------------------
Pro forma net loss $(39,061,194) $(51,827,434) $ (5,965,989)
-------------------------------------------------------------------------------------
Pro forma basic and diluted
loss per share $ (0.30) $ (0.51) $ (0.11)
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</Table>
Using the fair value method for stock based compensation,
additional costs of approximately $678,675 (2001 - $941,362;
2000 - $1,971,938) would have been recorded for the year ended
June 30, 2002. These amounts were determined using an option
pricing model assuming no dividends are to be paid, a weighted
average volatility of the Company's share price of 63% and an
annual risk free interest rate of 4.4%.
(j) STATEMENT OF CASH FLOWS
Under U.S. GAAP, the change in bank indebtedness would be
classified as a financing activity rather than as a component
of the cash position at the beginning and end of the period.
The effect of this difference would be to increase cash from
financing activities and net cash inflow by $Nil for the year
ended June 30, 2002 (2001 - $1,361,120; 2000 - $Nil).
(k) WARRANTS
Under U.S. GAAP, the share purchase warrants described in Note
15 (d) which were re-priced to $1.00 per share and had their
term extended to March 17, 2001, are treated as an issue of
new warrants and recorded as a distribution to shareholders in
the amount of $456,556, based on the fair value of the revised
warrants on date of re-pricing. The re-pricing of the share
purchase warrants described in Note 15 (f) was recorded as a
distribution to shareholders in the amount of $1,035,907,
based on the incremental fair value granted to warrant holders
on the date of re-pricing. Under Canadian GAAP there is no
specific requirement to record the effect of these
re-pricings.
94
<Page>
CREW DEVELOPMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
25. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
(l) RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board
("FASB") issued SFAS No. 141, BUSINESS COMBINATIONS, and SFAS
No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS No. 141
requires that business combinations be accounted for under the
purchase method of accounting and addresses the initial
recognition and measurement of assets acquired, including
goodwill and intangibles, and liabilities assumed in a
business combination. SFAS No. 142 requires goodwill to be
allocated to, and assessed as part of, a reporting unit.
Further, SFAS No. 142 specifies that goodwill will no longer
be amortized but instead will be subject to impairment tests
at least annually. The impairment test is a two-step process.
First, the fair value of a reporting unit is compared to its
carrying value to identify possible impairment and then, if
necessary, the impairment is measured through a deemed
purchase price allocation. Under this standard, the Company
will also be required to review the useful lives of acquired
goodwill and intangible assets at least annually.
The Company is required to adopt SFAS No. 141 and 142 on a
prospective basis as of July 1, 2002; however, certain
provisions of these standards also apply to acquisitions
concluded subsequent to June 30, 2001. The Company does not
expect that the adoption of these pronouncements will have a
material impact on its financial position and results of
operations because the Company does not have any goodwill on
its balance sheet at June 30, 2002.
In October 2001, the FASB issued Statement of Financial
Accounting Standard No. 144 ("SFAS 144"), ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. SFAS 144
supersedes Statement of Financial Accounting Standard No. 121
("SFAS 121"), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, and the
accounting and reporting provisions of APB Opinion No. 30 for
the disposal of a business segment. SFAS 144 establishes a
single accounting model, based on the framework established in
SFAS 121, for long-lived assets to be disposed of by sale. The
Statement also broadens the presentation of discontinued
operations to include disposals of a component of an entity
and provides additional implementation guidance with respect
to the classification of assets as held-for-sale and the
calculation of an impairment loss. The Company is required to
adopt SFAS 144 as of July 1, 2002. The adoption of SFAS 144 is
not expected to have a material impact on the Company's
financial statements.
In June 2002, the FASB issued Statement of Financial
Accounting Standard No. 146 ("SFAS 146"), ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES. SFAS 146 requires
that the liability for a cost associated with an exit or
disposal activity be recognized at its fair value when the
liability is incurred. Under previous guidance, a liability
for certain exit costs was recognized at the date that
management committed to an exit plan. As SFAS 146 is effective
only for exit or disposal activities initiated after December
31, 2002, the Company does not expect the adoption of this
statement to have a material impact on the Company's financial
statements.
95
<Page>
AGREEMENT
THIS AGREEMENT dated for reference the 1st day of July, 2001.
BETWEEN:
CREW DEVELOPMENT CORPORATION with a registered office
at Suite 400 - 837 West Hastings Street, Vancouver,
British Columbia, V6C 3N6
(hereinafter called the "Company")
OF THE FIRST PART
AND:
WESTERN INVESTMENT CONSULTANTS LTD., with a
registered office at 10th Floor - 595 Howe Street,
Vancouver, British Columbia, V6C 2T5
(hereinafter called "Western"")
OF THE SECOND PART
AND:
JOHN M. DARCH, a business person who resides at 5315
Seaside Place, West Vancouver, British Columbia, V7W
3E2
(hereinafter called "Darch")
OF THE THIRD PART
WHEREAS the Company is continued under the laws of the Yukon Territory and
carries on business as a mineral exploration and development company;
AND WHEREAS the Company desires to engage Western to carry out and provide
management and consulting services, and to provide Darch to carry out such
services (the "Work"), on the terms and subject to the conditions herein set
forth;
AND WHEREAS the parties wish to formally record the terms of the engagement of
Western and its remuneration and other benefits, and the responsibilities of
Darch;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and
mutual covenants herein, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged by both parties, the parties
hereby covenant and agree with each other as follows:
1. EMPLOYMENT
1.1 The Company agrees to retain and to continue to retain Western to perform
the Work, and Darch agrees to serve the Company (and its associates or
affiliates if so requested by the Company) in the capacity of Chief Executive
Officer and Chairman during the term of this Agreement.
