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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
/ / Registration statement pursuant to Section 12(b) or (g) of the
Securities Exchange Act of 1934, or
/X/ Annual Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934,
FOR THE FISCAL PERIOD ENDED JUNE 30, 2004
/ / Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act 1934
COMMISSION FILE NUMBER 0-26636
[LOGO]
CREW GOLD CORPORATION
(FORMERLY 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)
------------------------------------
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. 173,786,515 Common Shares issued and outstanding as at March 15, 2005.
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 March 16, 2005 unless
an earlier or later date is indicated. As used in this Annual Report, the
"Corporation" or the "Company" means Crew Gold 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 22 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 US Dollars. See Item 3.A "Key Information - Selected Financial
Data" for a summary of key exchange rates.
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SECURITIES AND EXCHANGE COMMISSION
FORM 20-F FOR CREW DEVELOPMENT CORPORATION
TABLE OF CONTENTS
<Table>
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..............................................9
D. Risk Factors...........................................................................9
ITEM 4. INFORMATION OF THE CORPORATION........................................................14
A. History and Development of the Corporation............................................14
B. Business Overview.....................................................................15
C. Regulatory Framework..................................................................33
D. Breakdown of Total Revenues by Category of Activity and Geographic Market.............36
E. Organizational Structure..............................................................36
F. Property, Plan and Equipment..........................................................37
ITEM 5. OPERATING AND FINANICIAL REVIEW AND PROSPECTS.........................................38
A. Operating Results.....................................................................38
B. Liquidity and Capital Resources.......................................................46
C. Research and Development, Patents and Licenses, etc...................................49
D. Trend Information.....................................................................49
ITEM 6. DIRECTORS AND SENIOR MANAGEMENT.......................................................50
A. Directors and Senior Management.......................................................50
B. Compensation..........................................................................52
C. Board Practices.......................................................................56
D. Employees.............................................................................56
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.....................................58
A. Major Shareholders....................................................................58
B. Related Party Transactions............................................................59
C. Interests of Experts and Counsel......................................................59
ITEM 8. FINANCIAL INFORMATION.................................................................60
A. Consolidated Statements and Other Financial Information...............................60
B. Significant Changes...................................................................60
ITEM 9. THE OFFER AND LISTING.................................................................60
A. Offer and Listing Details.............................................................60
B. Plan of Distribution..................................................................62
C. Markets...............................................................................62
D. Selling Shareholders..................................................................62
E. Dilution..............................................................................62
F. Expenses of the Issuer................................................................62
</Table>
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<Table>
ITEM 10. ADDITIONAL INFORMATION...............................................................62
A. Share Capital.........................................................................62
B. Memorandum and Articles of Association................................................62
C. Material Contracts....................................................................66
D. Exchange Controls.....................................................................66
E. Taxation..............................................................................67
F. Dividends and Paying Agents...........................................................73
G. Statements by Experts.................................................................73
H. Documents on Display..................................................................73
I. Subsidiary Information................................................................73
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........................74
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES...............................74
ITEM 13. DEFAULTS, DIVIDEND ARREARS AND DELINQUENCIES.........................................74
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.........75
ITEM 15. CONTROLS AND PROCEDURES..............................................................75
ITEM 16. [RESERVED]...........................................................................75
ITEM 17. FINANCIAL STATEMENTS.................................................................75
ITEM 18. EXHIBITS.............................................................................75
</Table>
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GLOSSARY OF TECHNICAL TERMS
ADIT - A passageway or opening driven horizontally into the side of a hill,
generally for the purpose of exploring underground or otherwise accessing a
mineral deposit.
ALTERATION - Any physical or chemical change in rock or mineral subsequent to
its formation.
ANOMALY - A term applied to a departure from the normal or field characteristic,
commonly used in geochemical and geophysical prospecting.
ASSAY - A quantitative test of minerals and ore by chemical and / or fire
techniques.
CONCESSION - A grant of mining rights especially by a government in return for
services or for a particular use.
Co - Cobalt.
Cu - Copper.
DEPOSIT - A mineralized body which has been physically delineated by sufficient
drilling, trenching and / or underground work, and found to contain a sufficient
average grade of metal or metals to warrant further exploration and / or
development expenditures.
DMT - Dry metric tonnes.
g/t - Grams per tonne.
HECTARE (ha) - 10,000 square metres or 2.471 acres.
HIGH-GRADE - More than 31 grams of gold per tonne or more than one troy ounce of
gold per ton.
INFERRED MINERAL RESOURCE - The part of a mineral resource for which quantity
and grade or quality can be estimated on the basis of geological evidence and
limited sampling and reasonably assumed, but not verified, geological and grade
continuity. The estimate is based on limited information and sampling gathered
through appropriate techniques from locations such as outcrops, trenches, pits,
workings and drill holes.
INDICATED MINERAL RESOURCE - The part of a mineral resource for which quantity,
grade or quality, densities, shape and physical characteristics, can be
estimated with a level of confidence sufficient to allow the appropriate
application of technical and economic parameters, to support mine planning and
evaluation of the economic viability of the deposit. The estimate is based on
detailed and reliable exploration and testing information gathered through
appropriate techniques from locations such as outcrops, trenches, pits workings
and drill holes that are spaced closely enough for geological and grade
continuity to be reasonably assumed.
INTRUSIVE - A body of igneous rock formed by a consolidation of magma intruded
into other rocks, in contrast to lavas, which are extruded upon the surface.
KILOMETRE (km) - 1,000 metres or 0.621 miles.
MEASURED MINERAL RESOURCE - The part of a mineral resource for which quantity,
grade or quality, densities, shape, physical characteristics are so well
established that they can be estimated with confidence sufficient to allow the
appropriate application of technical and economic parameters, to support
production planning and evaluation of the economic viability of the deposit. The
estimate is based on detailed and reliable exploration, sampling and testing
information gathered through appropriate techniques from locations such as
outcrops, trenches, pits, workings and drill holes that are spaced closely
enough to confirm both geological and grade continuity.
METER (m) - 3.281 feet.
MINERAL RESERVE - The economically mineable part of a measured or indicated
mineral resource demonstrated by at least a preliminary feasibility study. This
study must include adequate information on mining, processing,
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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.
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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, 2004 are
not necessarily indicative of results for future periods.
SELECTED FINANCIAL DATA PREPARED IN ACCORDANCE WITH CANADIAN GAAP
<Table>
<Caption>
ALL FIGURES EXPRESSED IN
THOUSANDS OF CANADIAN YEAR ENDED JUNE 30
DOLLARS EXCEPT SHARES --------------------------------------------------------------------
OUTSTANDING AND PER
SHARE AMOUNTS
2004 2003 2002 2001 2000
------------ ----------- ----------- ------------ ------------
Total revenues -- -- $111,731 $79,702 $10,908
Net earnings (loss) (6,040) (18,861) (40,751) (26,283) 2,390
Net earnings (loss)
per share fully diluted (0.03) (0.14) (0.31) 0.26 0.04
Net earnings (loss)
per share (0.03) (0.14) (0.31) 0.26 0.04
Total assets 100,060 68,393 82,085 225,115 99,572
Net assets (shareholders
equity) 62,920 57,482 73,774 107,282 96,544
Long term debt 18,899 Nil Nil 10,484 Nil
Capital Stock 166,679 160,115 160,115 156,751 113,830
Dividends Nil Nil 228 Nil Nil
Weighted average number
of shares outstanding 143,324,571 138,664,295 131,790,183 101,708,357 54,471,076
</Table>
Note 22 of the Consolidated Financial Statements details the differences were
such information to be presented in accordance with U.S. GAAP.
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SELECTED FINANCIAL DATA PREPARED IN ACCORDANCE WITH U.S. GAAP
<Table>
<Caption>
ALL FIGURES EXPRESSED IN
THOUSANDS OF CANADIAN YEAR ENDED JUNE 30
DOLLARS EXCEPT SHARES --------------------------------------------------------------------
OUTSTANDING AND PER
SHARE AMOUNTS
2004 2003 2002 2001 2000
------------ ----------- ----------- ------------ ------------
Total revenues - - $111,730 $79,702 $10,908
Net earnings (loss) (6,485) (14,443) (38,382) (50,886) (3,994)
Net earnings (loss)
per share fully diluted (0.05) (0.10) (0.29) (0.50) (0.07)
Net earnings (loss)
per share (0.05) (0.10) (0.29) (0.50) (0.07)
Total assets 79,103 45,066 61,987 197,103 113,076
Net assets
(shareholders equity) 47,990 40,836 56,832 83,507 91,370
Long term debt 18,899 Nil Nil 10,484 Nil
Dividends Nil Nil 228 Nil Nil
Weighted average number
of shares outstanding 143,324,571 138,664,295 131,790,183 101,708,357 54,471,076
</Table>
In this Annual Report, unless otherwise specified, all monetary amounts are
expressed in Canadian Dollars. On March 15, 2005, 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 $1.2068 (US$1 = CAD$1.2068).
The following table sets out the high and low exchange rates exchange rates for
each of the last six months:
<Table>
<Caption>
2004
--------------------------------------------------------------------------------------
FEBRUARY JANUARY DECEMBER NOVEMBER OCTOBER SEPTEMBER
------------ ------------- -------------- ------------ ----------- --------------
HIGH $1.2581 $1.2468 $1.2465 $1.2282 $1.2755 $1.3247
LOW $1.2230 $1.1944 $1.1793 $1.1714 $1.2129 $1.2672
</Table>
The following table sets out the average exchange rates for the five most recent
financial years calculated by using the average of the Noon Rate of Exchange on
the last day of each month during the period.
<Table>
<Caption>
YEAR ENDED JUNE 30
--------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
--------------- --------------- --------------- ---------------- -----------------
AVERAGE 1.3416 $1.5109 $1.5684 $1.5198 $1.4725
</Table>
B. CAPITALIZATION AND INDEBTEDNESS
The Corporation's indebtedness at June 30, 2004 consists of, three-year senior
convertible bonds. These convertible bonds were issued on September 8, 2003
through a private placement with a face value of Norwegian Kroner
(NOK)120 million ($22.1 million) to three major financial institutions based in
London. The bonds were issued in denominations of NOK10,000 and rank pari passu
among themselves. After deducting finance costs of NOK8.5 million ($1.5 million)
net proceeds were NOK111.5 million ($20.6 million).
The bonds bear a 9% coupon, payable semi-annually in arrears. The principal
portion of the bonds is convertible, at the option of the holder and subject to
request for conversion pursuant to the conditions of the agreement, into common
shares of the Company at a conversion price of NOK3.60 ($0.67) per share. The
maximum number of shares that may be issued on conversion is 33.3 million. In
the period from issue till June 30, 2004, 5,742,221 shares were issued following
conversion of bonds.
If the bonds are not converted, the principal portion is fully repayable on
September 8, 2006.
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Interest expense on the convertible bond totalling $1.5 million (2002: $-nil)
has been charged to profit and loss for the year ended June 30, 2004. To date
interest payments of $960,000 have been made.
The finance costs associated with the issue of the convertible bonds are held as
deferred financing costs and are being amortized over the period to maturity of
the liability.
The convertible bonds at June 30, 2004 have been segregated into their debt and
equity components as follows: Over the term of the debt obligation, the equity
component is accreted to the face value of the instrument by recording an
additional interest expense.
<Table>
<Caption>
JUNE 30, 2004 Date of issue
Equity component $ 757 $ 914
Debt component (net of
financing costs of
$978,000 ($1,500,000 on
date of issue)) $ 18,899 21,215
</Table>
Subsequent to June 30, 2004 a further 22.250,000 ordinary shares were issued
following conversion of convertible bond loans totalling NOK 80.1 million
($15.3 million) leaving NOK 18.7 million ($3.6 million) outstanding.
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 mining
operations and the acquisition, exploration and development of mineral
properties. These risk factors could materially affect the Corporation's future
operating results and cause actual future events to differ materially from those
described in forward-looking statements. The key risk factors are outlined
below.
EXPLORATION, DEVELOPMENT AND OPERATING RISK
The Corporation's activities are primarily directed towards mining operations
and the development of it mineral deposits. Its activities also include the
exploration for and development of mineral deposits.
Mining operations generally involve a high degree of risk. The Corporation's
Nalunaq operation is subject to all the hazards and risks normally encountered
in the exploration, development and production of gold. These include unusual
and unexpected geologic formations, rock bursts, cave-ins, adverse weather
conditions, flooding and other conditions involved in the drilling and removal
of material, any of which could result in damage to, or destruction of, mines
and other producing facilities, damage to life or property, environmental damage
and possible legal liability. Although adequate precautions to minimize risk are
and will be taken, operations are subject to which may result in environmental
pollution and consequent liability.
The exploration for and development of mineral deposits involves significant
risks which even a combination of careful evaluation, experience and knowledge
may not eliminate. While the discovery of an ore body may result in substantial
rewards, few properties which are explored are ultimately developed into
producing mines. Major expenses may be required to locate and establish mineral
reserves, to develop metallurgical processes and to construct mining and
processing facilities at a particular site. It is impossible to ensure that the
exploration or development programs planned by the Corporation will result in a
profitable commercial mining operation.
Whether a mineral deposit will be commercially viable depends on a number of
factors, some of which are: the particular attributes of the deposit, such as
size, grade and proximity to infrastructure; commodity prices which are highly
cyclical; and government regulations, including regulations relating to prices,
taxes, royalties, land tenure, land use, importing and exporting of minerals and
environmental protection. The
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exact effect of these factors cannot be accurately predicted, but the
combination of these factors may result in the Corporation not receiving an
adequate return on invested capital.
There is no certainty that the expenditures made by the Corporation towards the
search and evaluation of mineral deposits will result in discoveries of
commercial quantities of ore.
INSURANCE AND UNINSURED RISKS
The Corporation's business is subject to a number of risks and hazards
generally, including adverse environmental conditions, industrial accidents,
labour disputes, unusual or unexpected geological conditions, ground or slope
failures, cave-ins, changes in the regulatory environment and natural phenomena
such as inclement weather conditions, floods, snow falls and avalanches. Such
occurrences could result in damage to mineral properties or production
facilities, personal injury or death, environmental damage to The Corporation's
properties or the properties of others, delays in mining, monetary losses and
possible legal liability.
Although the Corporation maintains insurance to protect against certain risks in
such amounts as it considers reasonable, its insurance will not cover all the
potential risks associated with a mining company's operations. The Corporation
may also be unable to maintain insurance to cover these risks at economically
feasible premiums.
Insurance coverage may not continue to be available or may not be adequate to
cover any resulting liability. Moreover, insurance against risks such as
environmental pollution or other hazards as a result of exploration and
production is not generally available to companies in the mining industry on
acceptable terms.
The Corporation may also become subject to liability for pollution or other
hazards which may not be insured against or which it may elect not to insure
against because of premium costs or other reasons. Losses from these events may
cause the Corporation to incur significant costs that could have a material
adverse effect upon its financial performance and results of operations.
ENVIRONMENTAL RISKS AND HAZARDS
All phases of the Corporation's operations are subject to environmental
regulation in the various jurisdictions where it operates. These regulations
mandate, among other things, the maintenance of air and water quality standards
and land reclamation. They also set forth limitations on the generation,
transportation, storage and disposal of solid and hazardous waste. Environmental
legislation is evolving in a manner which may require stricter standards and
enforcement, increased fines and penalties for non-compliance, more stringent
environmental assessments of proposed projects and a heightened degree of
responsibility for companies and their officers, directors and employees. There
is no assurance that future changes in environmental regulation, if any, will
not adversely affect adversely the Corporation's operations.
Government approvals and permits are currently, and may in the future be,
required in connection with the Corporation's operations. To the extent such
approvals are required and not obtained; the Corporation may be curtailed or
prohibited from continuing its mining operations or from proceeding with planned
exploration or development of mineral properties.
Failure to comply with applicable laws, regulations and permitting requirements
may result in enforcement actions, including orders issued by regulatory or
judicial authorities causing operations to cease or be curtailed, and may
include corrective measures requiring capital expenditures, installation of
additional equipment, or remedial actions. Parties engaged in mining operations
or in the exploration or development of mineral properties may be required to
compensate those suffering loss or damage by reason of the mining activities and
may have civil or criminal fines or penalties imposed for violations of
applicable laws or regulations. Amendments to current laws, regulations and
permits governing operations and activities of mining and exploration companies,
or more stringent implementation thereof, could have a material adverse impact
on the Corporation and cause increases in exploration expenses, capital
expenditures or production
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costs or reduction in levels of production at producing properties or require
abandonment or delays in development of new mining properties.
UNCERTAINTY IN THE ESTIMATION OF ORE/MINERAL RESERVES AND MINERAL RESOURCES
The figures for Ore/Mineral Reserves and Mineral Resources contained in this
document form are estimates only and no assurance can be given that the
anticipated tonnages and grades will be achieved, that the indicated level of
recovery will be realized or that Ore/Mineral Reserves could be mined or
processed profitably.
There are numerous uncertainties inherent in estimating Ore/Mineral Reserves and
Mineral Resources, including many factors beyond the Corporation's control. Such
estimation is a subjective process, and the accuracy of any reserve or resource
estimate is a function of the quantity and quality of available data and of the
assumptions made and judgments used in engineering and geological
interpretation. Short-term operating factors relating to the Ore/Mineral
Reserves, such as the need for orderly development of the ore bodies or the
processing of new or different ore grades, may cause the mining operation to be
unprofitable in any particular accounting period. In addition, there can be no
assurance that gold recoveries derived from small scale laboratory tests will be
duplicated in larger scale tests under on-site conditions or during production.
Fluctuation in commodity prices, results of drilling, metallurgical testing and
production and the evaluation of mine plans subsequent to the date of any
estimate may require revision of such estimate. The volume and grade of reserves
mined and processed and recovery rates may not be the same as currently
anticipated. Any material reductions in estimates of Ore/Mineral Reserves and
Mineral Resources, or of the Corporation's ability to extract these Ore/Mineral
Reserves, could have a material adverse effect on the Corporation's results of
operations and financial condition.
