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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2003
/ / Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act 1934
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COMMISSION FILE NUMBER 0-26636
[LOGO]
CREW
DEVELOPMENT CORPORATION
CREW
DEVELOPMENT CORPORATION
(Exact name of Registrant as specified in its charter)
YUKON TERRITORY, CANADA
(Jurisdiction of incorporation or organization)
ABBEY HOUSE BUSINESS CENTER, WELLINGTON WAY
WEYBRIDGE, SURREY KT13 OTT, UNITED-KINGDOM
(Address of principal executive offices)
+ (44) (0) 193 226 8755
(Registrant's telephone number)
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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. 142,608,739 COMMON SHARES ISSUED AND OUTSTANDING AS AT NOVEMBER 15,
2003.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES /X/ No / /
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, 2003
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 19 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.
2
SECURITIES AND EXCHANGE COMMISSION
FORM 20-F FOR CREW DEVELOPMENT CORPORATION
TABLE OF CONTENTS
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..............................................................................11
C. Regulatory Framework...........................................................................29
D. Breakdown of Total Revenues by Category of Activity and Geographic Market......................30
E. Organizational Structure.......................................................................30
F. Property, Plants and Equipment.................................................................31
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS...................................................31
A. Operating Results..............................................................................31
B. Liquidity and Capital Resources................................................................36
C. Research and Development, Patents and Licenses, etc............................................38
D. Trend Information..............................................................................38
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.....................................................38
A. Directors and Senior Management................................................................38
B. Compensation...................................................................................39
C. Board Practices................................................................................42
D. Employees......................................................................................43
E. Share Ownership................................................................................43
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..............................................43
A. Major Shareholders.............................................................................43
B. Related Party Transactions.....................................................................44
C. Interests of Experts and Counsel...............................................................44
ITEM 8. FINANCIAL INFORMATION..........................................................................44
A. Consolidated Statements and Other Financial Information........................................44
B. Significant Changes............................................................................44
ITEM 9. THE OFFER AND LISTING..........................................................................45
A. Offer and Listing Details......................................................................45
B. Plan of Distribution...........................................................................46
C. Markets........................................................................................46
D. Selling Shareholders...........................................................................46
E. Dilution.......................................................................................46
3
F. Expenses of the Issuer.........................................................................46
ITEM 10. ADDITIONAL INFORMATION.........................................................................47
A. Share Capital..................................................................................47
B. Memorandum and Articles of Association.........................................................47
C. Material Contracts.............................................................................50
D. Exchange Controls..............................................................................50
E. Taxation.......................................................................................51
F. Dividends and Paying Agents....................................................................57
G. Statements by Experts..........................................................................57
H. Documents on Display...........................................................................57
I. Subsidiary Information.........................................................................57
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................................57
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.........................................58
ITEM 13. DEFAULTS, DIVIDEND ARREARS AND DELINQUENCIES...................................................58
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS...................58
ITEM 15. CONTROLS AND PROCEDURES........................................................................58
ITEM 16. [RESERVED].....................................................................................58
ITEM 17. FINANCIAL STATEMENTS...........................................................................58
ITEM 18. FINANCIAL STATEMENTS...........................................................................59
ITEM 19. EXHIBITS.......................................................................................59
A. Consolidated Financial Statements..............................................................A1
B. Miscellaneous Exhibits.........................................................................B1
4
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.
5
MINERAL RESERVE - The economically mineable part of a measured or indicated
mineral resource demonstrated by at least a preliminary feasibility study. This
study must include adequate information on mining, processing, metallurgical,
economic and other relevant factors that demonstrate, at the time of reporting,
that economic extraction can be justified. A mineral reserve includes diluting
materials and allowances for losses that may occur when the material is mined.
MINERAL RESOURCE - A concentration or occurrence of 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
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, 2003 are
not necessarily indicative of results for future periods.
SELECTED FINANCIAL DATA PREPARED IN ACCORDANCE WITH CANADIAN GAAP
YEAR ENDED JUNE 30
--------------------------------------------------------------
2003 2002 2001 2000 1999
------------- ------------- -------------- ------------- ------------
Total revenues - $111,730,701 $79,702,138 $10,908,252 $23,692,705
Net earnings (loss) (18,861,357) (40,750,689) (26,283,537) 2,390,060 (107,047)
Net earnings (loss) per share
fully diluted (0.14) (0.31) (0.26) 0.04 -
Net earnings (loss) per share (0.14) (0.31) (0.26) 0.04 -
Income (loss) From Continuing
Operations (18,861,357) (40,750,689) (26,283,537) 2,390,060 (107,047)
Income (loss) From Continuing
Operations per share (0.14) (0.31) (0.26) 0.04 -
Income (loss) From Continuing
Operations per share fully
diluted (0.14) (0.31) (0.26) 0.04 -
Total assets 68,393,404 82,085,934 225,155,286 99,572,940 43,682,183
Net assets (shareholders'
equity) 57,481,614 73,774,089 107,282,920 96,544,908 29,556,746
Long term debt Nil Nil 10,484,144 Nil Nil
Capital Stock $160,411,614 $160,390,184 $156,750,902 $113,830,010 $49,738,903
Dividends Nil 228,284 Nil Nil Nil
Weighted average number of
shares outstanding 138,664,295 131,790,183 101,708,357 54,471,076 26,669,081
Note 19 of the Consolidated Financial Statements sets forth the differences were
such information to be presented in accordance with U.S. GAAP.
7
SELECTED FINANCIAL DATA PREPARED IN ACCORDANCE WITH U.S. GAAP
YEAR ENDED JUNE 30
---------------------------------------------------------------
2003 2002 2001 2000 1999
-------------- ------------ -------------- ------------- ------------
Total revenues - $111,730,701 $79,702,138 $10,908,252 $23,692,705
Net earnings (loss) (14,443,269) (38,382,519) (50,886,072) (3,994,051) (107,047)
Net earnings (loss) per share
fully diluted (0.10) (0.29) (0.50) (0.07) -
Net earnings (loss) per share (0.10) (0.29) (0.50) (0.07) -
Income (loss) From Continuing
Operations (14,443,269) (38,382,519) (50,886,072) (3,994,051) (107,047)
Income (loss) From Continuing
Operations per share (0.10) (0.29) (0.50) (0.07) -
Income (loss) From Continuing
Operations per share fully
diluted (0.10) (0.29) (0.50) (0.07) -
Total assets 45,066,101 58,792,762 197,103,211 113,076,705 43,021,522
Net assets (shareholders
equity) 40,836,355 55,381,429 83,507,892 91,370,480 28,896,086
Long term debt Nil Nil 10,484,144 Nil Nil
Dividends Nil 228,284 Nil Nil Nil
Weighted average number of
shares outstanding 138,664,295 131,790,183 101,708,357 54,471,076 26,669,081
In this Annual Report, unless otherwise specified, all monetary amounts are
expressed in Canadian Dollars. On November 15, 2003, 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 $1.3034 (US$1 = CAD$1.3034).
The following table sets out the high and low exchange rates exchange rates for
each of the last six months.
2003
----------------------------------------------------------------------------------------------------------
NOVEMBER OCTOBER SEPTEMBER AUGUST JULY JUNE
---------------- ---------------- ---------------- ---------------- ---------------------------------
HIGH $1.3362 $1.3481 $1.3876 $1.4100 $1.4114 $1.3768
LOW $1.2973 $1.3043 $1.3469 $1.3836 $1.3368 $1.3348
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.
YEAR ENDED JUNE 30
---------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------------ ------------------ ------------------- -------------------- ---------------------
AVERAGE $1.3916 $1.5702 $1.5519 $1.4871 $1.4827
B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
INTRODUCTION
The Corporation and its projects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies engaged in the
acquisition, exploration and development of mineral properties. To address these
risks, the Corporation must, amongst other things, attract, retain and motivate
qualified personnel, as well as implement and successfully execute its
exploration and development programs. The key risk factors are outlined below.
8
EXPLORATION AND DEVELOPMENT
The Corporation's prospects, many of which are in the exploration stage, will
only be developed if the exploration is successful. Mineral exploration involves
a high degree of risk and few properties that are explored are ultimately
developed into producing mines. The long-term profitability of the Corporation
will in part depend on the cost and success of its exploration programs.
Substantial expenditures are required to establish mineral reserves through
exploration in order to eventually develop the resources and later extract the
established resource. 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.
FLUCTUATING FACTORS
The Corporation has no control over mineral or metal prices, which can be
affected by numerous factors including international economic and political
trends, inflation, currency exchange fluctuations, interest rates, global or
regional consumption patterns, speculative activities and increased or decreased
production of metals or metal products due to changes in extraction and
production methods. The effect of these factors on the price of precious and
base minerals and metals, and therefore the future economic viability of any of
the Corporation's exploration projects, cannot be accurately predicted.
TITLE TO ASSETS
The Corporation holds exploration permits and licenses in several countries. The
Corporation also holds mining permits, and applications for mining permits,
which will replace the exploration permits. The Corporation has no reason to
expect that these rights will not be granted but cannot guarantee that mining
permits will be granted for specific projects.
GOVERNMENT REGULATIONS
The future operations of the Corporation will, from time to time, require
permits from various governmental authorities and will be governed by laws and
regulations regarding, but not limited to, prospecting, development, mining,
production, taxation, employment standards, occupational health, waste disposal,
land use, environmental protection, mine safety, and other matters. The
Corporation may in the future need to apply for permits from different
authorities. Companies engaged in the exploration and development of resource
properties can experience increased costs and delays in production and other
schedules as a result of the need to comply with applicable laws, regulations
and permits. There can be no assurance that 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.
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.
ENVIRONMENTAL FACTORS
All phases of the Corporation's operations are subject to environmental
regulations in the various jurisdictions in which it operates. Environmental
legislation may evolve in a manner, which in the future may require stricter
regulations, increased fines and penalties for non-compliance, more stringent
environmental assessments of proposed projects and a heightened degree of
responsibility for companies and their officers, directors, and employees. There
are no assurances that future changes in environmental regulation, if any, will
not adversely affect
9
the Corporation's operations. Compliance with respect to environmental,
reclamation, closure and other matters may involve significant costs and/or
other liabilities.
COMPETITION
The mineral resource industry is highly competitive in all phases and the
Corporation will be competing with many established companies which may have
greater financial and technical resources. The Corporation cannot guarantee that
this competition will not have an adverse effect either now, or at some time in
the future, on the Corporation's ability to acquire, explore, and develop
mineral resource deposits.
REQUIREMENT OF NEW CAPITAL
The Corporation may require new equity in the future in order to be able to
continue the exploration programs and the possible development of the
Corporation's projects. The Corporation is presently generating minor income
from technical consulting services, which is insufficient in meeting the capital
requirements of the planned exploration and development programs. Failure to
obtain financing when needed may require the Corporation to either scale back or
discontinue one or more of its exploration and development programs or sell
properties and projects at prevailing market price.
DEPENDENCE ON KEY PERSONNEL
The success of the Corporation is dependent on senior management. The experience
of these individuals will be a factor contributing to the Corporation's
continued success and growth. The loss of one or more of these individuals could
have a material adverse effect on the Corporation's business prospects.
UNINSURED RISKS
In the course of exploration, development and production of minerals and metals,
the Corporation may be subject to liability for pollution, cave-ins or hazards,
of which it cannot insure against, or which, due to high premiums or other
reasons, it elects not to insure against. The payment of such liabilities may
have a material adverse effect on the Corporation's business, financial
condition or results of operations.
ITEM 4. INFORMATION OF THE CORPORATION
A. HISTORY AND DEVELOPMENT OF THE CORPORATION
The Corporation was incorporated under the COMPANY ACT of the Province of
British Columbia on March 31, 1980 under the name Ryan Energy Corp. (N.P.L). The
Corporation changed its name 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. As of January 28, 2000, the Corporation continued
into the Yukon Territory and is subject to the BUSINESS CORPORATIONS ACT of the
Yukon Territory.
The registered office of the Corporation is Suite 200-204 Lambert Street,
Whitehorse, Yukon Territory YIA 3T2, Canada, and the head office of the
Corporation is Abbey House, Wellington Way, Weybridge, Surrey KT13 OTT, United
Kingdom.
In March 2002, a dissident shareholder action resulted in a change in the
composition and control of the Board of Directors (the "Board") and the senior
management of the Corporation. The new senior management revised the
Corporation's strategy to focus on developing and operating gold and precious
metals assets directly owned by the Corporation, giving first priority to
Nalunaq.
In line with the new corporate strategy, the Corporation:
(i) disposed of the majority of its investment in Metorex and used the
proceeds from this sale of shares to fund Nalunaq and other
exploration;
10
(ii) formed Nalunaq Gold Mine A/S, in which the Corporation owns an 82.5%
shareholding and introduced a new operational structure;
(iii) invested in Barberton Mines Limited ("Barberton"), a South African
based gold mining operation, in which the Corporation has a 20%
interest;
(iv) acquired the mineral rights to the Seqi olivine project in western
Greenland, and subsequently signed an agreement in July 2003 with
Minelco AB, a subsidiary of the Swedish iron ore producer
Luossavaara-Kiirunavaara Aktiebolag for the development of the
project; and
(v) restructured, consolidated and centralized its corporate offices to
Weybridge, United Kingdom.
On May 1, 2003, the Corporation announced its plans to restructure the
organization. As part of such restructuring, the employees of corporate
management and key technical staff were assigned to a new U.K.-based
wholly-owned subsidiary of the Corporation. The new corporate structure is
expected to improve organizational effectiveness as well as reduce the
Corporation's overhead costs. Also as part of the restructuring, restructuring
the Corporation's head office in Vancouver, Canada, and other offices in Norway,
were closed and certain staff were transferred to the new head office in the
United Kingdom with the remaining staff laid off. The restructuring was
implemented effective on June 30, 2003.
The Corporation is a public, internationally listed, development and operating
company, focused on identifying, acquiring and developing resource projects
worldwide. The Corporation's objective is to maximise shareholder value.
The Corporation believes that the combination of seeking premium returns by way
of adding value to early-stage projects, supported by cash flows from a growing
operating base, maximises the potential returns for shareholders, while
mitigating the risks.
During the year, the Corporation has revised its strategy from being a broadly
diversified multi-commodity mining company, to one which focuses on gold and
precious metals. It is the Corporation's objective to have direct interests in
gold exploration and gold producing assets and enter into joint ventures with
industrial partners for development of non-core assets presently owned by the
Corporation. It will be the Corporation's objective to have the joint venture
partners take all, or the major part of, the operating risks and capital
expenditures in the non-core assets. The Board revised the Corporation's
strategy after a careful consideration of the potential for near-term cash flow
and growth based on the Corporation's own financial and human resources.
Management will focus on identifying new projects with near-term cash flow
potential as well as develop existing assets.
The Corporation seeks to maintain a balanced portfolio of both exploration
projects and cash generating projects. The recent acquisition of Barberton, with
a pay back period of less than three years and at least 10 years expected
remaining mine life, is in line with the Corporation's strategic focus on gold
and precious metals. It is also in line with the Corporation's previously
expressed intentions of entering into projects with existing or near-term cash
flow. In combination with the forthcoming gold production from Nalunaq, as well
as with other projects where the Corporation is investigating the potential for
near-term production and cash flow, the acquisition of Barberton strengthens the
Corporation's position as a growth oriented mid-tier gold producer.
B. BUSINESS OVERVIEW
The business of the Corporation currently consists of the following ventures,
each of which is described in more detail below:
(i) mineral projects located in Greenland, Ghana, Norway and the
Philippines through its 100% ownership of Crew Norway;
(ii) gold, coal, base metals and mineral mining operations through its 5.3%
ownership of Metorex; and
(iii) potash resources development through its 1.5% ownership of Asia
Pacific.
11
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 9 employees in Weybridge, United Kingdom who provide
technical, financial and administrative expertise. In addition, the Corporation
employs one person in Norway and three persons in the Philippines.
The following is a summary of the operations of the Corporation and it
subsidiaries:
CORE & STRATEGIC ASSETS
NALUNAQ GOLD MINE A/S - SOUTH GREENLAND (MINE UNDER CONSTRUCTION)
PROPERTY DESCRIPTION AND LOCATION
The Nalunaq gold mine ("Nalunaq") was originally discovered in 1992. Nalunaq is
a high-grade gold deposit, located at the southern tip of Greenland
approximately 40 km north-east of Nanortalik. Transportation to Nalunaq is by
helicopter from the international airport at Narssarsuaq and takes approximately
40 minutes. The gold deposit is located about 9 km from tidewater in
Kirkespirdalen, which is a wide glacial valley reaching into the Saqqa Fjord of
South Greenland. The terrain is alpine with mountain peaks reaching 1200-1600 m
from sea level. The Nalunaq mountain, which hosts the gold deposit, is 1340 m
high. The deep, ice-free fjords allow easy access for shipping and the overall
climate is moderate allowing for full-year mining operations.
OWNERSHIP
In 1997, Mindex entered into an earn-in agreement with NunaMinerals AS
("NunaMinerals"- formerly Nunaoil AS) for a 50% interest in Nalunaq I/S (a
Danish partnership) which was granted the original exploration license in
respect of the Nalunaq area. In 2000, the Corporation acquired the 50% interest
in Nalunaq I/S via the Corporation's acquisition of Mindex. The Corporation
increased its interest in Nalunaq I/S to 67% during the year 2000.
In June 2001, the Corporation gained operational control of Nalunaq I/S and
increased its ownership to 82.5% in exchange for a commitment to fund the
development of the project through to completion of a feasibility study and to
provide the necessary project loan guarantees. As a result, NunaMinerals
converted its 33% contributing interest in Nalunaq I/S into an 18.5% carried
interest position.
In December 2002, the Corporation and NunaMinerals transferred the ownership of
the Nalunaq I/S assets to Nalunaq Gold Mine A/S, a Danish limited liability
company. Nalunaq Gold Mine A/S is the current operator of Nalunaq and the holder
of the Nalunaq mining license (the "Nalunaq License").
NALUNAQ LICENSE
The Nalunaq License was granted in April 2003 by Bureau of Minerals and
Petroleum (the "BMP") to Nalunaq Gold Mine A/S for a 30-year term. The Nalunaq
License is granted under the provisions of articles 7 and 15 of the DANISH ACT
ON MINERAL RESOURCES IN GREENLAND (the "Danish Mineral Act"). It is an exclusive
license for exploration of mineral resources (excl. hydrocarbons) for the
prescribed area.
The Nalunaq License covers an area of 16 km2 carved out from the Nanortalik
license (the "Nanortalik License") area. The remaining portion of the license
area (i.e. the area which lies outside the subject area of the Nalunaq License)
has been transferred to the Nanortalik License granted to Nalunaq I/S, a newly
formed Danish partnership, which Crew Norway AS and NunaMinerals operate on a
contributing joint-venture basis. The Nanortalik License is an exclusive license
granted by the BMP to Nalunaq I/S in July 2002 for exploration of mineral
resources in a 1,065 km2 area. The Nanortalik License expires on December 31,
2003.
It is a condition under the Nalunaq License that the shareholders of Nalunaq
Gold Mine A/S guarantee the obligations of Nalunaq Gold Mine A/S under the
Nanulaq License. Further, Nalunaq Gold Mine A/S has provided a security deposit
of DKK 4.2 million to the government of Greenland to cover future estimated mine
closure costs and a three-year monitoring program. The amount of the security
deposit is based on an estimate of closure costs set
12
out in a detailed closure plan prepared by the BMP. The terms set out in the
closure plan are not exhaustive and the BMP has the right to set out additional
terms in the event of future exploration activities within the area of the
Nalunaq License.
MINERAL RESOURCE AND RESERVE ESTIMATES
In conjunction with the preparation of the Nalunaq Feasibility Study (see
below), SRK Consulting Engineers and Scientists ("SRK") of Toronto, Ontario was
appointed to conduct an independent resource calculation for Nalunaq. The
resource calculation defined 483,900 t 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 t 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, as such resources were previously included in the
Corporation's internal resource assessment. The significant additional resource
potential in these extensions, however, is recognized in the resource
calculation. M. Michaud of SRK completed the resource calculations; Mr. Michaud
is independent of the Corporation and is a "qualified person" as defined in
Canadian National Instrument 43-101 STANDARDS FOR DISLOSURE FOR MINERAL PROJECT.
The table below, extracted from the Nalunaq Feasibility Study, shows the effect
of mining width over these intervals:
MEASURED & INDICATED MINERAL RESOURCES OVER 1.0 METERS OVER 1.2 METERS OVER 1.5 METERS GOLD
--------------------------------------
TONNES g/t TONNES g/t TONNES g/t OUNCES
------ --- ------ --- ------ --- ------
Main Vein (including Stockpiles) 352,100 30.3 414,200 25.8 508,300 20.9 343,700
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
INFERRED MINERAL RESOURCES OVER 1.0 METERS OVER 1.2 METERS OVER 1.5 METERS GOLD
--------------------------
TONNES g/t TONNES g/t TONNES g/t OUNCES
------ --- ------ --- ------ --- ------
Main Vein (including Stockpiles) 200,000 24.7 240,100 20.6 326,000 15.9 159,100
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
GEOLOGY
The Nalunaq deposit is a Proterozoic, shear-zone hosted, high-grade gold
mineralization. The occurrence has gold-bearing outcrops exposed along more
than 2,000 m on the slope of the mountain. The entire length of the exposed
structure has been sampled with significant sections at 1 m intervals. These
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 due to the regular presence of visible gold.
The most pronounced structures at Nalunaq are narrow zones of intense shear
with evidence of ductile shearing surrounded by relatively brittle margins.