1.2 This Agreement shall commence on July 1, 2001, and continue until
terminated as hereinafter provided in Article 4 hereof.
96
<Page>
1.3 Darch shall report to and be directly responsible to the Board of
Directors of the Company. Darch shall perform, observe and conform to such
duties and instructions as from time to time are reasonably assigned or
communicated to him by the Board of Directors and which are reasonably
consistent with the employment and status of Darch as Chief Executive Officer
and Chairman of the Company, and shall make such reports to the Board of
Directors as may be necessary to fully and properly inform the Board of
Directors of the matters of business of the Company as well as such additional
reports as the Board of Directors may from time to time reasonably request.
1.4 Darch agrees to serve as a Director of the Company if so requested by the
Board of Directors. Darch further agrees to serve as a Director and/or an
officer of associated or affiliated companies if so requested by the Directors
as long as this Agreement remains in force.
2. COMPENSATION
2.1 The Company agrees to pay Western and Western agrees to accept as
remuneration for Darch's services hereunder annual compensation in the amount of
$375,000 for the period July 1, 2001 to and including June 30, 2002, and
$425,000 for the period July 1, 2002 to and including June 30, 2003, payable by
equal monthly instalments, exclusive of any other benefits referred to herein.
The parties agree that the Company will review the compensation payable for the
period July 1, 2003 to and including June 30, 2004, and will make any
adjustments it determines are reasonable in the sole opinion of the Directors,
who may take into account (but are not limited to) Darch's performance and the
financial and operating success of the Company in the preceding twelve (12)
months. Such review shall take place by September 30, 2003. In no case will the
annual compensation be reduced unless by mutual agreement, such agreement to be
in writing. For greater certainty, annual compensation as referred to herein
shall not include any other payments such as bonuses, share options, benefits,
etc.
2.2 Darch shall be entitled to participate in all employee benefit programs
maintained by the Company, including, without limiting the generality of the
foregoing, any pension plan, group and disability insurance plan, and medical
and dental plans, in accordance with and on the same terms and conditions as are
provided to other senior officers of the Company. Darch agrees that the Company
may in its discretion substitute, reduce, modify or if necessary, eliminate such
benefits at any time, and all such benefits shall be governed by the terms of
the applicable policies in force.
2.3 In the event that Darch should at any time be prevented by illness or
accident from performing all of his duties and provided that he furnishes
satisfactory evidence of such incapacity and the cause thereof, Darch shall
receive such benefits as may be available under the Company's long term
disability program, if any; and for a period of up to 36 months the Company will
pay to Western monthly, the difference between the amount of disability benefits
received by Western and the compensation payable by the Company pursuant to this
Agreement. It is understood and acknowledged that the benefits under any long
term disability program are governed by the terms of the policy of insurance in
force, and the Company assumes no liability to provide such benefits. If Darch
shall be incapacitated for a period longer than 36 months, the Company reserves
the right to terminate this Agreement, and Western shall have no further claim
for compensation from the Company whatsoever.
2.4 Darch shall be entitled to participate in any incentive programs,
including, without limiting the generality of the foregoing, share option plans,
share purchase plans, share bonus plans or financial assistance plans, in
accordance with and on terms and conditions determined by the Directors in their
sole discretion. Darch acknowledges that his participation in these plans or
programs will be to such extent and in such amounts as the Directors in their
sole discretion may decide from time to time.
(a) Any amounts which Darch may be entitled to under any such plan
or program shall not, for the purposes of this Agreement, be
treated as compensation under paragraph 2.01 hereof.
(b) Darch agrees that the Company may substitute, reduce, modify,
or if necessary, eliminate such plans or programs at any time.
All such plans or programs shall be governed by the policies
of the various regulatory bodies which have jurisdiction over
the affairs of the Company.
2.5 If deemed necessary by the Company for Darch to carry out his duties, the
Company shall provide Darch with the use of a suitable motor vehicle, and the
parties will endeavour to do this in the most tax-effective manner.
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2.6 The Company shall pay on behalf of Darch such club fees and dues as Darch
may incur in furthering the business of the Company as the Directors of the
Company may decide from time to time; provided further that the Company shall
not be obliged to reimburse or otherwise make allowance to Darch in respect of
any amount brought into Darch's income for income tax purposes by virtue of the
provision to and use by Darch of such club fees and dues.
2.7 Darch shall be entitled to seven weeks vacation, without reduction in
compensation to Western, each twelve months, at such time or times as shall be
convenient to Darch and the Company.
2.8 Western shall be reimbursed by the Company for all out of pocket expenses
actually, necessarily and properly incurred by Darch in the discharge of his
duties for the Company. Western agrees that such reimbursements shall be due
only after Darch has rendered an itemized expense account, together with
receipts where applicable, showing all monies actually expended on behalf of the
Company and such other information as may reasonably be required and requested
by the Company.
2.9 The Company will purchase and maintain in effect as long as this Agreement
is in effect, for the benefit of Western, insurance on the life of Darch in an
amount of $1,000,000 to be paid to Western in the event of Darch's death. Such
insurance will be purchased in the most cost effective manner.
3. DUTIES OF DARCH
3.1 Darch will diligently and faithfully devote his best efforts to advance
the Company's interest throughout the term of this Agreement. Darch agrees that,
provided he is elected a Director, he will serve as a Director or as a member of
any committee of the Board of Directors of the Company or any associated or
affiliated Company to which he may be appointed.