UNCERTAINTY RELATING TO INFERRED MINERAL RESOURCES
Inferred mineral resources that are not mineral reserves do not have
demonstrated economic viability. The Corporation's mine plan for the Nalunaq
Gold Mine includes approximately 29% of future production based on inferred
mineral resources. Due to the uncertainty of inferred mineral resources, there
is no assurance that inferred mineral resources will be upgraded to proven and
probable mineral reserves as a result of continued exploration.
ADDITIONAL ORE AND MINERAL RESERVES
Because mines have limited lives based on proven and probable ore/mineral
reserves, the Corporation must continually replace and expand its ore/mineral
reserves as its mines produce gold. The life-of-mine estimates included in
document for Nalunaq Gold Mine may not be correct. The Corporation's ability to
maintain or increase its annual production of gold will be dependent on its
ability to bring new mines into production and to expand ore/mineral reserves at
its existing mine.
Nalunaq Gold Mine currently has an estimated mine life of seven years; however,
it is expected that this can be extended by further exploration.
COMPETITION
The mining industry is highly competitive in all of its phases. The
Corporation faces strong competition from other mining and exploration
companies in connection with the acquisition of properties producing, or
capable of producing, precious metals. Many of these companies have greater
resources than the Corporation. As a result the Corporation may be unable to
maintain or acquire attractive mining properties on terms it considers
acceptable, and its revenues, operations and financial condition could be
affected adversely.
ADDITIONAL FINANCING
The mining, processing, development and exploration of the Corporation's
projects, may require additional external financing. Failure to obtain
sufficient financing could result in the delay or indefinite postponement
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of exploration, development or production on any or all of the Corporation's
projects. There can be no assurance that additional capital or other types of
financing will be available if needed or that, if available, the terms of such
financing will be favourable.
COMMODITY PRICES
The market price of the Corporation's Common Stock, financial results and
exploration, development and mining activities have previously been, or may in
the future be, significantly adversely affected by declines in the commodity
price, which are subject to significant fluctuation. The factors giving rise to
these fluctuations are generally outwith the Corporation's control, being
largely driven by external global economic factors. In particular, the price of
gold has fluctuated significantly in recent years. Significant price declines in
the future could render the Corporation's exploration and mining activities
un-economic until such time as the price recovers. These declines could result
in a re-calculation of life-of-mine plans and reserve calculations which could
have a material and adverse affect on measured financial performance
COMMODITY HEDGING
The Corporation does not hedge future gold sales; this policy is continually
under review and may be subject to future change. Hedging future gold sales can
have an adverse financial impact, particularly as a result of sudden
fluctuations in the gold price. There are no assurances that the adoption of a
hedging policy to reduce the risk on future gold sales would be successful.
Although hedging may protect the Corporation from a decline in the price of
gold, it may also prevent the Corporation from benefiting fully from price
increases.
EXCHANGE RATE FLUCTUATIONS
Fluctuations in exchange rates can have an impact on the results of the
Corporation's projects. Gold sales are denominated in US dollars while the costs
associated with production are incurred in Canadian dollars and Danish krone.
The appreciation of non-US dollar currencies against the US dollar can increase
the cost of gold production in US dollar terms. The Corporation does not
undertake hedging activities against these potential fluctuations as there are
no assurances hedging strategies would be successful.
GOVERNMENT REGULATION
The mining, processing, development and mineral exploration activities of the
Corporation are subject to various laws governing prospecting, development,
production, taxes, labour standards and occupational health, mine safety, toxic
substances, land use, water use, land claims of local people and other matters.
Although the Corporation's mining operations and exploration and development
activities are currently carried out in accordance with all applicable rules and
regulations, no assurance can be given that new rules and regulations will not
be enacted or that existing rules and regulations will not be applied in a
manner which could limit or curtail production or development. Amendments to
current laws and regulations governing operations and mining activities or more
stringent implementation thereof could have a substantial adverse impact on the
Corporation.
FOREIGN OPERATIONS
The Corporation's interests in mining operations are based in Greenland and
South Africa, with further explorations and development projects in Ghana, the
Philippines and Norway. Therefore the Corporation's activities are exposed to
varying degrees of political, economic, other risks and uncertainties.
These risks and uncertainties vary from country to country and include, but are
not limited to:
Terrorist activities; extreme fluctuations in currency exchange rates;
hyperinflation: labour unrest; the risks of war or civil unrest; expropriation
and nationalization; renegotiation or nullification of existing concessions,
licenses, permits and contracts; illegal mining; changes in taxation policies;
restrictions on foreign exchange and repatriation; and changing political
conditions, currency controls and governmental regulations that favour or
require the awarding of contracts to local contractors or require foreign
contractors to employ citizens of, or purchase supplies from, a particular
jurisdiction.
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Changes, if any, in mining or investment policies or shifts in political
attitude could materially impact the Corporation's financial results. Operations
may be affected in varying degrees by government regulations with respect to,
but not limited to, restrictions on production, price controls, export controls,
currency remittance, income taxes, expropriation of property, foreign
investment, maintenance of claims, environmental legislation, land use, land
claims of local people, water use and mine safety. Failure to comply strictly
with applicable laws, regulations and local practices relating to mineral right
applications and tenure, could result in loss, reduction or expropriation of
entitlements, or the imposition of additional local or foreign parties as joint
venture partners with carried or other interests. The occurrence of these
various factors and uncertainties cannot be accurately predicted and could have
an adverse effect on profitability.
ACQUISITION STRATEGY
As part of the Corporation's strategy, will seek new mining and development
opportunities with a particular, but not exclusive, focus on gold. The
Corporation could fail to select appropriate acquisitions or negotiate
favourable acquisition terms, including the financing thereof.
The Corporation cannot that it can complete any acquisition or business
arrangement that it pursues, or is pursuing, on favourable terms, or that any
acquisitions or business arrangements completed will ultimately benefit if
ongoing business.
ASSOCIATED COMPANIES
The Corporation holds a 20% interest in Barberton Mines Limited, a company
trading and incorporated in the Republic of South Africa. The Corporation's
investment in Barberton is subject to the risks normally related with the
conduct of associated businesses where minority and non-controlling interests
are held.
Circumstances could arise whereby the Corporation's financial results could be
affected adversely from its investments in associated companies owing to factors
over which little control can be exercised.
MARKET PRICE OF STOCK
The Common Shares are listed on the Toronto Stock Exchange (the "TSX") and the
Oslo Bors (the "OSE").
Securities of mining and exploration companies have experienced substantial
volatility in the past, often based on factors unrelated to the financial
performance or prospects of the companies involved. These factors include global
macroeconomic developments and market perceptions of the attractiveness of
particular industries. The Corporation's share price is also likely to be
significantly affected by short-term changes in gold, prices or in its financial
condition or results of operations as reflected in its quarterly financial
statements.
As a result of any of these factors, the market price of the Common Stock at any
given point in time may not accurately reflect the Corporation's long-term
value. Securities class action litigation often has been brought against
companies following periods of volatility in the market price of their
securities. The Corporation may in the future be the target of similar
litigation. Securities litigation could result in substantial costs and damages
and divert management's attention and resources.
Sales of a large number of shares in the Corporation Shares in the public
markets, or the potential for such sales, could decrease the trading price of
the Corporation's stock and could impair the Corporation's ability to raise
capital through future share issues.
There are a significant number of shareholders who have holdings acquired for
significantly less than the current market price. Accordingly, a significant
number of shareholders of the Corporation have an investment profit in the
Corporation's stock that they may seek to liquidate.
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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.
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ITEM 4. INFORMATION OF THE CORPORATION
A. HISTORY AND DEVELOPMENT OF THE CORPORATION
Crew 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). Crew changed its
name to Ryan Resources Ltd. on December 18, 1985, to Canadian Crew Energy
Corporation on January 21, 1988, to Crew Development Corporation on March 21,
1997 and to the present Crew Gold Corporation on December 15, 2003. As of
January 28, 2000, Crew continued as a corporation in the Yukon Territory and is
subject to the Business Corporations Act of the Yukon Territory.
The registered office of the Company is Suite 200-204 Lambert Street,
Whitehorse, Yukon Territory YIA 3T2, Canada, and the head office of the Company
is Abbey House, Wellington Way, Weybridge, Surrey, KT13 OTT, UK.
In March 2002, the Company experienced a change of control as a direct
consequence of the dissident shareholder action, which resulted in a change in
the Board of Directors and the senior management. The new senior management
placed a new strategic focus on developing and operating gold and precious
metals assets directly owned by the Company. First priority was given to the
completion of the development of Nalunaq Gold Mine. Nalunaq commenced commercial
production in July 2004.
In line with the stated corporate strategy the Company:
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.
ii) Formed Nalunaq Gold Mine A/S, in which the Company owns an 82.5%
shareholding and introduced a new operational structure.
iii) Invested in Barberton Mines Limited (20% interest), a South African
based gold mining operation.
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 LKAB for the
development of the project.
v) Restructured, consolidated and centralized its corporate offices to
Weybridge, England.
On May 1, 2003, the Company announced its plans of organizational restructuring,
whereby corporate management and key technical staff would be relocated to a new
UK based management company, a wholly owned subsidiary of Crew. This corporate
structure has improved organizational effectiveness as well as reducing the
Company's overhead costs. As a result of this restructuring both Norway and the
then head office in Vancouver, Canada, were closed and staff reductions
effected. The restructuring was completed by June 30, 2003.
Crew is a public, internationally listed, development and operating company,
focused on identifying, acquiring and developing resource projects worldwide.
The Company's objective is to maximise shareholder value.
Crew 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.
The Company has modified its strategy from having the ambition of becoming a
broadly diversified multi-commodity mining company, to one which focuses
primarily on gold. It is the Company's objective to have direct interests in
gold exploration and gold producing assets and enter into joint ventures with
industrial partners for development of none-core assets presently owned by Crew.
It will be Crew'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. This strategy is a result of a management and Board evaluation of where
the main potential for near term income is, as well as where the Company can see
further growth based on the company's own financial and human resources.
Crew seeks to maintain a balanced portfolio of both exploration projects and
cash generating projects. There are distinct risk profiles the Company applies
to different projects. The Company would normally seek to develop small
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and medium sized gold projects itself. With larger gold projects the Company
would, from a risk and reward perspective, evaluate its human and financial
resources before making a decision on the involvement of a potential partner.
All non-gold projects are placed in Crew Minerals AS, a wholly owned subsidiary.
With all non-gold projects the Company's strategy is, unlike gold projects, to
take little, or no, financial and operational risk. The above strategy is fully
feasible and at the same time creates substantial value for the Company.
B. BUSINESS OVERVIEW
B.1 BUSINESS OVERVIEW
The business of the Corporation currently consists of the following ventures,
each of which is described in more detail below:
a) Gold mining operation in Greenland which commenced commercial
production in July 2004
b) Gold mining operation in the Republic of South Africa through its
20% investment in Barberton Mines Ltd.
c) Mineral projects located in Greenland, Ghana, Norway and the
Philippines through its 100% ownership of Crew Norway;
Crew has 9 employees in Weybridge, United Kingdom who provide technical,
financial, and administrative and management expertise. In addition, the Company
employs 5 people in the Philippines and 14 in Greenland.
The following is a summary of the operations of the Corporation and its
subsidiaries:
B.2 CORE & STRATEGIC ASSETS
B.2.1 Nalunaq Gold Mine - South Greenland (operational gold mine)
PROPERTY DESCRIPTION AND LOCATION
Nalunaq Gold Mine commenced production mining on May 1, 2004 and the mine was
officially opened on August 25, 2004 after nearly 10 years of exploration and
development. The mine is a high-grade gold deposit located approximately
40 kilometres NE of the town of Nanortalik in southern Greenland. The opening of
Nalunaq marks a milestone for Greenland, being its first gold mine and the first
new mine to be developed in the country for over 30 years. Transportation to
Nalunaq takes approximately 40 minutes by helicopter from the international
airport at Narsarsuaq. The terrain is moderately alpine with mountain peaks
reaching 1200-1600 meters above sea level. Nalunaq mountain, which hosts the
gold deposit, is 1340 meter high and located in a wide glacial valley reaching
into the Saqqa Fjord about 9 km from the mine site. The deep, ice-free fjords
allow easy access for shipping and the overall climate is moderate allowing full
operations around the year.
OWNERSHIP AND MANAGEMENT
The Company acquired 50% interest in the Nalunaq project in 1998, and in June
2001 it gained operational control of Nalunaq while increasing its ownership to
82.5% in exchange for funding the development of the project and providing
project loan guarantees. Crew's JV-partner, Nunaminerals, converted its interest
in Nalunaq into an 17.5% carried interest position.
In December 2002 the JV transferred the ownership of the Nalunaq assets to a
Greenlandic limited liability company, Nalunaq Gold Mine AS, which became the
operator of the gold mine and the holder of the mining license from the
Greenlandic authorities.
Nalunaq Gold Mine AS was incorporated in December 2002. The Board consists of
Jan Vestrum (chairman), Jon S. Petersen and Finn Mortensen from Crew; Vagn
Andersen and Ole Christiansen from Nunaminerals. (Mr Andrew Stocks was appointed
General Manager of Nalunaq during the year and Mr. Finn K. Mortensen deputy
General Manager.) Regular Board meetings are held every quarter.
The Nalunaq Exploitation (mining) License was granted by the Greenlandic and
Danish Governments in April 2003 for 30 years. The mining license covers an area
of 16 km2 around the mine site, which was carved out from the Company's regional
exploration license. After the formal approval of the exploitation license the
company was granted permits to conduct pre-mining development work, including
construction of a permanent mine camp,
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improvements of the infrastructure and access roads as well as building the ship
loader facility and stockpile pad near the Fjord. Shipping of the existing
stockpile materials gathered during the exploration period from 1998 - 2002, was
conducted in January 2004 and processed at Rio Narcea's (RNG) gold plant in El
Valle Spain. In late April 2004, the company received its final permits for the
underground operation and commercial production levels were achieved in July
2004.
GEOLOGY
The Nalunaq deposit is a Proterozoic, shear-zone hosted gold mineralization.
Outcrops with visible gold have been sampled along more than 2,000 meters on the
slopes of the mountain with significant sections at 1-meter intervals. More than
12,000 meter drilling and over 3,000 meters underground adits and raises, mostly
in mineralized structure, have been established between the 300 and 450 m
levels. The result of this work has confirmed the presence of a significant
commercial gold-mineralization. The gold is irregularly distributed within the
planar structure, but easy to recognize when occurring due to the regular
presence of visible gold.
As a generic type, the Nalunaq deposit is a mesothermal vein-type gold
mineralization, hosted in amphibolite-facies metavolcanic rocks. The high-grade
gold is associated with sheeted quartz veins which are located in a large-scale
shear structure that appears to be related to regional thrusting. However,
possibly due to extensive post-mineralization deformation, there is no simple
relationship between the gold grade and amount of quartz at Nalunaq.
The most pronounced structure at Nalunaq is a narrow zone of ductile shearing
surrounded by relatively brittle margins. The Main Vein itself is hosted in a
1-2 meter wide 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. SE,
varying between 22 DEG. and 45 DEG.
The presence of quartz is the single most important factor for the gold
mineralization and occurs principally as sheeted veins with stripes and bands of
included calc-silicates. The quartz veins vary from 0.05 meter to 1.8 meters in
width and often display pinch and swell structure with clear evidence of both
compressive and dilational post-mineralization deformation.
Systematic sampling of the underground exposures of the vein has shown that gold
grade is subject to a pronounced nugget effect. Despite this variation a regular
zonation in grade is clearly identifiable as a series of high-grade segments
running approximately Northeast- Southwest throughout the mine area. The reason
for this regularity is not clear, however, observations suggest that
highest-grade sections occur when the structure is hosted in 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.
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MINERAL RESOURCE AND RESERVE ESTIMATES
Following an intensive bulk sampling program in 2000, designed and supervised
by independent mining consultants Strathcona Mineral Services, Canada, and
subsequent underground exploration work in 2001-2002, an independent resource
calculation for Nalunaq was prepared by SRK Consulting Engineers and Scientists
("SRK") of Toronto, Ontario. The Resource Calculation defined 600,000 tonnes in
measured and indicated mineral resources, holding 431,517 oz of contained gold,
equivalent to an average grade of 22 g/t. In addition, the Resource Calculation
identified 284,136 tonnes of inferred mineral resources, in areas immediately
adjacent to the developed parts of Nalunaq, holding 182,782 oz gold. The
inferred mineral resources excluded the drill-indicated structure of the south
vein as well as widely spaced surface sampling of the north face of the Nalunaq
Mountai, which was previously included in the Company's internal resource
assessment. The significant additional resource potential in these extensions,
however, was recognized in SRK's resource report. The resources calculations
were conducted by M. Michaud of SRK. Mr. Michaud is independent of the Company
and is a "qualified person" as defined in NI 43-101.
<Table>
<Caption>
Measured & Indicated Mineral Over 1.0 meters Over 1.2 meters Over 1.5 meters Gold Ounces
Resources tonnes g/t tonnes g/t tonnes g/t
Target block (incl stockpile) 391,383 30 458,860 25 560,075 20 362,739
South Block 117,527 18 141,032 15 176,290 12 68,778
Total 508,910 26 599,892 22 736,365 18 431,517
</Table>
<Table>
<Caption>
Inferred Mineral Resources Over 1.0 meters Over 1.2 meters Over 1.5 meters Gold Ounces
tonnes g/t tonnes g/t tonnes g/t
Target block (incl stockpile) 173,333 26 208,000 22 260,000 18 147,640
South Block 63,447 17 76,136 14 95,170 11 35,142
Total 236,780 24 284,136 20 355,170 16 182,782
</Table>
MINING
Following considerable discussions and a thorough review of the previous mine
plan, prepared by Kvaerner and Macintosh Engineering, a new mine plan was
developed and drawn up in cooperation with potential mining contractors. The
proposed mining methods comprised a hybrid of long hole mining and raise/alimak
mining in order to accommodate the most cost-efficient methods for various
segments of the deposit with due consideration to dip variations within the
structure.