The main vein itself is hosted in a narrow ductile shear zone with a
remarkably constant orientation. The regular sheet has an average strike of
45-50 DEG. and an average dip of 36 DEG. south-east. On the local scale the
structure undulates somewhat, and dips measured in the face of the adits vary
between 22 DEG. and 45 DEG.
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 m
to 1.8 m 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.
13
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 pronounced nugget effect. Despite this, a grade-zonation
is clearly identifiable with high-grade segments running approximately
northeast-southwest throughout the mine area. The reason for this regularity is
not clear, but 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 generally 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.
WORK COMPLETED
EXPLORATION: To date, a total of 90 drill holes (15,000 m) and more than 3,600 m
of underground adits and raises have been completed within mineralized
structure, as well as over 1,000 m of access drifts and waste development. In
addition, surface sampling has been conducted over 2,000 m of exposed outcrops,
with substantial portions channel sampled at 1 m intervals. As a result of
underground work performed to date, approximately 53,600 t containing a total of
approximately 26,000 oz of gold have been stockpiled. The stockpile materials
will be the first to be shipped for processing in late 2003 and the proceeds
thereof being used to partially fund mine commissioning.
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 in order to minimize
ore dilution. Minimizing dilution results in less material being hauled and
processed, thus lowering operating costs. In 2002, four long-hole stopes were
successfully produced. These were based on a continuous 72 m sub-drift
development and three 15 m slot raises. As a result of these tests, management
of the Corporation believes that a mining width of approximately 1.2 m or less
will be achieved during mining operations.
MINE PLAN: Following considerable discussions and a thorough review of the first
mine plan, a new mine plan has been developed and drawn up in cooperation with
potential mining contractors. This mine plan has now been submitted to the
authorities for approval. The proposed mining method will consist of a hybrid of
long-hole mining and raise-mining, using Alimak vertical transportation
equipment, in order to accommodate the most cost-efficient methods for various
segments of the deposit with due consideration to dip variations within the
structure.
A memorandum of understanding with Procon Mining and Tunnelling ("Procon")
regarding a final mining contract has been executed and detailed mine plans,
schedules and mobilization sequences are being laid out. Procon has been
involved with the project as a mine contractor since 2000 and has a considerable
amount of mining equipment already on site, which will be used to ensure an
early start of pre-mining development. Upgrading and mobilization of new
equipment, including the introduction of Alimak units, will follow a newly
completed development plan aiming at a production date of January of 2004.
The mine system will include an internal ore pass system with capacity to hold
6-7 days production in order to allow for delay in transport of ore to the
stockpile pad at the beach due to severe weather conditions. The ore pass will
be equipped with a chute, which will allow feeding directly into 30 t
articulated trucks for the haulage to the beach.
SHIPPING PLANS AND ARRANGEMENTS: Approximately 38,000 t of ore from the
stockpile is in the process of being moved to a new stockpile site near the
loading facilities and the Corporation is aiming for a shipment in late December
2003. A local contractor who carried out the upgrading of the access road from
the fjord to the camp in August 2002 has been retained to transport the
stockpile materials with 30 t dumpers.
The stockpile consists of two types of material: crushed ore from 2000
development and uncrushed ore from 2001 and 2002 development. The two bodies of
ore will not be mixed, but instead will be shipped and processed in separate
batches (separate tanks in the ship) in order to ensure a better reconciliation
of the gold contents. During
14
proper mining operations, run-of-mine ("ROM") ore will be hauled directly from
the mine to the ore pad at the ship loading facility. The shipping pad will have
a nominal capacity of 60,000 t, which corresponds to about 3 months of
production at 450 tpd, plus additional two months production, if the shipping
schedule is delayed. Shipping is anticipated every 3 months at about 40,000 t
leading to a total of 140-160.000 t per year. The pad will have a base of
low-grade crushed materials to absorb potential losses of fine gold during
deposition and transfer.
ROM will be brought directly to the ship from the pad via a conveyor belt 200 m
in length. This belt will pass a 90 m barge anchored at a small rock pier and
with a ship loader conveyor at the front end. The conveyor is designed for
loading a 40,000 t bulk carrier in 4 days.
An agreement regarding shipping of the ore has been finalized with Fednav
International Ltd., a large Canadian shipping company. A memorandum of
understanding has been signed with Rio Narcea Gold Mines Ltd. ("Rio Narcea") of
Spain concerning batch processing of the Nalunaq ore, and two large samples of
200 kg each have been submitted for processing test work. Rio Narcea has a
processing capacity of 2,000 tpd and consequently will be able to process each
batch of ore in about 20 days.
CIVIL ENGINEERING WORKS AND CAMP CONSTRUCTION: The existing 9 km road from the
coast to the mine site has been upgraded and the road covered with a new topping
of crushed gravel along its full length. The road has been widened along most of
the stretch allowing two small vehicles to pass and larger passage spots for
trucks have been established at regular intervals along the road.
The existing bridge has been upgraded and the transition between bridge and road
has been reinforced with concrete. The dam section has been equipped with three
140 cm culverts, which are welded together and reinforced with wire netting
boxes. A new bridge at the road extension has been established and is laid on a
concrete foundation and bolted into the bedrock. The two bridges have been
equipped with crash fences.
The 2 km road extension leading to the new stockpile pad has been completed with
crushed gravel topping, and the construction of the stockpile pad has commenced.
The 90 m barge, which will carry the ship loader, has arrived and preparations
for setting up the shipping facility is underway. Currently, a pier head, made
by sheet piling is being constructed and a rock pier leading to the cofferdam is
being established. The barge has been used for easy unloading of camp modules,
diesel tanks and other large construction units directly from the
containerships, and the materials are subsequently brought to the beach for
direct unloading via a temporary dam.
THE CAMP COMPLEX: The base of the camp has been raised about 0.5 m above the
general level of the valley floor with about 8,000 m(3) of materials from
approved fill sites along the road - and topped with 25 cm crushed gravel
fill to a fully smoothened surface. The preparations for the camp area left
almost no marks of disturbance outside the proper pad and the surroundings
are left virtually untouched.
The camp foundations consisting of 0.5 m high steel beams have been laid out for
the complex and the building modules were placed on top of these. The base of
the camp units is raised about 1.2 m above the previous valley floor, which at
this site already formed the highest part of the entire valley to prevent
flooding. The camp layout consists of 11 building modules, 7 units each with
rooms for 10 people, a recreational unit, the mine office, laundry room and
showers, kitchen and dining room, including storage rooms, planning office and
an on-site laboratory.
The camp layout creates the impression of a small village situated in the middle
of the valley. The camp complex has its own well for potable water, a
purification system and a biological wastewater treatment plant. Power is
supplied from two 200 kVA generator units and telecommunication systems,
provided by Tele Greenland, allowing for individual room telephones as well as
internet and TV-access.
FEASIBILITY STUDY AND ENVIRONMENTAL IMPACT ASSESSMENT: A full feasibility study
and environmental impact assessment (the "Nalunaq Feasibility Study") pertaining
to Nalunaq was completed in August 2002. The Nalunaq Feasibility Study was
prepared by Kvaerner Engineering & Construction U.K. Ltd. ("Kvaerner") from
information generated both in-house and supplied by a number of international
specialists and consultants appointed by Kvaerner and Nalunaq Gold Mine A/S.
Nalunaq will be the first gold mine developed, and will also be the first new
mine to be commissioned in over 25 years, in Greenland.
15
The Nalunaq Feasibility Study compares the option of mining and then processing
the ore at an offshore facility with the option of mining and processing the ore
at a facility on site. The feasibility study recognizes that initial offshore
processing would be more advantageous than the construction of an on-site
processing plant because of lower capital costs, earlier cash flow and
possibilities for expansion of the ore resources at minimal capital investments.
Based upon the results of the Nalunaq Feasibility Study, the Corporation decided
to initially pursue the offshore processing of gold whereby the Corporation will
ship the ROM ore to an offshore processing facility. The total pre-production
capital was estimated to be USD 9.7 million. This was based on the assumption
that a 30-40,000 t bulk carrier was to be used with a jetty and barge-conveyor
system for loading. Costs per tonne, excluding sustaining capital, for offshore
processing was estimated to be approximately USD 60 for the existing stockpile
and approximately USD 140 for any additional ore coming from the mine. This
compares to USD 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 was estimated to be USD 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.
According to the Nalunaq Feasibility Study, an initial mining rate estimated of
350 t per day was estimated to result in a gold production of approximately
90,000 oz per year at an estimated total cash cost of USD 169 per oz. The
Nalunaq Feasibility Study recognizes 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.
In order to improve the economics of the mine further, the Corporation plans to
increase production to 450 t per day, leading to an annual production of about
130,000 oz of gold (150,000/160,000 t ore in four quarterly processing campaigns
of about 35,000/40,000 t each).
The table below is an excerpt from the Nalunaq Feasibility Study and summarizes
the net present value of Nalunaq based on the assumptions of a 350 tpd
production rate:
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 USD 130.20 per tonne ore milled
Excluding Sustaining Capital USD 168.50 per oz of gold
Life of Mine Cash Costs USD 141.60 per tonne ore milled
Including Sustaining Capital USD 183.20 per oz of gold
Initial Capital Costs USD 9,681,613
Life of Mine (LOM) Capital Costs USD 16,149,300
Sunk Costs USD 16,000,000
Gold price USD 300 per oz
Pre-Tax Financial Analysis IRR: 108.67%
NPV: USD 19.46 million (12% discount rate)
* Includes existing 45,000 tonne stockpile with average grade of
14.4 g/t gold
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
16
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 USD 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. However, there is
evidence to support the presence of additional resources.
START OF OPERATIONS: Nalunaq Gold Mine A/S has commenced preparations for
production development and shipping of the existing stockpile. The on-site
construction commenced in May 2003, and the engineering work and other project
preparations are well underway and are expected to be complete by late 2003.
Nalunaq Gold Mine A/S has signed a memorandum of understanding with Rio Narcea
regarding the processing of high-grade Nalunaq ore at Rio Narcea's mill facility
near el Valle in Spain. A mining contract has been signed with Procon, and camp
facilities, laboratories, workshops and other procurements are currently being
finalized.
The initial shipment of stockpile ore, containing approximately 23,000 oz of
gold, is scheduled for December 2003, and the mine is expected to reach full
production of 450 t per day within the FIRST QUARTER OF 2004. The initial mining
rate of 450 t per day represents an average gold production of approximately
130,000 oz per year, not including the stockpile.
ENVIRONMENTAL WORK: 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, SRK Consulting completed a
comprehensive environmental impact assessment in August 2002. This report has
been submitted to the BMP for the processing of the application for a mining
permit. Ongoing environmental monitoring programs are being maintained in the
license area.
Since 2000, exploration monitoring programs have been conducted 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 (U.K.) Ltd. there are no environmental issues which might
negatively affect the viability of the project.
17
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 resource indicate production for approximately four years,
depending upon the mining rate. However, the continuity of the geological
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.
BARBERTON GOLD MINES (OPERATION)
PROPERTY DESCRIPTION AND LOCATION
Barberton, formerly Eastern Transvaal Consolidated Mines Limited, is the
operator of three fairly small gold mines in the Barberton Greenstone Belt, in
South Africa. The Barberton Greenstone Belt is known for prolific gold deposits
in settings that are similar to other classical gold districts of Archean
greenstone belts in Australia, Canada, and Africa. The three operations include
the Sheba, the Fairview and the New Consort gold mines, all of which exploit
numerous discrete ore bodies. The three mines are located about 10 km north-east
of Barberton and are within a 15 km radius of each other. Current annual
production at Barberton is 330,000 t with an in-situ grade of 10-11 g/t and 9.5
g/t recovered. This provides for an annual gold production of about 100,000 oz.
TITLE AND OWNERSHIP
In February 2003, the Corporation, as part of a consortium consisting of Metorex
Ltd. ("Metorex") 54%, MCI Resources Ltd. ("MCI") 26% and the Corporation 20%,
entered into a purchase agreement with Avgold Ltd. ("Avgold") of South Africa
for the purchase of Baberton. The purchase price was ZAR 255 million
(approximately CAD 48.5 million/NOK 260.4 million) of which ZAR 150 million was
bank financed. The Corporation participated with ZAR 30 million, financed by the
sale of 10 million shares in Metorex to a South African operation at ZAR 3.00
per share.
The Barberton investment has an equity shareholder payback period of below 3
years without interest and 4 years with interest. At higher gold prices, the
project return on investment improves materially. Based on a gold price of USD
335/oz, the net present value of the project at a 10% discount rate is ZAR 469
million before financing and ZAR 322 million including financing.
MINERAL RESOURCE AND RESERVE ESTIMATES
The measured and indicated gold resources at Barberton consist of 1.01 million
oz and the inferred gold resources consist of 453,000 oz. The current mine plan
is based on the extraction of 1.07 million oz over ten years from 2004. The mine
plan average head grade is 10.5 g/t, and cash cost is forecasted by Metorex at
USD 240/oz.
The various mines at Barberton have been in operation for up to 100 years. At
intervals over this period the remaining life of each of the mines has often
been forecast as only 6 to 10 years while, as reported by Avgold, new ore
bodies, resources and reserves have constantly been discovered.
GEOLOGY AND OPERATION
The gold deposits are hosted in altered supracrustal rocks of the Barberton
Supergroup which includes basic greenstones, turbiditic greywackes and shales as
well as epiclastic sandstones. The deposits are associated with brittle
tectonics in shear structures hosted in folded and slightly metamorphosed rocks
of all the above rock types.
18
Strike and dip of the ore bodies are highly variable and often discontinuous and
of erratic nature. Continuous structures rarely measure over 100 m.
Most gold occurs in small fissures within the fractured and sheared host rocks.
As the gold-bearing structures are discontinuous, individual ore bodies
therefore in general requires site-specific mining. This type of mining scenario
is typical for many greenstone-hosted gold deposits, however, they are
particularly labor intensive and leaves few options for mechanized, cost
effective mining due to the local nature of the individual occurrences.
Moreover, the erratic nature of the orebodies moreover prevents effective
evaluation of the grade and resource potential outside the developed areas.
The gold ore is predominantly refractory, and therefore only a small portion of
the contained gold (3-5%) is free milling and available for low-cost gravity
processing. The bulk of the gold is refractory i.e. built into the arsenopyrite
crystal lattice. This gold can only be retrieved through artificial oxidation of
the concentrate through froth flotation.
The oxidation at Barberton was previously based on roasting. Although biologic
oxidation is employed today as it is more environmentally sound than roasting,
biologic oxidation adds extra stages to the processing and produce a fair amount
of residual arsenic compounds. After oxidation, the gold is retrieved from the
concentrate by carbon-in-pulp extraction and elution before smelting.
NANORTALIK GOLD PROJECT - GREENLAND (EARLY STAGE EXPLORATION)
PROPERTY DESCRIPTION AND LOCATION
The Nanortalik exploration license ("Nanortalik License") area is a 1,065
km(2). km area located in southern Greenland. It is the remaining portion of
the original Nalunaq license area, after the Nalunaq License had been carved
out from the initial 1,081 km(2) license. The Corporation is aware of several
gold occurrences and numerous gold anomalies in this district in different
geological settings and is convinced that there is a considerable potential
for additional gold deposits in this license area. The assay results from the
latest program are pending; however, the Corporation is encouraged by the
fieldwork is prepared to conduct a more intensive program in year 2004 with
the objective of drilling and further develop specific targets.
TITLE AND OWNERSHIP
The Nanortalik License is held by Nanortalik I/S, a joint venture between the
Corporation and Nunaminerals. The property is operated by the Corporation as an
early-stage prospecting project initially held in 2002 by the Corporation at 67%
and Nunaminerals at 33%. Future ownership ratios are based on the respective
contributions of the Corporation and Nunaminerals.
The Nanortalik License is an exclusive license for exploration of mineral
resources (excl. hydrocarbons) at Nanortalik and is effective until December 31,
2003 and may be renewed for another two years. The license is granted under the
provisions of articles 7 and 15 of the Danish Mineral Act.
As outlined in the Nanortalik Exploration License, the Corporation is required
to spend DKK 2 million per year in 2002 and 2003. This year's program added DKK
3 million to the expenditures for 2000 thereby totalling DDK 4 million for 2002
and 2003. These expenditures fulfill the Corporation's expenditure obligations
under the Nanortalik License.
During the 2003 exploration program, NunaMinerals opted not to participate with
further funding to Nalunaq I/S. Consequently, in accordance with the joint
venture agreement, NunaMinerals interest in Nalunaq I/S will be diluted. A full
reconciliation of the ownership ratio after 2003 will also include
administrative costs for 2002, which currently has not been completed. Should
NunaMinerals' interest in Nalunaq I/S be reduced to below 10%, NunaMinerals has
the option of converting its interest in Nalunaq I/S to a net smelter royalty
agreement ("NSR Agreement"). The NSR Agreement percentage calculation is
determined by a sliding-scale formula, generally between 1.7 and 2.5%. At
current gold price the NSR Agreement would be 2.4%.
19
A projection of the 2003-ownership derived from available data is given below:
JOINT-VENTURE SUMMARY NUNAMINERALS THE CORPORATION TOTAL
Start (deemed expenditures) 3,712,500 7,537,500 11,250,000
2002 field expenditures 358,542 727,950 1,086,492
Sum 4,071,042 8,265,450 12,336,492
JUNE 30TH, 2002 OWNERSHIP PERCENTAGE 33.0% 67.0% 100%
2002 admin. expenditures
2003 scheduled contribution 0 3,072,000 3,072,000
Total 2003 4,071,042 11,337,450 15,408,492
NOVEMBER 15TH, 2003 OWNERSHIP PERCENTAGE 26.4% 73.6% 100.0%
In order to renew the exploration license for 2004, the Corporation is required
to reduce the total area by 50%, focusing on key targets. However, relinquished
areas may be re-applied for after 4 months. In the opinion of the Corporation's
management, a 50% reduction of the areas will not result in any loss of
prospective ground.
RESOURCES AND RESERVES ESTIMATES
The Nanortalik Concession is at an exploration stage and currently has no
defined resources.
GEOLOGY AND WORK CONDUCTED
The Nanortalik License area is located in the border zone of the Julianehaab
granite batholith which hosts a number of significant geological environments
with highly anomalous gold mineralization. The Niaqornarsuk area is largely
underlain by granitoid rocks and several locations in the central part of the
peninsula have returned consistent, elevated gold values in screen samples.
This recognition indicates the existence of impregnation mineralization in
the granites associated with weakly defined alterations in bleached rocks.
The main anomalous areas seem to align in distinct bands trending in
southwest-northeast direction and each traceable for a 10-15 km length.
Exploration in the Nanortalik License area started in 1990 but was partly
interrupted by the intense work at Nalunaq. From 1993 to 1995, sporadic work
was conducted in parts of the Nanortalik License area and additional
examinations were conducted in 1997 and 1998. In 2002, the Nanortalik License
area was consolidated and expanded to a total of 1,081 km(2) and a renewed
regional exploration campaign was commenced covering the entire area. This
campaign included a complete review and compilation of all previous data in a
new database and the printing of new map compilations.
The regional exploration campaign conducted in the Nanortalik License area
during the summer 2003 comprised three field teams which were deployed to 15 fly
camps in the period July 7 to August 6, 2003 with helicopter support. 304
sediment samples and 406 rock samples were collected during this program.
Sample preparation has been completed and the samples submitted for assaying at
Actlabs in Canada. Two samples showed in-situ visible gold in new locations and
several very substantial structures which were suspected for mineralization were
tested by both sediment and rock sample programs.
A core drilling program was conducted on the Lake-410 gold target near the
Nanortalik License area where four drill holes with a total length of 930 m were
completed from August 12 to August 30, 2003.
Visual inspection of the drill cores shows significant arsenic-sulphide
mineralization with associated quartz veining in all four drill holes at
positions which support a single continuous structure. No visible gold was
observed in the drill cores; however, the results are encouraging as the drill
holes test a potential area of 900 x 300 m. The width of the mineralization
varies between 4 m and 1.2 m, which is substantially more than that seen in any
drilling at Nalunaq. Samples have been submitted for assaying to SGS, Canada.
20
HWINI-BUTRE GOLD PROJECT, GHANA (ADVANCED EXPLORATION)
PROPERTY DESCRIPTION AND LOCATION
The Hwini-Butre gold concession (the "HB Gold Concession") is a new gold
discovery in southwestern Ghana. The 45.4 km(2) 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 palm oil plantation located
further north.
OWNERSHIP
Hwini-Butre Minerals Ltd. ("HBM"), is a 100%-owned Ghanaian subsidiary of the
Corporation, which owns 51% of the HB Gold Concession while the operator, St.
Jude Resources Ltd ("St. Jude") (TSX Venture Exchange: SJD), owns 49% of the HB
Gold Concession; the Government of Ghana retains the right to a carried interest
of 10%.
St. Jude has been the operator of the license since 1995. The current title was
renewed on September 3, 2002 for a period of 6 months without any shedding of
the area to allow St. Jude to complete its exploration and feasibility study.
There has been a productive dialog between the Corporation and St. Jude over the
last year to increase activity at Hwini-Butre. It is the view of both companies
that this project has considerable potential and that this potential must be
investigated more aggressively.