3.2 Darch will not, at any time or in any manner during the continuance of his
employment hereunder, or at any time within one year after the termination of
this Agreement, divulge any of the confidential affairs or secrets of the
Company to any person or persons, without the previous consent in writing of the
Directors, and will not use or attempt to use any information which he may
acquire in the course of his duties for his own benefit, directly or indirectly.
3.3 The Company acknowledges that Darch shall be entitled to pursue other
business activities as long as such activities do not prevent him from carrying
out his responsibilities hereunder to the Company. In the event that a conflict
of interest does arise, Darch shall immediately disclose the same to the Company
and the Company's Board of Directors, and shall abstain from participating in
all matters dealing with the same.
4. TERMINATION
4.1 Darch may terminate this Agreement and his employment by giving the
Company at least 90 days' written notice.
4.2 The Company may terminate this Agreement and the engagement of Darch
without cause at any time after June 30, 2003 by giving Western written notice,
in which event the Company shall be obligated to provide Western with a
severance payment in lieu of notice. Subject to the provisions of paragraph
4.02(iii), such severance payment shall be payable on the fifth day following
date of termination and shall consist of the following amounts:
(a) Western's full compensation through to the date of termination
at the rate in effect at the time Notice of Termination was
given, plus an amount equal to the amount, if any, of any
awards previously made to Western which have not been paid.
(b) In lieu of further compensation for periods subsequent to the
date of termination, an amount which shall be equal to the
compensation which would otherwise have been payable to
Western for the 36 month period following the date of
termination.
(c) Darch shall be entitled to exercise any stock options
outstanding as at the date of termination for a period of six
months from and including the date of termination.
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Termination of the Agreement in accordance with this Section shall relieve the
Company from any and all obligation, liability or claim by Western, exclusive of
monies owing to Western up to the date of termination.
4.3 The Company may at any time terminate this Agreement for cause that would
in law permit the Company to, without notice, terminate Darch as an employee, in
which event Western shall not be entitled to a severance payment in lieu of
notice.
4.4 Any termination by the Company pursuant to paragraphs 4.02 and 4.03 shall
be communicated by written Notice of Termination. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision of this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination. For purposes of this Agreement, no such purported
termination shall be effective without such notice.
4.5 Upon termination of this Agreement pursuant to paragraph 4.02, Darch shall
continue to be entitled to participate, at the expense of the Company, in any of
the Company's health and medical plans for management personnel, until the
earlier of Darch obtaining alternate coverage under the terms of any new
employment or 36 months after the termination date. If such participation is not
permitted under any such plan, the Company shall pay to Western, in addition to
all other amounts payable hereunder, a sum sufficient to enable Western to
obtain individual health and medical insurance coverage equivalent to that at
the time afforded under such plans.
4.6 On the termination for any reason, Darch agrees to deliver up to the
Company all documents, financial statements, records, plans, drawings and papers
of every nature in any way relating to the affairs of the Company and its
associated or affiliated companies which may be in his possession or under his
control.
4.7 Western shall not be required to mitigate the amount of any payments
provided for under any paragraph of this Section by requiring Darch to seek
other employment or otherwise nor shall the amount of any payment provided for
in this Section be reduced by any compensation earned by Western or Darch as the
result of employment by another company after the date of termination or
otherwise.
5. SUCCESSORS OR ASSIGNS
5.1 The rights and obligations of the Company under this Agreement shall enure
to the benefit of and be binding upon the successors or assigns of the Company.
The Company will require any successor (whether direct or indirect, by purchase,
amalgamation, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place, provided that,
if Western agrees, an express agreement may not be required if such results by
operation of law. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle Western to compensation from the Company in the same amount and on
the same terms as Western would be entitled hereunder pursuant to paragraph 4.02
as if such succession had not occurred except that, for purposes of implementing
the foregoing, the date of which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, "Company" shall mean
the Company as herein before defined and any successor to its business and/or
assets as aforesaid which executes and delivers the agreement provided for in
this paragraph 5.01 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
6. MISCELLANEOUS
6.1 This Agreement and the engagement of Darch shall be governed, interpreted,
construed and enforced according to the laws of the province of British Columbia
and the laws of Canada applicable therein.
6.2 This Agreement shall inure to the benefit of and be enforceable by
Western's legal representatives and successors.
6.3 References herein to "associates" or "affiliates" shall mean associates
and affiliates as defined in the Company Act (British Columbia).
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6.4 This Agreement represents the entire agreement between Western, Darch and
the Company concerning the subject matter hereof and supersedes any previous
oral or written communications, representations, understandings or agreements
with the Company or any officer or agent thereof.
6.5 Any notice, acceptance or other document required or permitted hereunder
shall be considered and deemed to have been duly given if delivered by hand or
mailed by postage (Special Delivery) prepaid or by telecopier and addressed as
follows:
TO WESTERN AND DARCH: Western Investment Consultants Ltd.
and John M. Darch 5315 Seaside Place
West Vancouver, B.C.
V7W 3E2
Telecopier: 604-925-3352
TO THE COMPANY: Crew Development Corporation
Suite 400 - 837 West Hastings Street
Vancouver, British Columbia
V6C 3N6
Telecopier: 604-682-0566
or to such other address as any party may specify in writing to the other and
shall be deemed to have been received, if delivered, on the date of delivery and
if mailed as aforesaid, then on the second business day following the date of
mailing thereof provided that if there shall be, at the time of mailing or
within two business days thereof, a strike, slowdown or other labour dispute
which might affect delivery of notice by the mails then the notice shall only be
effective if actually delivered or on the date of transmission if made prior to
4:00 p.m. (Vancouver time), or otherwise on the business day following the date
of transmission, as the case may be.