Negotiations with Procon mining about a mining contract were completed and
detailed mine plans, schedules and mobilization sequences laid out. Mining
equipment already on site was incorporated to ensure early start of pre-mining
development, while upgrading and mobilization of new equipment, including the
introduction of alimak units, was prepared with the aim of starting regular
production by early 2004. The mine plan includes internal ramps and an ore pass
systems from levels 450 and 400 down to the main haulage at the 300 level. The
ore pass has the capacity to hold 3-4 days production in order to allow for
delay in transport of ore to the stockpile pad at the shiploader. The ore pass
will be equipped with a mechanical chute, to allow feeding directly into
30-tonne articulated dumper trucks for haulage to the shiploader.
There have been 2 methods of mining tested and employed at Nalunaq since the
commencement of mining namely the Gold Stream Method and the Alimak raise and
stope. The Gold Stream method utilises a series of strike drives on ore that are
vertically 10m apart. Long holes are drilled on dips between the drives creating
14m blocks that are bounded on either side by 1,5m pillars. A slot is cut
between the levels into which the ore is blasted in sequence 3 to 4 rings at a
time. The Gold Stream method started slowly but with better understanding has
improved in quality and quantity however the amount of waste development to ore
production has required us to identify areas where dilution and temporary ore
losses can be reduced.
The Alimak method was employed to eliminate the excessive amount of ore drives
and is employed between major levels. The Alimak is used to bore a raise up from
level to level. The Alimak is fitted with a long hole rig that drills out the
ore horizontally. The ore is then blasted from the bottom up. We have undertaken
a study and planned an up-dip mining method that we believe will allow us to
achieve our goals of reduced development, reduced waste and allow the
development to move ahead of the stoping.
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The planning of the sweeping and vamping of mined out areas is well advanced. We
have identified appropriate equipment that will allow us to lift the fine
particles of ore and gold which have accumulated in the stopes and drives.
The commencement of the initial phase production mining took place in May 2004
with commercial production levels being achieved in July 2005. The ore produced
during the ramp-up to full production has consistently improved in grade as
assessment of the mining methodology identifies areas where dilution and
temporary ore losses can be reduced.
RESOURCES EXPANSION
The exploration strategy for Nalunaq aims at replacing resources at a rate,
which will allow Nalunaq to maintain accessible reserves at a level of about
400,000 Oz . The Company needs additional resources to justify a local
processing plant and a plan for expansion of the reserve base has been made and
will be implemented during the winter of 2004/2005.
The current exploration programs consider three targets for significant
expansion of which one has been chosen for this winter's program. Each of these
has sufficient potential for expansion of the resources to not only replace
mined out ore but also support the investment of a local processing plant.
One of Nalunaq's challenges is that resources cannot be defined by drilling
alone. In the past, drilling has often been an inconclusive indicator of the
quality of a drilled area, as low grade intercepts have been found in areas that
later turned out to be very high grade. High-grade drill intercepts, on the
other hand, are usually indicative of high-grade areas. This irregularity is
because of the highly nuggety nature of the narrow vein, which makes systematic
sampling of drift faces the only reliable source for resource calculations.
Consequently, drilling can only be considered as the first stage of a resource
development program at Nalunaq, as underground drifting is required for the
estimation of resources to bankable standards. During fiscal 2004, surface and
underground drilling programs have been conducted with the Company's own
drilling equipment and an external drilling contractor. The underground drilling
was performed with the Company's Diamec-250 drill operated by a Company driller,
while the surface drilling was conducted by TGB of Sweden using a Diamec-252 and
- -262 drill respectively. About 1,350 metre underground drilling and 900 metre
surface drilling has been completed.
The preliminary results suggest that the rich mineralization encountered in the
South Block extends down dip. As the South Block is already within reach of
existing mining infrastructure this area is given immediate priority for a
resource expansion program, as it can be worked through the winter period. The
program has an estimated time line of 6-8 months and a cost of $4 to 5 million.
The target area may host a mineralized area of at least 150,000 m2 which can
represent a potential doubling of the resources already known. The surface
drilling concentrated on two other targets: the possible extension of a rich
panel along strike of the 400-450 levels in the Target Block and the
continuation of a very high-grade outcrop segment known as the Upper Target.
These areas each have a similar potential as the South Block target mentioned
above.
Finally, development drifting in the South Block will allow access to the Valley
Block, where further drilling can be conducted throughout the winter period.
This area may represent a promising future expansion potential.
ORE SHIPPING
A new stockpile pad was constructed at the pier terminal near the fjord. The pad
has a nominal capacity of 60,000 tonnes, which corresponds to about 3 months of
production at 450 tpd, plus additional capacity for two months production, if
the shipping schedule for some reason should be changed. The pad has a base of
low-grade crushed materials to absorb potential losses of fine gold during
deposition and transfer.
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Shipping of ore is conducted by a shipping contractor, FEDNAV through a 3-year
agreement. Shipments are anticipated every 3 months with 35-40,000 tonnes per
shipment leading to annual shipments of 130-150.000 tonnes. About 30,000 tonnes
of the original stockpile, comprising of ore from the development and
exploration work in 1998-2001, were shipped to Spain for processing in January
2004. The processing of this material confirmed the predicted grade of 15.5 g/t
+ 2 g/t with a processed grade of 15.1 g/t.
After the first shipment, ore from subsequent development work and the
run-of-mine ore (ROM) were hauled directly from the mine to the stockpile pad at
the ship loading facility. During loading this ore is brought directly to the
ship from the pad via a conveyor system of about 250 meters in length. The belt
is passing a 90-meter barge, anchored at a small rock pier, and equipped with a
ship loader conveyor at the front end. The conveyor is designed for loading a
40,000 tonnes bulk carrier in 4-5 days.
The second shipment of 39,500 tonnes of ore, which was 5,000 tonnes more than
planned, was loaded on MS Federal Franklin on August 12th and shipped to Aviles
in Spain where processing at Rio Narcea's El Valle Plant was completed on
September 23, 2004. This shipment comprised the balance of the original
stockpile of 8,400 tonnes and 31,200 tonnes of mined ore. The recovery of the
mined ore since May this year was 20.5 g/t which was in line with the grade
model.
GOLD PROCESSING
An agreement, signed with Rio Narcea Gold Mines Ltd in Spain, has secured
regular batch processing of the Nalunaq ore. Rio Narcea has a modern gold
processing facility with a capacity of 2,000 tpd. Due to the hardness of the
Nalunaq ore the daily capacity has been around 1,500 tpd and processing of a
shipment of ore is being completed in 20-30 days.
The processing is based on a conventional combination of fine grinding and
removal of the gold using gravity separation and carbon-in-pulp cyanidation
methods. The ore is passed through a primary crusher then milled in a single
stage semi-autogenous grinding mill and a recycling ball mill. The milling
circuit has an integral multiple stage gravity circuit, comprising helical
spirals, Knelson concentrators and vibrating tables, that remove the free gold.
The discharge from the milling circuit passes through a flotation circuit, where
a small amount of gold and sulphides are recovered, to a cyanide leach circuit
where the remaining gold is dissolved and recovered onto coarse carbon
fragments. Gold is recovered from the gravity and flotation concentrates, and
the loaded carbon, by intense cyanidation and electro-won. The electro-won gold
is smelted into dore bars for sale to commercial refineries.
Recoveries at the El Valle plant for Nalunaq gold mine has been higher than
expected, about 98%, based on the production numbers and the assaying of gold
content in the tailings. This remarkably high recovery is a reflection of the
fine-grained nature of the Nalunaq gold and its exceptional free milling
properties.
The long term goal of NGM would be to take over all mining operations, including
the processing.
THE MINE VILLAGE
The Nalunaq mine camp has now been fully established and all logistic
infrastructures have been completed. The construction of the camp suffered a
temporary setback due to a severe rainstorm on October 26, 2003 where the
campsite, located in the valley floor, was flooded while under construction.
The foundation of the camp units are raised about 1.2 meters above the valley
floor, to ensure that flooding will not affect the buildings. However,
because of the construction phase, large parts of the sewage and water
systems were damaged, and the campsite was greatly affected. The
infrastructure was re-established and the camp completed nearly on schedule
despite this unfortunate event, due to an extraordinary effort by the on site
contractors. A new dam along the stream and regulation of the affected
portion of the river has been established to prevent similar incidents in the
future. The camp layout currently consist of 11 building units distributed in
seven 10-person dormitory modules plus a number of larger units for the mine
office, emergency facilities drying rooms and showers, kitchen and cantina,
as well as storage rooms, a planning office, and a recreational unit. The
camp currently holds accommodation for about 80 people.
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 through Tele Greenland, allows for individual room telephones and
high-speed Internet connection.
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The camp has an approved helistop facility and has arranged regular flights by
helicopter from Qaqortoq via Narsarsuaq with connection to the transatlantic
flights. The construction of the mine village has left few marks of disturbance
outside the proper camp area and the surroundings are left virtually untouched.
Final preparations to restore and re-vegetate temporarily affected areas have
been initiated.
THE ASSAY LABORATORY
Nalunaq has also been equipped with a full assay laboratory which is now is
fully functional. It consists of a preparation lab, a wet chemistry lab and an
assay section with computerized AAS instrumentation.
The preparation lab consists of a drying oven, a conventional jaw crusher and
splitting tables. Milling is done with an LM5 or LM1 gyratory steel mill which
allows grinding of up to 4 kgs of the crushed rock to 80% less than 75 microns
(0.075 mm) in a single batch. This provides an exceptional homogenisation of
especially gold samples and the LM5 mill is considered the best for any gold
sample preparation on the market today.
After milling, a 500 grams fraction is transferred to a polyethylene container
and stored for leaching. The sample is substantially larger than conventional 50
g samples used for fire assay (FAA) and this provides a more reliable assay
basis than FAA. The company has conducted an extensive comparison of the
recovery of the Leachwell method applied at Nalunaq with traditional FAA and
found the results to be remarkably consistent.
In the wet chemistry section of the lab, the sample contained is filled with 500
g water and a Leachwell tablet is added. The tablet contains a cyanide leach
agent and a catalyst, which intensifies the dissolution of gold. The container
is then thoroughly stirred in a mechanical tumbler and the solids let to settle
before a small solution fraction is extracted. The dissolved gold is then
extracted from the cyanide solution with an organic extraction and an aqueous
solution for analysis is prepared.
The final analysis of the gold content is then conducted in the AA instrument
and the result based on a comparative assay of a known standard solution. Every
10th sample is sent in duplicate to an external assay lab and a control assay is
conducted using independent FAA method with gravimetric or AAS finish, dependent
on grade levels. The duplicates are subsequently used to calibrate the accuracy
of the Nalunaq assay lab in order to achieve approval of the assay data for
future resource calculations.
ENVIRONMENTAL WORK
The Nalunaq project has been subjected to detailed environmental monitoring by
the Company since 1997. Baseline studies included 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. Ongoing environmental monitoring
programs are being maintained by the company in the license area.
The monitoring programs include water samples to be 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 as well as sampling of the mine
water run off. Biology programs include studies of the arctic char in the river,
and in the fjord, fish caught at several stations have been collected and sent
to NERI for their data bank. Dust is being sampled continuously during the
summer program for analyses of nitrates and sulfates as well as lichen sampling
along the road and around the camp and stockpile areas. Both the lower and upper
valleys have been mapped for vegetation and soil depth.
Meteorological data from the campsite and the weather station in the fjord
are downloaded regularly as is river monitoring, conducted with a pressure
transducer installed in 2002 in the river downstream from the bridge, which
will allow for continuous measurements. In addition, the river flow is
measured using propellers several times over the year. In the fjord,
conductivity-temperature-depth casts are conducted throughout the year at
eight stations. An Acoustic Doppler Current Profiler was installed 2001 for
continuous recording of oceanic currents. The current meter was recovered and
downloaded in 2002 thereby acquiring one full year's data.
The environmental studies were summarized in the Environmental Impact
Assessment study whereby independent consultant Dr. Geoff Ricks concludes
that in the opinion of SRK (UK) Ltd. there are no environmental issues which
might negatively affect the viability of the project.
RISK ELEMENTS
The Nalunaq project is a high-grade gold deposit. The nature of the deposit,
being a high-grade, narrow-vein deposit, suggest a gradual expansion of
resources rather than seeking a definition of the full resource due to the cost
of extensive underground development. Accordingly, this might represent a
limiting factor for the project's financial planning. The currently defined
resources allow for a production forecast of approximately three-four
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years, depending upon the mining rate. However, the continuity of the geological
structure indicates that the actual mine life may substantially exceed four
years. Numerous 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 three to six years of resources
ahead of production, yet have been active for decades.
B.2.2 BARBERTON MINES (OPERATIONAL GOLD MINE)
PROPERTY DESCRIPTION AND LOCATION
Barberton Mines Limited ("Barberton", formerly ETC) is the operator of three
small gold mines in the Barberton Greenstone Belt, in South Africa, known for
prolific gold deposits in settings, which 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
within a 15 km radius of each other, about 10 km NE of Barberton. Total annual
production at Barberton is today 330,000 tonnes with in situ grade of 10-11 g/t
and 9.5 g/t recovered. This translates into an annual gold production of about
100,000 oz at a current cash cost of USD 242/oz, but with substantial potential
for rationalisation and improved economics.
TITLE AND OWNERSHIP
In February 2003, Crew, as part of a consortium, signed a purchase agreement
with Avgold Ltd. (Avgold) of South Africa for the purchase of Eastern Transvaal
Consolidated (ETC). The consortium consists of Metorex Ltd. (Metorex) 54%, MCI
Resources Ltd. (MCI) 26% and Crew 20%. The purchase price was ZAR 255 million of
which ZAR 150 million was bank financed. Crew participated with ZAR 30 million
(CAD 5.5 million/ NOK 25 million), financed by the sale of 10 million shares in
Metorex to a South African institution at ZAR 3.00 per share.
On October 29, 2003 it was agreed by Special Resolution to increase the
authorised share capital of Barberton Mines Limited from Rand 12,000,000 to Rand
12,016,000 by the creation of 16,000 cumulative variable rate redeemable
preference shares of Rand 1 each. These shares have no voting rights. On
December 23, 2003 the shareholder loans of Rand 150,000,000 were converted to
15,000 cumulative variable rate redeemable preference shares of Rand 1. The
issue price of each of these shares was Rand 10,000. Rand 9,999, being the
surplus between issue price and par value, was credited to share a premium
account in the Barberton.
In exchange for converting Rand 30,000,000 of shareholder loans, Crew received
3,000 preference shares of par value Rand 1 each with a deemed aggregate issue
price of Rand 3,000,000 (CDN$ 5,800,000). The exchange of shareholder loans for
preference shares was recorded at the book value of the loans with no net
increase in the carrying values of the Company's investment in Barberton.
The total gold sold for the year amounted to [use ounces 3,321 kilogrammes]
which was in line with budget. Barberton has not yet achieved the cost reduction
expected. An external consultant has been engaged to perform a regional
exploration program. A part of the gold hedge that was established when
Barberton was acquired has been realized and created a profit of CAD$1.6 million
(Rand 54 million). This has been utilized to offset existing bank borrowings and
means Barberton will be debt free within approximately 2 years compared with the
original 5 years.
MINERAL RESOURCE AND RESERVE ESTIMATES
The measured, indicated and inferred gold resources at ETC currently consist of
1.47 million oz, of which 453,000 oz are inferred resources. 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 ETC 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 new ore bodies, resources and reserves
have constantly being discovered, as reported by Avgold.
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. Strike and dip of the orebodies are highly variable
and often of a discontinuous and erratic nature. Continuous structures rarely
measure over 100 meters.
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Most gold occurs in small fissures within the fractured and sheared host rocks.
As the gold-bearing structures are discontinuous, individual ore bodies
therefore generally require site-specific mining. This type of mining scenario
is typical for many greenstone-hosted gold deposits; however, they are
particularly labour intensive and leave few options for mechanized, cost
effective mining due to the local nature of the individual occurrences. 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, which means that 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 and built into the arsenopyrite
crystal lattice. This gold can only be retrieved through artificial oxidation of
the concentrate, which is generally produced through froth flotation.
The oxidation at Barberton was previously based on roasting. Today, however,
biologic oxidation (BiOx) is employed, which is more environmentally acceptable,
but adds extra stages to the processing and produces a fair amount of residual
arsenic compounds. After oxidation, the gold is retrieved from the concentrate
by CIP extraction and elution before smelting.
B.2.3 NANORTALIK GOLD PROJECT - GREENLAND (EARLY STAGE EXPLORATION)
Property Description and Location
The Nanortalik exploration license area is a 523 sq. km area located in
southernmost Greenland. It is the remaining portion of the original Nalunaq
concession area, after the Nalunaq Mining License has been carved out from the
initial 1,081 sq. km concession and a reduction of 50% following the renewal in
2003. The Company has located several gold occurrences in the district, in
different geological settings, and is convinced that there is a potential for
commercial gold deposits in the concession area. The results of fieldwork in
2003 and 04 were encouraging and a more intensive program with the goal of
drilling and developing specific targets in year 2005 is being prepared. Some
work is being considered in the least alpine areas during this winter.
The Nanortalik Exploration License is held in Nanortalik I/S, a Joint-Venture
between Crew and Nunaminerals. The property is operated by Crew as an
early-stage exploration project where the ownership after the 2003 season is
73.6% and Nunaminerals at 26.4% ownership respectively. Future ownership ratios
are based on the respective contributions of the Company and Nunaminerals.
Nunaminerals notified Nanortalik IS in the spring of 2004 that they had elected
not to participate in the funding in the summer's program and, as a consequence,
will suffer a dilution of its share of the project, in accordance the Joint
Venture Agreement. A preliminary reconciliation of the ownership after the
2004 season brings the ownership close to 80% Crew and 20% Nunaminerals.
The Bureau of Minerals and Petroleum (BMP) set the work commitment at
DKK 4.5 million per year in 2004 and 2005. Any excess or less spent amount
can be transferred to the following year. BMP allows 50% overhead to all
direct project costs. This year's program has fully met the minimum
requirement of BMP for fieldwork according to the license conditions.