MINERAL RESOURCES ESTIMATES
According to the independent geological report prepared by Watts, Griffis and
McOuat Limited ("WGM"), of Toronto, Ontario, in February 2002, the HB Gold
Concession contains 4,251,100 t at 4.1 g/t of indicated mineral resources and
1,718,400 t at 3.0 g/t inferred resources based on 200 drill holes totalling
16,879 m. In addition, the property hosts an inferred eluvial surface deposit of
5.6 million tonnes at 1.1 g/t. Thus, total indicated resources amount to 562,000
oz gold while the inferred resources hold 374,000 oz gold. In July 2002,
Strathcona reviewed the independent report prepared by WGM and concluded that
the project has a clear economic potential for an open-pit, heap-leach mining
operation.
GEOLOGY AND WORK COMPLETED
The HBM Gold Concession forms part of the eastern Ashanti Gold Belt in Ghana
with a structural setting of the gold mineralization predominantly trending
north-south and transected by younger north-east, south-west faults.
Disseminated gold occurs in quartz veins and in wide alteration zones in the
adjacent country-rocks, which form part of the mpohor intrusive complex that
constitutes a prominent feature in the southern part of concession.
Completed drilling to date totals 24,308 m from 300 holes with a nominal spacing
of 25 m and about 20% being drilled by reverse circulation and 80% core
drilling. The drilling covers three main mineralized zones named the Adoikrom,
the Father Brown, and the Dabokrom targets.
Adoikrom is the most developed target on the HB Gold Concession. The gold
mineralization is hosted a highly altered and silicified shear zone with ore
grade mineralization of 4-10 g/t near the surface. 64 holes (6,312 m) have been
drilled in this target. Drill intersections at 25-50 m intervals show consistent
thick mineralization in all holes. So far, a 325 m long and 165 m deep gold vein
has been confirmed. The deposit has expansion potential towards the north and
south and towards depth.
In total, 94 holes (6,502 m) have been drilled in the Father Brown zone and all
intercepts contain economic mineralization. The spacing between the intercepts
varies between 10 and 25 m. To date a 200 m-long and 150 m-deep gold vein has
been confirmed to a depth of about 150 m. The deposit has expansion potential in
both ends and towards depth.
21
The Dabokrom Zone constitutes a very substantial geochemical surface anomaly
that measures 800 x 1,200 m. A total of 99 drill holes (9,343 m) 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.
LEGAL MATTERS
A number of court cases between HBM and a local individual, who claims he is the
legal holder of the HBM Gold Concession, have been concluded in the
Corporation's favor. A court case instituted by HBM to finalize the title
disputes between this individual and a number of other entities was heard by the
High Court of Ghana during 2002-2003. The parties are awaiting the court's
judgment, which is expected to be rendered in 2004. In the opinion of the
Corporation's legal council in Ghana, the case appears in favor of HBM. This
case is expected to conclude the legal disputes, which at times have disturbed
field operations at the HB Gold Concession.
NON-CORE & NON- STRATEGIC ASSETS
PAMPLONA SULFUR DEPOSIT, PHILIPPINES (UNDER EXPLORATION PROGRAM)
PROPERTY DESCRIPTION AND LOCATION
The Pamplona sulphur deposit (the "Pamplona Sulphur Deposit") is located on the
Philippine island of Negros, less than 5 km from a deep-sea port site. The
deposit consists of a mixed sulfur-sulphide 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.
TITLE AND OWNERSHIP
The Philippine authorities, through the Department of Environment and Natural
Resources, issued to Altai Philippines Mining Corporation ("Altai") on July 4,
2003 an exploration permit for the Pamplona Sulphur Deposit. The exploration
permit is effective for a period of two years and is renewable for another two
consecutive two-year terms, subject to the approval of submitted work plans and
certain conditions.
Title to the deposit was granted to Altai to avoid any delay in the approval of
the exploration permit. Altai has assigned all rights to the Pamplona sulphur
property to Crew Minerals Philippines Inc. ("Crew Philippines"), a wholly owned
subsidiary of the Corporation, through an option agreement dated September 1998
and an amendment to the option agreement dated November 21, 2002, the latter
concerning a reduction of the anniversary fees and buy-out terms.
The exploration permit covers an area of 39 km(2) and is composed of two
exploration permit areas named EP00007-VII and EXPA00068-VII. The Corporation
acquired the Pamplona Sulphur Deposit in 1999 as a stand-alone project
although it has the potential to enhance the economics of the currently
dormant Mindoro nickel project. The formal assignment of the exploration
permit to Crew Philippines is in preparation following the approval of the
exploration permits.
PARTNERSHIP AGREEMENT
The Corporation is currently in discussions with a potential Philippine partner
Philippine Phosphase Fertilizer Company ("Philippine Phosphase") for the
development of the Pamplona Sulphur Deposit as a stand-alone mining operation.
Although sulphur is produced in vast amounts by gas and oil refineries, the
transportation costs amount to a significant proportion of all related
expenditures. 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. The general agreement with
Philippine Phosphase regarding production relationships is still to be
negotiated and test sampling will not be undertaken until an agreement is
executed.
In the meantime, Philippine Phosphase has agreed to fund all expenditures
regarding the bulk sampling and preparations relating to the development of the
Pamplona Sulphur Deposit, including road rehabilitation, equipment
22
rental and transport costs. The Corporation has agreed to pay for costs in
relation to the permitting process which is now complete.
MINERAL RESOURCES ESTIMATES
The Pamplona Sulphur Deposit has 60 million tonnes of open-pitable measured
mineral resources within a total mineral 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 m grid pattern.
WORK COMPLETED
Under the exploration permit Crew Philippines has been granted a permit for bulk
sampling of 2,000 t of ore that is allocated for industrial testing. Crew
Philippines has previously conducted positive resource verification drilling.
During 2003, Crew Philippines fulfilled certain outstanding issues and other
requirements relating to the issuance of the exploration permit and conducted
detailed planning of the field activities required for the extraction of the
2,000 t bulk sample for testing at Philippine Phosphase's sulfuric acid plant in
Leyte.
Work related to design of the open trench for sampling including the scheduling,
planning of diversion of natural drainage and preparation of settling ponds for
excess water that will accumulate in the pit. These settling ponds have to be
neutralized with lime to avoid acid water from the pit to drain into the natural
streams that feed irrigation systems further downstream.
The detailed work also comprised dimensioning of equipment and tools required as
well as the repair and upgrade of the access road between the sample site and
the shipping site some approximately 18 km away.
The company has received approval from all involved local municipalities and
barangays along the route and also from the regional offices of Negros. A number
of public meetings have been held to inform the public and invite to
participation in environmental monitoring programs. The result of this work is
full cooperation from local communities and support of the project.
The actual bulk sampling campaign has been postponed until October in order to
avoid the peak monsoon period as it poses a risk for severe flooding of the pit
and possible unwanted downstream contamination.
The purpose of the above test work is to examine the commercial and technical
viability of the Pamplona Sulphur Deposit as a domestic supplier of sulphur to a
major industrial partner. Subject to the results of the plant testing, the
parties will start planning for regular production. The potential production
volume is considered to be in the range of 2-4 million tonnes of ore per year,
thus allowing Pamplona to operate as a profitable stand-alone mining operation.
Average grade is 30% S and cut off is 18% S combined as native sulphur and
sulphide.
SEQI OLIVINE DEPOSIT, WEST GREENLAND (DEVELOPMENT PROGRAM)
PROPERTY DESCRIPTION AND LOCATION
In April 2003, the Corporation acquired 100% of the mineral rights to the
seqi olivine deposit ("Seqi Olivine Deposit"), a 14 km(2) property located 90
km North of Greenland's capital city of Nuuk. Furthermore, the deposit is
located 600 m from tidewater in a protected fjord that provides year-round
access for bulk carriers up to 100,000 dwt. The location and relatively
simple nature of the operation allows for a short lead-time to production.
Initial assessments indicate that a production rate between 1-2 million
tonnes per year is viable.
The deposit has commercial potential as it consists of a homogenous olivine
occurrence made up of 97% olivine with high purity and favourable chemical
composition. The olivine occurrence is fully exposed and has been subject to
limited drilling and surface sampling.
23
Olivine is an anhydrous magnesium-iron silicate, which is used extensively in
iron-pellet production and with beneficial properties such as a high melting
point, high density, heat capacity and hardness making olivine products suitable
for a number of industrial applications.
THE OLIVINE LICENSE
In March 2003 the BMP granted to the Corporation an exclusive license for
exploration of mineral resources at the Seqi Olivine Deposit. The license is
granted under the provisions of articles 7 and 15 of the Danish Mineral Act.
The license is an exclusive license for exploration of mineral resources (excl.
hydrocarbons) for an area at Seqinnersuusaaq in West Greenland. The license is
effective until December 31, 2007.
MINERAL RESOURCE AND RESERVE ESTIMATES
Open pitable, inferred resources, derived from drillings to about 50 m depth,
are estimated at 46 million tonnes. Gravimetric studies have indicated a mineral
resource potential in excess of 100 million tonnes. Results of the recent
drilling program are expected to more accurately define the mineable reserves.
TITLE AND PERMITTING
The Corporation was granted an exclusive exploration permit for the Seqi Olivine
Deposit by the BMP. The fees have been paid and the title formally signed by the
chairman of the Greenland Home Rule Assembly on April 24, 2003. The permit
allows the Corporation to conduct drilling and driving in the terrain of the
license starting on August 11, 2003.
PARTNERSHIP AGREEMENT
In July 2003, the Corporation entered into an agreement with Minelco AB
("Minelco"), a subsidiary of leading iron ore producer LKAB of Sweden, to
develop a bankable feasibility study ("Bankable Feasibility Study") for the Seqi
Olivine Project. The Corporation will be responsible for the management of
further drilling and for the Bankable Feasibility Study, whereas Minelco will
cover all costs. Furthermore, as a part of the agreement, Minelco has (subject
to the completion of the Bankable Feasibility Study) an option to buy 51% of the
Seqi project by carrying all capital expenditures related to the development of
a mining operation as defined by the Bankable Feasibility Study . The Seqi
Olivine Project will be organized in a separate Greenlandic company owned 51% by
Minelco and 49% by the Corporation and with the Corporation as the preferred
operator.
WORK CONDUCTED
Shortly after execution of the aforesaid agreement, Crew Development Greenland
A/S commenced site operations and deployed drilling equipment and personnel. In
total, 10 people were transported to the site in August 2003 and drilling
started immediately. The 22 hole program has now been completed giving a total
length of 2,230 m. The drilling program started in the westernmost half of the
deposit and was drilled with the company's tracked GM200 drill, while drilling
in the Eastern half of the deposit was undertaken by Midwest Drilling using
helicopter support. The generally steeper terrain in the eastern part of the
deposit necessitated use of the helicopter-supported drill.
The drill holes were angled about 65 DEG. and are on average 100 m in length,
the longest being approximately 150 m. Each hole is marked and the casing is
left in the hole to allow extension, if needed. The drilling program
positioned the holes in a grid with a nominal distance of 80-100 m. The
resource evaluation will commence as soon as the results of sample analyses
are available. The current drilling program is expected to allow a detailed
evaluation of the resources and design of the open pit.
Preliminary results, based on visual inspection of the drill cores, suggest that
the Seqi Olivine Deposit is remarkably homogeneous throughout and the cores show
very limited alteration. All holes have ended in homogenous ore, open towards
depth.
24
The drilling and support personnel were housed on a boat that served as living
quarters and had facilities for catering and other support. Transport to the
coast is by dinghy. A small camp has been established to service the site and
store drill cores and samples.
A detailed topographic survey of the deposit has been completed and a new
topographic map with 1 m contours is being prepared. The surveying includes the
position of all drill sites and an extension of the survey will cover the
industrial area, camp and loading facilities. The survey grid has been tied to
the national grid and the coordinates are given by the Universal Transverse
Mercator Coordinate System using a WGS 84, Zone 23 datum. The on-site geologist
is completing a detailed geological map that will form the basis for resource
calculation and pit design.
The Corporation has also commenced marine investigations with regard to the
permitting of taking large commercial ships into the Fiskefjord area. The Danish
Navy surveyed the fjord system in detail in 1970's but the results were never
published. This mapping has now been retrieved and further studies, including a
program for navigation markings, are being prepared as well as applications for
getting official charts published for the route.
The previous studies indicated that the fjord system may allow navigation of
even fairly large ships (up to 100,000 DWT). The fjord, however, has very
strong currents, and navigation has to be negotiated with the tide. The route
in and out is remarkably straight and only in one place requires a 60 DEG.
turn that can be smoothened through an alternative route around a small
island. Because of strong tide currents the fjord does not freeze over in
wintertime and only the innermost portion, near the deposit, may have some
ice during winter. Using ice-class vessels for the shipment of olivine from
site, accompanied by a tug/icebreaker, will accommodate this icing problem.
METOREX LIMITED, SOUTH AFRICA (OPERATION)
OWNERSHIP
As of September 1, 2003, the Corporation's interest in Metorex, held through its
Mauritius subsidiary, was 5.34%. 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. Metorex acquired the mine by from JCI Limited in 1997. The
mine occurred profits of ZAR 24,517 for the year ending June 30, 2003.
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 6.1 million for
the year ending June 30, 2003. 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 ore body 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. Metorex acquired
Vergenoeg 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.
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.
25
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. The mine made a profit of ZAR 13,225 for the year ending June 30,
2003.
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. The copper concentrate produced by Maranda is smelted by O'okiep Mine
(see below) of South Africa. The mine incurred a loss of ZAR 1,729 for the year
ending June 30, 2003.
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 as well as the nearby
Nabakeep smelter, where the concentrate is smelted. The Nigramoep mine was
closed in 2002 and had been in production since 1940.
In addition to smelting concentrates from the Maranda 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 t
of copper concentrate per annum is toll treated at the smelter. The mine made a
profit of R 8,167 for the year ending June 30, 2003.
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. The mine made profit of ZAR 13,148
for the year ending June 30, 2003.
ASIA PACIFIC RESOURCES LTD, CANADA
Asia Pacific Resources Ltd. ("Asia Pacific") is a New Brunswick company listed
on the Toronto Stock Exchange. The Corporation presently holds 6.8 million
shares in Asia Pacific representing approximately 1.5% 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 deposit in north-eastern Thailand.
Asia Pacific completed a financial restructuring in 2002, 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 by the
previous management, the Corporation invested an additional CAD 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 Corporation determined
that an indication of impairment had occurred and recorded a provision for loss
in value of the investment of CAD 19,593,056 during the year ended June 30,
2002.
At June 30, 2003, the Corporation held approximately 1.5% (2002 - 7%) of Asia
Pacific with a carrying value of CAD 1,730,760 (2002 - CAD 4,950,000). During
the year ended June 30, 2003, management determined that this investment would
not be held as a long-term investment and, accordingly, the investment has been
reclassified as a short-term investment. As of June 30, 2003, the market value
of the investment in Asia Pacific was CAD 2,887,350 less than its carrying value
and resulting in the Corporation recording a provision for this decline in
value. During the year ended June 30, 2003, the Corporation disposed of
4,154,000 shares of Asia Pacific for cash proceeds of CAD 303,777, resulting in
a loss on disposal of CAD 28,133.
26
MINDORO NICKEL CONCESSION, PHILIPPINES (TEMPORARILY DORMANT)
PROPERTY DESCRIPTION AND LOCATION
The Mindoro Nickel Concession (the "Mindoro Nickel Project") is approximately
97 km(2) 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
indirect interest in Crew Minerals (Phil.), Inc. ("Crew Minerals").
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
Mineral Production Sharing Agreement ("MPSA") whereby the Corporation was
granted the exclusive right for 25 years to develop the property into a mine.
The MPSA 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 understanding 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 MPSA was cancelled unexpectedly by the then newly appointed
DENR Secretary, without due process. The Corporation has appealed the
cancellation to the Office of the President and has also considered filing an
appeal under the Foreign Investment Protection Agreement between Canada and the
Philippines.
Following changes in the Government during 2002-2003, the Philippine
government's attitude to mining has greatly improved and the Secretary for Mines
and Energy, who cancelled the Mindoro MPSA, has been replaced.
As a result of the cancellation of the MPSA, the Corporation temporarily
suspended all work on Mindoro Nickel Project, until the outcome of its appeal.
In the meantime, the Corporation has opened discussions with several potential
local partners about the further development of the Mindoro Nickel Project. It
is widely known that the project hosts large and well documented nickel deposits
in the Philippines and the project is known to major nickel producers. The
Corporation has used the cancellation to postpone further development of the
project until such time as the industry accepts the usage of nickel leach
technology.
The Corporation has opened discussions with a number of local and foreign groups
with respect to a potential partnership to further develop the Mindoro Nickel
Project. The Corporation has received numerous expressions of interest and
certain groups have conducted a due diligence review of the project.
GEOLOGY
The Mindoro Project is based on an extensive nickel-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, have accumulated 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 m 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 m thick. Both these ore types are
developed in the Mindoro Project although in the past resource calculations only
the limonite portion was included.
27
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 (i.e. before
upgrading/beneficiation) of 0.94% nickel and 0.06% cobalt, including 21.4
million DMT at 1.2% 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 m intervals. Mr. Jon S. Petersen, M.Sc. (Vice President, Exploration)
supervised the resource calculation according to JORC code and the calculation
was independently reviewed by International Mining Consultants ("IMC").
RESOURCE 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
PRE-FEASIBILITY STUDY
An independent pre-feasibility study ("Mindoro Pre-Feasibility Report") was
prepared by Kvaerner-Davy in August 1998, which 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 estimates that the Mindoro Nickel Project has the capacity
of supplying 40,000 t of nickel per year at a projected cash cost of USD 1.06
per pound of nickel or USD 0.30 per pound of nickel after cobalt credits.
RINGVASS0Y GOLD PROJECT, NORWAY (DORMANT ASSET)
PROPERTY DESCRIPTION AND LOCATION
The Ringvassoy gold project (the "Ringvassoy Gold Project") is located in an
Archean Greenstone belt, covering 250 km(2) in northern Norway. Access to
Ringvassoy Gold Project is by public paved roads from Tromso, a regional city
in northern Norway. 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 was a party to an agreement with Northern Shield Resources Inc., a
private Canadian junior exploration company, whereby 50% of the Ringvassoy Gold
Project could be earned in by Northern Shield Resources Inc. by completing
exploration work amounting to $750,000 over two years. In late 2003, however,
Northern Shield Resources Inc. terminated the agreement due to a lack of funds
to cover its work commitments. As a result, Crew Norway is the sole owner of the
property.
The property, consisting of 53 claims (about 14 km(2)), was acquired by the
Corporation in 1999 and maintained with changing claim holding since then Annual
claim adjustments reflect the results of the exploration program.
MINERAL RESOURCE AND RESERVE ESTIMATES
The Ringvassoy Gold Project is an early-stage exploration project and has
currently no defined resources.
WORK COMPLETED
The work in the summer of 2002 included a detailed helicopter-borne
multidisciplinary geophysical survey and geological mapping and sampling, which
were funded by Northern Shield Resources Inc. on an earn-in basis. 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.
28
C. REGULATORY FRAMEWORK
MINERAL EXPLORATION IN GREENLAND
Exploration and mining in Greenland are subject to the Danish Mineral Act.
According to the Danish Mineral Act, all exploration in Greenland requires a
prior exploration license from the BMP. In order to be granted an exploration
license, an application must be sent to the BMP and approved by both the
Joint Committee for Greenland and the Danish Minister for Environment and
Energy. An exploration license may only be granted to entities domiciled in
Greenland and comprised by Greenland taxation that are exclusively carrying
out activities under the exploration license and are not subject to joint
taxation. Further, it is a requirement that the applicant have the necessary
expert knowledge and financial background with respect to the exploitation
activities. Before an exploration license is granted, the BMP must approve
certain plans for the exploration (e.g. exploration plans, environmental
plans and safety plans). An exploration license is granted for a specified
area and in most cases for a period of up to 10 years, which period may be
extended up to a total period not exceeding 50 years. An exploration license
expires if no exploration work is carried out.
Generally, an exploration license covers all mineral resources except
hydrocarbons and radioactive elements and the license holder has the exclusive
rights to minerals identified in the exploration area.
The license holder may be obliged to spend certain amounts of money on
exploration in the exploration area per year and the exploration license may be
subject to certain further conditions. There are no production royalties in
Greenland but a yearly license fee may payable to the BMP.
The license holder is entitled to a subsequent mining license, if: (i) the
license holder identifies minerals, which the license holder intends to exploit
commercially; (ii) the license holder provides duly documentation for viable
commercial exploitation to the BMP; and (iii) the BMP approves certain further
required plans (e.g. safety plans, mining plans, environmental plans and plans
for mine closure). The BMP may require security for closure of the mine and
clean up. A mining license is generally granted for a period of 30 years.
MINERAL EXPLORATION IN THE PHILIPPINES
A new mining law Republic Act 7942 "PHILIPPINE MINING ACT OF 1995" was
introduced in March 1995 and the revised implementing rules and regulations DAO
96-40 were issued in 1996. According to the new mining law, an exploration
permit ("EP") can be applied for by domestic or foreign owned companies. The
maximum area for an EP is 162 million m2.
An EP is issued for two years after fulfilment of all relevant requirements. The
permit can be renewed for two additional two-year terms, upon the approval of
the Secretary of the DENR. The EP gives the right to prospect, survey, and carry
out drilling and limited test operations in accordance with submitted
work-programs. The EP secures the mineral right over the claimed area and it can
be converted into a MPSA or a Financial and Technical Assistance Agreement after
completed feasibility. An MPSA or FTAA is valid for 25 years renewable for an
additional 25 years.
MINERAL EXPLORATION IN NORWAY
The 1972 NORWEGIAN MINING ACT divides minerals into two groups: claimable and
non-claimable. Claimable minerals are metal-bearing and are owned by the state.