6.6 The waiver by Western, Darch or by the Company of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by the Company or by Western or by Darch.
6.7 Time shall be of the essence of this Agreement.
6.8 All references herein to dollar amounts shall be deemed to refer to
Canadian funds.
7. AGREEMENT VOLUNTARY AND EQUITABLE
7.1 The Company and Western and Darch further acknowledge and declare that
they each have carefully considered and understand the terms of employment
contained in this Agreement, including, but without limiting the generality of
the foregoing, Western's rights upon termination and the restrictions on Darch
after termination, and acknowledge and agree that the said terms and rights and
restrictions upon termination are mutually fair and equitable, and that they
executed this Agreement voluntarily and of their own free will.
8. BOARD APPROVAL
8.1 This Agreement shall be subject to the approval of the Compensation
Committee as appointed by the Company's Board of Directors.
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IN WITNESS WHEREOF the Company and Western have executed this Agreement in the
presence of its duly authorized officers on that behalf and Darch has hereunto
set his hand and seal as of the day and year first above written.
CREW DEVELOPMENT CORPORATION
Per: /s/ Cameron Belsher
--------------------------------------------
Authorized Signatory
WESTERN INVESTMENT CONSULTANTS INC.
Per: /s/ John Darch
--------------------------------------------
Authorized Signatory
SIGNED, SEALED and DELIVERED by JOHN DARCH in the )
presence of: )
)
)
- -----------------------------------------------------)
Name ) /s/ John Darch
) -----------------------
- -----------------------------------------------------) JOHN DARCH
Address )
)
- -----------------------------------------------------)
)
- -----------------------------------------------------
Occupation )
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EMPLOYMENT AGREEMENT
THIS AGREEMENT dated for reference the 1st day of July, 2001.
BETWEEN:
CREW DEVELOPMENT CORPORATION with a registered
officed located at Suite 400 - 837 West Hastings
Street, Vancouver, British Columbia, V6C 3N6
(hereinafter called the "Company")
OF THE FIRST PART
AND:
PETER D. BARNES a business person residing at 131
East Kensington Road, North Vancouver, British
Columbia, V7N 1P2
(hereinafter called "Barnes")
OF THE SECOND PART
WHEREAS the Company is continued under the laws of the Yukon Territory and
carries on business as a mineral exploration and development company;
AND WHEREAS the Company desires to engage Barnes to carry out and provide
management and employment services (the "Work"), on the terms and subject to the
conditions herein set forth;
AND WHEREAS the parties wish to formally record the terms of the employment of
Barnes, and the remuneration and other benefits, and the responsibilities of
Barnes;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and
mutual covenants herein, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged by both parties, the parties
hereby covenant and agree with each other as follows:
1. EMPLOYMENT
1.1 The Company agrees to retain and to continue to retain Barnes to perform
the Work, and Barnes agrees to serve the Company (and its associates or
affiliates if so requested by the Company) in the capacity of President and
Chief Financial Officer during the term of this Agreement.
1.2 This Agreement shall commence on July 1, 2001, and continue until
terminated as hereinafter provided in Article 4 hereof.
1.3 Barnes shall report to and be directly responsible to the Chairman and
Chief Executive Officer of the Company (the "CEO"). Barnes shall perform,
observe and conform to such duties and instructions as from time to time are
reasonably assigned or communicated to him by the CEO and which are reasonably
consistent with the employment and status of Barnes as President and Chief
Financial Officer of the Company, and shall make such reports to the CEO as may
be necessary to fully and properly inform the CEO of the matters of business of
the Company as well as such additional reports as the CEO may from time to time
reasonably request.
1.4 Barnes agrees to serve as a Director of the Company if so requested by the
Board of Directors. Barnes further agrees to serve as a Director and/or an
officer of associated or affiliated companies if so requested by the Directors
as long as this Agreement remains in force.
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2. COMPENSATION
2.1 The Company agrees to pay Barnes and Barnes agrees to accept as
remuneration for his services hereunder annual compensation in the amount of
$250,000 payable by equal monthly instalments, exclusive of any other benefits
referred to herein. The parties agree that the Company will review the said
compensation on an annual basis and will make any adjustments it determines are
reasonable in the sole opinion of the Directors, who may take into account (but
are not limited to) Barnes' performance and the financial and operating success
of the Company in the preceding twelve (12) months. Such review shall take place
annually by September 30th in each calendar year, beginning on or before
September 30th following the first anniversary of this Agreement. In no case
will the annual compensation be reduced unless by mutual agreement, such
agreement to be in writing. For greater certainty, annual compensation as
referred to herein shall not include any other payments such as bonuses, share
options, benefits, etc.
2.2 Barnes shall be entitled to participate in all employee benefit programs
maintained by the Company, including, without limiting the generality of the
foregoing, any pension plan, group and disability insurance plan, and medical
and dental plans, in accordance with and on the same terms and conditions as are
provided to other senior officers of the Company. Barnes agrees that the Company
may in its discretion substitute, reduce, modify or if necessary, eliminate such
benefits at any time, and all such benefits shall be governed by the terms of
the applicable policies in force.