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REGIONAL EXPLORATION IN NIAQORNARSUK AREA
The regional exploration campaign in 2003 gathered 304 sediment samples and
407 rock samples. The objective was to follow up with surface prospecting and
sediment/scree sampling and in particular examine a series of significant
NNE-SSW trending belts of anomalous samples.
Anomalous rock samples were found in nearly all of the areas covered by
anomalous sediment sampling. 23 rock samples returned more than 1 g/t and
7 samples more than 3 g/t. In particular the northern and northwestern slope of
the Niaqornarsuk valley appears highly anomalous, with grab samples returning
from 2 - 7 g/t. The richest rock samples contained 56 and 33 g/t and were
collected at the southern extension of the anomalous belt north of Nanisiaq.
Other high values in the opposite end of this trend suggest this is a promising
target.
The results confirm the existence of at least two clusters of gold
mineralization in the Nanisiaq peninsula. One cluster is the Nanisiaq and
adjacent valley extending across the ridge to the south into Niaqornarsuk valley
where the two high-grade rocks samples were collected. Another area is the
NW'ern slope of the Niaqornarsuk valley and its extension across the valley
towards Ufo Mt. A new possible third target is across the westerly Niaqornarsuk
valley where consistently high gold samples were collected this summer on both
sides of the glacial valley. The high amount of glacial debris complicates the
exploration and the areas identified to date will need systematic follow up in
the coming season.
The field work in the summer of 2004 led to several additional significant
discoveries in the above areas. None of these revealed visible gold, however,
the mineralizations were encountered in areas, which are previously identified
as anomalous and the discovered mineralization contains good indicator mineral
assemblages.
The most promising find is an occurrence in Niaqornarsuk Valley where a system
of more than 30 parallel quartz veins was discovered, in a more than 100 m wide
zone and extending along strike for 2-300 meters to disappear under the valley
floor and continuing up the mountain side in the opposite direction. All veins,
which appear to be mineralized, measuring from 2-3 cm to 80 cm in width, were
sampled individually along strike. Two additional significant quarts veins with
ladder structures were sampled in the area known as Ufo Mt. target. These
outcrops could be traced for 200 m along strike and likely continuations are
seen on the other side of the valley suggesting 2-3 km strike length
Other potentially gold-mineralized structures have been encountered, which await
the results of assaying. The new assay laboratory in Nalunaq has been set up for
local gold assaying in the summer of 2004 and once the AA-spectrometer (AAS) is
calibrated, assay results will follow shortly. Quality control procedures will
be implemented on site and control assaying by screened metallics Fire Assay in
an external lab will be conducted for about 20% of the samples until adequate
confidence in the results by AAS-leachwell procedure has been documented and
approved by external consultants. The assay lab at Nalunaq will first and
foremost be used for mine production control and grade verification programs for
the mine but has a capacity to easily handle exploration samples also in future.
Exploration samples will be prepared in a separate crusher unit to avoid any
cross contamination.
The summer's exploration work led in almost every case to recognition of a
number of new vein structures, which were sampled for assaying. In addition to
the NGM assay result, all exploration samples are sent in duplicate for assaying
at an external lab, and using conventional Fire Assay of 30-gr sample with AAS
finish.
LAKE-410 DRILLING PROGRAM
Drilling was conducted from 2 sites in the Lake-410 target during the summer of
2003. Four holes, DDH#01 to -04, totalling 930 meters, were positioned to give a
maximum coverage in an attempt to detect an extensive mineralized system. The
drilling was successful in that all drill holes intercepted mineralized
intervals at the predicted depths, supporting the presence of a consistent and
relatively planar structure with gold mineralization.
Visual inspection of the drill cores showed significant arsenopyrite
mineralization with associated quartz veining in all four holes. Obvious
mineralization was intercepted in drill hole-1 with 1.4 g/t at 146-150m. In
drill hole-2, which tested the down dip continuation drilling also intercepted 4
m of mineralization between 162-166 meters, which returned 1.3 g/t. In drill
holes-3 and -4 the mineralization returned weaker assay values of 0.2 g/t and
0.34 g/t respectively. In addition to these significant intervals elevated gold
was detected in several other intercepts of silicified and quartz veined
amphibolite. These results are consistent with samples collected at the surface,
which have returned 2-3 g/t gold from sporadic outcrops.
The results are encouraging as the drilling demonstrated the existence of a very
consistent structure with a potential mineralized area of at least 900 x 300
meter. The width of the mineralization varies between 4 meters and 1.2 meters,
which is substantially more than that seen at Nalunaq. At Nalunaq, the first
drilling in 1992 returned
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similarly moderately low values at depth despite the much higher surface samples
which had been encountered. Increased drilling density subsequently revealed the
presence of an economic deposit.
The current results clearly warrant more in-fill drilling and surface sampling
in order to estimate the possible continuation of the mineralized structure. The
structure has now been recognized along more than 1000 meters and the
consistency of the mineralized structure, as demonstrated by the drilling,
supports the presence of a potentially economic discovery with erratic
distribution of gold grade along the structure. The proximity of Lake-410 to the
Nalunaq deposit is clearly attractive and lends support to a common processing
facility in future.
The exploration team had prepared for continued drilling at Lake 410 target in
the summer 2004 but because of unexpected difficulties with the drilling
equipment at Nalunaq the team decided to postpone the drilling at Lake 410 till
early 2005 season.
NEW GOLD CLAIMS UNDER CREW GOLD
In July 12 Crew received confirmation that a new exclusive claim for an area of
about 284 sq km in the Akuliaruseq peninsula in South Greenland had been
granted. The area lies north of the current Nanortalik IS claims and has been
filed directly under Crew Gold Corporation.
The new concession area has sourced a gold sample of 109 g/t, which received the
first price of the national mineral collection competition. The peninsula also
hosts a number of very significant gold anomalies previously reported and is
located on one of the most prominent transcrustal shear zones in South
Greenland. The company believes the new claim area holds a very significant gold
potential.
Along with this application, the company also applied for a non-exclusive
prospecting license covering the entire West Greenland, from south to north,
west of the 44 DEG. longitude. This will allow the company to enter any area and
sample it without being in conflict with regulation and requiring the approval
of the Joint Committee. If a study returns promising results the company is in a
position to subsequently claim its discovery and be ahead of competitors as the
title is granted on a first-come first-serve basis.
In western Greenland, the company has received exclusive rights for 7 areas
totalling 86 sq km which host ultramafic layered complexes with olivine
cumulates. These areas are being evaluated for their olivine resources as well
as the potential for platinum element mineralization, being tectonically
dispersed parts of primitive layered complexes.
B.2.4 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 km2 concession is located along the
eastern contact of the prolific Ashanti Gold belt, less than 30 km from
Takoradi, a major port city in Ghana. Access to the HB Gold Concession is via a
15 km fair quality gravel road located along the entire length of the property
and is maintained by the operators of a palm oil plantation located further
north.
OWNERSHIP
Hwini-Butre Minerals Ltd. ("HBM") is a 100% owned Ghanaian subsidiary of Crew,
and holds 51% of the HB Gold Concession while the operator, St. Jude Resources
Ltd ("St Jude"), owns 49% of the HB Gold Concession; the Government of Ghana
retains a carried interest of 10%.
St. Jude Resources Ltd. has been the operator of the license since 1995.
LEGAL DISPUTE
During the year ended June 30, 2004, a judgement relating to a legal dispute
instituted by HBM to finalize certain title disputes was unexpectedly issued
against HBM. The judgement was appealed immediately to the Court of Appeal.
Management believes the judgement to be in error and are currently pursuing an
appeal. Management believes the appeal will be successful and consequently no
impairment provision has been made against the carrying value of the Hwini-Butre
gold concession.
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MINERAL RESOURCES ESTIMATES
According to the independent geological report prepared by Watts, Griffis and
McOuat Limited, of Toronto, Ontario ("WGM"), in February 2002, the concession
contains 4,251,100 tonnes at 4.1 g/t of indicated mineral resources and
1,718,400 tonnes at 3.0 g/t inferred resources based on 200 drill holes
totalling 16,879 meters. In addition, the property hosts an inferred eluvial
surface deposit of 5,656,700 tonnes at 1.1 g/t. Thus, total indicated resources
amounts to 562,000 oz gold while the inferred resources hold 374,000 oz gold.
Strathcona has 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 property 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 meters from 300 holes with a nominal
spacing of 25m 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 by a highly altered and silicified shear zone with ore
grade mineralization of 4-10 g/t near the surface. 64 holes (6,312m) have been
drilled in this target. Drill intersections at 25-50m intervals show consistent
thick mineralization in all holes. So far, a 325m long and 165m deep gold vein
has been confirmed. The deposit has expansion potential towards the north and
south and towards depth.
In total, 94 holes (6,502m) have been drilled in the Father Brown zone and all
intercepts contain economic mineralization. The spacing between the intercepts
varies between 10 and 25m. To date a 200m-long gold vein has been confirmed to a
depth of about 150m. The deposit has expansion potential at both ends and
towards depth.
The Dabokrom Zone constitutes a very substantial geochemical surface anomaly
that measures 800 x 1,200 meters. A total of 99 drill holes (9,343m) have been
completed in this anomaly and the drilling confirms the presence of several
gently dipping mineralized gold zones extending from the surface. In addition,
extensive trenching and pitting has been carried out on the Dabokrom Zone.
PROPOSED WORK PROGRAM
Crew has proposed, based on a successful outcome of the title dispute, to
perform a reconnaissance-drilling program in the southern target of the HB Gold
Concession to investigate the potential for significant mineralization not
identified by St. Jude.
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B.3 NON-CORE & NON-STRATEGIC ASSETS
B.3.1 MINDORO NICKEL-LATERITE PROJECT, THE PHILIPPINES
(UNDER EXPLORATION PROGRAM)
LOCATION AND TITLE
Mindoro Nickel Project (MNP) is located on Mindoro Island in the Philippines
approximately 200 km south of Manila. The concession comprises a 9,720-hectare
(~100 sq km) area straddling the border between the Provinces of Oriental and
Occidental Mindoro about 30 km from the coast. The area is entirely underlain by
an extensive laterite mineralization as a result of the accumulation of nickel
and cobalt in the tropical soil profile following intensive chemical weathering
of the ultramafic source rocks in late Tertiary to recent times.
The original Exploration Permit for the Mindoro project was issued in 1997 and
renewed in March 1999 for additional two years. It was the first EP to be
renewed in the Philippines under the new Mining Law. Subsequently, in Dec 2000,
Aglubang Mining Corp (AMC) was granted a Minerals Production Sharing Agreement
(docketed as MPSA No167-2000-IV) covering a large part of the most developed
project area, and securing the Company rights to develop and exploit the
resource over a 25-year period subject to certain conditions. The remaining
parts of the concession area were included in another MPSA application by
Alag-Ag Mining Corp. (AMI).
In 2001 the MPSA was unexpectedly cancelled by the new DENR Secretary. Aglubang
Mining Corp appealed the decision with the President's Office, on grounds of
lacking constitutional rights to due process as defined in the terms of the
agreement and in March 2004 the President's Office issued a resolution revoking
the order of cancellation and reinstated the MPSA in its initial powers. The
response of the Office of the President was a clear and strong signal of a
change in the attitude of the Government of the Philippines towards mining.
The full concession area is controlled by the Aglubang and Alag-Ag Mining
Corporations, respectively, which are owned by a consortium of Crew Minerals AS
and a syndicate of Philippine holding corporations. The property has no other
underlying ownership claims. In accordance with Philippine mining legislation
have agreements been signed with the Mangyan people in the area, granting the
resident indigenous tribes a royalty of 2% net profits of the mining revenues.
PRE-FEASIBILITY STUDY
A positive pre-feasibility study on the Mindoro Nickel Project was completed by
Kvaerner Metals, Australia in August 1998. This study considered a scenario with
an annual production of 40,000 tonnes Nickel metal and 3,050 tonnes Cobalt
metal. In addition, the proposed processing path will yield c. 126,000 tonnes of
ammonium sulfate as an in-line co-product. Ammonium sulfate is a preferred
fertilizer for rice and sugar cane in the Philippines.
The Kvaerner study estimated the capital costs to USD 665 million and the
operating costs at USD 93 million/year with an internal rate-of-return (IRR) at
39%. The cash cost was estimated to 1.06 USD/pound nickel and 0.30 USD/pound
after cobalt credits (at USD 10/pound). The capital costs included USD170
million for working capital, detailed engineering, EPCM, reserve delineation,
environmental studies as well as a 25% contingency.
The financial modeling was based on a discount rate of 10% with a financial
gearing of 75% (USD 500 million loan) and payback of capital over 10 years.
Commodity prices at the time of the study were USD 5,500 per tonne for Nickel
and USD 22,046 for Cobalt and USD 90 per tonne for ammonium sulfate. Today's
commodity prices are about USD 13,000 for Nickel and USD 40,000 for Cobalt,
which is more than double of the assumptions used for the initial study. The
company is currently reviewing available data with a new financial modeling of
the deposit in mind.
The pre-feasibility study was based on preliminary data of the property. The
study also assumed that 25% of higher-grade ore would be imported from other
areas, such as Palawan, to provide a 1.2% head grade in the early years of the
Mindoro project. Field investigations demonstrated that many smaller deposits
with high-grade material of ca. 1.6% Ni exist and make viable shipping sources
of higher-grade materials. It was subsequently decided for the feasibility study
to source laterite only from the Mindoro deposit and have imported higher-grade
ore as an optional benefit.
Later ore beneficiation test work demonstrated that the ore to the plant can be
significantly upgraded, leading to resulting grade well in excess of the initial
1.2% Ni assumed for the pre-feasibility study. New technology also allows use
of the underlying saprolite, which was entirely excluded from the initial
resource definition. Subsequent drilling and georadar surveying has confirmed
that a significant saprolite resource exist under the limonite with almost the
same thickness as the limonite and generally with higher Ni-values. Initial test
work suggest that as much as 80% of the nickel content can be retrieved in a
conventional mining of this tonnage by the rejection of 50-60% of
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the tonnage as a coarse size fraction. This will add a significant increment to
the resources, which is currently being defined.
Crew has subsequently received a proprietary World Patent securing all rights to
extract also magnesium, put into solution by any laterite leach process.
Theoretically up to 120,000 tonnes of magnesium can be recovered annually as a
by-product. This was not considered in the Kvaerner study.
The Mindoro Nickel project is in a feasibility stage. Most of the resource
evaluation has been completed and audited and the database been confirmed by
independent consultants (IMC of Australia). The resource evaluation has shown
that the deposit is exceptionally homogenous and has the potential of supplying
ore for well over 30 years of nickel-cobalt production
Extensive environmental baseline studies have been completed while test work
regarding environmental impact assessment and a final feasibility study remain
to be finished. The company is currently completing a thorough review of the
data and is preparing a new resource estimate based on new samples and the
upgrade test work conducted during the early part of the feasibility program,
which was not included in the above resources evaluation. Global (measured,
indicated and inferred) resources are in excess of 200 million tonnes including
the resources derived from surrounding subareas that are drilled on a relatively
wide exploratory grid.
WORK CONDUCTED
The company has completed more than 1,200 drill holes and test-pits, conducted
metallurgical test work as well as extensive environmental studies. A
computer-assisted resource model, based on more than 10,000 assay results, has
been prepared and independently verified. This shows that the most intensively
studied area, Lower Kisluyan, hosts a measured and indicated resource of 73
million dry metric tonnes ("DMT") with an average "in-situ" grade (before
upgrading) of 0.94% nickel and 0.06% cobalt and including 21 million DMT at 1.2%
nickel and 0.06% cobalt primarily hosted in limonite and transitional saprolite.
The Lower Kisluyan area only constitutes a 12.5 sq. km portion of the total 97
sq. km concession area.
After the return of the title to AMC the Company has re-initiated its resource
update work and the feasibility study. The incorporation of new analytical data
and update of the resource database is now being completed to include data from
243 new drill holes and test pits, of which 119 holes were targeting resource
expansion in adjacent subareas known as Upper Kisluyan and Buraboy areas, which
lie outside the current resource definition in Lower Kisluyan.
Additional drill holes were also completed to characterize geostatistical
variations in three selected areas through drilling a cross pattern with 10
holes in each line at 10-m distance in. Also, 61 new drill holes were completed
from 10 selected sites to conduct an investigation of the resource potential of
the underlying saprolite, which had not been included in previous resource
estimates.
In addition, the company conducted a geo-penetrating radar survey, which
confirmed the lateral continuity of the resource and also proved to be an
efficient method for defining the lower contacts of the resource. The geo-radar
results support the view that the saprolite resource constitutes a layer of
almost similar thickness as the overlying limonite and with similar Ni-contents.
The upgrade test work has shown that the majority of nickel in the saprolite is
contained in less than 60% of the tonnage, leaving barren stones of partially
weathered bedrock behind. It is believed that 80% of the saprolite-hosted nickel
can be retrieved by conventional (atmospheric-pressure) acid leaching, although
further test work on the actual material is required. The saprolite-nickel can
be slurried following mechanical tumbling, washing and screening to less 2 mm
before mixing with the limonite slurry. Beneficiation test work also documented
that significant upgrade can be conducted by 2mm screening and further by
wet-magnetic separation of the limonite.
THE NICKEL MARKET AND THE PHILIPPINES
The World's nickel reserves are currently at a critical low because of the
highly delayed construction of several new Australian nickel-laterite projects
and the effective lack of development of new nickel mines in more than 10 years.
Consumption rate increases of about 4% per year has suggested the need for more
than 50,000 additional tonnes of nickel, which corresponds to one large nickel
project completed every year. Recent developments in China have increased the
demands even further and expansion of current producers cannot meet this
deficiency.
As a result, nickel prices are at all time high and the situation is seen to
continue as no large nickel projects are near completion until late 2006. This
places nickel in the same category as crude oil with an outlook for extended
shortages and prevailing high prices for at least 5-6 years.