Non-claimable minerals on the other hand, are industrial minerals and are owned
by the landowner.
Any person or company that belongs to the European Economic Area is allowed
to claim the mineral rights to an area. A single claim area is limited to
300,000 m(2) with the longest side not to exceed 1,200 m. There is no limit
as to the number of claims allowed. The claiming procedure is as follows: A
pre-claim (muting) is registered first and may be held for seven years, with
a possible three-year extension. A pre-claim is succeeded by a claim which
may be held for 10 years, with a possible 10-year extension.
29
Pre-claim holders have the right to prospect, survey, and carry out drilling and
limited test operations. Claim holders can carry out development including test
mining of up to 10,000 t of crude ore annually. If a claim holder believes that
the claim area holds a feasible mineral deposit, a mining operation may be
started after a number of conditions are fulfilled. Among these, a new mining
operation requires permission from the agriculture and forest authorities in
relation to the Planning and Building Act concerning pollution of the
environment.
Today the Corporation holds pre-claims covering large areas of Roros and
Meraker, which are included in the Roros Project. These concessions are valid
until 2005-2006. There are no production royalties for mining licences in
Norway.
MINERAL EXPLORATION IN GHANA
The legislative framework for mining in Ghana is laid down in the Minerals and
Mining Law as amended by the Minerals and Mining Amendment Act 1993, and
modified by the provisions of the Constitution of 1993 (the "Constitution").
Within this legal framework, Ghana is the owner of all minerals occurring in
their natural state within its land and sea territory. Regardless of who owns
the land upon or under which minerals are situated, the exercise of any mineral
right requires, by law, a licence to be granted by the Minister for Mines who
acts as an agent of Ghana for the exercise of powers relating to minerals.
Mineral rights are legally defined to include the rights to reconnoitre,
prospect for and mine minerals. The Minister of Mines is also authorised to
exercise, within defined limits, powers relating to the transfer, amendment,
renewal, cancellation and surrender of mineral rights. The powers conferred upon
the Minister of Mines must be exercised contingent upon the advice of the
Minerals Commission, which has the authority under the Constitution to regulate
and manage the utilisation of mineral resources and co-ordinate policies in
relation to minerals. Law 153 specifies the forms of mineral rights that the
sector Minister is empowered to grant, the duration of the grant, the size of
the concessions, and eligibility criteria for the grantee, as well as the
procedure for application for mineral rights. The Minerals and Mining Law also
spells out in broad terms the rights and obligations of a holder of a mineral
right and the terms and conditions upon which each mineral right grant should be
made. A mineral right granted is not transferable or tradable in any form except
with the prior written consent of the Minister of Mines.
D. 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
16 to the Consolidated Financial Statements.
E. ORGANIZATIONAL STRUCTURE
The following diagram sets forth the intercorporate relationships among the
Corporation and certain of the Corporation's subsidiaries as at June 30, 2003:
[GRAPHIC]
30
F. PROPERTY, PLANTS AND EQUIPMENT
For information regarding the material tangible fixed assets of the Corporation,
including leased properties, please see Notes 3 and 7 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 previous year, the Corporation experienced a change in composition
and control of the Board and management of the Corporation. New management
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 in conjunction with the Consolidated Financial
Statements. 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 Consolidated Financial Statements are
denominated in Canadian Dollars and have been prepared in accordance with
Canadian GAAP. The Canadian GAAP conforms to U.S. GAAP in all material respects,
except as described in Note 19 to the Consolidated Financial Statements.
2003 FISCAL YEAR COMPARED TO 2002 FISCAL YEAR
For the year ended June 30, 2003, the Corporation incurred a net loss of $18.9
million ($0.14 per share), compared with a net loss of $40.7 million ($0.31 per
share) for the year ended June 30, 2002.
During the year ended June 30, 2003, the Corporation held an equity interest in
its investment in Metorex and therefore no longer consolidates the results of
operations in Metorex, as compared with June 30, 2002, where mineral sales, cost
of sales and amortization arose from the consolidation of the results of
operations of Metorex for the 10 months ended April 30, 2002.
Administrative, office and general expenses for the year ended June 30, 2003,
amounted to $5,268,364 compared with $7,818,225 (excluding Metorex) for the year
ended June 30, 2002. During the year ended June 30, 2002, the Corporation
incurred substantial non-recurring expenses related to changes to the
composition of the Board and senior management. Administrative, office and
general expenses for 2002 included $1.6 million of non-recurring contract
termination payments to former officers and directors of the Corporation, and
non-recurring engagement fees payable to the Corporation's new management.
Professional fees for the year ended June 30, 2003 amounted to $1,723,320
compared to $1,857,503 for the year ended June 30, 2002. Included in the
professional fees are costs of $600,243 for the year ended June 30, 2003,
relating to corporate reorganization, bank financing for the Nalunaq Gold
project and formation of the new company for such project. Included in the
professional fees are costs of $810,000 for the year ended June 30, 2002,
related to the proxy contest and related litigation for control of the Board.
Interest expense for the year ended June 30, 2003 amounted to $266,626 compared
to $1,530,963 for the year ended June 30, 2002 (of which $1,530,785 arises on
consolidation of Metorex). The increase in interest expense during the
31
current fiscal year arises on interest due to the minority shareholders of
Nalunaq Gold Mine A/S and interest due on the promissory notes to related
parties.
Effective June 15, 2003, the Corporation acquired a 20% interest in Barberton
for a total cash injection of $5.13 million. The Corporation's 20% equity
earnings for the 15 days from acquisition amounted to $91,046 (2002 - Nil).
LOSS ON INVESTMENT IN METOREX:
Year ended Year ended
(ALL FIGURES EXPRESSED IN CANADIAN DOLLARS) June 30, 2003 June 30, 2002
------------- -------------
Equity earnings from investment $ 1,051,967 $ 1,549,819
Dilution loss - (1,133,928)
Losses on disposals of interest (4,140,463) (1,071,479)
Provision for impairment of investment (1,143,555) (7,381,185)
Loss on investment in Metorex before exchange loss realized on (4,232,051) (8,036,773)
disposals
Foreign exchange loss realized on disposals (1,216,709) (774,725)
------------- ------------
LOSS ON INVESTMENT IN METOREX LIMITED $(5,448,760) $(8,811,498)
------------- ------------
The equity earnings for the year ended June 30, 2003, represent the
Corporation's proportionate share of Metorex's net earnings from July 1, 2002 to
October 22, 2002 at 41%, and from October 22, 2002 to June 15, 2003 at 21%. The
equity earnings for the year ended June 30, 2002, represent the Corporation's
proportionate share of Metorex's net earnings from May 1, 2002 to June 30, 2002
at 41%.
In a private placement completed April 24, 2002, Metorex issued 18,100,000
shares to other shareholders for proceeds of $8,515,978. This transaction
reduced the Corporation's interest in Metorex from 53% to 46% and resulted in
the Corporation incurring a loss on dilution of its investment of $1,133,928.
In three separate transactions during the year ended June 30, 2003, the
Corporation sold a total of 48,208,412 shares of Metorex for cash proceeds of
$21,333,405, resulting in total losses on disposal of $4,140,463 and a reduction
in the Corporation's interest in Metorex from 21% to 5.34%. During the year
ended June 30, 2002, the Corporation 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.
At June 30, 2003, the investment in Metorex was held as short-term investment.
At June 30, 2003, the Corporation recorded a provision for the decline in the
value of its investment of $1,143,555. Furthermore, the Corporation recorded a
provision for impairment of $7,381,185 related to the permanent decline in value
of its investment in Metorex.
Included in the loss of investment in Metorex are foreign exchange losses of
$1,216,709 for the year ended June 30, 2003 and $774,725 for the year ended June
30, 2002, which arises on the reduction for the portion of the translation
adjustment realized related to the disposals and dilution of interest in
Metorex.
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 Corporation recorded a provision for
impairment of Metorex's Chibuluma South Mine of $8,450,857.
EXPLORATION AND DEVELOPMENT ACTIVITIES
During the year ended June 30, 2003, due to the difficulties faced by NPGP in
raising necessary financing for the geothermal project, the Corporation wrote
down its investment in the geothermal project to $1, resulting in a provision
for impairment of $2,897,355. During the year ended June 30, 2002, the
Corporation recorded a loss on dilution of geothermal asset of $1,503,055.
On September 30, 2003, pursuant to an agreement dated September 3, 2003, the
Corporation sold all of its shares in NPGP to an individual who was an officer
and former director of NPGP.
32
During the year ended June 30, 2003, management determined that the investment
in Asia Pacific should be reclassified as a short-term investment. At June 30,
2003, the market value of the investment was $2,887,350 million less than its
carrying value and, accordingly, the Corporation recorded a provision for
decline in value. During the year, the Corporation disposed of 4,154,000 shares
of Asia Pacific for cash proceeds of $303,777, resulting in a loss on disposal
of $28,133. During the year ended June 30, 2002, due to the continued weakness
in Asia Pacific's stock price the Corporation determined that this impairment
was other than temporary and as a result recognized a provision for loss on this
investment in the amount of $19,593,056.
Included in the loss for the year ended June 30, 2002 is a provision for
impairment of other mineral property interest relating to the R0ros Project of
$5,009,878. 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. Also included in the loss for the year ended June 30,
2002 are costs related to Mindoro Nickel Project. The majority of the cost,
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 Corporation's licence to develop a significant
portion of this project in July 2001. Effective April 2002, the Corporation
withdrew 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 Corporation's appeal to reinstate the MPSA. The
Corporation has received information that the appeal has now been reviewed, and
that the President's office will issue a response in the near future. No further
development work will be completed until the appeal to reinstate the MPSA has
been concluded.
During the year ended June 30, 2003, in order to centralize in one location the
Corporation's executive management and key operational and administrative
functions, the Corporation incurred restructuring costs in the amount of
$593,127 (2002 - Nil). Included in the restructuring costs are $131,558 relating
to severance costs in connection with the closure of the Vancouver offices and
$285,135 in lease exit costs relating to remaining committed lease payments net
of expected sub-lease revenue.
Included in the loss for the year ended June 30, 2003 is foreign exchange loss
of $119,409 compared with a foreign exchange gain of $1,510,820 for the year
ended June 30, 2002. The foreign exchange gain in fiscal 2002 is a result of a
realized foreign exchange gain on Norwegian Kroners held at the beginning of
fiscal 2002. Most of the Corporation's funds at the end of fiscal 2002 and 2003
were held in Canadian Dollars, thereby reducing the foreign exchange exposure.
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 net income
for the year-ended June 30, 2003 are as follows:
(a) a $1.6 million reduction in net loss due to the reversal of the loss on the
NPGP geothermal asset which was recognized under U.S. GAAP in prior years,
partially offset by additional exploration expenses which were capitalized
for Canadian GAAP but expensed under U.S. GAAP in 2003;
(b) a $4.0 million reduction in net loss due to the treatment of the
investments in Metorex and Asia Pacific as available for sale investments
under U.S. GAAP; and
(c) a $1.1 million increase in net loss due to an additional foreign exchange
loss realized on the disposal of a portion of the Metorex investment under
U.S. GAAP.
Please see Note 19 of the Consolidated Financial Statements for full details of
the reconciliation to U.S. GAAP.
2002 FISCAL YEAR COMPARED TO 2001 FISCAL YEAR
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 in 2002 and 2001
arise from the consolidation of the Metorex operations which are summarized
below:
33
COMMODITY SALES - METOREX
------------------------------------------------------
2002 2001
-------------------------- -------------------------
Copper Tonnes 22,852 22,404
Coal Tonnes 1,271,444 1,428,606
Zinc Tonnes 12,929 12,554
Gold Kilograms 949 1,146
Antimony mtu 542,934 409,202
Fluorspar wmt 141,360 137,160
Cobalt Tonnes 100 116
Manganese Tonnes 23,988 19,026
REVENUES - METOREX
(IN THOUSANDS OF SOUTH AFRICAN RAND)
YEAR ENDED JUNE 30
------------------------------------------------------
2002 2001
-------------------------- -------------------------
Copper 328,217 284,435
Coal 122,928 116,685
Zinc 105,774 98,415
Gold and Antimony 121,661 109,597
Fluorspar 119,746 82,846
Cobalt 15,558 20,723
Other 6,441 7,557
SUB-TOTAL 820,325 720,258
Less: realization costs 127,895 106,460
REVENUES 692,427 613,798
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)
YEAR ENDED JUNE 30
------------------------------------------------------
Segment 2002 2001
-------------------------- -------------------------
Copper 44,520 33,222
Coal 15,735 13,743
Zinc 18,340 12,978
Gold and Antimony 16,011 10,897
Fluorspar and other 17,125 8,862
-------------------------- -------------------------
TOTAL MINERAL SALES 111,731 79,702
-------------------------- -------------------------
NET INCOME (LOSS) - METOREX
(IN THOUSANDS OF CANADIAN DOLLARS)
YEAR ENDED JUNE 30
-------------------------- -------------------------
Segment: 2002 2001
-------------------------- -------------------------
Copper (2,534) 5,711
Coal (1,623) (1,061)
Zinc 1,105 109
Gold and Antimony 814 258
Fluorspar and other 3,221 1,329
983 6,346
Exploration and development activities (27,101) (28,753)
Unallocated corporate items (14,633) (3,877)
========================== =========================
TOTAL (40,751) (26,284)
========================== =========================
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.
34
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 increase in "head office interest and other income" from 2002 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 2002 administrative costs were
substantial non-recurring expenses related to a change in control of the Board
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 2002 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 2002 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.
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) 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) a $10.0 million (2001 - $7.7 million) charge to earnings for mining
exploration expenditures expensed under U.S. GAAP and capitalized under
Canadian GAAP;
(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 19 of the Consolidated Financial Statements for full details of
the reconciliation to U.S. GAAP.
35
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 19 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.
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 and mineral property interests 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
Under Canadian GAAP, all costs related to the acquisition and exploration of
mineral properties, including the Nalunaq project, are capitalized until either
commercial production is established, a property is abandoned or there is an
indication that the capitalized costs of a property are improved.
The Corporation reviews the carrying value of each property on a regular basis
for evidence of impairment. The carrying value of the Nalunaq mineral property
interest was compared to the estimated undiscounted future cash flows from the
Corporation's mine plan. The mine plan is based primarily on the results of the
Nalunaq Feasibility Study. The review of the carrying value of the other mineral
property interests 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 mineral 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
investments, such as the investments in Metorex, Asia Pacific and Barberton 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
The Corporation's principal source of liquidity at June 30, 2003, was cash of
$6.6 million (2002 - $4.4 million).
36
During the year the Corporation used $6.5 million in cash from operating
activities. The net loss of $18.9 million included a non-cash provision for
impairment of investment in Asia Pacific Resources of $2.9 million; a provision
for impairment of the geothermal asset of $2.9 million; a loss on investment in
Metorex of $5.4 million; and a loss on sale of assets of $190,267. With respect
to the changes in working capital, the primary source of cash was due to an
increase in accounts payable and accrued and other liabilities of $916,685,
partially offset by an increase in accounts receivable of $254,206, resulting in
changes in working capital of $662,479.
During the year the Corporation issued 3,750,000 warrants to purchase 3,750,000
common shares ("Corporation Common Shares") for cash consideration of $21,430.
The Corporation received $1,554,551 from Metorex for repayment of loans advanced
to Chibuluma in fiscal 2002. The Corporation also received $858,500 in dividend
income from Metorex.
During the current fiscal year the Corporation disposed of 48,208,412 shares of
Metorex for cash proceeds of $21,333,405. The proceeds from the sale of Metorex
shares were used for working capital and further exploration of existing
projects, including financing Nalunaq and new acquisitions. The corporation
invested $5.133 million in acquiring a 20% interest in Barberton.
During fiscal 2003, a total of $9.2 million (2002 -$11.18 million) was invested
in advancing the Corporation's exploration and development properties, of which
$8.8 million (2002 -$8.5 million) was spent in developing Nalunaq.
During the year ended June 30, 2003, the Corporation disposed of 4,154,000
shares of Asia Pacific, for cash proceeds of $303,777, resulting in a loss on
disposal of $28,133.
The Corporation's cash position at June 30, 2003 was $6.6 million (2002 - $4.4
million). As at June 30, 2003, the Corporation had total assets of $68 million
(2002 - $82 million) and shareholders' equity of $57 million (2002 - $74
million).
Working capital at June 30, 2003 amounted to $9.9 million, (June 30, 2002 - $4.4
million).
LIQUIDITY RISK
The Corporation's policy on overall liquidity is to ensure that the committed
funds in place which, when combined with available cash resources, are
sufficient to meet the funding requirements for the foreseeable future. At the
end of fiscal 2003, the Corporation had no committed debt facilities in place.
Subsequent to the end of fiscal 2003, the Corporation raised NOK 120 million
(CAD $21.1 million) by issuing a three-year senior unsecured convertible bond,
as disclosed in Note 18(b) of the Consolidated Financial Statements. The
Corporation has secured sufficient funding to complete the construction of its
main asset, Nalunaq, and also to sustain the other operations of the Corporation
until a revenue stream from Nalunaq sufficient to fund operations is
established. Such a revenue stream is expected to be established in the third
quarter of fiscal 2004.
OUTLOOK
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. With first priority to
commence production at Nalunaq, preparation for the Bankable Feasibility Study
for the Olivine project, and further exploration of the area under the
Nanortalik Concession. On September 8, 2003, the Corporation raised NOK 120
million (CAD $21.1 million), by placing a three-year senior unsecured
convertible bond with three major international institutions based in London,
England. The bond bears a 9% coupon, payable semi-annually in arrears, and the
principal portion of the bond is convertible, at the option of the bond holder,
into Corporation Common Shares at a conversion price of NOK 3.60 (CAD $0.67) per
share. The principal portion is fully repayable on September 8, 2006. The
Corporation plans to use the proceeds to develop its mining properties, fund
potential acquisition of additional precious metal properties or interests in
such properties, and for general corporate purposes. On October 10, 2003, bonds
amounting to NOK 4 million were converted, and 1,111,111 shares were issued
accordingly.
37
FORWARD LOOKING STATEMENTS
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 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 not applicable.
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:
SERVED AS A
NAME, MUNICIPALITY POSITION WITH THE PRINCIPAL OCCUPATION OR EMPLOYMENT DURING THE PAST 5 DIRECTOR OR
OF RESIDENCE (1) CORPORATION YEARS (1) OFFICER
- --------------------- -------------------- --------------------------------------------------------- --------------
HANS CHRISTIAN Chairman, Director Management consultant with Converto AS (a management 2002
QVIST ( 3) 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 Chief Executive President and Chief Executive Officer of the 2002
Oslo, Norway Officer, Corporation since March 2002; Chairman and Chief
President, Director 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)(2) 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, B.C. and Solicitors
FREDERIC PUISTIENNE Chief Financial Chief Financial Officer of the Corporation; Chief 2003
Weybridge, U.K. Officer Financial Officer of the Concept Group (software
manufacturer) from December 2001 to March 2003 and of
Econocom from March 1999 to December 2001;
Business Controller of Cegetel - Vivendi Group (a
telecommunication company) from 1996 to March
1999; Audit manager in Ernst & Young from 1989 to
1996; Harvard Business School graduate 1993.
38
SERVED AS A
NAME, MUNICIPALITY POSITION WITH THE PRINCIPAL OCCUPATION OR EMPLOYMENT DURING THE PAST 5 DIRECTOR OR
OF RESIDENCE (1) CORPORATION YEARS (1) OFFICER
- --------------------- -------------------- --------------------------------------------------------- --------------
BRIAN SPRATLEY Vice President, Vice President, Project Development of the 2003
Hythe, U.K. Project Development Corporation; Consultant to Lundin Group, Storliden
Mine, Sweden, Tenke Fungurume Project, Congo,
Manager Mining at Techpro Mining & Metallurgy a
ZCCM subsidiary, Konkola Deep Project Zambia, Sar
Cheshmeh Iran, Andina Division Codelco Chile.
ANDREW STOCKS Vice President, Vice President, Operations of the Corporation; 2003
Weybridge, U.K. Operations Resident Mine Manager and Mine Superintendent to
Barrick Gold Corporation & Homestake Mining Company
1994 to 2003; various positions to Aztec Mining Co
and Normandy Mining 1988 to 1994.
JON PETERSEN Vice President, Vice President, Exploration of the Corporation; Vice 2000
Weybridge, U.K. Exploration President of Exploration, Mindex ASA from 1998 to
2000. Associate Professor in Economic Geology &
Gerochemistry from 1987 to 1998; and a consultant
to the mining industry for over 25 years.