2.3 In the event that Barnes should at any time be prevented by illness or
accident from performing all of his duties and provided that he furnishes
satisfactory evidence of such incapacity and the cause thereof, Barnes shall
receive such benefits as may be available under the Company's long term
disability program, if any; and for a period of up to 24 months the Company will
pay to Barnes monthly, the difference between the amount of disability benefits
received by Barnes and the compensation payable by the Company pursuant to this
Agreement. It is understood and acknowledged that the benefits under any long
term disability program are governed by the terms of the policy of insurance in
force, and the Company assumes no liability to provide such benefits. If Barnes
shall be incapacitated for a period longer than 24 months, the Company reserves
the right to terminate this Agreement, and Barnes shall have no further claim
for compensation from the Company whatsoever.
2.4 Barnes shall be entitled to participate in any incentive programs,
including, without limiting the generality of the foregoing, share option plans,
share purchase plans, share bonus plans or financial assistance plans, in
accordance with and on terms and conditions determined by the Directors in their
sole discretion. Barnes acknowledges that his participation in these plans or
programs will be to such extent and in such amounts as the Directors in their
sole discretion may decide from time to time.
(a) Any amounts which Barnes may be entitled to under any such
plan or program shall not, for the purposes of this Agreement,
be treated as compensation under paragraph 2.01 hereof.
(b) Barnes agrees that the Company may substitute, reduce, modify,
or if necessary, eliminate such plans or programs at any time.
All such plans or programs shall be governed by the policies
of the various regulatory bodies which have jurisdiction over
the affairs of the Company.
2.5 If deemed necessary by the Company for Barnes to carry out his duties, the
Company shall provide Barnes with the use of a suitable motor vehicle, and the
parties will endeavour to do this in the most tax-effective manner.
2.6 The Company shall pay on behalf of Barnes such club fees and dues as
Barnes may incur in furthering the business of the Company as the CEO may decide
from time to time; provided further that the Company shall not be obliged to
reimburse or otherwise make allowance to Barnes in respect of any amount brought
into Barnes' income for income tax purposes by virtue of the provision to and
use by Barnes of such club fees and dues.
2.7 Barnes shall be entitled to five weeks vacation, without reduction in
compensation to Barnes, each twelve months, at such time or times as shall be
convenient to Barnes and the Company.
2.8 Barnes shall be reimbursed by the Company for all out of pocket expenses
actually, necessarily and properly incurred by Barnes in the discharge of his
duties for the Company. Barnes agrees that such reimbursements shall be due only
after Barnes has rendered an itemized expense account, together with receipts
where applicable,
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showing all monies actually expended on behalf of the Company and such other
information as may reasonably be required and requested by the Company.
2.9 The Company will purchase and maintain in effect as long as this Agreement
is in effect, for the benefit of Barnes, insurance on the life of Barnes in an
amount of $1,000,000 to be paid to Barnes in the event of Barnes' death. Such
insurance will be purchased in the most cost effective manner.
3. DUTIES OF BARNES
3.1 Barnes will diligently and faithfully devote his best efforts to advance
the Company's interest throughout the term of this Agreement. Barnes agrees
that, provided he is elected a Director, he will serve as a Director or as a
member of any committee of the Board of Directors of the Company or any
associated or affiliated Company to which he may be appointed.
3.2 Barnes will not, at any time or in any manner during the continuance of
his employment hereunder, or at any time within one year after the termination
of this Agreement, divulge any of the confidential affairs or secrets of the
Company to any person or persons, without the previous consent in writing of the
Directors, and will not use or attempt to use any information which he may
acquire in the course of his duties for his own benefit, directly or indirectly.
3.3 The Company acknowledges that Barnes shall be entitled to pursue other
business activities as long as such activities do not prevent him from carrying
out his responsibilities hereunder to the Company. In the event that a conflict
of interest does arise, Barnes shall immediately disclose the same to the
Company and the Company's Board of Directors, and shall abstain from
participating in all matters dealing with the same.
4. TERMINATION
4.1 Barnes may terminate this Agreement and his employment by giving the
Company at least 90 days' written notice.
4.2 The Company may terminate this Agreement and the employment of Barnes
without cause at any time after June 30, 2003 by giving Barnes written notice,
in which event the Company shall be obligated to provide Barnes with a severance
payment in lieu of notice. Subject to the provisions of paragraph 4.02(iii),
such severance payment shall be payable on the fifth day following date of
termination and shall consist of the following amounts:
(a) Barnes' full compensation through to the date of termination
at the rate in effect at the time Notice of Termination was
given, plus an amount equal to the amount, if any, of any
awards previously made to Barnes which have not been paid.
(b) In lieu of further compensation for periods subsequent to the
date of termination, an amount which shall be equal to the
compensation which would otherwise have been payable to Barnes
for the 24 month period following the date of termination.
(c) Barnes shall be entitled to exercise any stock options
outstanding as at the date of termination for a period of six
months from and including the date of termination.
Termination of the Agreement in accordance with this Section shall relieve the
Company from any and all obligation, liability or claim by Barnes, exclusive of
monies owing to Barnes up to the date of termination.
4.3 The Company may at any time terminate this Agreement for cause that would
in law permit the Company to, without notice, terminate Barnes as an employee,
in which event Barnes shall not be entitled to a severance payment in lieu of
notice.
4.4 Any termination by the Company pursuant to paragraphs 4.02 and 4.03 shall
be communicated by written Notice of Termination. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision of this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination. For purposes of this Agreement, no such purported
termination shall be effective without such notice.