When the pre-feasibility study for Mindoro was completed in 1998, the nickel
prices were at a cyclic low. Even at that time, the Mindoro project was highly
profitable, and positioned at the lowest part of the cost curve for the
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industry. The project has a number of advantages, which outweigh the lower in
situ grade when compared to some of the richest projects currently under
development. The project has as high or higher grade as several operating
Australian deposits including Bulong, Ravensthorpe, Murrin-Murrin, Mt. Margaret
and Cawse, but a more attractive mineral composition with better leach kinetics
and higher recovery. The Ramu project in PNG is almost identical to Mindoro in
size and type, but Mindoro is located only 30 km from the coast whereas Ramu
requires about 130 km pipeline to reach the planned processing plant. Finally,
the company has acquired a large sulphur source in the Philippines (Pamplona),
which secures the project a fixed low cost of sulphuric acid, the largest cost
component in PAL processing of nickel laterite, for the life-of-mine.
The shortage of new Ni-reserves and the increased demands from Chinese is
expected to put a tremendous pressure on the desire to secure nickel from the
region where the Mindoro project is currently among the largest and best
described in the Philippines, although not having the highest grades. This,
however, is considered adequately off set by its strategic location and
potential size hosting about 2 million tonnes nickel metal. In Mindoro here is a
growing understanding and concern that the possibility of a massive foreign
currency earning and employment opportunity may be offered to another province.
Both features favour the early development of Mindoro.
REALIZATION OF THE PROJECT
Meetings held with representatives of the Philippine Government have indicated
national interest for this project, being a very substantial deposit, which, if
not processed in Mindoro, may be lost for future exploitation, as the low-grade,
high-tonnage ore will not allow for shipping to an external processing site. On
the other hand, numerous small high-grade deposits found in various places
nearby, can be profitably shipped to Mindoro allowing for the additional
exploitation of these. It has been recognized by members of the Government that
this deposit, potentially holding 2 million tonnes of nickel, needs to be
considered in context with the management of the national resources to ensure
value-added benefits are secured for the country. Furthermore, the Company has
been approached by potential industrial partners from the region. Crew believes
that a combination of Governmental equity participation together with one or
more regional industrial partners increases the potential for the realisation of
this project. Crew is actively pursuing a model with considerable local
participation believing this is one of the key success factors.
B.3.2 PAMPLONA SULFUR DEPOSIT, PHILIPPINES (UNDER EXPLORATION PROGRAM)
PROPERTY DESCRIPTION AND LOCATION
The Pamplona sulphur deposit is located on the Filipino island of Negros, less
than 5 km from a deep-sea port site, and consists of a mixed sulphur-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 the Exploration Permit for the Pamplona Sulphur Deposit in
Negros Island on July 4 2003 for a period of 2 years, renewable for another 2+2
years, subject to the approval of submitted work plans and certain conditions.
The title has been granted to Altai Philippines Mining Corporation to avoid any
delay in the approval of the Exploration License. Altai, however has assigned
all rights to the Pamplona Sulphur property to Crew Minerals Philippines Inc, a
wholly owned subsidiary of Crew, through an option agreement dated September
1998 and an amendment to the option agreement signed November 21st , 2002, the
latter concerning a reduction of the anniversary fees and buy-out terms.
MINERAL RESOURCES ESTIMATES
The Pamplona Sulphur Deposit comprises 60 million tonnes of open-pitable
measured mineral resources, within a total resource of 84 million tonnes with an
average composition of 13.8% elemental sulphur and 17.0% sulphur as sulphide.
Benguet Mining Corp. and Freeport-McMoran Copper & Gold Inc., the former
concession holders, classified the deposit as a proven mineral reserve, but Crew
has not completed an economic study on the deposit, and, therefore, has
re-classified the resource as a measured and indicated mineral resource
according to the JORC code. The resource evaluation was carried out on the basis
of 178 diamond-core drill holes placed in a 60-meter grid pattern.
The License covers an area of 39 sq.km and is composed of two Exploration Permit
areas named EP00007-VII and EXPA00068-VII. Crew, 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 title to Crew Minerals Philippines Inc. ("CMP") is in
preparation following the approval of the Exploration Permits.
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WORK COMPLETED
A new detailed topographical survey for the Pamplona open pit-area has been
completed to take into account the rather extensive excavations conducted by
Benguet Corp. in connection with trial mining in the 70'ees. This has allowed
the company to define a suitable sampling site for a 2,000 tones bulk sample
requested by a local fertilizer group for industrial testing. The sampling will
be from a 10 x 50 meter NW trending trench excavated to about 6 meter depth. The
bulk sample will be collected in the lower 2-meters of the trench to ensure
unoxidized materials. It is considered that the trench design will easily
produce the double quantity if desired. Adequate collection of drainage from the
trench/pit will be diverted through settling dams with lime for neutralization
of acid water before being decanted to the small stream, which drains the
general area.
The access road has been surveyed in detail and all repair and upgrade sections
properly identified and the required work quantified. Three contractors have
reviewed the operation of bringing 2,000 tonnes from the bulk sample trench to
the shipping site at Amlan about 24 km away. The ore will be delivered to barges
at Amlan and be shipped directly to Leyte for testing. The proposed work will
allow the sampling and transfer of materials under environmentally proper and
safe conditions and will be socially acceptable to the population along the
route. About 16 km of the route is a dirt road, which was constructed during the
former period of trial mining, but has not been used since. The route leads past
two villages, where all local municipalities and local leaders have been
contacted and expressed positive interest in the project.
If the industry testing is successful, then a proper mine planning including
financing of the operation and establishment of the required infrastructure will
be initiated immediately. The sulphur operation is scheduled initially for about
1 mill tonnes sulphide ore holding 30% sulphur per year. The previous open pit
reserve was calculated at 60 mill tonnes at 30% sulphur. Crew's resource
verification drilling indicated that the resource may be considerably larger.
In addition to its stand alone potential for sulphur production, the Pamplona
project remains an important strategic advantage for the Mindoro nickel project.
It will secure the project with not only adequate sulphide for acid, but also
allow for more than 60% of the energy needs for the plant through a
steam-generated power facility attached to the sulphuric acid plant.
B.3.3 SEQI OLIVINE DEPOSIT, WEST GREENLAND (DEVELOPMENT PROGRAM)
LOCATION AND TITLE
The Seqi Olivine deposit in western Greenland is a significant resource of the
industrial mineral olivine held under an exploration licence by Crew Gold
Corporation ("Crew"). Under an agreement between Crew and Minelco AB, a LKAB
subsidiary, ("Minelco"), in 2003, Crew undertook a study to address the
feasibility and viability of developing a quarry on the deposit, crushing the
olivine into specified products, and shipping the products to Minelco operations
in Europe.
Seqi is situated on a remote site in artic terrain at position 64 DEG. 59'N -
51 DEG. 33'W a short distance from the Tasiussarssuaq Fjord, which is a branch
of the Fiskefjord in West Greenland some 90 km North of Nuuk (Godthaab), the
capital of Greenland. The nearest settlement is Atammik located some 24 nautical
miles away, near the entry point of Fiskefjord.
The feasibility study addressed the technical aspects of developing the deposit
as a large quarry with a crushing facility and ship loading capability, and has
addressed, not exhaustively, the current economic context of commencing
production as soon as practically possible.
In June 2004 the LKAB board authorised Minelco to proceed with the commercial
arrangements with Crew and to place the olivine deposit into production.
Following this decision, Seqi Olivine A/S has been formed as an operating
company that will be jointly owned by Minelco and Crew and arrangements made to
finance the company in accordance with the agreements between the companies.
BANKABLE FEASIBILITY STUDY
A feasibility study comprising a technical-economical evaluation of an
operation at Seqi was conducted by Crew under its agreement with Minelco, and in
parallel with ongoing discussions about specifics of the operation. The study
was undertaken with respect to specific parameters as below:
o Resource evaluation and assessment of mining the deposit.
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o Definition and specification of the facilities needed to produce an
initial 1.1 million tonnes per year of the specified size fractions.
o Definition and specification of the facilities needed to stockpile the
products and load them efficiently on to large bulk carriers.
o Assessment of shipping the products from site through the Fiskefjorde
to Europe.
o The definition and specification of the infrastructure facilities
needed to sustain the operations at the site.
o Evaluation of the Environmental Impact of the project.
o Estimate of the shortest time frame in which the project could achieve
full production.
o An examination of the project for fatal flaws.
As a result of the investigations additional work was specified:
o An independent assessment of the olivine market
o Extraction of a 50t bulk sample for testing.
o A full marine survey of the Fiskefjord and assessment of the
navigation to and from the proposed ship loading facilities.
o Product quality assurance and impurity control
The data and findings of the study were considered by Minelco to meet the
criteria agreed between the parties under the agreements, however several
programs to further the project are ongoing until permitting of the permanent
operation is complete:
o Environmental base line sampling and environmental impact assessment.
o Specific engineering solutions and specifications for permitting and
contractual purposes.
o Contracts for procurement, contracting and shipping are being
negotiated.
o Establishment of weather stations to provide real time data and
accurate future forecasts.
o The completion of official maritime charts for the Fiskefjord by the
Royal Danish Navy is expected later this year, early 2005.
o Additional diamond drilling to improve the resource categorisation.
o Documentation for the Greenland authorities to effect the
establishment of Seqi Olivine A/S and to obtain the necessary permits.
The west zone will be the first to be exploited. For this zone, the assay data
derived during the study compile into the following global resource*
<Table>
<Caption>
- ------------------------------------------------------------------------------------
Homogenous Dunite 62 Mt Layered Dunite 18 Mt
- ------------------------------------------------------------------------------------
Mean (%) Standard Deviation Mean (%) Standard Deviation
- ------------------------------------------------------------------------------------
MgO 48.91 1.06 46.00 1.18
- ------------------------------------------------------------------------------------
SiO2 41.31 0.61 41.20 0.50
- ------------------------------------------------------------------------------------
Fe2O3 7.87 0.25 8.39 0.42
- ------------------------------------------------------------------------------------
Cr2O3 0.34 0.05 1.27 0.20
- ------------------------------------------------------------------------------------
Alkali 0.11 0.08 0.23 0.07
- ------------------------------------------------------------------------------------
NiO 0.30 0.01 0.28 0.01
- ------------------------------------------------------------------------------------
LOI 0.60 0.24 0.73 0.26
- ------------------------------------------------------------------------------------
</Table>
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<Page>
The project execution has been based on three main principles to minimise
site-operating costs:
o Minimising manpower and mechanising where possible.
o Providing the key facilities new to ensure high availability of
equipment.
o Maximising durability and longevity
The project has assumed the shipping season of April to November to produce the
specified 1.1 million tonnes, with shipping year round if conditions permit. The
quarrying and shipping operations are judged to be possible all year round on
the basis of the 2003/4 winter conditions.
The extraction of the olivine in a large quarry with 5m benches using
conventional but state of the art drilling, blasting, loading equipment is not
problematic. The mine and crushing equipment is rated for continuous 500 tonne
per hour operation.
The crushing equipment specified allows for the initial production of almost any
size of olivine, in this context the material quality is usually the same but
the size fraction differs. The main products being -70mm +10mm lump, 10mm
crushed stone for high quality sand production, and -3 +0mm sand. These
specifications can be modified for different size fractions.
The ship loading facility has been specified by the need to provide a safe port
for large (+55 000 tonne) HandyMax bulk carriers to be used for shipping the
olivine to Europe. The facility is specified as a concrete or brick capped rock
quay faced with sheet piles, fitted with a traversing ship loader rated at a
continuous 1500 tonnes per hour
The marketing report delivered by Roskill Consultants confirmed the current
European market and indicated current and forecast pricing trends. Other
marketing issues are dealt with in more detail below.
The marine survey has indicated that the bulk carriers can navigate into the
Fiskefjord The analysis of the project feasibility has indicated that the only
area that the project may have a technical restriction is the navigation of
Fiskefjord. A final survey of the tidal streams has been undertaken to determine
the optimum time to negotiate the fjord during high tide and has indicated that
there is adequate time.
The project is considered feasible with little technical risk. The olivine
quality is suitable for the purpose it is intended for.
The market for olivine is facing new challenges and some opportunities following
the consolidation of the Norwegian operations into a near monopoly last year.
Olivine has three main uses slag conditioner, foundry sand and sand blasting
sand.
The slag conditioning market is the predominant market either for making iron
ore pellets or adding to furnace feedstock. This high tonnage low value market
is not expected to change much, but with olivine's environmental, cost and
energy advantages there is some hope that iron ore markets outside of Europe
will gradually increase usage.
The sand blasting sand is high value but low volume product and the current high
price of alternative non-silica products makes growth of the olivine market in
this area a high probability.
The greatest area of growth that Crew has determined is that of foundry sand.
This is currently a high value but low volume product but there are signs that a
change in volumes due to environmental pressures to close silica sand quarrying
operations in sensitive beach and river domains and silica usage in foundries.
The potential of replacing silica with olivine is very high and the potential
volumes are very high due to the large inventories held by the foundries.
B.3.4 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 km2 in northern Norway. Access to
Ringvassoy Gold Project is by public paved roads from Troms0, 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
The property, consisting of 53 claims (about 14 km2), 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.
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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 the Corporations Canadian partner 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. The Canadian partner,
however, withdrew from the Joint venture in late 2003 because of lack of funds
to cover work commitment in 2003 and the property was returned to the
Corporation.
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C. REGULATORY FRAMEWORK
C 1. Mineral Exploration in Greenland
Exploration and mining in Greenland are subject to the Danish Act on Mineral
Resources in Greenland (act no. 335 of 6 June 1991) as amended (the "Danish
Mineral Act").
According to the Danish Mineral Act all exploration in Greenland requires a
prior exploration license from BMP. In order to be granted an exploration
license, an application must be sent to BMP and the application needs to be
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 has the necessary expert knowledge and
financial background with respect to the exploitation activities.
Before an exploration license is granted, BMP shall 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, generally, an
exploration license is granted for a period of up to 10 years, but it may be
extended up to a total period not exceeding 50 years. An exploration license
expires, if no exploration work is carried out.
Generally, (i) an exploration license covers all mineral resources except
hydrocarbons and radioactive elements and (ii) the license holder has the
exclusive rights to minerals identified in the exploration area.
The license holder may be obliged to spend certain amounts 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 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 BMP and (iii) BMP approves certain further required
plans (e.g. safety plans, mining plans, environmental plans and plans for mine
closure). BMP may require security for closure of the mine and clean up. A
mining license is generally granted for a period of 30 years.
The Corporation currently, directly or indirectly, holds the following licenses
in respect of Greenland:
NALUNAQ LICENSE
On 7 April 2003, BMP granted a 30-year license to Nalunaq Gold Mine A/S for
exploration of minerals. The license is granted under the provisions of articles
7 and 15 of the Danish Mineral Act.
It is an exclusive license for exploration of mineral resources (excl.
hydrocarbons) for the area within longitudes and latitudes:
1: 60*21'N 44*48'W, 2: 60*21'N 44*49'W, 3: 60*20'N 44*49'W, 4: 60*20'N 44*53'W,
5: 60*23'N 44*53'W, 6: 60*23'N 44*49'W, 7: 60*22'N 44*49'W and
8: 60*22'N 44*48'W.
It is a condition under the Nalunaq License that the ultimate shareholder of
Nalunaq Gold Mine A/S guarantees Nalunaq Gold Mine A/S' obligations 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 out in a detailed closure
plan prepared by BMP. The terms set out in the closure plan are not exhaustive
and BMP has the right to set out additional terms in the event of future
exploration activities within the area of the Nalunaq License.
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NANORTALIK LICENSE
On 12 July 2002 BMP granted an exploration license to Nalunaq I/S for
exploration of mineral resources. 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 onshore area at Nanortalik in Southwest Greenland. The
license is effective until 31 December 2003.
Nalunaq I/S is obliged to spend certain exploration expenses in the exploration
area. If this requirement is not meet, BMP may request to be paid 50% of the
remaining amount in cash upon expiration of the license.
THE OLIVINE LICENSE
In March 2003 BMP granted Crew an exclusive license for exploration of mineral
resources. 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 31 December 2007.
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<Page>
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. Maximum
area for an EP is 162,000,000 m2.
An EP is issued for 2 years after fulfilment of all relevant requirements. The
permit can be renewed for two additional years twice, 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 Mineral Production Sharing Agreement (MPSA) or a Financial and Technical
Assistance Agreement (FTAA) after completed feasibility. An MPSA or FTAA is
valid for 25 years renewable for an additional 25 years.
The Philippine Government renewed the EP for the Mindoro Nickel Concession in
February 1999 for a period of two years. In early 2001, the key section of the
concession was granted a Mineral Production Agreement (MPSA), which secures the
company exclusive rights to develop the property into a mine for a period of 25
years. The MPSA covers the area where Crew previously defined a measured and
indicated resource of 72 million dry metric tonnes (DMT). The authorities are
currently processing applications for the remaining areas. The Company has
signed a Memorandum of Agreement (MOA) with 25 Mangyan leaders of the Alangan
tribe in Oriental Mindoro, and the National Commission on Indigenous Peoples
(NCIP).
MINERAL EXPLORATION IN NORWAY
The 1972 Norwegian Mining Act divides minerals into two groups: claimable and
non-claimable. In general, the claimable minerals are metal-bearing, and they
belong to the state. In general, non-claimable minerals are classified as
industrial minerals, and they belong to the landowner.
Any person or company that belongs to the European Economic Area (EEA) is
allowed to claim the mineral rights to an area. A single claim area is limited
to 300,000 m2, and its longest side cannot exceed 1,200 meters. There is no
limit as to the number of claims allowed. The claiming procedure is as follows:
A pre-claim (muting) is registered first. It may be held for 7 years, with a
possible 3-year extension (total 10 years). A pre-claim is succeeded by a claim.
A claim may be held for 10 years, with a possible 10-year extension (total 20
years).
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 tonnes 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 Crew holds pre-claims covering large areas of R0ros and Meraker, which are
included in the R0ros Project. These concessions are valid until 2005-2006.
There are no production royalties for mining licences in Norway.