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, 2003 and the other four
most highly compensated executive officers of the Corporation whose total salary
and bonus was $100,000 or more for the financial year ended June 30, 2003 and
any individual who would have satisfied this criteria but for the fact that
individual was not serving as such an officer at June 30, 2003 (collectively,
the "Named Executive Officers"):
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------- -------------------------
AWARDS PAYOUTS
----------------------- ---------
SECURITIES RESTRICTED ALL
UNDER SHARES OR OTHER
OTHER ANNUAL OPTIONS RESTRICTED LTIP COMPEN-
NAME AND SALARY BONUS COMPENSATION GRANTED SHARE UNITS PAYOUTS SATION
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($) ($) ($)
- ---------------------- ------ ------ ------ ------------- ---------- ----------- ------- -------
JAN A. VESTRUM(2) 2003 $501,900(6) Nil $29,232 Nil(7) Nil N/A Nil
Chief Executive 2002 153,141(6) $280,513(6) 111,846(6) 1,750,000(8) Nil N/A Nil
Officer and 2001 Nil Nil Nil Nil Nil N/A Nil
President
JON S. PETERSEN 2003 $234,776 Nil $13,774 500,000 Nil N/A Nil
Vice-President, 2002 186,040 Nil 13,326 Nil Nil N/A Nil
Exploration 2001 147,110 Nil 17,665 Nil Nil N/A Nil
HANS CHRISTIAN QVIST(3) 2003 $312,746 Nil $31,516 Nil(9) Nil N/A Nil
Executive Chairman 2002 91,262 $287,793 116,746 1,000,000(10) Nil N/A Nil
2001 Nil Nil Nil Nil Nil N/A Nil
JOSEPH P. RINGWALD(4) 2003 $115,500 Nil Nil Nil Nil N/A Nil
Former Vice-President, 2002 64,667 Nil Nil Nil Nil N/A Nil
Project Management 2001 Nil Nil Nil Nil Nil N/A Nil
WOLF K. SEIDLER(5) 2003 $241,118 Nil Nil 500,000 Nil N/A Nil
Former Chief 2002 Nil Nil Nil Nil Nil N/A Nil
Operating Officer 2001 Nil Nil Nil Nil Nil N/A Nil
39
NOTES:
(1) All securities under options are for Corporation Common Shares. No stock
appreciation rights ("SARs") are outstanding.
(2) Mr. Vestrum was appointed Chief Executive Officer and President on March 3,
2002.
(3) Mr. Qvist was appointed Chairman on January 21, 2002.
(4) Mr. Ringwald ceased to be Vice-President, Project Management, on June 30,
2003.
(5) Mr. Seidler ceased to be Chief Operating Officer on June 30, 2003.
(6) Certain of these amounts were paid to a company 50% beneficially owned by
Mr. Vestrum.
(7) In addition, Mr. Vestrum purchased 2,000,000 call options from the
Corporation for an aggregate consideration of $11,400 during this period.
(8) In addition, Mr. Vestrum purchased 2,000,000 call options from the
Corporation for an aggregate consideration of $146,800 during this period.
These call options expired without being exercised.
(9) In addition, Mr. Qvist purchased 1,750,000 call options from the
Corporation during this period for an aggregate consideration of $10,000.
(10) In addition, Mr. Qvist purchased 1,750,000 call options from the
Corporation during this period for an aggregate consideration of $128,450.
These call options expired without being exercised.
(11) In addition to the Named Executive Officers, the following persons who were
officers of the Corporation as at June 30, 2003 received an aggregate
remuneration in excess of $40,000 for the financial year ended June 30,
2003: Rupi Khanuja, Corporate Secretary & Corporate Controller, received
aggregate salary and bonuses of $110,000; and, Frederic Puistienne, Chief
Financial Officer, received aggregate salary and bonuses of $61,132 (during
the period from March 13, 2003 to June 30, 2003).
The Corporation does not have a long-term incentive plan pursuant to which
compensation was paid or distributed to the Named Executive Officers during the
financial year ended June 30, 2003. A "long-term incentive plan" means any plan
providing compensation intended to serve as incentive for performance to occur
over a period longer than one financial year, but does not include option or SAR
plans or plans for compensation through restricted shares or restricted share
units.
A summary of stock options granted to the Named Executive Officers during the
financial year ended June 30, 2003 is set out in the table below. All stock
options are for Corporation Common Shares and were granted in accordance with
the Corporation's 1995 Stock Incentive Plan, as amended. No SARs are outstanding
and it is currently intended that none be issued.
% OF TOTAL MARKET VALUE OF
OPTIONS/SARS SECURITIES
NUMBER OF GRANTED TO UNDERLYING
SECURITIES EMPLOYEES IN EXERCISE OR OPTIONS/SARS ON THE
UNDER OPTION FINANCIAL YEAR BASE PRICE DATE OF GRANT EXPIRATION
NAME (#)(1) (%) ($/SECURITY)(2) ($/SECURITY)(3) DATE
- ------------------ -------------- ---------------- --------------- ------------------ -----------
JON S. PETERSEN 500,000 8% $0.33 $0.26 November 1, 2007(4)
WOLF K. SEIDLER 500,000 8% $0.33 $0.26 November 1, 2007(5)
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 the 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 the Corporation Common Shares on the Toronto
Stock Exchange on the trading day preceding the grant.
(4) These options were granted on November 1, 2003 for no consideration;
the price range of the Corporation Common Shares for the 30 days
preceding the grant was $0.25 to $0.32.
(5) These options were granted on November 1, 2003 for no consideration;
the price range of the Corporation Common Shares for the 30 days
preceding the grant was $0.25 to $0.32. In connection with Mr. Seidler
ceasing to be an employee of the Corporation, these options expired
unexercised on July 30, 2003.
(6) On May 2, 2003, Jan A. Vestrum purchased from the Corporation, for
aggregate consideration of $11,400, 2,000,000 call options with an
exercise price of $0.42 per Share and expiring May 2, 2004. The price
range of the Corporation Common Shares for the 30 days preceding the
issuance of these call options was $0.29 to $0.37, the market value of
the Corporation Common Shares on the date of issuance of these call
options was $0.36, and these call options represent 34% of the total
options issued to employees in the financial year.
(7) On May 2, 2003, Hans Christian Qvist purchased from the Corporation,
for aggregate consideration of $10,000, 1,750,000 call options with an
exercise price of $0.42 per Share and expiring May 2, 2004. The price
range of the Corporation Common Shares for the 30 days preceding the
issuance of these call options was $0.29 to $0.37, the market value of
the Corporation Common Shares on the date of issuance of these call
options was $0.36, and these call options represent 34% of the total
options issued to employees in the financial year.
(8) On November 1, 2003, Rupi Khanuja was granted, for no consideration,
250,000 options with an exercise price of $0.33 per Share and expiring
November 1, 2007. The price range of the Corporation Common Shares for
the 30 days preceding the grant was $0.25 to $0.32. On November 2,
2003, Rupi Khanuja was granted, for no consideration, 250,000 options
with an exercise price of $0.33 per share and expiring November 2,
2007. The price range of the Corporation Common Shares for the 30 days
preceding the grant was $0.25 to $0.32. The expiry date for the
foregoing options was subsequently amended to July 1, 2004.
40
(9) On March 13, 2003, Frederick Puistienne was granted, for no
consideration, 500,000 options with an exercise price of $0.36 per
Share and expiring March 13, 2008. The price range of the Corporation
Common Shares for the 30 days preceding the grant was $0.35 to $0.44.
The following table sets forth information concerning the exercise of options
during the financial year ended June 30, 2003 and the value at June 30, 2003 of
unexercised in the money options held by the Named Executive Officers:
VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN THE MONEY OPTIONS
SECURITIES ACQUIRED AGGREGATE VALUE EXERCISABLE / EXERCISABLE /
ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME (#)(1) ($)(2) (#) ($)(3)
- ------------------ -------------------- ---------------- ------------------- ----------------------
JAN A. VESTRUM(4) Nil N/A 1,750,000/Nil Nil/Nil
JON S. PETERSEN Nil N/A 783,333 /166,667 Nil/$3,333
HANS CHRISTIAN QVIST(5) Nil N/A 1,000,000/Nil Nil/Nil
WOLF K. SEIDLER Nil N/A Nil/500,000 Nil/$10,000
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, 2003, being $0.35.
(4) In addition, Mr. Vestrum has 2,000,000 call option (i) none of which were
exercised during the financial year ended June 30, 2003, (ii) which are
fully exercisable, and (iii) which are not in the money.
(5) In addition, Mr. Qvist has 1,750,000 call option (i) none of which were
exercised during the financial year ended June 30, 2003, (ii) which are
fully exercisable, and (iii) which are not in the money.
During the financial year ended June 30, 2003, 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 June 1, 2003, the Corporation entered into an agreement with a company 50%
beneficially owned by Jan A. Vestrum, through which Mr. Vestrum is to provide
his services as President and Chief Executive Officer of the Corporation. The
term of the agreement is for twelve months and thereafter for repeating six
month periods. Pursuant to the agreement, the Corporation pays monthly
compensation for Mr. Vestrum's services of NOK 210,000 (approximately CDN
38,910) per month and an annual bonus based upon the results and achievements of
the Corporation. Mr. Vestrum is also entitled, subject to the termination of the
agreement, to a housing allowance of GBP 2,000 (approximately CDN 4,470) per
month from June 1, 2003 to June 1, 2005 and a housing allowance of GBP 1,200
(approximately CDN 2,680) per month from June 1, 2005 to June 1, 2006. The
Corporation or Mr. Vestrum may, after June 1, 2004, terminate the agreement
without cause on six months' notice. No severance payments are due to Mr.
Vestrum pursuant to the agreement; provided that, where Mr. Vesterum is no
longer offered the position of Chief Executive Officer following a change of
control, he is entitled to 24 months severance pay.
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.
COMPENSATION OF DIRECTORS.
An annual honorarium of USD 10,000 is paid to each director of the Corporation
for their services as a director. A fee of USD 1,000 is paid to each director
for each directors' meeting or committee meeting attended in person, or USD 500
if such meeting is attended by the director by conference phone. Directors
receive a disbursement of USD 500 per day for travel time, plus reimbursement of
expenses. Directors may also receive compensation in the form of incentive stock
options, at the discretion of the Board, for serving as directors of the
Corporation.
41
During the financial year ended June 30, 2003, Farris, Vaughan, Wills & Murphy,
a law firm of which Cameron G. Belsher is a partner, received aggregate fees of
CDN 452,465 for legal services performed at the request of the Corporation.
During the financial year ended June 30, 2003, Thommesson Krefting Greve Lund
AS, a law firm of which Kai Th0gersen is a partner, received aggregate fees of
CDN 17,476 for legal services performed at the request of the Corporation.
During the financial year ended June 30, 2003, 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 $256,000 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 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 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 whether management of the
Corporation has designed and implemented an effective internal control
system; and
(c) review and comment to the Board on financial statements prepared by
the Corporation.
The Audit Committee reports periodically to the Board on all of the foregoing
matters.
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 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 performs all
functions which might otherwise be delegated to a committee such as a
corporate governance or stock option committee.
42
D. EMPLOYEES
The Corporation has eight employees in Weybridge, United Kingdom who provide
technical, financial and administrative expertise. In addition, the Corporation
has one employee in Norway and three employees in the Philippines providing
management and administrative support services to the Corporation.
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, 2003:
COMMON SHARES OPTIONS TO PURCHASE COMMON SHARES
------------------------------- ----------------------------------------------------------
AMOUNT AND
NATURE OF
DIRECTORS AND BENEFICIAL PERCENTAGE OF EXERCISE PRICE
SENIOR MANAGEMENT OWNERSHIP CLASS (%) NUMBER GRANTED ($) EXPIRY DATE
- --------------------- -------------- --------------- ------------------ ----------------- -------------------
JAN VESTRUM 2,950,000 2.1% 1,750,000 0.40 March 6, 2007
2,000,000 0.42 May 2, 2004
HANS CHRISTIAN QVIST 0 0 1,000,000 0.40 March 6, 2007
1,750,000 0.42 May 2, 2004
KAI THOGERSEN 0 0 500,000 0.40 March 6, 2007
CAMERON BELSHER 0 0 500,000 0.40 March 6, 2007
FREDERIC PUISTIENNE 188,100 0.1% 500,000 0.36 January 17, 2008
BRIAN SPRATLEY 0 0 300,000 0.42 July 22, 2008
ANDREW STOCKS 0 0 500,000 0.74 October 2, 2008
JON PETERSEN 1,338,607 1.0% 450,000 1.33 June 26, 2005
500,000 0.33 November 1, 2007
TOTAL 4,429,507 3.2% 9,750,000
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 Corporation Common Shares
made available for the stock option plan will be determined by the Board subject
to the approval of the Toronto Stock Exchange; provided that, the aggregate
maximum number of Corporation Common Shares that the Corporation may at any time
reserve for issuance under the plan is 15,000,000, and the aggregate number of
Corporation Common Shares reserved for issuance to any one person must not
exceed 5% of the Corporation's issued and outstanding Corporation Common 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
Corporation Common Shares resulting, for example, from a subdivision or
consolidation of Corporation Common Shares or payment of a stock dividend.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
To the best of the knowledge of the Corporation, as of November 15, 2003, no
shareholder beneficially held more than 5% of the total outstanding Corporation
Common Shares.
43
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) promissory notes due to related parties of $379,152 including amounts
payable to two former directors of NPGP. The notes bear interest at a
rate of 8% per annum and are due on demand.
(b) the Corporation paid management fees during the years ended June 30,
2003, 2002 and 2001 of Nil, $215,433 (along with termination fees of
$632,000), and $443,805 respectively, to a company controller by the
former CEO and Chairman of the Corporation;
(c) 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:
YEAR ENDED JUNE 30
-------------------------------------------------------------
2003 2002 2001
------------------- ------------------ --------------------
SALARIES Nil Nil $440,155
RENT Nil Nil 77,742
OTHER ADMINISTRATIVE COSTS Nil $3,432 96,735
------------------- ------------------ --------------------
Nil $3,432 $614,632
=================== ================== ====================
(d) the Corporation paid management fees during the year ended June 30,
2003 of $501,900; 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; and
(e) during the year ended June 30, 2003, law firms of which directors of
the Corporation were partners received total legal fees of $469,942
(2002 - $465,024) from the Corporation.
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
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, 2003 and 2002 which contain an Auditor's Report dated
September 3, 2003, Balance Sheets as of June 30, 2003 and 2002, Statements of
Loss and Deficit for the Fiscal Years Ended June 30, 2003, 2002 and 2001,
Statements of Cash flows for the Fiscal Years Ended June 30, 2003, 2002 and 2001
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, 2003, are as follows:
On September 3, 2003 the Corporation entered into an agreement to sell its 86.1%
shareholding in North Pacific GeoPower Corp. ("NPGP") to Kenneth McLeod, an
officer and former director of NPGP. This transaction resulted in a change of
control of NPGP to Mr. McLeod. In consideration for the sale of this subsidiary,
the Corporation received cash consideration of $232,312 and have NPGP's
indebtedness to the Corporation in the amount of
44
$562,091. This transaction resulted in an accounting gain of approximately $1.3
million for the Corporation to be recorded in the year ended June 30, 2004.
On August 28, 2003, the Corporation announced that it had placed a NOK 120
million (approximately CAD 22.1 million) three-year senior unsecured convertible
bond with three major international institutions based in London. As at November
15, 2003, the bond has been partly converted by 7 NOK equivalent to 1,944,444
new Corporation Common Shares.
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:
HIGH LOW
TIME PERIOD $/SHARE $/SHARE
----------- ------- -------
6 MONTHS ENDED OCTOBER 31, 2003
October 0.90 0.66
September 0.85 0.56
August 0.60 0.39
July 0.41 0.34
June 0.40 0.32
May 0.41 0.33
YEAR ENDED JUNE 30, 2003 0.50 0.25
Second Quarter, 2003 0.41 0.29
First Quarter, 2003 0.50 0.28
Fourth Quarter, 2002 0.36 0.25
Third Quarter, 2002 0.42 0.27
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
The closing price of the Corporation Common Shares on the Toronto Stock Exchange
on November 15, 2003 was $0.83.
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:
45
HIGH LOW
TIME PERIOD NOK/SHARE NOK/SHARE
----------- --------- ---------
6 MONTHS ENDED OCTOBER 31, 2003
October 4.80 3.83
September 4.60 3.20
August 3.37 2.23
July 2.38 1.98
June 2.16 1.82
May 2.23 1.83
YEAR ENDED JUNE 30, 2003 2.60 1.25
Third Quarter (3 months Jan - Mar 2003) 2.60 1.33
Second Quarter (3 months Oct 1 - Dec 31, 2002) 1.60 1.25
First Quarter (Jul 1 - Sept 2002) 2.10 1.34
Fourth Quarter, 2002 (Apr - Jun 2003) 2.23 1.57
YEAR ENDED JUNE 30, 2002
Third Quarter (3 months Jan - Mar 2002) 3.23 1.95
Second Quarter (3 months Oct 1 - Dec 31, 2001) 3.86 2.72
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
The closing price of the Corporation Common Shares on the Oslo Stock Exchange on
November 15, 2003 was NOK 4.67.
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.
46
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 COMPANY ACT of the Province of British Columbia. The Corporation was
continued on January 28, 2000, by Articles of Continuance (the "Articles") and
Bylaws (the "Bylaws") into the Yukon Territory, and is now subject to the
BUSINESS CORPORATIONS ACT of the Yukon Territory (the "Yukon Act").
The Corporation's Articles and Bylaws do not limit the Corporation's objects or
purposes.
The following is a summary of certain provisions of the Corporation's Articles
and Bylaws and related sections of the Yukon Act. 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
attached as Appendix 1.
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
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 his or her 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 entered into, and, after full disclosure, the
director's interest is approved by a special resolution of the
shareholders.
47
DIRECTOR'S POWER TO DETERMINE THE COMPENSATION OF DIRECTORS
The compensation of the directors is governed by the Bylaws, which allows the
Board to determine such compensation. The directors are also entitled to be
reimbursed for travelling and other expenses properly incurred by them in
attending meetings of the Board 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 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 provisions relating to the retirement of directors under an age
limit requirement pursuant to the Corporation's Articles or 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 or her office.
DESCRIPTION OF CORPORATION COMMON SHARES
The authorized capital of the Corporation consists of 250,000,000 Corporation
Common Shares without par or nominal value.
Of the Corporation's authorized share capital, a total of 138,664,295
Corporation Common Shares were issued and outstanding as of September 1, 2003.
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 on
all polls at meetings of shareholders. 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.
The declaration of dividends on Corporation Common Shares is within the
discretion of the Board. The Corporation has not paid any dividends on its
Corporation Common Shares and has no policy with respect to the payment of
dividends.
48
The Corporation Common Shares issued and outstanding are not subject to further
capital calls by the Corporation and there are no provisions in the 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 Articles of the Corporation may be amended by a
resolution passed by a majority of not less than 2/3 of the votes cast, in
person or by proxy, by shareholders; provided, however, 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. The Yukon
Act further provides that the Bylaws may be amended by a resolution of the
Board; provided, however, the amendment must be submitted to the shareholders at
the next shareholder meeting and the shareholders may, by a resolution passed by
a majority of not less than 1/2 of the votes cast, in person or by proxy,
confirm, reject or amend the amendment.
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 is required to be held 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.
The Board 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 shareholders 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 are entitled to vote or to have their shares voted at the
meeting, except to the extent such shareholder transfers the ownership of his or
her shares after the record date, and the transferee of those shares:
(a) produces properly endorsed share certificates, or
(b) otherwise establishes his or her ownership to the shares, and makes a
demand to the Corporation, not later than 10 days before the meeting,
that his or her name be included on the shareholders' list for use at
the meeting.
On a show of hands, every individual who is present as a shareholder or as an
authorized representative of one or more corporate or association shareholders,
or who is holding a proxy on behalf of a shareholder who is not present at the
meeting, will have one vote. On a poll, every shareholder present in person or
represented by a proxy and every person who is a representative of one or more
corporate or association shareholders, will have one vote for each share
registered in the shareholder's name on the list of shareholders. Whenever a
vote by show of hands is 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.
49
C. MATERIAL CONTRACTS
During the two years ended November 15, 2003, the Corporation entered into the
following material contracts:
1. South Crofty Share Purchase Agreement. 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 Meager
Creek Development Corporation 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.
2. Darch/WIC Engagement Agreement and Settlement Agreement. On February 28,
2002, the Corporation entered into a settlement agreement, as amended, (the
"Darch/WIC Settlement Agreement") with John M. Darch and Western Investment
Consultants Ltd. ("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, 2102, 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 expired on March 1, 2003, provided that
such date will be extended to March 1, 2004 if permitted by the regulatory
authorities. The Darch/WIC Settlement Agreement further provides that NPGP
will enter into consulting agreement with WIC for a two year term to
$100,000 per year and that Crew will transfer to WIC 800,000 shares of
NPGP.
3. Vestrum Engagement Agreement. On June 1, 2003, the Corporation entered into
an agreement (the "Vestrum Engagement Agreement") with a company 50%
beneficially owned by Jan A. Vestrum, through which Mr. Vestrum is to
provide his services as President and Chief Executive Officer of the
Corporation. The term of the agreement is for twelve months and thereafter
for repeating six month periods. Pursuant to the agreement, the Corporation
pays monthly compensation for Mr. Vestrum's services of NOK 210,000
(approximately CDN 38,910) per month and an annual bonus based upon the
results and achievements of the Corporation. Mr. Vestrum is also entitled,
subject to the termination of the agreement, to a housing allowance of GBP
2,000 (approximately CDN 4,470) per month from June 1, 2003 to June 1, 2005
and a housing allowance of GBP 1,200 (approximately CDN 2,680) per month
from June 1, 2005 to June 1, 2006. The Corporation or Mr. Vestrum may,
after June 1, 2004, terminate the agreement without cause on six months'
notice. No severance payments are due to Mr. Vestrum pursuant to the
agreement; provided that, where Mr. Vesterum is no longer offered the
position of Chief Executive Officer following a change of control, he is
entitled to 24 months severance pay.
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.
50
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.
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
51
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.