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4.5 Upon termination of this Agreement pursuant to paragraph 4.02, Barnes
shall continue to be entitled to participate, at the expense of the Company, in
any of the Company's health and medical plans for management personnel, until
the earlier of Barnes obtaining alternate coverage under the terms of any new
employment or 24 months after the termination date. If such participation is not
permitted under any such plan, the Company shall pay to Barnes, in addition to
all other amounts payable hereunder, a sum sufficient to enable Barnes to obtain
individual health and medical insurance coverage equivalent to that at the time
afforded under such plans.
4.6 On the termination for any reason, Barnes agrees to deliver up to the
Company all documents, financial statements, records, plans, drawings and papers
of every nature in any way relating to the affairs of the Company and its
associated or affiliated companies which may be in his possession or under his
control.
4.7 Barnes shall not be required to mitigate the amount of any payments
provided for under any paragraph of this Section by requiring Barnes to seek
other employment or otherwise nor shall the amount of any payment provided for
in this Section be reduced by any compensation earned by Barnes as the result of
employment by another company after the date of termination or otherwise.
5. SUCCESSORS OR ASSIGNS
5.1 The rights and obligations of the Company under this Agreement shall enure
to the benefit of and be binding upon the successors or assigns of the Company.
The Company will require any successor (whether direct or indirect, by
purchase, amalgamation, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place,
provided that, if Barnes agrees, an express agreement may not be required if
such results by operation of law. Failure of the Company to obtain such
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement and shall entitle Barnes to compensation from the Company in the
same amount and on the same terms as Barnes would be entitled hereunder pursuant
to paragraph 4.02 as if such succession had not occurred except that, for
purposes of implementing the foregoing, the date of which any such succession
becomes effective shall be deemed the Date of Termination. As used in this
Agreement, "Company" shall mean the Company as herein before defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this paragraph 5.01 or which otherwise becomes
bound by all the terms and provisions of this Agreement by operation of law.
6. MISCELLANEOUS
6.1 This Agreement and the employment of Barnes shall be governed,
interpreted, construed and enforced according to the laws of the province of
British Columbia and the laws of Canada applicable therein.
6.2 This Agreement shall inure to the benefit of and be enforceable by Barnes'
legal representatives and successors.
6.3 References herein to "associates" or "affiliates" shall mean associates
and affiliates as defined in the Company Act (British Columbia).
6.4 This Agreement represents the entire agreement between Barnes and the
Company concerning the subject matter hereof and supersedes any previous oral or
written communications, representations, understandings or agreements with the
Company or any officer or agent thereof.
6.5 Any notice, acceptance or other document required or permitted hereunder
shall be considered and deemed to have been duly given if delivered by hand or
mailed by postage (Special Delivery) prepaid or by telecopier and addressed as
follows:
TO BARNES: Peter D. Barnes
131 East Kensington Road
North Vancouver, British Columbia
V7N 1P2
Telecopier: 604-986-4484
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TO THE COMPANY: Crew Development Corporation
Suite 400 - 837 West Hastings Street
Vancouver, British Columbia
V6C 3N6
Telecopier: 604-682-0566
or to such other address as any party may specify in writing to the other and
shall be deemed to have been received, if delivered, on the date of delivery and
if mailed as aforesaid, then on the second business day following the date of
mailing thereof provided that if there shall be, at the time of mailing or
within two business days thereof, a strike, slowdown or other labour dispute
which might affect delivery of notice by the mails then the notice shall only be
effective if actually delivered or on the date of transmission if made prior to
4:00 p.m. (Vancouver time), or otherwise on the business day following the date
of transmission, as the case may be.
6.6 The waiver by Barnes or by the Company of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by the Company or by Barnes.
6.7 Time shall be of the essence of this Agreement.
6.8 All references herein to dollar amounts shall be deemed to refer to
Canadian funds.
7. AGREEMENT VOLUNTARY AND EQUITABLE
7.1 The Company and Barnes further acknowledge and declare that they each have
carefully considered and understand the terms of employment contained in this
Agreement, including, but without limiting the generality of the foregoing,
Barnes' rights upon termination and the restrictions on Barnes after
termination, and acknowledge and agree that the said terms and rights and
restrictions upon termination are mutually fair and equitable, and that they
executed this Agreement voluntarily and of their own free will.
8. BOARD APPROVAL
8.1 This Agreement shall be subject to the approval of the Compensation
Committee as appointed by the Company's Board of Directors.
IN WITNESS WHEREOF the Company has executed this Agreement in the presence of
its duly authorized officers on that behalf and Barnes has hereunto set his hand
and seal as of the day and year first above written.
CREW DEVELOPMENT CORPORATION
Per: /s/ Cameron Belsher
------------------------------------------
Authorized Signatory
SIGNED, SEALED and DELIVERED by PETER BARNES in the )
presence of: )
)
)
)
Name ) /s/ Peter Barnes
) -------------------------
Address ) PETER BARNES
)
- ---------------------------------------------------
)
)
- ---------------------------------------------------
Occupation )
106
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TERMS OF AGREEMENT BETWEEN CREW DEVELOPMENT CORPORATION,
WIC AND JOHN M. DARCH
1. The engagement agreement (the "Engagement Agreement") between Western
Investments Consultants Ltd. ("WIC"), represented by John M. Darch ("Darch") and
Crew Development Corporation ("Crew") dated July 1, 2001 is terminated effective
February 28, 2002.