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<Page>
MINERAL EXPLORATION IN GHANA
The legislative framework for mining in Ghana is laid down in the Minerals and
Mining Law, 1986, PNDCL 153 (Law 153) as amended by the Minerals and Mining
Amendment Act 1993, Act 475 (Act 475) and modified by the provisions of the
Constitution of 1993 (the Constitution). Within this legal framework, the State
is the owner of all minerals occurring in their natural state within Ghana's
land and sea territory, including its exclusive economic zone. 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 (the sector Minister) who acts as an agent of the State 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 sector Minister
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 must be exercised contingent upon the advice
of the Minerals Commission (MINCOM), 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 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 sector Minister.
D. BREAKDOWN OF TOTAL REVENUES BY CATEGORY OF ACTIVITY AND
GEOGRAPHIC MARKET
As at June 30, 2004 the Company had not yet achieved commercial production nor
recorded revenues from its mining operation, Nalunaq Gold Mine. Revenues from
this operation have been subsequently recorded in the financial statements for
the three months ended September 30, 2005.
All revenues recorded prior to the Quarter ended September 30, 2005 arise from
the Corporation's interest in the consolidated revenues of Metorex. Revenues
segmented by activity and geographic market are given in note 18 to the
financial statements.
E. ORGANIZATIONAL STRUCTURE
The following diagram details the group structure as at June 30, 2004:
[GRAPHIC]
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<Page>
F. PROPERTY, PLANT AND EQUIPMENT
The Corporation's principal executive offices are located in Weybridge, Surrey,
UK. Other offices are leased in Manila in the Philippines, Oslo in Norway,
Nanortalik in Greenland and Vancouver in Canada. All offices are held under
renewable leases with terms averaging one year.
The Company's principal operating asset is Nalunaq Gold Mine which is based in
Greenland. At June 30, 2004 the carrying value of the Mineral Property, Plant
and Equipment relating to Nalunaq was CAD$72 million. Of this total $18 million
related to buildings and plant and equipment held at Nalunaq, $0.3 million of
which are held under leases which expire within three years, and $54 million in
relation to the Mining Property and Development Costs thereon.
For further information regarding the material tangible fixed assets of the
Corporation, including leased properties, please see Notes 3, 8, and 18 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".
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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. OPERATING RESULTS
OVERVIEW
Crew seeks to maintain a balanced portfolio of both exploration projects and
cash generating projects. There are distinct risk profiles the Company
applies to different projects. The Company would normally seek to develop
small and medium sized gold projects itself. With larger gold projects the
Company would, from a risk and reward perspective, evaluate its human and
financial resources before making a decision on the involvement of a
potential partner.
All non-gold projects are placed in Crew Minerals AS, a wholly owned
subsidiary. With all non-gold projects the Company's strategy is, unlike gold
projects, to take little, or no, financial and operational risk. We believe
the above strategy is fully feasible and at the same time creates substantial
value for the Company. 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, and which conforms to U.S. GAAP in all material respects, except
as described in Note 22 to the Consolidated Financial Statements.
2004 FISCAL YEAR COMPARED TO 2003 FISCAL YEAR
For the year ended June 30, 2004 the Company recorded a net loss of $3.8 million
($0.03 per share) compared with a loss of $18.9 million ($0.14 per share) for
the year ended June 30, 2003. During the year ended June 30, 2004 the Company
continued its strategy of divesting non-core investments and focusing on the
development of its development projects, principally the Nalunaq Gold Deposit.
Administrative expenses are $6.6 million for the year compared to $5.3 million
for the year ended June 30, 2003. This increase is almost entirely attributable
to the commencement of production at Nalunaq and arises in the last quarter of
Financial Year 2004. By June 30, 2004 the Company had substantially completed
the development of its principle asset as an operational gold mine in addition
to continuing the development of other projects in its portfolio.
Legal and professional fees for the year are $0.9 million compared to $1.72
million for the year ended June 30, 2003. Legal and professional costs exclude
legal, professional costs of $0.3 million incurred by the Company following the
issue of convertible bonds in September 2003. These costs have been capitalised
and carried in the balance sheet as part of deferred financing costs. Included
in professional fees for the year ended June 30, 2003 are non-recurring legal
costs amounting to $0.6 million. These relate to corporate reorganization, bank
financing for the Nalunaq Project (which was not concluded) and the formation of
the new company for the Nalunaq Project.
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<Page>
Interest and finance charges for the year are $2.4 million compared to $267,000
for the year ended June 30, 2004. These charges for 2004 derive almost entirely
from interest, amortization of financing costs and accretion charges arising
from convertible bonds issued by the Company in the year. On September 8, 2003,
the Company issued through a private placement, Norwegian Kroner (NOK) 120
million (CAD $22.1 million) three-year senior convertible bonds with three major
financial institutions based in London. The bonds were issued in denominations
of NOK10, 000 and rank pari passu among themselves. After deducting finance
costs of NOK8.5million (CAD $1.5 million) net proceeds were NOK111.5 million
(CAD $20.6 million). These bonds bear interest at 9% payable semi-annually in
arrears.
The equity earnings from the Company's investment in Barberton Mines Limited
("Barberton") are $2.94 million compared with $91,000 for the year ended June
30, 2003. The Company acquired its 20% interest in Barberton on June 15, 2003
for a total cash injection of $5.1 million. The Company's equity interest in the
results of Barberton for the year ended June 30, 2004 reflects a full year of
ownership compared to a fifteen-day period for the year ended June 30, 2003.
Included in the results for Barberton for the year are non-recurring profits of
approximately $1.6 million arising from hedging profits. Commencing in the year
ended June 30, 2004, the Company adjusts its equity share of earnings from
Barberton to record the change in market value of Barberton's outstanding
derivative gold forward contracts as a result of the application of Accounting
Guideline 13 "Hedging Transactions" as prescribed by Canadian generally accepted
accounting principles.
The Company recorded earnings on its investment in Metorex for the year of
$249,000 compared to a loss of $5.4 million for the year ended June 30, 2003. At
July 1, 2003 the Company held 5.35% of the share capital of Metorex. This had
reduced from 21% following the disposal of Metorex shares on June 15, 2003.
Accordingly, the Company did not account for the Metorex investment under the
equity method during 2004 and the income from this investment represents
dividends received and gains on sale on the disposal of further shares. By the
end of the financial year the holding in Metorex had dropped to 3.1%.
The equity earnings from Metorex 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%. Also
included are provisions to reduce the carrying value of the investment to market
value at June 30, 2004 of $1.1 million.
At June 30, 2004, the Company held approximately 0.2% (2003- 6.22%) of Asia
Pacific Resources Ltd. ("Asia Pacific") with a carrying value of $56,000 (2003 -
$1.73 million). At June 30, 2003, the market value of the investment in Asia
Pacific was $2.9 million less than its carrying value and accordingly, the
Company recorded a provision for this decline in value.
During the year ended June 30, 2004, the Company continued its strategy of a
managed exit from its investment in Asia Pacific and sold 27,918,000 shares for
total proceeds of $2.5 million. This resulted in gains on disposal of $808,000
(2003 - 4,154,000 shares for total proceeds of $304,000, resulting in a loss on
disposal of $28,000). Subsequent to year end the Company completed its exit from
the investment in Asia Pacific and recorded a profit on disposal on
approximately $20,000 on the residual balance of shares held.
On September 26, 2003, pursuant to an agreement dated September 3, 2003 the
Company sold its 86.1% shareholding in NPGP. In consideration for the sale of
this subsidiary, the Company received cash consideration of $233,000 and forgave
an inter-company debt of $560,000, which was repayable by NPGP to the Company.
At the time of closing, NPGP had external liabilities of $569,000 all of which
were assumed by the purchaser of NPGP. The Company also agreed to defer the
repayment of an additional loan from NPGP of $833,000 which will now be payable
to the Company on December 31, 2011. The Company has made full provision for
this amount and the gain on the sale of the shares has been reduced accordingly.
The transaction resulted in a gain for the Company of $1.3 million.
- --------------------------------------------------------------------------------
40
<Page>
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 affect the Corporation's consolidated net income
for the year-ended June 30, 2004 are as follows:
o a $1 million increase in net loss due to the capitalization of
exploration expenditure. These expenditures were capitalized under
Canadian GAAP but must be expensed under US GAAP.
o a reduction in the loss for the year from unrealized gains on
derivatives as a result of the determination that the Company's share
of equity earnings from Barberton must be adjusted to reflect the
requirements of US GAAP on Barberton's gold forward derivative
contracts.
o a $4.0 million increase in net loss due to the treatment of the
investments in Metorex and Asia Pacific as available for sale
investments under US GAAP.
o Please see Note 22 of the Consolidated Financial Statements for full
details of the reconciliation to U.S. GAAP.
- --------------------------------------------------------------------------------
41
<Page>
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
arise 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 $5.3 million compared with $ 7.8 million (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 board of
directors and senior management. Administrative, office and general expenses for
2002 included $1.6 million of non-recurring contract termination payment 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 $1.7 million
compared to $1,8 million for the year ended June 30, 2002. Included in the
professional fees are costs of $0.6 million for the year ended June 30, 2003,
relating to corporate reorganization, bank financing for the Nalunaq Gold
project in Greenland and formation of the new company for the Gold project.
Included in the professional fees are costs of $0.8 million for the year ended
June 30, 2002, related to the proxy consent and related litigation for control
of the board of directors.
Interest expense for the year ended June 30, 2003 amounted to $0.3 million
compared to $ 1.5 million for the year ended June 30, 2002 (of which $1.5
million arises on consolidation of Metorex). The increase in interest expense
during current fiscal year arises on interest due to the minority shareholders
of the gold project, Nalunaq Gold Mine AS and interest due on the promissory
notes to related parties.
Effective June 15, 2003, the Corporation acquired a 20% interest in the ETC
Division of Avgold Limited (now renamed "Barberton Mines Limited") for a total
cash injection of $5.1 million. The Corporation's 20% equity earnings for the 15
days from acquisition amounted to $91,046 (2002 - Nil).
LOSS ON INVESTMENT IN METOREX:
<Table>
<Caption>
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 disposals (4,232,051) (8,036,773)
Foreign exchange loss realized on disposals (1,216,709) (774,725)
-------------------------------
LOSS ON INVESTMENT IN METOREX LIMITED $(5,448,760) $(8,811,498)
-------------------------------
</Table>
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 $ 8.5 million. This transaction
reduced the Company's interest in Metorex from 53% to 46% and resulted in the
Corporation incurring a loss on dilution of its investment of $1.1 million.
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
$21.3 million, resulting in total losses on disposal of $4.1 million 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 $2.9 million, resulting in a loss on disposal of
$1.0 million. 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 $1.1 million. At June 30, 2002, the
Corporation recorded a provision for impairment of $7.4 million related to the
permanent decline in value of its investment in Metorex.
- --------------------------------------------------------------------------------
42
<Page>
Included in the loss of investment in Metorex are foreign exchange losses of
$1.2 million for the year ended June 30, 2003 and $0.8 million 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 $8.5 million.
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 $2.9 million. During the year ended June 30, 2002, the
Corporation recorded a loss on dilution of geothermal asset of $1.5 million.
On September 30, 2003, pursuant to an agreement dated, September 3, 2003, the
Corporation sold all of its shares in NPGP to an officer, and former director,
of NPGP.
During the year ended June 30, 2003, management determined that the investment
in Asia Pacific Resources Ltd ("Asia Pacific") 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 was $2.9
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 for cash proceeds of $0.3 million, 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 $19.5 million.
Included in the loss for the year ended June 30, 2002 is a provision for
impairment of other mineral property interest relating to the Roros project of
$5 million. 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 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 Corporation's licence to develop a significant
portion of this project in July 2001. Effective April 2002, the corporation has
withdrawn all activities and temporarily placed the Mindoro Nickel project on
care and maintenance. The feasibility of future operations is dependent on the
favourable resolution of the Corporation's appeal to reinstate the MPSA. The
Corporation has since received information that the MPSA has been re-instated.
During the year ended June 30, 2003, in order to centralize the Corporation's
executive management, key operational and administrative functions in one
location, the Corporation incurred restructuring costs in the amount of $0.6
million (2002 - Nil). Included in the restructuring costs are $0.1 million
relating to severance costs in connection with the closure of the Vancouver
offices and $0.3 million 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 $0.1 million compared with a foreign exchange gain of $1.5 million 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.
- --------------------------------------------------------------------------------
43
<Page>
CHANGES IN ACCOUNTING POLICIES
STOCK BASED COMPENSATION
Effective July 1, 2003 the Company adopted the new recommendations of the CICA
Handbook Section 3870, "Stock-based Compensation and Other Stock-based
Payments". Under the amended standards of this Section, the fair value of all
stock-based awards granted are estimated using the Black-Scholes model and are
recorded in operations over their vesting periods. The compensation cost related
to stock options granted after July 1, 2003 is recorded in operations.
Previously, the Company provided note disclosure of pro forma net earnings and
pro forma earnings per share as if the fair value based method had been used to
account for share purchase options granted to employees, directors and officers
after July 1, 2003. The amended recommendations have been applied prospectively
from July 1, 2003 without restatement of prior periods.
The total compensation expense recognised in the statement of operations for
share purchase options granted in the year ended June 30, 2004 totalled
$414,000. Had the same basis been applied to share purchase options granted
during the year ended June 30, 2003, net earnings would have been as follows:
<Table>
<Caption>
June 30, 2003
-------------
Net loss for the year $ (18,861)
Fair value of share compensation to employees (474)
- --------------------------------------------------------------------
Pro forma net loss for the year $ (19,335)
====================================================================
Net loss for the year $ (0.14)
====================================================================
</Table>
PROVISION FOR RECLAMATION AND CLOSURE
Effective July 1, 2003 the Company adopted the standard of the CICA Handbook
Section 3110, Asset Retirement Obligations, which requires that the fair value
of liabilities for asset retirement obligations be recognised in the period in
which they are incurred. A corresponding increase to the carrying amount of the
related assets is generally recorded and depreciated over the life of the asset.
The amount of the liability is subject to re-measurement at each reporting
period. This differs from the prior practice that involved accruing for the
estimated reclamation and closure liability through charges to income on a
unit-of-production basis over the estimated life of the mine. The effect of this
charge was to record a reclamation liability and related asset in the amount of
$485,000 at July 1, 2003. There was no material impact on the Company's
consolidated net loss or opening deficit.
- --------------------------------------------------------------------------------
44
<Page>
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles in Canada requires companies to establish accounting
policies and to make estimates that affect both the amount and timing of the
recording of assets, liabilities, revenues and expenses. Some of these estimates
require judgments about matters that are inherently uncertain.
A detailed summary of all of the Company's significant accounting policies and
the estimates derived there-from is included in Note 2 to the annual
Consolidated Financial Statements for the year ended June 30, 2004. While all of
the significant accounting policies are important to the Company's consolidated
financial statements, the following accounting policies, and the estimates
derived there-from, have been identified as being critical:
o Carrying Values of Mining Property, Plant and Equipment and Other
Mineral Property Interests;
o Depletion and Depreciation of Property, Plant and Equipment;
o Reclamation and Remediation Obligations;
o Income Taxes
CARRYING VALUES OF MINING PROPERTY, PLANT AND EQUIPMENT AND OTHER MINERAL
PROPERTY INTERESTS
The Company undertakes a review every year to evaluate the carrying values of
operating mines and other mineral property interests. A life-of-mine cash flow
for each remaining year is prepared based on management's estimates of remaining
mine reserves and grade, future production and sale volumes, unit sales prices,
future operating and capital costs and reclamation costs to the end of mine
life. For each mining project, the carrying value is compared to the estimated
future discounted cash flows and any excess is written down against operations.
The estimates used by management are subject to various risks and uncertainties.
It is reasonably possible that changes in estimates could occur which may affect
the expected recoverability of the Company's investments in mining projects and
other mineral property interests.
DEPLETION AND DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
Mining property, plant and equipment comprise the largest component of the
Company's assets and, as such, the amortization of these assets has a
significant effect on the Company's financial statements. On the commencement of
commercial production, depletion of each mining property is provided on the
unit-of-production basis using estimated proven and probable reserves as the
depletion basis. The mining plant and equipment and other capital assets are
depreciated, following the commencement of commercial production, over their
expected economic lives using either the unit-of-production method or the
straight-line method (over two to 10 years), as appropriate.
Capital projects in progress are not depreciated until the capital asset has
been put into operation.
The proven and probable reserves are determined based on a professional
evaluation using accepted international standards for the assessment of mineral
reserves. The assessment involves the study of geological, geophysical and
economic data and the reliance on a number of assumptions. The estimates of the
reserves may change, based on additional knowledge gained subsequent to the
initial assessment. This may include additional data available from continuing
exploration, results from the reconciliation of actual mining production data
against the original reserve estimates, or the impact of economic factors such
as changes in the price of commodities or the cost of components of production.
A change in the original estimate of reserves would result in a change in the
rate of depletion and depreciation of the related mining assets or could result
in impairment resulting in a write-down of the assets.
- --------------------------------------------------------------------------------
45
<Page>
RECLAMATION AND REMEDIATION OBLIGATIONS
The Company has obligations for site restoration and decommissioning related to
its mining properties. The Company, using mine closure plans or other similar
studies that outline the requirements planned to be carried out, estimates the
future obligations from mine closure activities. Because the obligations are
dependent on the laws and regulations of the countries in which the mines
operate, the requirements could change resulting from amendments in those laws
and regulations relating to environmental protection and other legislation
affecting resource companies.
The Company recognizes liabilities for statutory, contractual or legal
obligations associated with the retirement of mining property, plant and
equipment, when those obligations result from the acquisition, construction,
development or normal operation of the assets. Initially, a liability for an
asset retirement obligation is recognized at its fair value in the period in
which it is incurred. Upon initial recognition of the liability, the
corresponding asset retirement cost is added to the carrying amount of the
related asset and the cost is amortized as an expense over the economic life of
the asset using either the unit-of- production method or the straight-line
method, as appropriate. Following the initial recognition of the asset
retirement obligation, the carrying amount of the liability is increased for the
passage of time and adjusted for changes to the amount or timing of the
underlying cash flows needed to settle the obligation.