U.S. 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 an estate whose income is taxable in the
United States irrespective of source, or a trust, if a court within the United
States is able to exercise primary supervision over the trust's administration
and one or more United States persons have the authority to control all of its
substantial decisions. 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
52
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 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 United
States tax legislation enacted on May 28, 2003, for tax years beginning after
December 31, 2002, qualified dividends received by certain U.S. shareholders
from a qualified foreign (non-U.S.) corporation are subject to a reduced rate of
tax. Dividends received from a foreign corporation that was a foreign personal
holding company, foreign investment company, or passive foreign investment
company in either the taxable year of the corporation in which the dividend was
paid, or the preceding taxable year are not qualified dividends.
Under current temporary Treasury Regulations, dividends paid, and the proceeds
of disposition of Corporation Common Shares, will be subject to U.S. information
reporting requirements and may also be subject to the 28% 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.
53
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 twelve 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:
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
54
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.
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
55
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 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
56
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.
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 Abbey House Business
Center, Wellington Way, Weybridge, Surrey KT13 OTT, United Kingdom.
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
FOREIGN CURRENCY RISK
For the year ended June 30, 2003, the Corporation's functional currency was the
Canadian dollar. The Corporation does not, at present, undertake any trading
activity in financial instruments. The Corporation's development projects are
based in Greenland, Norway, Ghana and the Philippines. Management of the
Corporation is based in the United Kingdom.
Foreign exchange risk is also managed by satisfying foreign denominated
expenditures with cash flows or assets denominated in the same currency.
Accordingly, the Corporation funds its foreign currency denominated operations
on a short-term basis to minimize the level of foreign currency denominated
assets held and therefore, mitigates the risk of exposure against the functional
currency.
At June 30, 2003 the Corporation had the equivalent of CAD 6.6 million in cash,
primarily in Canadian dollars. The Corporation had receivables of USD 638,591.
The Corporation incurs administrative and general expenses in Canadian and other
local currencies, majority of these costs have been primarily Canadian dollar
denominated. At June 30, 2003, a shift in foreign exchange rates would not have
materially impacted our foreign exchange loss because our foreign currency net
asset position was immaterial.
57
INTEREST RATE RISK
Interest bearing assets and liabilities are subject to the risk of movements in
interest rates. At June 30, 2003, the Corporation had no interest bearing debt.
Of the Corporation's equivalent CAD 6.6 million cash balance, CAD 6.2 million
was held in Canada, CAD 0.2 million in United Kingdom and the balance of CAD 0.2
million in Greenland. These deposits are held in the relevant local currency at
floating interest rates. Interest rates are commercial rates, which, are fixed
by reference to LIBOR or the applicable inter-bank interest rates for financial
assets held in other currencies.
COMMODITY RISK
Nalunaq is scheduled to commence production in the forthcoming year and the
Corporation will thereupon receive a revenue stream based on worldwide commodity
prices. The Corporation is currently investigating various options to mitigate
the risk of fluctuations in commodity prices on its future trading results. No
forward selling of anticipated production took place during the year.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
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.
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]
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".
58
ITEM 18. FINANCIAL STATEMENTS
Not applicable.
ITEM 19. EXHIBITS
A. CONSOLIDATED FINANCIAL STATEMENTS
DESCRIPTION OF DOCUMENT
Cover Sheet
Auditors' Report dated September 3, 2003
Consolidated Balance Sheets as at June 30, 2003 and 2002
Consolidated Statements of Loss and Deficit for the Fiscal Years Ended
June 30, 2003, 2002 and 2001
Consolidated Statements of Cash Flows for the Fiscal Years Ended June
30, 2003, 2002 and 2001
Notes to the Consolidated Financial Statements
B. MISCELLANEOUS EXHIBITS
DESCRIPTION OF DOCUMENT
J. Vestrum Engagement Agreement
THE FOLLOWING DOCUMENTS ARE CONTAINED IN THE CORPORATION'S FORM 20-F
FILING FOR THE FISCAL YEAR ENDED JUNE 30, 2002 AND ARE HEREBY
INCORPORATED BY REFERENCE IN ITS ENTIRETY.
Darch/WIC Engagement Agreement
Darch/WIC Settlement Agreement
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
59
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, 2003
By: /S/ JAN VESTRUM
--------------------------------------
Jan Vestrum
Chief Executive Officer
Crew Development Corporation
60
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, 2003
/s/ JAN VESTRUM
- -------------------------------------
Jan Vestrum
Chief Executive Officer,
Crew Development Corporation
61
I, Frederic Puistienne, 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, 2003
/s/ FREDERIC PUISTIENNE
- -------------------------------------------------------
Frederic Puistienne
Chief Financial Officer, Crew Development Corporation
62
AUDITORS' REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF
CREW DEVELOPMENT CORPORATION
JUNE 30, 2003 AND 2002
A1
AUDITOR'S REPORT
To the Shareholders of
Crew Development Corporation
We have audited the consolidated balance sheets of Crew Development Corporation
as at June 30, 2003 and 2002 and the consolidated statements of loss and deficit
and cash flows for each of the years in the three year period ended June 30,
2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian 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, 2003 and
2002 and the results of its operations and its cash flows for each of the years
in the three year period ended June 30, 2003 in accordance with Canadian
generally accepted accounting principles.
- ---------------------------------
Chartered Accountants
Vancouver, British Columbia
September 3, 2003
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 (i) and 2 (l) 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 3, 2003 is expressed
in accordance with Canadian reporting standards which do not permit a reference
to such conditions and events in the auditors' report when these are adequately
disclosed in the financial statements.
- ---------------------------------
Chartered Accountants
Vancouver, British Columbia
September 3, 2003
A2
CREW DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30
(EXPRESSED IN CANADIAN DOLLARS)
- -----------------------------------------------------------------------------------------------------------------------
2003 2002
ASSETS
CURRENT
Cash $ 6,689,956 $ 4,376,481
Accounts receivable 359,147 198,812
Prepaid expenses 344,260 250,389
Due from Metorex Limited 638,591 2,263,232
Investment in Metorex Limited (Note 5) 3,716,398 -
Investment in Asia Pacific Resources (Note 6) 1,730,760 -
- -----------------------------------------------------------------------------------------------------------------------
13,479,112 7,088,914
NALUNAQ MINERAL PROPERTY INTEREST (Note 3) 45,135,182 34,460,247
SECURITY DEPOSIT (Note 3) 877,338 -
INVESTMENT IN AND ADVANCES TO BARBERTON MINES LTD. (Note 4) 5,257,843 -
INVESTMENT IN METOREX LIMITED (Note 5) - 28,809,532
INVESTMENT IN ASIA PACIFIC RESOURCES (Note 6) - 4,950,000
OTHER MINERAL PROPERTY INTEREST (Note 7) 3,453,462 5,858,894
OTHER 190,467 918,347
- -----------------------------------------------------------------------------------------------------------------------
$ 68,393,404 $ 82,085,934
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 2,858,560 $ 2,648,712
Accrued restructuring costs (Note 8) 327,685 -
Promissory notes due to related parties (Note 15) 379,152 -
- -----------------------------------------------------------------------------------------------------------------------
3,565,397 2,648,712
FUTURE INCOME TAXES (Note 9) 3,338,484 3,338,484
NON-CONTROLLING INTEREST 4,007,830 2,324,649
- -----------------------------------------------------------------------------------------------------------------------
10,911,711 8,311,845
- -----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital (Note 10) 160,114,934 160,114,934
Share purchase warrants (Note 10 (g) and (h)) 21,340 275,250
Contributed surplus (Note 10 (g)) 275,250 -
Deficit (102,707,955) (83,846,598)
Cumulative translation adjustment (Note 11) (221,966) (2,769,497)
- -----------------------------------------------------------------------------------------------------------------------
57,481,693 73,774,089
- -----------------------------------------------------------------------------------------------------------------------
$ 68,393,404 $ 82,085,934
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTIGENCIES (Notes 12 and 13)
ON BEHALF OF THE BOARD:
(SIGNED) JAN VESTRUM (SIGNED) CAM BELSHER
- ------------------------------- ----------------------------
Jan Vestrum, Director Cam Belsher, Director
A3
CREW DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001
------------------------------------------------------------
MINERAL SALES $ - $ 111,730,701 $ 79,702,138
DIRECT COSTS OF MINERAL SALES - (87,425,868) (66,508,590)
AMORIZATION - (4,108,590) (3,985,344)
- -------------------------------------------------------------------------------------------------------------------------------
20,196,243 9,208,204
- -------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Administration, office and general 5,268,364 14,040,785 8,215,863
Interest 266,626 1,530,963 634,274
Professional fees 1,723,320 1,857,503 795,648
- -------------------------------------------------------------------------------------------------------------------------------
7,258,310 17,429,251 9,645,785
- -------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSES)
Equity earnings from investment in Barberton Mines Ltd. (Note 4) 91,046 - -
Loss on investment in Metorex Limited (Note 5) (5,448,760) (8,811,498) 3,540,665
Provisions for impairment of Chibuluma South Mines (note 5 (b)) - (8,450,857) -
Loss on geothermal asset (Note 7(g)) (2,897,355) (1,503,055) -
Provision for impairment of investment in Asia Pacific
Resources (Note 8) (2,887,350) (19,593,056) -
Provision for decline in value of investment in Mindoro
Nickel Project Note 7(e)) - - (34,024,132)
Costs related to Mindoro Nickel Project (Note 7 (e)) - (1,572,585) -
Provision for impairment of other mineral property interests (Note 7) - (5,009,878) -
Restructuring costs (Note 8) (593,127) - -
Foreign exchange (loss) gain (119,409) 1,510,820 (1,043,032)
Interest and other income, net 34,890 2,157,547 4,436,349
- -------------------------------------------------------------------------------------------------------------------------------
(11,820,065) (41,272,562) (27,090,150)
- -------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES AND
NON-CONTROLLING INTEREST (19,078,375) (38,505,570) (27,527,731)
- -------------------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES (Note 9)
Current - 4,875,053 3,151,223
Future - (4,228,918) (7,499,169)
- -------------------------------------------------------------------------------------------------------------------------------
- 646,135 (4,347,946)
- -------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE PROVISION NON-CONTROLLING INTEREST (19,078,375) (39,151,705) (23,197,785)
NON-CONTROLLING INTEREST 217,018 (1,598,984) (3,103,752)
- -------------------------------------------------------------------------------------------------------------------------------
NET LOSS (18,861,357) (40,750,689) (26,283,537)
DEFICIT, BEGINNING OF YEAR (83,846,598) (42,697,223) (14,951,424)
DIVIDEND (Note 7 (g)) - (228,284) -
NET LIABILITIES ACQUIRED ON REVERSE TAKEOVER OF
NORTH PACIFIC GEOPOWER (Note 7 (g)) - (170,402) -
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
POLICIES (Note 2 (i) and 2 (l)) - - (1,462,262)
- -------------------------------------------------------------------------------------------------------------------------------
DEFICIT, END OF YEAR $(102,707,955) $(83,846,598) $ (42,697,223)
- -------------------------------------------------------------------------------------------------------------------------------
LOSS PER SHARE - BASIC AND DILUTED $ (0.14) $ (0.31) $ (0.26)
- -------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 138,664,295 131,790,183 101,708,357
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to the Consolidated Financial Statements
A4
[cad 192]
CREW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, (EXPRESSED IN CANADIAN
DOLLARS)
- -------------------------------------------------------------------------------------------------------------------
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 Limited 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 (8,801,059) (1,609,007) 828,526
(Note 20 (a))
- -------------------------------------------------------------------------------------------------------------------
(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 - 3,718,938 (434,373)
(a))
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
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
SEE NOTE 20 FOR SUPPLEMENTAL CASH FLOW INFORMATION.
See accompanying Notes to the Consolidated Financial Statements
A5
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 development projects in Canada, Greenland, Norway,
Ghana 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, 2003 are as follows:
SUBSIDIARY % INTEREST
Nalunaq Gold Mine A/S (Greenland) ("Nalunaq") 82.5%
Crew Norway AS (formerly Mindex ASA) 100%
North Pacific GeoPower Corp. (Canada) 86.1%
Hwini-Butre Minerals Ltd. (Ghana) 100%
The Company's 67% interest in Nanortalik IS (Greenland) is subject to
joint control and is consolidated on a proportionate basis, whereby
the Company includes in its accounts its proportionate share of
Nanortalik's assets, liabilities, and expenses. Subsequent to year
end, the Company's interest in Nanortalik increased to 72%.
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. As a result of a share sale on June 20, 2003 the Company's
interest dropped to 5.34% and the Company commenced accounting for the
investment in Metorex on the cost basis (Note 5).
(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.
A6
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) INVESTMENTS
Investments where the Company has the ability to exercise significant
influence, generally 20% to 50% owned by the Company, 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 long-term investments are accounted for using the cost method,
whereby income is included in operations when received or receivable.
Provisions for impairment of long-term investments are made, where
necessary, to recognize other than temporary declines in value.
Investments which are capable of reasonably prompt liquidation, and
which the Company intends to dispose of, are classified as short-term
investments and recorded at the lower of cost and market value.
(g) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are depreciated on a straight-line or
diminishing balance basis over their estimated useful lives. Details
of the method and estimated useful lives are as follows:
Buildings - straight line basis over periods from 3-20 years
Plant and equipment - 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%
Management reviews the carrying values of its property, plant and
equipment on a regular basis for evidence of impairment, 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, the Company records an impairment
provision.
A7
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h) MINERAL PROPERTY INTERESTS
All costs related to the acquisition, exploration and development of
mineral properties are capitalized until either commercial production
is established, the property is determined to be impaired or it is
abandoned. On achievement of commercial production, such costs will be
amortized on a systematic basis over the estimated productive life of
the property. The Company reviews the carrying value of each property
on a regular basis for evidence of impairment. This review generally
is made by reference to the timing of exploration work, work programs
proposed, exploration results achieved by the Company and others,
and/or management's estimates of the cash flow to be generated by any
producing property based on a mine plan feasibility study. 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.
(i) INCOME TAXES
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.
(j) STOCK OPTIONS
Effective July 1, 2002 the Company adopted the new recommendations of
the CICA with respect to stock-based compensation and other
stock-based payments on a prospective basis. The new recommendations
require that stock-based payments to non-employees be accounted for
using a fair-value based method of accounting. The recommendations
encourage, but do not require, the use of a fair-value based method of
accounting for stock compensation to employees. The Company has
elected to continue to not record stock options issued to employees as
compensation expense and to disclose pro forma information on the fair
value of stock compensation issued during the period in the notes to
the financial statements. Had compensation cost for the Company's
stock-based compensation been accounted for under the fair-value based
method of accounting, the Company's net income and earnings per share
would have been as follows:
Net loss for the period $ (18,861,357)
Fair value of share compensation to employees (474,767)
---------------------------------------------------------------------------------------------------
Pro forma net loss for the period $ (19,336,124)
---------------------------------------------------------------------------------------------------
Pro forma net loss per share $ (0.14)
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
A8
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The fair value of stock compensation issued to employees was
determined using the Black-Scholes option pricing model assuming an
average volatility factor of 66%, an average risk-free rate of 3.9%
and an expected life of 1 or 5 years. The fair value is amortized on a
straight-line basis from the grant date over the vesting period of the
related options.
(k) 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.
(l) 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.
(m) COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform
with the current year's presentation.
3. NALUNAQ MINERAL PROPERTY INTEREST
The following table shows the continuity of the Nalunaq mineral property
interest during the years ended June 30:
2003 2002
-------------- ------------
Balance, beginning of year $34,460,247 $25,994,352
Acquisition of interest 1,892,695 -
Expenditures incurred during the year 8,782,240 8,465,895
------------------------------------------------------------------------------------------------------------
Balance, end of year $45,135,182 $34,460,247
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
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. This interest was subsequently increased 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
the final feasibility study, which was completed in August 2002.
During the year ended June 30, 2003, a new operational structure was
introduced and the partners transferred the Nalunaq assets to Nalunaq Gold
Mine A/S, a Greenlandic limited liability company. The restructuring
resulted in an increase in the Company's interest in the Nalunaq project to
82.5% and a commitment by the Company to fund, or arrange all future
financing of, the project.
A9
3. NALUNAQ MINERAL PROPERTY INTEREST (CONTINUED)
As a condition for obtaining the exploitation license for Nalunaq Gold
Mines A/S, the Company issued a guarantee to the Government of Greenland on
June 2, 2003 (Note 13). During the year ended June 30, 2003 Nalunaq Gold
Mine provided a security deposit of $877,338 (DKK 4.2 million) to the
government of Greenland to cover future estimated mine closure costs and a
three year monitoring program. The amount of the deposit was based on an
estimate of closure costs prepared by Greenland's Bureau of Minerals and
Petroleum ("BMP") as set out in a detailed closure plan provided by the
BMP. The terms set out in the closure plan are not exhaustive and BMP
reserve the right to set out additional terms in the event of future
exploration activities within these areas of the exploitation license.
The Company's ability to achieve its Nalunaq mining plan was dependent on
its ability to secure additional financing at June 30, 2003. Subsequent to
June 30, 2003 the Company completed a convertible bond offering for gross
proceeds of NOK 120 million (approximately $22.1 million) which management
believes will be sufficient to complete construction of the mine.
Achievement of the mine plan is also dependent on a number of estimates
included in the mine plan relating to future commodity prices, production
cost and recovery rates, exchange rates, and mineral ore reserves.
4. INVESTMENT IN AND ADVANCES TO BARBERTON MINES LTD.
Effective June 15, 2003, the Company acquired a 20% interest in the ETC
Division of Avgold Limited (now renamed "Barberton Mines Limited") for a
total cash injection of $5,133,000 (Rand 30 million). This cash payment was
comprised of a shareholder loan of $5,132,996 (Rand 30 million) and a
nominal equity investment of $4 (Rand 20). The shareholder loans are
unsecured, subordinated in favour of all creditors of Barberton, and bear
interest at such rate as determined by Barberton's board of directors, but
shall not exceed prime. The loans are repayable once certain conditions of
Barberton's term-loan facility agreement with its external financiers have
been met. Subject to these conditions, Barberton will distribute 66% of its
annual profits as repayment of shareholder loans or dividends, subject to
it's future cash flow needs.
The acquisition was made by a consortium consisting of Metorex Ltd., 54% ,
MCI Resources Ltd., 26%, and the Company, 20%. The total purchase price
paid by the consortium of Rand 255 million was funded by a Rand 105 million
term-loan facility and Rand 150 million of shareholder loans. The term loan
facility is secured by a pledge of all Barberton shares held by the
shareholders and by Barberton's assets. In addition, certain financial and
operational lending covenants must be achieved by Barberton, of which
failure to do so will result in restrictions on the payment of dividends,
repayments of shareholder loans and the repayment of interest thereunder.
Details of the Company's 20% equity share of the acquired assets and
liabilities of Barberton Mines Limited is as follows:
Current assets $ 228,667
Producing mining property, plant and equipment 11,082,399
Other assets 632,197
Current liabilities (969,984)
Long-term debt (3,593,100)
Shareholder loans (5,323,721)
Other liabilities (2,056,454)
-------------------------------------------------------------------------------------------------
Crew's share of net assets acquired $ 4
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
A10
5. INVESTMENT IN METOREX LIMITED
In 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. As a
result of a consolidation of interests which closed on December 6, 1999,
this 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. During November 2000, the Company
increased its interest in Metorex to 52% through the acquisition of
additional shares from existing shareholders and began consolidating the
results of operations and financial position of Metorex (Note 5 (d)).
At June 30, 2001, the Company held a 53% interest in Metorex and accounted
for this investment using the consolidation method.
On April 26, 2002, the Company's interest was reduced to 41% and the
Company ceased to consolidate it's interest in Metorex. A continuity of the
investment in Metorex for the two years ended June 30, 2003 is as follows:
De-consolidation of investment in Metorex on April 30, 2002 (Note 5 (a)) $ 39,815,345
Loss on investment in Metorex before exchange loss realized on disposals (Note 5 (c)) (8,036,773)
Proceeds on disposal of investment (Note 5 (c) (iii)) (2,969,040)
-----------------------------------------------------------------------------------------------------------
Balance, June 30, 2002 28,809,532
Loss on investment in Metorex before exchange loss realized on disposals (Note 5 (c)) (4,232,051)
Proceeds on disposals of investment (Note 5 (c) (iii)) (21,333,405)
Dividends (858,500)
Translation adjustment 1,330,822
-----------------------------------------------------------------------------------------------------------
Balance, June 30, 2003 $ 3,716,398
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
(a) On April 26, 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.
(b) Prior to April 26, 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) The loss on the Company's investment in Metorex during the years ended
June 30, 2003 and 2002 consists of the following:
2003 2002 2001
------------- -------------- ------------
Equity earnings from investment (i) $ 1,051,967 $ 1,549,819 $ 3,540,665
Dilution loss (ii) (1,133,928) -
Losses on disposals of interest (iii) (4,140,463) (1,071,479) -
Provisions for impairment of investment (iv) (1,143,555) (7,381,185) -
----------------------------------------------------------------------------------------------------
Loss on investment in Metorex before
exchange loss realized on disposals (4,232,051) (8,036,773) 3,540,665
Foreign exchange loss realized on disposals (1,216,709) (774,725) -
----------------------------------------------------------------------------------------------------
Loss on investment in Metorex (5,448,760) (8,811,498) 3,540,665
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
A11
5. INVESTMENT IN METOREX LIMITED (CONTINUED)
(i) the equity earnings for the year ended June 30, 2003, represent
the Company's proportionate share of Metorex's net earnings from
July 1, 2002 to October 22, 2002 at 41%. and from October 22,
2002 to June 15, 2003 at 21%. 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 at
41%. The equity earnings for the year ended June 30, 2001
represents the Company's proportionate share of Metorex's net
earnings from July 1, 2000 to November 24, 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.