2. Crew will pay WIC $400,000 plus G.S.T. $200,000 shall be paid in full to WIC
on March 1, 2002. The balance of $200,000 will be paid into WIC's lawyer's trust
account on March 1, 2002 and held in trust (the "Trust Monies") for the purchase
of securities of Crew in the next financing of Crew on the same terms and
conditions as other subscribers. If Crew has not completed such a financing by
September 1, 2002, on September 30, 2002, WIC will subscribe for shares in the
capital of Crew utlizing all of the Trust Monies and Crew will issue shares to
WIC for an issue price equal to the weighted average trading price for the Crew
shares for the 20 trading days prior to September 1, 2002. In all cases shares
acquired by WIC utilizing the Trust Monies must be held by WIC until March l,
2003.
3. All Crew stock options presently held by Darch/WIC will expire on March 1,
2003 if not exercised. This date will be extended to March 1, 2004 if permitted
by the relevant regulatory authorities.
4. Darch will provide irrevocable, undated resignations as a director and
officer of Crew, all subsidiaries of Crew and all other entities, other than
North Pacific GeoPower Corp. ("NPGP"), in which Crew has an interest, such
resignations to be utilized by the Board of Directors of Crew when it sees fit.
Similarly, Darch will provide or cause to be provided irrevocable undated
resignations as directors and officers of the same entities executed and
delivered by Messrs. Barnes, Williamson, and Fallis, in case to be utilized by
the board of directors of Crew when it sees fit.
5. For the period to March 1, 2004, Crew will provide to Darch and his spouse
the same medical and dental benefits as are presently provided to him under his
existing engagement arrangements, such benefits to be terminated upon Darch,
directly or through WIC, obtaining a full time engagement or employment with any
entity other than NPGP.
6. NPGP and WIC will enter into a consulting agreement (the "NPGP Contract")
which will provide for the payment of $100,000 per year plus G.S.T. for a two
year period payable monthly, less applicable statutory withholdings.
7. Crew shall transfer to WIC share of NPGP in an aggregate amount equal to
$200,000 at a deemed transfer price of $0.25 per share (800,000 shares) plus
G.S.T. in the amount of $14,000. WIC shall not transfer such shares prior to
March 1, 2003.
8. Crew agrees to use its best efforts, ref. Point 6, to cause NPGP to enter
into the NPGP Contract and, for so long as Crew controls NPGP, to use its best
efforts to cause it fulfil its obligations under the NPGP Contract. Provided
that Crew remains in a control position, Crew will use its efforts to cause
Darch to continue as a director and the chairman of NPGP during the term of the
NPGP Contract.
9. Under the NPGP Contract, NPGP will provide an office for use by Darch on
terms reasonably satisfactory to him. The NPGP Contract shall provide that
Darch/WIC will be entitled to stock options in NPGP when issued, on the same
terms as other directors.
10. This agreement will be a full and final settlement of the claims,
allegations, and obligations of the parties to March 1, 2002. Accordingly,
mutual releases of all claims or possible claims of any kind whatsoever arising
out of anything occurring up to that date, whether known or unknown, except for
any claims arising from fraud or criminal conduct, shall be exchanged between
the parties in a form reasonably satisfactory to counsel.
11. Crew will pay up to $4,000 of the legal fees of Darch/WTC for
advice concerning this agreement and its implementation.
12. This agreement shall be kept confidential except as required by law and any
press release required to be issued shall be mutually agreed, such agreement not
to be unreasonably withheld.
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13. Any disputes between the parties arising out of or in connection with this
agreement, including the scope of the mutual releases and any claims arising out
of events prior to the effective date of this agreement shall be referred to
arbitration in accordance with the provisions of the COMMERCIAL ARBITRATION ACT.
14. Darch understands that he is not an employee or director or officer of Crew
and that he no longer has any rights under the Engagement Agreement and that WIC
is no longer engaged by the Company and no longer has any rights under the
Engagement Agreement.
15. Darch and WIC acknowledge and agree that during Darch's engagement with
Crew, he was engaged in an executive and confidential capacity and owed
fiduciary duties to Crew and as such his confidential duties to the company
extend beyond the termination of his engagement with the company. Darch and WIC
agree to keep confidential and not disclose to anyone outside Crew, the
confidential affairs or secrets of Crew including without limitation, clients or
suppliers, all information obtained through his service as a director and/or
officer, the company's methods of operation, management systems, policies or
similar information involving the company or its affiliates. Further, and of
utmost importance to the company, because the company considers the terms of an
employee's separation to be a confidential matter, neither Darch nor WIC will,
without the prior written consent of Crew, disclose the terms of this agreement
to anyone. These duties of confidentiality are subject to the following
exceptions: Darch may make such disclosure as is required by law, including
disclosure in the course of any legal or administrative proceedings, and, with
respect to this agreement may make disclosure, on a confidential basis, to
Darch's immediate family or financial or legal advisors.
16. Darch and WIC will immediately upon the execution of this agreement return
to Crew any and all documents, financial statements, records, plans, drawings
and papers of every nature in any way relating to the affairs of the company or
its associated and affiliated companies which are in his possession or control
or WIC's possession or control as well as all credit cards, keys,
identification, data records, automobile, equipment and other information which
belongs to the Crew. Darch and WIC agree that any copies of any such documents
that they make for their own records will be kept confidential.
17. All dollar amounts expressed herein are in Canadian dollars.
18. The obligations of the parties hereunder are subject to receipt of all
necessary regulatory approvals and approval by the NPGP Board. If the NPGP
Contract is not approved by the regulatory authorities having jurisdiction or
the NPGP Board, the NPGP Contract will terminate and Crew shall transfer to WIC
shares of NPGP in an aggregate sum equal to $200,000 at a deemed transfer price
of $0.25 per share (800,000 shares) plus G.S.T. in the amount of $14,000.