As the estimate of obligations is based on future expectations, in the
determination of closure provisions, management makes a number of assumptions
and judgments. The closure provisions are more uncertain the further into the
future the mine closure activities are to be carried out. Actual costs incurred
in future periods related to the disruption to date could differ materially from
the $760,000 discounted future value estimated by the Company at June 30, 2004.
INCOME TAXES
Future income tax assets and liabilities are computed based on differences
between the carrying amounts of assets and liabilities on the balance sheet and
their corresponding tax values, using the enacted or substantially enacted, as
applicable, income tax rates at each balance sheet date. Future income tax
assets also result from unused loss carry-forwards and other deductions. The
valuation of future income tax assets is reviewed quarterly and adjusted, if
necessary, by use of a valuation allowance to reflect the estimated realizable
amount.
The determination of the ability of the Company to utilize tax loss
carry-forwards to offset future income tax payable requires management to
exercise judgment and make assumptions about the future performance of the
Company. Management is required to assess whether the Company is "more likely
than not" to benefit from these tax losses. Changes in economic conditions,
metal prices and other factors could result in revisions to the estimates of the
benefits to be realized or the timing of utilizing the losses.
- --------------------------------------------------------------------------------
46
<Page>
B. LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2004, the Company's main source of liquidity was cash of $2.7
million (2003 - $6.6 million). At June 30, 2004, the Company's consolidated
working capital comprising, debtors, stocks, marketable securities and accounts
payable was $1.2 million (2003 - $10.3 million).
During the year the Company used $9.1 million in cash from operating activities
(2003 - $6.6 million). The loss of $6.1 million for the year includes non-cash
equity earnings from the investment in Barberton of $2.9 million and unrealized
foreign exchange gains of $421,000. The net loss of $18.9 million for the year
ended June 30, 2003 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
$4.2 million; an unrealized foreign exchange loss of $1.3 million and a loss on
sale of assets of $190,000.
With respect to changes in working capital, the primary source of cash was due
to an increase in accounts payable by $7.7 million, offset by an increase in
inventories of $4.9 million. The increase in inventories represents ore mined at
Nalunaq together with other materials and consumables held at site.
During the year, in addition to the convertible bonds, the Company issued
6,983,000 shares for cash totalling $2.83 million, arising on the exercise of
share options and warrants (2003 - $ nil). Additionally the Company issued
1,500,000 warrants to purchase 1,500,000 common shares for cash consideration
of $105,000. The Company received $102,000 from Metorex Limited for repayment
of loans advanced to Chibuluma in fiscal year 2002. The Company also received
dividend income from Metorex of $54,000.
During fiscal year 2004 a total of $26.9 million (2003 - $9.2 million) was
spent on advancing the Company's exploration and development properties. Of
this total, $25.3 million was incurred in the capital and development
projects for the finalisation of the Nalunaq property and transforming this
to an operational mine by the end of the year. The Company, recognising the
importance of a strong treasury position announced after the year-end that it
had decided to draw down a senior unsecured bond loan of NOK 100-150 million
with a fixed interest of 9.5 %. The loan will be drawn down on 27 October
2004 and repaid on 27 October 2009. Crew may redeem the loan in October 2007
at a price of 103.0% and in October 2008 at a price of 101.5%.
The proceeds of the bond will enable Crew to pursue its growth strategies on
both organic and non-organic projects. The Company had total assets of $97.9
million at June 30, 2004 (2003 - $68.4 million) and shareholders' equity of
$60.7 million (2003 - $57.5 million)
CONTRACTUAL OBLIGATIONS
Contractual obligations for capital expenditure and other liabilities at June
30, 2004 are CAD$ Nil (2003 - CAD$7.7 million). The commitments at June 30, 2003
related to capital expenditure incurred on Nalunaq Gold Mine in relation to the
creation of an infrastructure appropriate mine and ship gold ore.
The Corporation is committed to non-cancellable future operating lease payments
as follows:
<Table>
<Caption>
- -------------------------------------------------------------------------
ALL FIGURES IN THOUSANDS OF CANADIAN DOLLARS 2004 2003
- -------------------------------------------------------------------------
Within one year 285 543
- -------------------------------------------------------------------------
Between two and five years 112 278
- -------------------------------------------------------------------------
TOTAL 397 821
=========================================================================
</Table>
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
- --------------------------------------------------------------------------------
47
<Page>
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.
CONTINGENCIES
(i) 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.
(ii) The Hwini-Butre gold concession (the "HB Gold Concession") is a gold
exploration project in south-western Ghana. Hwini-Butre Minerals Ltd. ("HBM"), a
100%-owned Ghanaian subsidiary of Crew Development Corporation, 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.
During the year ended June 30, 2004, a judgement relating to a legal dispute
instituted by HBM to finalize certain title disputes was unexpectedly issued
against HBM. The judgement was appealed immediately to the Court of Appeal.
Management believes the judgement to be in error and will pursue vigourously an
appeal. Management believes an appeal will be successful and consequently no
impairment provision has been made against the carrying value of the Hwini-Butre
gold concession. At June 30, 2004 the carrying value of this investment was
$3,213,000.
LIQUIDITY RISK
Liquidity risk measures the risk that the Group may not be able to meet its
liabilities as they fall due and therefore, continue trading. The Group's policy
on overall liquidity is to ensure that there are sufficient committed funds in
place which, when combined with available cash resources, are sufficient to meet
the funding requirements for the foreseeable future. At the year end the Group
had no committed facilities in place.
Since the year-end, the Group has secured sufficient funding to enable the
continuance of normal trading and support its existing mining projects until
these become cash positive and to further expand its development projects.
- --------------------------------------------------------------------------------
48
<Page>
OUTLOOK
Crew seeks to maintain a balanced portfolio of both exploration projects and
cash generating projects. There are distinct risk profiles the Company applies
to different projects. The Company would normally seek to develop small and
medium sized gold projects itself. With larger gold projects the Company would,
from a risk and reward perspective, evaluate its human and financial resources
before making a decision on the involvement of a potential partner.
All non-gold projects are placed in Crew Minerals AS, a wholly owned subsidiary.
With all non-gold projects the Company's strategy is, unlike gold projects, to
take little, or no, financial and operational risk. We believe the above
strategy is fully feasible and at the same time creates substantial value for
the Company.
The Company has now transformed Nalunaq into a fully operational producer of
gold. The benefits of this will be seen during the course of Fiscal-Year 2005 as
the revenue, profit and cash stream from the operation is firmly established. An
ambitious exploration program has been planned for Nalunaq to increase the
resource base to warrant an on-site processing plant and or increased
production. After conscientious work to improve and challenge the mine plan, the
earlier perceived average maximum daily production of 450-500 tonnes is no
longer seen as a limitation.
In forthcoming months, efforts will be focused on advancing other projects in
the Company's portfolio.
An important contributor will be Seqi Olivine Project where, based on the
preliminary evaluation of the feasibility study, we have been requested to
further advance the project. We continue to believe the project could provide
significant benefits to the Company, its partner and the local community in a
very short time.
The reinstatement of the Mineral Production-Sharing agreement for the Mindoro
Nickel Project also represents a significant area of growth. Building on
research and exploration undertaken to date and working closely with the
relevant government agencies we will seek to advance the project and conclude
equity participation discussions with both government institutions/companies and
potential industrial partners during the course of 2004. Based on present
commodity prices the fundamentals for the project are viable, and support the
prospects for the project being brought forward and put into production.
Successful testing of the bulk sample to be extracted from Negros Sulfur Project
should result in the commencement of mine planning there and will also provide
the nickel project with a fixed low cost of sulfuric acid, the largest costs
component in processing nickel laterite. Based on present sulfur prices the
indicative project economics, as a stand alone, are attractive.
It continues to be management's view that the Greenlandic concessions held by
the Company independently and with its partner, Nunaminerals, could be a new
gold region. The company will aggressively seek to establish the potential on
the concessions.
The Company has a quality portfolio of projects that from management's view
represent considerable potential for growth in the years to come. The financial
position is sound, and the Company has adequate liquid resources to fund the
immediate development of its mining and exploration properties. On an ongoing
basis the Company will consider other business opportunities that would suit its
corporate strategies and profile.
Subsequent to June 30, 2004, the Company arranged a senior unsecured bond loan
of NOK 100-150 million ($19.1-28.7 million) with a fixed interest rate of 9.5%.
Management anticipates that the loan will be drawn down on October 27, 2004 and
repaid on October 27, 2009. The Company may redeem the loan in October 2007 at a
price of 103.0% of the face value and in October 2008 at 101.5% of the face
value.
- --------------------------------------------------------------------------------
49
<Page>
FORWARD LOOKING STATEMENTS
Certain information and statements in this discussion contain forward-looking
statements that involve a number of known and unknown risks, uncertainties and
other factors. 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
Company assumes no obligation to update or review 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".
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50
<Page>
ITEM 6. DIRECTORS AND SENIOR MANAGEMENT
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.
The current Board of Directors presented below consists of six members:
<Table>
<Caption>
PRINCIPAL OCCUPATION, BUSINESS OR
EMPLOYMENT AND, IF NOT PREVIOUSLY ELECTED
NAME, POSITION AND AS A DIRECTOR, OCCUPATION DURING THE PREVIOUS SERVICE NUMBER OF
RESIDENCE(1) PAST 5 YEARS(1) AS A DIRECTOR SHARES(2)
- ------------------------- ------------------------------------------- ----------------- ---------
HANS CHRISTIAN QVIST(3) Management consultant with Converto AS January 21, 2002 3,600,000
Executive Chairman (a management consulting company)
Norway
CAMERON G. BELSHER(4) Partner, Farris, Vaughan, Wills & Murphy, January 21, 2002 615,000
Director Barristers & Solicitors (a law firm)
British Columbia, Canada
BRIAN C. HOSKING(3)(4) Chief Executive Officer of Thomas Cole February 12, 2004 280,000
Director, United Kingdom Kinder since 2001 (an executive search
consultancy company); Managing Director of
Transearch Africa.
A. SIMON MALONE(3) Executive Chairman of Metorex Limited December 15, 2003 250,000
Director, South Africa (a mining company)
MICHAEL A. PRICE(4) Managing Director of Barclays Capital October 26, 2004 nil
Director (an investment bank) since September 2003;
Yorkshire, United Kingdom Managing Director of Societe Generale
(an investment bank) from September 2001 to
September 2003; Director of NM Rothschilds
& Sons (an investment bank) prior thereto
JAN A. VESTRUM President and Chief Executive Officer of January 21, 2002 8,625,000
President, Chief the Corporation
Executive Officer
and Director
London, United Kingdom
</Table>
- -------------------------
(1) The information as to country of residence and principal occupation, not
being within the knowledge of the Corporation, has been furnished by the
respective directors individually.
(2) The information as to Shares beneficially owned or over which a director
exercises control or direction, not being within the knowledge of the
Corporation, has been furnished by the respective directors individually.
(3) Member of the Compensation Committee.
(4) Member of the Audit Committee.
- --------------------------------------------------------------------------------
51
<Page>
The Senior Management is as follows:
<Table>
<Caption>
NAME,
MUNICIPALITY OF POSITION WITH PRINCIPAL OCCUPATION OR EMPLOYMENT DURING SERVED AS
RESIDENCE(1) THE CORPORATION THE PAST 5 YEARS (1) AN OFFICER
- ------------------- ------------------ ------------------------------------------------ ------------
JAMES COLE Chief Financial 1996-2000; Group Financial Controller and 2004
LONDON, UK Officer Company Secretary of The African Lakes
Corporation plc where he was also Company
Secretary. Prior to his appointment with
the Group he was International Financial
Controller for Ellesse International
Limited (200-2003).
BRIAN SPRATLEY Vice President, Vice President, Project Development of the 2003
Hythe, UK Project Corporation; Consultant to Lundin Group,
Development 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, UK Operations Resident Mine Manager and Mine Superintendent
to Barrick Gold Corporation & Homestake Mining
Company 1994 - 2003, various positions to
Aztec Mining Co and Normandy Mining 1988 - 1994.
JON PETERSEN Vice President, Vice President, Exploration of the 2000
Weybridge, UK Exploration Corporation; prior thereto, Vice President
of Exploration, Mindex ASA since 1998.
Assoc Professor in Economic Geology &
Gerochemistry from 1987 to 1998 and a
consultant to the mining industry for
over 25 years.
</Table>
- --------------------------------------------------------------------------------
52
<Page>
B. COMPENSATION
The following table sets forth the compensation paid during the periods
indicated to the individuals who served as Chief Executive Officer and Chief
Financial Officer of the Corporation during the financial year ended June 30,
2004 and the other three most highly compensated executive officers of the
Corporation who were serving as executive officers at the end of the financial
year ended June 30, 2004 whose total salary and bonus exceeds $150,000 and any
individual who would have satisfied this criteria except that the individual was
not serving as such an officer at June 30, 2004 (collectively, the "Named
Executive Officers"):
EXECUTIVE COMPENSATION
<Table>
<Caption>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------- ---------------------------------------
AWARDS PAYOUTS
----------------------------- -------
SECURITIES SHARES OR
UNDER OPTIONS/ UNITS SUBJECT ALL OTHER
OTHER ANNUAL SARS TO RESALE LTIP COMPENSATION
NAME AND SALARY BONUS COMPENSATION GRANTED RESTRICTIONS PAYOUTS ($)
PRINCIPAL POSITION YEAR ($) ($) ($) (#)(1) ($) ($)
- ----------------------- ---- ---------- ----------- ----------- -------------- ------------- ------- ------------
JAN A. VESTRUM(2) 2004 $485,114 Nil $Nil 975,000(7) Nil N/A Nil
Chief Executive Officer 2003 501,900(6) Nil 29,232 Nil(8) Nil N/A Nil
and President 2002 153,141(6) $280,513(6) 111,846(6) 1,750,000(9) Nil N/A Nil
JON S. PETERSEN 2004 $184,537 Nil Nil Nil Nil N/A Nil
Senior Vice President 2003 234,776 Nil 13,774 500,000 Nil N/A Nil
and Chief Geologist 2002 186,040 Nil 13,326 Nil Nil N/A Nil
FREDERIC PUISTIENNE(3) 2004 $206,396 Nil Nil 500,000 Nil N/A Nil
Former Chief Financial 2003 Nil Nil Nil Nil Nil N/A Nil
Officer 2002 Nil Nil Nil Nil Nil N/A Nil
HANS CHRISTIAN QVIST(4) 2004 $361,886 Nil Nil 850,000 (10) Nil N/A Nil
Executive Chairman 2003 312,746 Nil 31,516 Nil(11) Nil N/A Nil
2002 91,262 $287,793 116,746 1,000,000(12) Nil N/A Nil
BRIAN C. SPRATLEY(5) 2004 $161,850 Nil Nil 500,000 Nil N/A Nil
Vice President, Project 2003 Nil Nil Nil Nil Nil N/A Nil
Development 2002 Nil Nil Nil Nil Nil N/A Nil
ANDREW J STOCKS (6) 2004 $131,119 Nil Nil 500,000 Nil N/A Nil
Vice President, Mining 2003 Nil Nil Nil Nil Nil N/A Nil
2002 Nil Nil Nil Nil Nil N/A Nil
</Table>
(1) All securities under options are for Shares. No stock appreciation rights
("SARs") are outstanding.
(2) Mr. Vestrum became Chief Executive Officer and President on March 3, 2002.
(3) Mr. Puistienne became Chief Financial Officer on March 13, 2003 and ceased
being Chief Financial Officer on August 26, 2004.
(4) Mr. Qvist became Chairman on January 21, 2002.
(5) Mr. Spratley became Vice President, Project Development on July 22, 2004.
(6) Mr. Stocks was became Vice President of Mining on September 2, 2004.
(7) Certain of these amounts were paid to a company 50% beneficially owned by
Mr. Vestrum.
(8) In addition, Mr. Vestrum purchased 800,000 call options from the
Corporation for an aggregate consideration of $56,000 during this period.
(9) In addition, Mr. Vestrum purchased 2,000,000 call options from the
Corporation for an aggregate consideration of $11,400 during this period.
(10) 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.
(11) In addition, Mr. Qvist purchased 700,000 call options from the Corporation
for an aggregate consideration of $49,000 during this period.
(12) In addition, Mr. Qvist purchased 1,750,000 call options from the
Corporation during this period for an aggregate consideration of $10,000.
(13) 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.
(14) In addition to the Named Executive Officers, the following persons who were
officers of the Corporation as at June 30, 2004 received an aggregate
remuneration in excess of $40,000 for the financial year ended June 30,
2004: James Cole, Corporate Controller (joined August 12, 2004) received
aggregate salary and bonuses of $131,200 in addition to 200,000 share
options granted
- --------------------------------------------------------------------------------
53
<Page>
LONG-TERM INCENTIVE PLAN - AWARDS IN MOST RECENTLY COMPLETED FINANCIAL YEAR
The Corporation does not have a long-term incentive plan pursuant to which
compensation was paid or distributed to the Named Executive Officers during the
financial year ended June 30, 2004. A "long-term incentive plan" means a plan
providing compensation intended to motivate performance over a period greater
than one financial year, but does not include option or SAR plans or plans for
compensation through shares or units that are subject to restrictions on resale.
OPTION/SAR GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
A summary of stock options granted to the Executive Officers during the
financial year ended June 30, 2004 is set out in the table below. All stock
options are for Shares and were granted in accordance with the Corporation's
1995 Stock Incentive Plan, as amended. No SARs are outstanding and it is
currently intended that none be issued.
<Table>
<Caption>
% OF TOTAL MARKET VALUE
SECURITIES OPTIONS/SARS OF SECURITIES
UNDER GRANTED TO UNDERLYING
OPTIONS/SARS EMPLOYEES IN EXERCISE OR OPTIONS/SARS ON
GRANTED FINANCIAL YEAR BASE PRICE THE DATE OF GRANT EXPIRATION
NAME (#)(1) (%) ($/SECURITY)(2) $/SECURITY)(2) DATE
- -------------------- ----------- -------------- --------------- ----------------- ------------------
JAN A. VESTRUM 175,000(4) 4.6% $0.84 $0.85 October 23, 2008
CAMERON BELSHER 100,000(6) 2.7% $0.84 $0.85 October 23, 2008
SIMON MALONE 250,000(7) 6.7% $1.20 $1.09 March 10, 2009
BRIAN HOSKINGS 250,000(8) 6.7% $1.20 $1.09 March 10, 2009
HANS CHRISTIAN QVIST 150,000(5) 4.1% $0.84 $0.85 October 23, 2008
BRIAN C. SPRATLEY 500,000(9) 13.4% $0.42 $0.37 July 22, 2008
JAMES COLE 200,000(10) 5.4% $0.55 $0.50 August 12, 2008
ANDREW J STOCKS 500,000(11) 13.4% $0.84 $0.72 September 2, 2008
</Table>
- -----------------------
(1) All securities under option are 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 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 Shares on The Toronto Stock Exchange on the
trading day preceding the grant.