(iii) In three separate transactions during the year ended June 30,
2003, the Company sold a total of 48,208,412 shares of Metorex
for cash proceeds of $21,333,405, resulting in total losses on
disposal of $4,140,463 and a reduction in the Company's interest
in Metorex from 21% to 5.34%.
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.
(iv) As at June 30, 2003, the investment in Metorex was held as a
short-term investment. At June 30, 2003, the market value of the
investment in Metorex Limited was $1,143,555 less than the
carrying value, accordingly, the Company has provided for this
decline in value.
As at June 30, 2002 the investment in Metorex was held as a
long-term investment and management determined that this
investment 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.
(d) 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:
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
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
A12
6. INVESTMENT IN ASIA PACIFIC RESOURCES
At June 30, 2003, the Company holds approximately 6.22% (2002 - 7%) of Asia
Pacific Resources Ltd. ("Asia Pacific") with a carrying value of $1,730,760
(2002 - $4,950,000). During the year ended June 30, 2003, management
determined that this investment would not be held as a long-term investment
and accordingly the investment has been reclassified as a short-term
investment. At June 30, 2003, the market value of the investment in Asia
Pacific was $2,887,350 less than its carrying value and accordingly, the
Company has recorded a provision for this decline in value. During the year
ended June 30, 2003, the Company disposed of 4,154,000 shares for cash
proceeds of $303,777, resulting in a loss on disposal of $28,133.
During the year ended June 30, 2002, 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. The Company invested an additional $5 million
into Asia Pacific as part of the restructuring during 2002. 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.
7. 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:
2003 2002
-------------- -------------
Other mineral property interests, beginning of year $ 5,858,894 $ 8,227,052
Expenditures incurred during the year 491,923 2,717,587
Provision for impairment in value of Roros Project (f) - (4,688,918)
Provision for impairment of other properties - (320,960)
Provision for impairment of geothermal asset (g) (2,897,355) -
Other - (75,867)
------------------------------------------------------------------------------------------------------------
Other mineral property interests, end of year $ 3,453,462 $ 5,858,894
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Consisting of:
2003 2002
------------- --------------
Hwini-Butre Gold Project (Ghana) (a) 3,213,200 3,181,803
Sequinner Olivine (Greenland) (b) 84,064 63,493
Nanortalik IS (Greenland) (c) 144,182 -
Ringvassoy (Norway) (d) 12,013 -
Mindoro Nickel Project (Philippines) (e) 1 1
Roros Project (Norway) (f) 1 1
Geothermal Project (g) 1 2,613,596
------------------------------------------------------------------------------------------------------------
3,453,462 5,858,894
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
(a) HWINI-BUTRE GOLD PROJECT
Through a wholly-owned subsidiary, the Company owns 51% of the
Hwini-Butre gold concession located in Ghana, Africa (Note 13).
A13
7. OTHER MINERAL PROPERTY INTERESTS (CONTINUED)
(b) SEQUINNER OLIVINE
During the year ended June 30, 2003, the Company exercised an option
to acquire 100% of mineral rights to the Sequinner Olivine property in
Southern Greenland.
Subsequent to the year ended June 30, 2003, the Company entered into
an agreement with Minelco AB, a subsidiary of iron ore producer LKAB
of Sweden, to develop a Bankable Feasibility Study ("BFS") for the
Olivine project. The Company will be responsible for the management of
further drilling and for the preparation of the BFS, whereas Minelco
will cover all related costs. If the BFS is successfully completed,
Minelco will have an option to acquire 51% of the Sequinner project
for nominal consideration. Minelco would then be responsible for
funding all capital expenditures related to the development of a
mining operation as defined by the BFS.
(c) NANORTALIK IS
In connection with the ownership restructuring of the Nalunaq assets
and the formation of Nalunaq Gold Mine A/S, the remaining concessions
formerly held by Nalunaq I/S were transferred to Nanortalik I/S during
the year ended June 30, 2003. Nanortalik I/S is a joint venture
between the Company (67% interest) and NunaMinerals A/S (33%
interest).
The joint venture holds an exploration license which expires in July
2004 and requires a total work commitment of DKK 4.0 million
(approximately $835,000) during 2002 and 2003. Failure to meet this
minimum work commitment will allow BMP to request payment of 50% of
the remaining amount in cash after the expiration of the license.
During the year ended June 30, 2003 the joint venture incurred
$231,673 (DKK 1,086,492) in exploration costs. Subsequent to year-end,
the Company funded an additional $452,395 (DKK 2,058,240).
NunaMinerals was unable to participate in this capital call and as a
consequence, will suffer a dilution resulting in an increase in the
Company's interest from 67% to 72%. It is expected that the Company
will fund all of the remaining exploration commitment for the current
program, resulting in a further increase in its joint venture
interest. Should the interest of NunaMinerals be reduced below 10% due
to continued dilution, NunaMinerals would have the option of
converting its interest into a net royalty smelter agreement ("NSR").
The NSR percentage would be determined based on a sliding scale as
defined in the joint venture agreement.
These financial statements include the following assets, liabilities,
results of operations and cash flows related to the proportionate
consolidation of Nanortalik:
2003
------------
Assets $ 153,151
----------------------------------------------------------------------------
Liabilities $ 122,955
----------------------------------------------------------------------------
Expenses and net loss $ 75,904
----------------------------------------------------------------------------
Cash flows from operating activities $ 46,818
Cash flows from investing activities (141,658)
Cash flows from financing activities 106,100
(d) RINGVASSOY GOLD PROJECT
The Ringvassoy gold project is found in a Archean Greenstone belt, in
Northern Norway. The Company has entered into a 50% earn in agreement
with Northern Shield Resources Inc, a private Canadian junior
exploration company, for completing exploration work amounting to
$750,000 over two years.
A14
7. OTHER MINERAL PROPERTY INTERESTS (CONTINUED)
(e) 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.
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 Mineral Production Agreement ("MPSA") which was
cancelled in July 2001. Effective April 2002, the Company withdrew 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.
(f) ROROS PROJECT
Title to the Roros Project is secured through 55 mineral claims in
seven different municipalities in Central Norway. Due to 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.
(g) GEOTHERMAL PROJECT
Effective November 22, 2001, 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.
This business combination was 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
and financial position 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.
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 recorded a loss
on dilution of geothermal asset of $1,503,055 during the year ended
June 30, 2002, which included the $1,203,699 of cash paid to the
related party.
A15
7. OTHER MINERAL PROPERTY INTERESTS (CONTINUED)
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.
During the year ended June 30, 2003, the Company granted 800,000 of
its shares in NPGP to the former Chairman, as part of a settlement
agreement.
Due to the difficulties faced by NPGP in raising necessary financing
for the geothermal project, the Company wrote down its investment in
the geothermal project $1, resulting in a provision for impairment of
$2,897,355 during the year ended June 30, 2003.
Pursuant to an agreement dated September 3, 2003, which is still
subject to regulatory approval, the Company has agreed to sell all of
its shares in NPGP to an officer, and former director, of NPGP (see
Note 18).
8. RESTRUCTURING COSTS
In order to centralize the Company's executive management, key operational
and administrative functions in one location, the Company closed its office
in Norway and relocated its head office from Vancouver to London during the
year ended June 30, 2003.
This restructuring resulted in the following costs and accrued liabilities
at June 30, 2003:
Accrued
Restructuring Cash Restructuring
Costs Payments Costs at June30, 2003
------------------ ------------------- ----------------------
Workforce reduction costs $ $131,558 $ 131,558 $ -
Lease exit costs 285,315 - 285,315
Other costs 176,254 133,884 42,370
------------------------------------------------------------------------------------------------------------
$ $593,127 $ $265,442 $ $327,685
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
The workforce reduction costs of $131,558 relate to severance for five
employees who were terminated in connection with the closure of the
Vancouver and Norway offices. In addition, lease exit costs of $285,315
were incurred based on remaining committed lease payments for the Vancouver
office space, net of expected future sublease revenue. The remaining
accrued lease exit costs will be paid monthly until the lease expires in
February 2006.
A16
9. INCOME TAXES
Future income tax assets and liabilities arise at June 30 from the
following:
2003 2002
----------------- ----------------
Future income tax assets
Investments $ 1,073,716 $ 4,969,756
Mineral property interests 11,097,074 10,447,295
Property, plant and equipment 530,079 273,880
Loss carry-forwards 13,575,903 16,183,218
Share issue costs 29,000 1,030,328
Other 87,017 -
-------------------------------------------------------------------------------------------------
26,392,789 32,904,477
Valuation allowance (26,392,789) (32,904,477)
Future income tax assets - -
Future income tax liabilities
Nalunaq mineral property interest (3,156,681) (3,156,681)
Other mineral property interest (181,803) (181,803)
-------------------------------------------------------------------------------------------------
Future income tax liabilities (3,338,484) (3,338,484)
-------------------------------------------------------------------------------------------------
Future income tax liabilities, net $ (3,338,484) $ (3,338,484)
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
A reconciliation of the provision for (recovery of) income taxes is as
follows:
2003 2002 2001
-------------- ---------------- --------------
Recovery of income taxes based on
Canadian statutory tax rate of 39%
(2002 - 42%; 2001 - 45%) $ (7,368,068) $ (16,218,546) $ (12,387,479)
Add (deduct) Lower foreign tax rates 184,919 (384,139) 4,002,121
Tax effect of losses not recognized 7,056,598 19,429,203 3,273,289
Reassessment of Metorex's prior year taxes - (736,490) -
Other 126,551 (1,443,893) 764,123
------------------------------------------------------------------------------------------------------------
Provision for income taxes $ - $ 646,135 $ (4,347,946)
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
As at June 30, 2003, the Company and its subsidiaries have estimated
non-capital losses carried forward for Canadian income tax purposes of
approximately $21,900,000 (2002 - $23,100,000), which can be applied to
reduce future Canadian income taxes payable and will expire in 2004 to
2010. As at June 30, 2003 the Company's subsidiaries also have estimated
non-capital losses carried forward for Greenland, Norwegian and Philippine
income tax purposes of approximately $8.8 million, $9.4 million and $1.1
million, respectively. The loss carry-forwards in Greenland can be applied
to reduce future income taxes payable and do not expire. The other loss
carryforwards will expire in 2011 and 2012 for Norway and 2004 to 2006 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.
10. SHARE CAPITAL
(a) The authorized share capital at June 30, 2003 is 250,000,000 common
shares without par value (2002 - 250,000,000 common shares without par
value).
A17
10. SHARE CAPITAL (CONTINUED)
(b) Details of changes in the issued share capital since June 30, 2001 are
as follows:
NUMBER
OF SHARES AMOUNT
----------------- -------------
Balance, June 30, 2000 87,613,060 113,830,010
Issued for cash on exercise of warrants (c) 1,600,000 1,597,896
Issued for cash on private placement ((d) and (e)) 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 (f) 10,158,101 3,364,032
---------------------------------------------------------------------------------------------------
Balance, June 30, 2002 and 2003 138,664,295 160,114,934
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
(c) 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.
(d) 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).
(e) 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.
(f) 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.
(g) 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 and CEO of the
Company in exchange for total cash consideration of $275,250. On May
1, 2003, these warrants expired without being exercised and the
carrying value of these warrants, in the amount of $275,250, was
classified as contributed surplus.
(h) During the year ended June 30, 2003, the Company issued 3,750,000
warrants to purchase 3,750,000 shares of the Company at an exercise
price $0.42 per share. Of these warrants, 1,750,000 were issued to the
Chairman and 2,000,000 were issued to the President and CEO of the
Company in exchange for total cash consideration of $21,430.
(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, 2003, there were
2,733,500 options available for grant.
A18
10. SHARE CAPITAL (CONTINUED)
The following table summarizes share option activity since June 30, 2001:
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
Granted 5,900,000 0.39
Cancelled (4,680,000) 0.58
---------------------------------------------------------------------------------------------------
Balance, June 30, 2003 11,370,000 $ 0.49
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
The following table summarizes outstanding and exercisable share
options at June 30, 2003:
Number of Weighted
Share Options Expiry Average
Outstanding Date Exercise Price
------------------ ---------------------- ------------------
20,000 October 21, 2003 $ 1.00
300,000 March 4, 2004 1.14
3,750,000 May 2, 2004 0.42
900,000 June 26, 2005 1.33
3,750,000 March 6, 2007 0.40
500,000 May 2, 2007 0.41
1,250,000 November 1, 2007 0.33
250,000 November 2, 2007 0.33
150,000 February 4, 2008 0.49
500,000 January 17, 2008 0.36
---------------------------------------------------------------------------------------------------
11,370,000 $ 0.49
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
11. CUMULATIVE TRANSLATION ADJUSTMENT
The cumulative translation adjustment comprises:
2003 2002
-------------- --------------
Cumulative effect of unrealized losses on foreign
exchange translation in prior periods $ (2,769,497) $ (6,770,759)
Reduction for portion of translation adjustment related to
disposals and dilution of interest in Metorex (Note 5) 1,216,709 774,725
Decrease (increase) in unrealized loss on translation of
net assets (Note 5) 1,330,822 3,226,537
-------------------------------------------------------------------------------------------------------------
Cumulative unrealized losses on foreign exchange
translation at end of year (221,966) (2,769,497)
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
This balance represents the net unrealized foreign currency translation
losses on the Company's net investment in Metorex.
A19
12. COMMITMENTS
The Company is committed to minimum annual non-cancellable future operating
lease payments as follows:
2003 2002
-------------- ---------------
Within one year $ 542,578 $ 173,227
Years two to five 278,320 445,311
------------------------------------------------------------------------------------------------------------
$ 820,898 $ 618,538
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Pursuant to a consulting agreement between NPGP and the former
Chairman, NPGP is committed to pay $100,000 in consulting fees in the
year ended June 30, 2004.
Since the balance sheet date the Company has approved capital
commitments totalling $7,696,721 to be incurred in relation to the
Nalunaq Gold project, its gold deposit in Greenland. This expenditure
has initiated the infrastructure required to mine and ship the ore from
Greenland. The largest single commitment has been the delivery of a
turnkey camp for seventy people. This commitment encompassed
mobilization, construction and earthworks, water and power supply and
wastewater treatment. In addition an upgrade of the access roads to the
mine was approved.
The other major commitment was the construction and preparation of the
anchor systems for the barge and bulk carrier and to mobilize and
install the 300 foot barge used as a support for the ship loader
facility. These facilities are expected to be fully operational by
October 2003.
The Company has exercised an option agreement with Altai Philippines
Mining Corporation ("APMC") in order to acquire Mineral Property
Sharing Agreements and exploration permits for the Negros sulphur
concessions. If the Company wishes to retain these rights, it must pay
to APMC an amount of US$50,000 per year for each of the next three
years, and then $125,000 per year for each year thereafter until the
project produces a minimum of 50,000 tons of ore mineral per month. If
and when this production milestone is reached, the Company will then be
obligated to pay a 25% royalty on net profits from the mining
operations. The Company has the option, at any time, of purchasing this
royalty interest from APMC for US$750,000, prior to February 4, 2007,
or for US$1,000,000 if exercised after February 4, 2007. The Company is
able to terminate this agreement at any time, in which case the
exploration rights would be forfeited and any unpaid amounts would not
be payable.
13. CONTINGENCIES
As a condition for obtaining the exploitation license for Nalunaq Gold
Mine A/S, the Company issued a guarantee to the Government of Greenland
on June 2, 2003. The guarantee covers all present and future
liabilities, such as environmental liabilities, which may be imposed on
Nalunaq Gold Mine A/S under both present and future laws of Greenland,
including future amendments which may be made to the exploitation
license. The Company has unlimited liability under the terms of this
guarantee.
A subsidiary of the Company has been named as a defendant in an action
brought by a third party claiming that the Hwine-Butre mineral
concessions 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.
A20
14. CASH FLOW STATEMENT INFORMATION
(a) CHANGE IN NON-CASH OPERATING WORKING CAPITAL ITEMS
2003 2002 2001
-------------- --------------- -----------------
(Decrease) increase in
Accounts receivable $ (160,335) $ 1,419,210 $ (5,661,015)
Inventories - (1,594,979) 2,138,770
Prepaid expenses (93,871) (67,528) (144,874)
Mining assets held for sale - - 209,795
Due from associated companies - (1,722,266) -
(Decrease) increase in
Accounts payable and accrued liabilities 209,848 (6,749,043) 1,845,203
Accrued restructuring costs 327,685 - -
Due to associated companies - (86,453) 3,114
Promissory notes due to related parties 379,152 - -
---------------------------------------------------------------------------------------------------------------
$ 662,479 $ (8,801,059) $ (1,609,007)
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
(b) NON-CASH INVESTING ACTIVITIES
During 2003 the Company recorded a non-cash addition in the amount of
$1,892,695 to its Nalunaq property interest as described in Note 3.
(c) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
2003 2002 2001
---------- ---------- ----------
Cash payments for interest $ 20,728 $1,531,359 $ 471,032
Cash payments for income taxes 54,109 4,620,470 1,744,801
15. RELATED PARTY TRANSACTIONS
Related party transactions, not disclosed elsewhere in these financial
statements, comprise:
Promissory notes due to related parties of $379,152 include amounts
payable to two former directors of North Pacific GeoPower, a subsidiary
of the Company. The notes bear interest at a rate of 8% per annum and
are due on demand.
The Company also paid management fees during the year ended June 30,
2003 of $501,900 (2002 - $253,591; 2001 - $Nil) and a bonus of $Nil
(2002 - $280,513; 2001 - $Nil) to a company controlled by a new
director and President and CEO of the Company.
During the year ended June 30, 2003, law firms of which directors of
the Company were partners received total legal fees of $469,942 from
the Company (2002 - $462,024; 2001 - $Nil).
The Company paid management fees during the year ended June 30, 2003 of
$Nil (2002 -$215,433; 2001 - $443,805) and termination fees of $Nil
(2002 - $632,000; 2001- $Nil) to a company controlled by the former CEO
and Chairman of the Company.
A21
16. 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.
(b) SEGMENT INFORMATION FOR THE YEAR ENDED JUNE 30, 2002
Exploration
Fluorospar and Unallocated
Antimony/ and other development corporate
Gold Coal Zinc Copper minerals activities items Total
---- ---- ---- ------ -------- ---------- ----- -----
Mineral sales $ 16,011,005 $15,734,815 $18,339,827 $44,520,523 $17,124,531 $ - $ - $111,730,701
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income 39,612 - 184,753 423,522 196,808 187,301 831,545 1,863,541
Amortization of
capital assets (566,306) (1,016,452) (1,830,930) - (694,902) (155,895) (86,630) (4,351,115)
Provisions for asset
impairments - - - (8,450,857) - (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 - (282,609) (51,198) (1,089,101) (107,877) - (178) (1,530,963)
Other income
(expenses) (14,832,347) (16,058,602) (15,068,611) (36,758,408) (10,319,745) (2,150,176) (6,863,641) (102,051,530)
Non-controlling
interest - - - - (1,195,569) 84,372 (487,787) (1,598,984)
Income taxes 162,338 - (468,771) (1,179,822) (1,782,597) 1,109,085 1,513,632 (646,135)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 814,302 $ (1,622,848) $ 1,105,070 $ (2,534,143) $ 3,220,649 $(27,100,832) $(14,632,887) $(40,750,689)
- ------------------------------------------------------------------------------------------------------------------------------------
Additions to capital
assets $ 132,771 $ 1,966,989 $ 215,440 $ 10,246,254 $ 1,598,267 $ 8,733,637 $ 404,083 $ 23,297,441
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets at
June 30, 2002 $ - $ - $ - $ - $ - $ 46,659,056 $ 35,426,878 $ 82,085,934
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
(c) SEGMENT INFORMATION FOR THE YEAR ENDED JUNE 30, 2001
Exploration
Fluorospar and Unallocated
Antimony/ and other development corporate
Gold Coal Zinc Copper minerals activities items Total
---- ---- ---- ------ -------- ---------- ----- -----
Mineral sales $10,897,227 $13,742,753 $12,977,637 $33,222,423 $8,862,098 $ - $ - $ 79,702,138
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income 61,994 972 144,200 327,851 256,140 15,253 543,606 1,350,016
Amortization of
capital assets (382,655) (1,041,468) (1,351,246) (350,006) (489,931) (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 - (231,265) (1,166) (336,597) (48,390) (20,017) 3,161 (634,274)
Other income -
(expenses) (10,318,288) (13,531,506) (11,070,772) (25,398,683) (6,322,463) (2,175,300) (4,576,650) (73,393,662)
Non-controlling
interest - 122,046 (242,731) - (2,983,067) (3,103,752)
Income taxes - (589,628) (1,876,158) (685,437) 7,499,169 4,347,946
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 258,278 $(1,060,514) $ 109,025 $ 5,710,876 $ 1,329,286 $(28,753,506) $(3,876,982) $(26,283,537)
- ------------------------------------------------------------------------------------------------------------------------------------
Additions to
capital
assets $ 551,500 $ 1,736,699 $ 267,517 $13,372,861 $ 2,257,526 $ 12,377,822 $ 71,856 $ 30,635,781
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets at
June 30,2001 $10,969,780 $13,552,649 $11,190,362 $77,250,797 $31,872,231 $ 53,142,782 $27,176,685 $225,155,286
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
(d) GEOGRAPHIC SEGMENTS
All of the Company's mineral sales revenues are derived from
the African geographic segment.