Dated this 28th day of February, 2002.
CREW DEVELOPMENT CORPORATION
Per: /s/ Cameron Belsher
-----------------------------
Authorized Signatory
WESTERN CONSULTANTS LTD.
Per: /s/ John M. Darch /s/ John M. Darch
------------------------------ --------------------------------------
Authorized Signatory JOHN M. DARCH
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TERMS OF AGREEMENT BETWEEN CREW DEVELOPMENT CORPORATION
AND PETER D. BARNES
1. The employment agreement between Crew Development Corporation ("Crew") and
Peter D. Barnes ("Barnes") is terminated effective March 31, 2002.
2. Barnes will be paid $276,843 on April, 2002. On execution of this agreement
such money will be paid to Barnes' lawyer in trust for the purpose of satisfying
this commitment on April 1, 2002. All Crew stock options presently held by
Barnes will be maintained but shall expire on April 1, 2003 if not exercised.
Barnes will provide services and be available to answer questions about the
business and affairs of Crew on a mutually agreeable basis.
3. If Barnes does not find other employment by April 1, 2003 he will be entitled
to five monthly payments of $20,833 per month until August 31, 2003. If Barnes
has found alternative employment prior to April 1, 2003, the five monthly
payments to August 31, 2003 will be reduced by the amount which Barnes receives
as base salary from his new employer. On execution of this agreement, $104,165
will be transferred to Barnes' lawyer in trust, for the purpose of meeting the
obligations in this paragraph. To the extent Barnes is not entitled to all or a
portion of the five monthly payments due to obtaining alternative employment,
the money remaining will be paid to Crew on August 31, 2003.
4. On April 1, 2002 Barnes shall be paid his pro rata share of his director's
fees on the basis of an annual fee of $10,000. This money shall also be paid to
Barnes' lawyer in trust upon execution of this agreement for the purpose of
satisfying this commitment on April 1, 2002.
5. For the period to August 31, 2003, medical and dental benefits shall be
provided to Barnes and his family as are presently provided under his employment
contract, such coverage to cease in the event that Barnes receives alternative
employment.
6. Crew will pay Barnes' cellular phone charges so long as Crew wishes to use
Barnes' services on a regular and continuous basis. Crew may cancel such
payments at any time upon seven days' notice to Barnes.
7. Barnes shall be entitled to retain and Crew shall transfer to Barnes title to
his laptop, office printer, and home office fax.
8. Barnes will provide irrevocable, undated resignations as a director and
officer of Crew, all subsidiaries of Crew and all of entities in which Crew has
an interest, to be utilized by the board of directors of Crew when it sees fit.
9. This agreement is intended to be a full and final settlement of the claims,
allegations, and obligations of the parties up to April 1, 2002. Accordingly,
mutual releases of all claims or possible claims of any kind whatsoever arising
out of anything occurring up to March 31, 2002, whether known or unknown, except
for any claims arising from fraud or criminal conduct, shall be exchanged
between the parties, in a form reasonably satisfactory to counsel.
10. Crew will pay the legal fees of Barnes up to a maximum of $4,000 for
advice concerning this agreement and its implementation.
11. This agreement shall be kept confidential except as required by law and any
press release required to be issued shall be mutually agreed, such agreement not
to be unreasonably withheld.
12. Any disputes between the parties arising out of or in connection with this
agreement, including the scope of the releases and any claims arising out of
event prior to the effective date of this agreement shall be referred to
arbitration in accordance with the provisions of the COMMERCIAL ARBITRATION ACT.
13. Barnes understands that he is no longer employee or director or officer of
Crew and that he no longer has any rights under his existing employment
agreement as of March 31, 2002.
14. Barnes acknowledges and agrees that during his employment with Crew, he was
employed in an executive and confidential capacity and owed fiduciary duties to
crew and as such his confidential duties to the company
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extend beyond the termination of his employment with the company. Barnes agrees
to keep confidential and not disclose to anyone outside Crew, the confidential
affairs or secrets of Crew including without limitation, clients or suppliers,
all information obtained through his service as a director and/or officer, the
company's methods of operation, management systems, policies or similar
information involving the company or its affiliates. Further, and of utmost
importance to the company, because the company considers the terms of an
employee's separation to be a confidential matter, Barnes will not, without the
prior written consent of Crew, disclose the terms of this agreement to anyone.
These duties of confidentiality are subject to the following exceptions: Barnes
may make such disclosure as is required by law, including disclosure in the
course of any legal or administrative proceedings, and, with respect to this
agreement may make disclosure on a confidential basis, to Barnes' immediate
family or financial or legal advisors.
15. Barnes will immediately upon the execution of this agreement return to Crew
any and all documents, financial statements, records, plans, drawings and papers
of every nature in any way relating to the affairs of the company or its
associated and affiliated companies which are in his possession or control as
well as all credit cards, keys, identification, data records, automobile,
equipment and other information which belongs to the Crew. Barnes agrees that he
will keep confidential any copies of any such documents that he makes for his
own records.
All dollar amounts expressed herein are in Canadian dollars.
Dated this 22nd day of February, 2002.
CREW DEVELOPMENT CORPORATION
Per: /s/ Cameron Belsher
------------------------------
Authorized Signatory
/s/ Peter D. Barnes
- ---------------------------------------
PETER D. BARNES
110