A22
16. SEGMENTED INFORMATION (CONTINUED)
Capital assets consist of property, plant and equipment, geothermal
project and mineral property interests in the following locations:
2003 2002
---- ----
Greenland $45,363,428 $34,460,247
Africa 3,213,200 3,351,122
Europe 90,550 143,405
Philippines 88,716 175,365
Canada 5,217 3,080,349
----------- -----------
$48,761,111 $41,210,488
----------- -----------
----------- -----------
In addition, the Company had short-term investments in associated
companies in Africa with a carrying value of $ 3,716,398 at June 30,
2003 ($28,809,532 at June 30, 2002).
17. FINANCIAL INSTRUMENTS
(a) CREDIT RISK
The Company's credit risk is primarily attributable to
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.
(b) FOREIGN CURRENCY RISK
The Company has foreign currency investments and liabilities
and, as a result, the Company is subject to foreign exchange
risk from fluctuations in foreign exchange rates. The Company
does not currently use derivative instruments to manage this
risk.
(c) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of the Company's financial instruments,
which include cash, accounts receivable due from Metorex
Limited, accounts payable and accrued liabilities and
promissory notes, approximate their respective fair values.
18. SUBSEQUENT EVENTS
Subsequent events not disclosed elsewhere in these financial statements
consist of the following:
(a) SALE OF NORTH PACIFIC GEOPOWER CORP.
On September 3, 2003 the Company entered into an agreement to
sell its 86.1% shareholding in North Pacific GeoPower Corp.
("NPGP") to Kenneth McLeod, an officer and former director of
NPGP. The transaction is subject to regulatory approval.
In consideration for the sale of this subsidiary, the Company
will receive cash consideration of $232,312, will forgive
amounts of $562,091 which were payable by NPGP to the Company
and will be entitled to receive the balance owing by NPGP to
the Company of $833,078 prior to December 31, 2011. The NPGP
outstanding debt of $569,254 will be assumed by the purchaser.
This transaction will result in an accounting gain of
approximately $1.3 million for the Company to be recorded in
the year ended June 30, 2004.
A23
18. SUBSEQUENT EVENTS (CONTINUED)
(b) CONVERTIBLE BOND ISSUE
On August 28, 2003, the Company announced that it placed a NOK
120 million (approximately $22.1 million) three-year senior
unsecured convertible bond with three major international
institutions based in London. The bond bears a 9% coupon,
payable semi-annually in arrears, and the principal portion of
the bond is convertible, at the option of the holder, into
common shares of the Company at a conversion price of NOK 3.60
($0.66) per share. The maximum number of shares that may be
issued upon conversion of the bond is 33.3 million shares. The
closing date for the bond issue will be September 8, 2003 and
the principal portion is fully repayable on September 8, 2006.
An application for the listing of the bond including the
prospectus will be submitted to the Oslo Stock Exchange.
19. 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:
Consolidated Balance Sheets
2003 2002
---------------------- ---------------------
Total assets under Canadian GAAP $ 68,393,404 $ 82,085,934
Decrease in Nalunaq mineral property interest due to expensing
of exploration costs (b) (23,800,122) (21,259,848)
Decrease in other mineral property interests due to expensing
of exploration costs (b) (271,656) (2,493,361)
Effect of application of foreign exchange translation (d)
Increase (decrease) in carrying value of
Nalunaq mineral property interest 765,387 452,393
Other assets (20,912) 7,644
-----------------------------------------------------------------------------------------------------------------
Total assets under U.S. GAAP $ 45,066,101 $ 58,792,762
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Total liabilities under Canadian GAAP $ 10,911,711 $ 8,311,845
Reduction of future tax liability related to expensing of
exploration costs (b) (3,156,681) (3,156,681)
Reduction of non-controlling interest due to expensing of
exploration costs (b) (3,525,284) (1,743,861)
-----------------------------------------------------------------------------------------------------------------
Total liabilities under U.S. GAAP $ 4,229,746 $ 3,411,303
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Total shareholders' equity under Canadian GAAP $ 57,481,693 $ 73,774,089
Cumulative adjustment to mineral property interests, net of
future income taxes and non-controlling interest (b) (17,389,813) (18,852,667)
Effect of different treatment of the available-for-sale
investments in Metorex Limited and Asia Pacific Resources
on: (c), (e)
Cumulative other comprehensive income 4,030,905 -
Deficit (4,030,905) -
Effect of different treatment of the Metorex consolidation of
interests on: (c)
Cumulative other comprehensive income (161,079) (1,236,750)
Deficit 161,079 1,236,750
Effect of application of foreign exchange translation on: (d)
Cumulative other comprehensive income 1,068,541 784,073
Deficit (324,066) (324,066)
-----------------------------------------------------------------------------------------------------------------
Total shareholders' equity under U.S. GAAP $ 40,836,355 $ 55,381,429
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
A24
19. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
Consolidated Statements of Income
2003 2002 2001
------------- ------------- -------------
Net (loss) income under Canadian GAAP $ (18,861,357) $ (40,750,689) $ (26,283,537)
Write-off of additional US GAAP carrying value of
impaired assets due to different purchase price
allocation in prior year acquisitions (a) (3,311,657) (10,849,060)
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) 1,591,517 (10,033,368) (7,701,184)
Future income tax recovery (expense) related to
expensing of exploration costs (b) (100,685) 3,257,366
Non-controlling interest related to expensing of
exploration costs (b) (128,663)
Effect of different treatment of the Metorex
consolidation of interests on: (c)
(Loss) gain on investment in Metorex Limited (1,075,671) 2,882,811
Amortization 632,470
Provision for future income taxes -- (189,741)
Loss on investment in Metorex Limited (c) 1,143,555
Provision for impairment of investment in Asia Pacific
Resources (e) 2,887,350 14,272,054 (14,272,054)
Effect of application of foreign exchange translation
on: (d)
Amortization -- 4,283
Provision for impairment of other mineral
property interests and Mindoro Nickel Project (177,789) 672,779
Foreign exchange (543,961)
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 $ (14,443,269) $ (37,346,612) $ (50,429,516)
------------- ------------- -------------
------------- ------------- -------------
Fair value of the re-priced warrants (j) $ (1,035,907) $ (456,556)
------------- ------------- -------------
------------- ------------- -------------
Net loss for the period attributable to common
shareholders under U.S. GAAP $ (14,443,269) $ (38,382,519) $ (50,886,072)
------------- ------------- -------------
------------- ------------- -------------
Net loss per share under U.S. GAAP $ (0.10) $ (0.29) $ (0.50)
------------- ------------- -------------
------------- ------------- -------------
Diluted net loss per share under U.S. GAAP $ (0.10) $ (0.29) $ (0.50)
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of shares outstanding under
U.S. GAAP 138,664,295 131,790,183 101,708,357
------------- ------------- -------------
------------- ------------- -------------
A25
19. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
Consolidated Statements of Cash Flows
2003 2002 2001
--------------------- --------------------- ------------------
Cash flows from operating activities under
Canadian GAAP $ (6,580,105) $ (7,049,425) $ 3,901,361
Reclassification of exploration
expenditures (b) (901,844) (11,183,482) (7,701,184)
-------------------------------------------------------------------------------------------------------------
Cash flows from operating activities under
U.S. GAAP $ $(7,481,949) $ (18,232,907) $ (3,799,823)
-------------------------------------------------------------------------------------------------------------
Cash flows from financing activities under
Canadian GAAP $ $2,434,481 $ 7,679,075 $ 52,972,455
Reclassification of bank indebtedness (i) 1,361,120
-------------------------------------------------------------------------------------------------------------
Cash flows from financing activities under
U.S. GAAP $ $2,434,481 $ 7,679,075 $ 54,333,575
-------------------------------------------------------------------------------------------------------------
Cash flows from investing activities under
Canadian GAAP $ $6,339,690 $ (35,048,982) $ (29,882,471)
Reclassification of exploration
expenditures (b) (901,844) 11,183,482 7,701,184
-------------------------------------------------------------------------------------------------------------
Cash flows from investing activities under
U.S. GAAP $ $5,437,846 $ (23,865,500) $ (22,181,287)
-------------------------------------------------------------------------------------------------------------
(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.
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 and allocated to the net assets in the
Mindex ASA and Botswana Diamondfields Inc. acquisitions
increased by $10,021,146 and $4,553,528, respectively, under
U.S. GAAP at the dates of acquisition.
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 7 (e)). 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 6).
(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.
A26
19. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
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.
During 2003, the adjustment relates principally to the
reversal of the loss on geothermal asset which was recognized
under US GAAP in prior years, net of exploration expenses
incurred in 2003. Effective September 1, 2002, Nalunaq Gold
Mine A/S commenced capitalizing development costs as a result
of the completion of the bankable feasibility study.
(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 5 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.
The different carrying values for Metorex, as a result of the
different treatment of the consolidation of interests in 2000,
have also resulted in a different cumulative translation
adjustment, or other comprehensive income, under US GAAP.
During the year ended June 30, 2003, $1,075,671 of this
difference was recognized as a component of net loss under US
GAAP as an additional foreign exchange loss realized on the
disposal of Metorex. The remaining balance of additional
cumulative translation adjustment of $161,079 will be
recognized in the US GAAP income statement when the remaining
Metorex investment is disposed.
In the year ended June 30, 2003 the Company began accounting
for the investment in Metorex as a short-term investment,
which are carried at the lower of cost or market value under
Canadian GAAP. Under US GAAP, the investment in Metorex is now
accounted for as an available-for-sale investment in
accordance with SFAS No. 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES. As a result, the
unrealized loss at June 30, 2003 of $1,143,555 is recognized
on the income statement under Canadian GAAP, but is included
as a separate component of shareholders' equity under US GAAP.
A27
19. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
(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 Gold Mine A/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.
(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 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 was the same
under Canadian and U.S. GAAP.
In the year ended June 30, 2003 the Company began accounting
for the investment in Asia Pacific as a short-term investment,
which is carried at the lower of cost or market value under
Canadian GAAP. Under US GAAP, this investment continues to be
classified as an available for sale investment. Therefore, the
unrealized loss of $2,887,350 is recognized on the income
statement under Canadian GAAP, but is included in a separate
component of shareholders' equity under US 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, which were all held by Metorex Limited, were
designated as hedges on future copper and gold revenues,
therefore no financial statement recognition was required.
A28
19. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
(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:
2003 2002 2001
----------------- ----------------- ----------------
Net loss under U.S. GAAP $ (14,443,269) $ (38,382,519) $ (50,886,072)
Other comprehensive income
Effect of application of
foreign exchange translation (3,907,669) 7,430,288 (5,632,104)
Adjustment of unrealized losses
on available-for-sale
investments (4,030,905) - 11,456,235
----------------- ----------------- ----------------
Comprehensive net loss under
U.S. GAAP $ (22,381,843) $ (30,952,231) $ (45,061,941)
----------------- ----------------- ----------------
----------------- ----------------- ----------------
Comprehensive loss per share
under U.S. GAAP $ (0.16) $ (0.23) $ (0.44)
----------------- ----------------- ----------------
----------------- ----------------- ----------------
(h) STOCK-BASED COMPENSATION
The Company previously 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.
Under Canadian GAAP, the Company adopted substantially similar
requirements effective July 1, 2002 on a prospective basis for
stock options issued in the current and future years as
described in Note 2 (j). The US GAAP difference in the
calculation of the additional stock-based compensation cost in
2003 relates to the impact of stock options issued in prior
years which vested in 2003 and are therefore included in the
pro forma calculation for US GAAP purposes.
A29
19. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (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,
2003 2002 2001
------------------ ------------------ ----------------
Net loss for the year under
U.S. GAAP $ (14,443,269) $ (38,382,519) $ (50,886,072)
Additional stock based
compensation cost (888,342) (678,675) (941,362)
------------------ ------------------ ----------------
Pro forma net loss $ (15,331,611) $ (39,061,194) $ (51,827,434)
------------------ ------------------ ----------------
Pro forma basic and diluted
loss per share $ (0.11) $ (0.30) $ (0.51)
------------------ ------------------ ----------------
The additional stock-based compensation costs in the above table were
determined using a Black-Scholes option pricing model assuming no
dividends are to be paid and the following weighted-average
assumptions:
2003 2002 2001
----------- ----------- -----------
Expected life (years) 2.5 3.1 N/A
Expected volatility 66% 63% N/A
Risk-free interest rate 3.9% 4.4% N/A
(i) 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, 2003 (2002 - $Nil; 2001 - $1,361,120).
(j) WARRANTS
Under U.S. GAAP, the share purchase warrants described in Note
10 (c) 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 share purchase warrants in the year ended
June 30, 2002, as described in Note 10 (e), 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.
(k) RECENTLY ISSUED ACCOUNTING STANDARDS
In January 2003, the FASB issued Interpretation No. 46 (FIN
46), CONSOLIDATION OF VARIABLE INTEREST ENTITIES, an
Interpretation of ARB No. 51. FIN 46 requires certain variable
interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the
entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk
for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or
acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the
provisions of FIN 46 must be applied for the first interim or
annual period beginning after December 15, 2003. The Company
is currently assessing the impact of FIN 46 but does not
expect that it will have a material impact on the Company's
results of operations and financial condition.
A30
19. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
In November 2002, the FASB issued FASB Interpretation No. 45
("FIN 45"), GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS
FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS
OF OTHERS. FIN 45 requires that upon issuance of a guarantee,
a guarantor must recognize a liability for the fair value of
an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and
annual financial statements about the obligations associated
with guarantees issued. The recognition provisions of FIN 45
became effective for any guarantees issued or modified after
December 31, 2002. The Company has adopted the requirements of
FIN 45, which have not had a material impact on the Company's
results of operations or financial position.
In April 2003, the FASB issued Statement No. 149 ("SFAS No.
149"), AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES. SFAS No. 149 is intended to result in
more consistent reporting of contracts as either freestanding
derivative instruments subject to Statement 133 in its
entirety, or as hybrid instruments with debt host contracts
and embedded derivative features. In addition, SFAS No. 149
clarifies the definition of a derivative by providing guidance
on the meaning of initial net investments related to
derivatives. SFAS No. 149 is effective for contracts entered
into or modified after June 30, 2003. The Company does not
believe the adoption of SFAS No. 149 will have a material
effect on its consolidated financial position, results of
operations or cash flows.
In May 2003, the FASB issued Statement No. 150 ("SFAS No.
150"), ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH
CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. SFAS No. 150
establishes standards for classifying and measuring as
liabilities certain financial instruments that embody
obligations of the issuer and have characteristics of both
liabilities and equity. SFAS No. 150 represents a significant
change in practice in the accounting for a number of financial
instruments, including mandatorily redeemable equity
instruments and certain equity derivatives. SFAS No. 150 is
effective for all financial instruments created or modified
after May 31, 2003, and to other instruments as of September
1, 2003. The Company will adopt the provisions of SFAS No. 150
on July 1, 2003. The Company does not expect that the adoption
of this Statement will have a material impact on its results
of operations and financial position.
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AGREEMENT
THIS AGREEMENT dated for reference the 1st. day of June, 2003
BETWEEN:
CREW DEVELOPMENT CORPORATION
Suite 400 - 837 West Hastings Street
Vancouver, British Columbia, V6C 3N6
(Hereinafter called the "Company")
AND:
KIRKWICK CONSULTANTS LTD.
Suite 312, 28 Old Brompton Road
SW 73 DL , London
England
(Hereinafter called "Kirkwick")
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 Kirkwick to carry out and
provide management and consulting services, and to provide Jan Vestrum to carry
out such services (the "Work"), on terms and conditions herein set forth;
AND WHEREAS the parties wish to formally record the terms of the
engagement of Kirkwick and its remuneration and other benefits, and
responsibilities of Vestrum;
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. ENGAGEMENT
1.1 The Company agrees to retain and continue to retain Kirkwick to perform the
Work, and Vestrum agrees to serve the Company (and its associates or affiliates
if so requested by the Company) in the capacity of President and Chief Executive
Officer during the term of this Agreement.
1.2 This Agreement shall commence on June 1st. 2003, and continue until
terminated as hereinafter provided in Article 4 hereof.
1.3 Vestrum shall report to and be directly responsible to The Board of
Directors of the Company. Vestrum shall perform, observe and conform to such
duties and instructions as from time to time are reasonably assigned or
communicated to him by the Chairman/Board of Directors and which are reasonably
consistent with the engagement and status of Vestrum as President and Chief
Executive Officer of the Company, and shall make such reports to 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 Vestrum agrees to serve as a Director of the Company if so requested by the
Board of Directors. Vestrum further agrees to serve as a Director and/or officer
of associated or affiliated companies if so requested by the Directors as long
as this Agreements remains in force. Vestrum shall not receive any compensation
for such services.
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2. COMPENSATION
2.1 The Company agrees to pay Kirkwick, and Kirkwick agrees to accept as
remuneration for Vestrum's services hereunder a monthly gross compensation of
NOK 210.000.-. It is assumed that the Company will not be liable for Canadian,
UK, Norwegian or other country's VAT on this amount. To the extent VAT shall
have to added, an amendment to this contract will be made.
2.2 Vestrum shall be reimbursed by the Company for all out of pocket expenses
actually, necessarily and properly incurred by Vestrum in the discharge of his
duties for the Company. Kirkwick agrees that such reimbursements shall be due
only after Vestrum 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 be reasonably required and requested
by the Company.
2.3 Vestrum shall be entitled to free private and mobile phone as long as he is
engaged under this contract.
2.4 Vestrum shall not, unless otherwise is being agreed, be entitled to
participate in any employee benefit programs maintained by the Company such as
but not limited to; pension plans, group and disability insurance plan, medical
and dental plans.
2.5 Vestrum shall, as long as this contract is enforced, from June 1st. 2003 to
June 1st. 2005 be entitled to a monthly housing allowance of GBP 2000. From June
1st 2005 to June 1st. 2006 Vestrum shall be entitled to a housing allowance of
GBP 1200 pr. month. After June 1st. 2006 the company, unless otherwise agreed,
does not cover any housing allowance for Vestrum.
2.6 Vestrum shall be entitled to participate in any incentive programs including
share option plans, share purchase plans, share bonus plans in accordance with
and on terms and conditions determined by the Directors in their sole
discretion. Vestrum acknowledges that his participation in these programs will
be to such extent and in such amounts as the Directors in their sole discretion
may decide from time to time.
Any amounts which Vestrum may be entitled to under any such plan or
program shall not, for the purpose of this Agreement, be treated as compensation
under paragraph 2.1 hereof.
Vestrum 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. To extent that any
change or elimination of options is deemed to disadvantage Vestrum, the board
may at its sole discretion decide to compensate Vestrum.
2.7 Vestrum will be entitled to an annual bonus based on company
results/achievements over the previous 12 months with an upward limit equal to
his base salary as defined in paragraph 2.1 above, The Bonus Plan, as decided by
The Board/Compensation Committee. The Bonus Plan is attached to this Agreement.
2.8 Vestrum shall be entitled to 4 weeks yearly vacation with full compensation.
3. DUTIES OF VESTRUM
3.1 Vestrum will diligently and faithfully devote his best efforts to advance
the Company's interest throughout the term of this Agreement. Vestrum 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 which he may be appointed.
3.2 Vestrum will not, at any time or in any manner during the continuance of his
engagement hereunder, or at any time within one year after 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 nor 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 Vestrum shall be entitled to continue as
Non-executive Chairman of Consept e-Solution ASA, as long as such activities
does not prevent him from carrying out his responsibilities
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hereunder to the Company. Vestrum is not entitled to take on other work
commitments throughout the term of this Agreement.
4. TERM OF CONTRACT/TERMINATION
4.1 This contract will run for 12 months June 1st. 2003 to June 1st. 2004 and
thereafter for 6 month rolling.
4.2 Vestrum may, after June 1st. 2004 terminate this Agreement and his
engagement by giving the Company at least 6 months written notice.
4.3 The Company may, after June 1st. 2004, terminate this Agreement and the
engagement of Vestrum without cause at any time by giving Kirkwick at least 6
months written notice. The Agreement does not provide for any severance payments
other than described under 4.4.
4.4 Vestrum shall in the event of change of control in the Company, defined as
one shareholder controlling more than 50%, if he is no longer offered the
position as CEO, be entitled to 24 months severance pay based on the amount
specified in clause 2.1 above.
4.5 Vestrum shall be entitled to exercise any stock options outstanding as at
the date of termination for a period of up to 24 months from, and including the
date of termination, given this is within the rules of the main listing of the
company. To the extent the main listing gives limitations in relation to options
rights after termination, the maximum time the listing allows will govern this
agreement.
4.6 Termination of this Agreement shall relieve the Company from any and all
obligation, liability or claim by Kirkwick, exclusive of monies owing to
Kirkwick up to the date of termination.
4.7 The Company may at any time terminate this Agreement for cause that would in
law permit the Company to, without notice, terminate Vestrums engagement, in
which event all commitments under this Agreements terminates with immediate
effect.
4.8 On the termination for any reason, Vestrum agrees to deliver the Company all
documents, financial statements, records, plans, drawings and papers of every
nature in an 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.
5. MISCELLANEOUS
5.1 This Agreement and the engagement of Vestrum shall be governed, interpreted,
construed and enforced according to the laws of United Kingdom.
5.2 This Agreement represents the entire agreement between Kirkwick, Vestrum 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.
5.3 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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This Agreement is made in three originals, one for Kirkwick, one for Vestrum and
one for the Company.
CREW DEVELOPMENT CORPORATION
Per: _______________________________
(Authorized Signatory)
KIRKWICK CONSULTANTS LTD.
Per: _______________________________
(Authorized Signatory)
Seen and agreed:
____________________________________
Jan Vestrum
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