(4) These options were granted on October 23, 2004 for no consideration; the
price range of the Shares for the 30 days preceding the grant was $0.66 to
$0.85.
(5) These options were granted on October 23, 2004 for no consideration; the
price range of the Shares for the 30 days preceding the grant was $0.66 to
$0.85.
(6) These options were granted on October 23, 2004 for no consideration; the
price range of the Shares for the 30 days preceding the grant was $0.66 to
$0.85.
(7) These options were granted on October 23, 2004 for no consideration; the
price range of the Shares for the 30 days preceding the grant was $0.66 to
$0.85.
(8) These options were granted on October 23, 2004 for no consideration; the
price range of the Shares for the 30 days preceding the grant was $0.66 to
$0.85.
(9) On October 23, 2003, Jan A. Vestrum purchased from the Corporation, for
aggregate consideration of $56,000, 800,000 call options with an exercise
price of $0.90 per Share and expiring October 23, 2004. The price range of
the Shares for the 30 days preceding the issuance of these call options was
$0.66 to $0.85, the market value of the Shares on the date of issuance of
these call options was $680,000, and these call options represent 21.5% of
the total options issued to employees in the financial year
(10) On October 23, 2003, Hans Christian Qvist purchased from the Corporation,
for aggregate consideration of $49,000, 700,000 call options with an
exercise price of $0.90 per Share and expiring October 23, 2004. The price
range of the Shares for the 30 days preceding the issuance of these call
options was $0.66 to $0.85, the market value of the Shares on the date of
issuance of these call options was $595,000, and these call options
represent 18.8 % of the total options issued to employees in the financial
year. [NTD: Trevor to complete]
(11) On July 22, 2003, Brian Spratley was granted, for no consideration, 500,000
options with an exercise price of $0.42 per Share and expiring July 22,
2008. The price range of the Shares for the 30 days preceding the grant was
$0.34 to $0.38.
(12) On August 12, 2003, James Cole was granted, for no consideration, 200,000
options with an exercise price of $0.55 per Share and expiring August 12,
2008. The price range of the shares for the 30 days preceding the grant was
$0.36 to $0.50.
(13) On September 2, 2003, Andrew J Stocks was granted, for no consideration,
500,000 options with an exercise price of $0.84 per Share and expiring
August 12, 2008. The price range of the shares for the 30 days preceding
the grant was $0.41 to $0.58.
- --------------------------------------------------------------------------------
54
<Page>
AGGREGATED OPTION/SAR EXERCISES DURING THE MOST RECENTLY
COMPLETED FINANCIAL YEAR AND FINANCIAL YEAR-END OPTION/SAR VALUES
The following table sets forth information concerning the exercise of options
during the financial year ended June 30, 2004 and the value at June 30, 2004 of
unexercised in the money options held by the Named Executive Officers:
<Table>
<Caption>
VALUE OF UNEXERCISED
SECURITIES AGGREGATE UNEXERCISED OPTIONS/SARS IN THE MONEY OPTIONS/SARS
ACQUIRED ON VALUE AT FINANCIAL YEAR-END AT FINANCIAL YEAR-END
EXERCISE REALIZED EXERCISABLE / UNEXERCISABLE EXERCISABLE / UNEXERCISABLE
NAME (#)(1) ($)(2) (#) ($)(3)
- ----------------------- ----------- ---------- --------------------------- ---------------------------
JAN A. VESTRUM(4) 3,750,000 $3,632,500 916,667/58,333 $1,054,167/$67,083
CAMERON BELSHER Nil Nil 566,667/33,333 $651,667/$38,333
SIMON MALONE Nil Nil NIL/250,000 NIL/$287,500
BRIAN HOSKINGS Nil Nil NIL.250,000 NIL/$287,500
JON S. PETERSEN Nil N/A 783,333/166,667 $900,833/$191,667
FREDERIC PUISTIENNE 500,000 535,000 NIL/NIL NIL/NIL
HANS CHRISTIAN QVIST(5) 1,750,000 1,837,500 900,000/50,000 $1,035,000/$57,500
BRIAN C. SPRATLEY Nil N/A 500,000/500,000 NIL/$575,000
JAMES COLE Nil N/A NIL/200,000 NIL/$230,000
ANDREW J STOCKS Nil N/A NIL/500,000 NIL/$575,000
</Table>
- ----------------------
(1) All securities acquired on exercise of options are Shares.
(2) Based on the closing trading price of the Shares on The Toronto Stock
Exchange on the date of exercise.
(3) Based on the closing trading price of the Shares on The Toronto Stock
Exchange on June 30, 2004, being $1.15.
(4) In addition, Mr. Vestrum has 800,000 unexercised call options as at the
financial year end of June 30, 2003 (i) which are fully exerciseable, and
(ii) which have an in the money value at such financial year end of 4.
[NTD: TREVOR TO DESCRIBE CALL OPTIONS EXERCISED]
(5) In addition, Mr. Qvist has 700,000 unexercised call options as at the
financial year end of June 30, 2003 (i) which are fully exerciseable, and
(ii) which have an in the money value at such financial year end of 4.
[NTD: TREVOR TO DESCRIBE CALL OPTIONS EXERCISED]
OPTION/SAR REPRICINGS DURING THE MOST RECENTLY COMPLETED YEAR
During the financial year ended June 30, 2004, the Corporation did not reprice
downward any options or freestanding SARs held by the Named Executive Officers.
DEFINED BENEFIT OR ACTUARIAL PLAN
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.
- --------------------------------------------------------------------------------
55
<Page>
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, whereby Mr. Vestrum is to provide his
services as President and Chief Executive Officer. 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, except
where Mr. Vestrum is no longer offered the position of Chief Executive Officer
following a change of control (one shareholder controls more than 50%), in which
circumstances Mr. Vestrum 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 US$10,000 is paid to each director of the Corporation
for their services as a director. A fee of US$1,000 is paid to each director for
each directors' meeting or committee meeting attended in person, or US$500 if
such meeting is attended by the director by conference phone. Directors receive
a disbursement of US$500 per day for travel time, plus reimbursement of
expenses. Directors may also receive compensation in the form of incentive stock
options, at the discretion of the board of directors, for serving as directors
of the Corporation.
During the year ended June 30, 2004, law firms of which directors of the Company
were partners received total legal fees of $255,000 from the Company (2003 -
$470,000). During the year ended June 30, 2004, recruitment firms controlled by
a Director of the Company received total fees of $110,000 from the Company
(2003 - $nil). During the financial year ended June 30, 2004, 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 an existing policy 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 CAD $15,000,000 in annual claims (subject to
a deductible of CAD $25,000 to CAD $100,000 per claim, payable by the
Corporation). The annual premium in the current financial year is CAD $266,000,
which is paid by the Corporation. The premiums for the policy are not allocated
between directors and officers as separate groups.
- --------------------------------------------------------------------------------
56
<Page>
C. BOARD PRACTICES
Each director of the Corporation is appointed at the Corporation's annual
general meeting to hold office until the earlier of the next annual general
meeting or their resignation. Except as described elsewhere in this Annual
Report, neither the Corporation nor any of its subsidiaries have entered into an
agreement with any director of the Corporation which provides for benefits upon
termination of such director's employment with the Corporation.
The board of directors of the Corporation may appoint additional directors which
shall not exceed in number one-third of the number of directors appointed at the
annual general meeting. The board of directors of the Corporation has two
committees: the Audit Committee and the Compensation Committee. The mandate of
the Audit Committee is, among other things, to:
(a) ensure that at all times there are direct communication channels
between the Audit Committee and the Corporation's auditors;
(b) periodically review and report to the board of directors whether
management of the Corporation has designed and implemented an
effective internal control system; and
(c) review and comment to the board of directors on financial statements
prepared by the Corporation.
The Audit Committee reports periodically to the board of directors of the
Corporation on all of the foregoing matters. The mandate of the Compensation
Committee is, among other things, to review the Corporation's executive
compensation program, which consists of an annual management fee or salary, and
a longer term component consisting of stock options. In determining the
compensation of senior officers of the Corporation, the board of directors gives
consideration to the present development stage of the Corporation and its long
term objectives, as well as the achievements of the senior officers as
demonstrated by the progress achieved towards its business plan.
At this stage of the Corporation's development, apart from the functions of the
Audit Committee and Compensation Committee, the board of directors of the
Corporation performs all functions which might otherwise be delegated to a
committee such as a corporate governance or stock option committee.
D. EMPLOYEES
Crew has 9 employees in Weybridge, United Kingdom who provide technical,
financial and administrative expertise. In addition, the company has a full
complement of management and support staff: 1 in Norway and 3 in The
Philippines.
- --------------------------------------------------------------------------------
57
<Page>
STOCK OPTION PLAN
The Corporation's 1995 Stock Incentive Plan, as amended, permits the grant of
options to purchase Corporation Common Shares to full-time, seasonal full-time
or part time employees and directors of the Corporation or any of its
subsidiaries. Options may also be granted in substitution for outstanding
options of another company in connection with a merger, consolidation,
acquisition of property or stock, or other reorganization involving the
Corporation or any of its subsidiaries. The number of shares made available for
the stock option plan will be determined by the board of directors of the
Corporation subject to the approval of the Toronto Stock Exchange; provided
that, the aggregate maximum number of shares that the Corporation may at any
time reserve for issuance under the plan is 15,000,000, and the aggregate number
of shares reserved for issuance to any one person must not exceed 5% of the
Corporation's issued and outstanding shares. Any options that are surrendered,
terminate or expire without being exercised will again be available for further
awards by the Corporation under the plan. The number and price of issued and
outstanding options is subject to proportional adjustment for any increase or
decrease in the number of issued shares of the Corporation resulting, for
example, from a subdivision or consolidation of shares or payment of a stock
dividend.
- --------------------------------------------------------------------------------
58
<Page>
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
To the best of the knowledge of the Corporation, as of March 15, 2005, the table
below shows the 20 largest shareholders in Crew at that date:
<Table>
<Caption>
- ----------------------------------------------------------------------------------------
SHAREHOLDER SHARES HELD PER CENT
- ----------------------------------------------------------------------------------------
DEUTSCHE BANK AG LON 21,995,300 13.60
BANK OF NEW YORK, BR BNY GCM CLIENT ACCOU 7,660,000 4.73
AS TOLUMA 5,000,000 3.09
DnB NOR Bank ASA EGENHANDELSKONTO 4,550,000 2.81
SKAGEN VEKST 4,250,000 2.63
HARD WORK INVEST AS 4,075,000 2.52
GREENWICH LAND SECUR V/ PAAL HVEEM 3,540,000 2.19
DELPHI NORGE C/O STOREBRAND KAPIT 3,206,000 1.98
ODIN NORGE 2,475,187 1.53
GOLDMAN SACHS INTERN EQUITY NONTREATY CUS 1,905,000 1.18
BJAMER DITLEF 1,781,000 1.10
QVIST HANS KR. 1,750,000 1.08
GAMBAK C/O GAMBAK FONDSFORV 1,700,000 1.05
JATTEN STEIN MAGNOR 1,600,000 0.99
SKAGEN KON-TIKI 1,500,000 0.93
ABG SUNDAL COLLIER N EGENHANDELSKONTO 1,471,000 0.91
DELPHI VEKST C/O STOREBRAND KAPIT 1,385,000 0.86
PETERSEN JON STEEN C/O CREW GOLD CORP 1,338,072 0.83
SIS SEGAINTERSETTLE 1,321,513 0.82
MUSLIK AS 1,215,700 0.75
TOTAL 20 LARGEST 73,718,722 45.58
Other 101,667,793 54.42
TOTAL 175,386,515 100.00%
- ----------------------------------------------------------------------------------------
</Table>
Crew has approximately 8,000 registered shareholders including 1,100 Canadian,
2,800 US and 3,800 Norwegians end of June 2004. In North America, it is not
common for shareholders to register their holdings directly in their own name.
Rather, their shares will commonly be held via a nominee, and neither the
company nor others will have access to information about who is behind the
nominee account. However, a single shareholder, person or company ("legal
entity"), is obligated to issue a news release and to file a report with British
Columbia and Ontario Securities Commissions when they are the beneficial holder
of more than ten percent of a company. The company is not aware of any
shareholders that have beneficial holdings of ten per cent or more of the
company's outstanding shares.
Under the Securities laws of United States a shareholder is required to file a
report if they are the beneficial holder of more than five percent of a company
and to provide a copy of the report to the company.
- --------------------------------------------------------------------------------
59
<Page>
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:
- 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 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 :;
- The Corporation made payments to a public company having certain
directors in common with those of the Corporation. The payments, which
represent reimbursements of amounts paid on behalf of the Corporation, were
as follows:
<Table>
<Caption>
YEAR ENDED JUNE 30
-----------------------------------------------
2003 2002 2001
------------- -------------- ----------------
SALARIES Nil Nil $440,155
RENT Nil Nil 77,742
OTHER
ADMINISTRATIVE Nil $3,432 96,735
COSTS
------------- -------------- ----------------
Nil $3,432 $614,632
============= ============== ================
</Table>
- 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;
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.
- --------------------------------------------------------------------------------
60
<Page>
ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
Item 19 "Exhibits - Consolidated Financial Statements" contains the Auditor's
Report and Consolidated Financial Statements for the Corporation for the fiscal
years ended June 30, 2004 and 2003 which contain an Auditor's Report dated
October 15, 2004, Balance Sheets as of June 30, 2004 and 2003, Statements of
Loss and Deficit for the Fiscal Years Ended June 30, 2004, 2003 and 2002,
Statements of Cash flows for the Fiscal Years Ended June 30, 2004, 2003 and 2002
and Notes to the Consolidated Financial Statements.
B. SIGNIFICANT CHANGES
The only significant change to have occurred since the date of the Consolidated
Financial Statements, being June 30, 2004, is as follows:
The Company arranged a senior unsecured bond loan of NOK 100-150 million
($19.1-28.7 million) with a fixed interest rate of 9.5%. Management anticipates
that the loan will be drawn down on October 27, 2004 and repaid on October 27,
2009. The Company may redeem the loan in October 2007 at a price of 103.0% of
the face value and in October 2008 at 101.5% of the face value.
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 month since the end of the fiscal year 2004, each fiscal
quarter in each of the last four full financial years and each of the last five
full financial years are as follows:
<Table>
<Caption>
HIGH LOW
TIME PERIOD $/SHARE $/SHARE
----------- ------- -------
8 MONTHS ENDED OCTOBER 31, 2004
February 1.44 1.26
January 1.40 1.16
December 1.22 1.10
November 1.27 1.10
October 1.30 1.13
September 1.25 1.05
August 1.20 1.05
July 1.22 1.00
YEAR ENDED JUNE 30, 2004 1.75 0.32
Second Quarter, 2004 1.75 1.03
First Quarter, 2004 1.68 1.00
Fourth Quarter, 2003 0.90 0.56
Third Quarter, 2003 0.85 0.41
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
</Table>
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<Table>
<Caption>
HIGH LOW
TIME PERIOD $/SHARE $/SHARE
----------- ------- -------
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
</Table>
The closing price of the Corporation Common Shares on the Toronto Stock Exchange
on March 15, 2005 was $1.41.
The high and low sale prices for the Corporation Common Shares on the Oslo Stock
Exchange for each month since the end of the last fiscal year 2004, , each
fiscal quarter in each of the last four full financial years and each of the
last five full financial years are as follows:
<Table>
<Caption>
HIGH LOW
TIME PERIOD NOK/SHARE NOK/SHARE
----------- --------- ---------
8 MONTHS ENDED FEBRUARY 2005
February 7.75 6.45
January 7.38 6.00
December 6.51 5.88
November 6.48 5.67
October 6.91 6.06
September 6.63 5.95
August 6.38 5.84
July 6.36 5.65
YEAR ENDED JUNE 30, 2004 8.81 1.98
Second Quarter, 2004 8.14 5.56
First Quarter, 2004 8.81 5.31
Fourth Quarter, 2003 5.55 3.70
Third Quarter, 2003 4.60 1.98
YEAR ENDED JUNE 30, 2003 2.60 1.25
Second Quarter, 2003 2.60 1.33
First Quarter, 2003 1.60 1.25
Fourth Quarter, 2002 2.10 1.34
Third Quarter, 2002 2.23 1.57
</Table>
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<Page>
<Table>
<Caption>
HIGH LOW
TIME PERIOD NOK/SHARE NOK/SHARE
----------- --------- ---------
YEAR ENDED JUNE 30, 2002 5.84 1.95
Second Quarter, 2002 3.23 1.95
First Quarter, 2002 3.86 2.72
Fourth Quarter, 2001 5.84 2.60
Third Quarter, 2001 2.86 2.04
YEAR ENDED JUNE 30, 2001 7.50 4.79
Third Quarter, 2001 6.82 4.90
Second Quarter, 2001 7.19 4.79
First Quarter, 2001 7.50 6.40
Fourth Quarter, 2000 6.98 5.70
6 MONTHS ENDED JUNE 30, 2000 7.60 5.70
</Table>
The closing price of the Corporation Common Shares on the Oslo Stock Exchange on
March 15, 2005 was NOK 7.39.
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.
ITEM 10. ADDITIONAL INFORMATION
A. SHARE CAPITAL
Not Applicable.
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
The Corporation was incorporated on March 31, 1980 by Memorandum and Articles
under the CORPORATION ACT of the Province of British Columbia under number
207507 under the name "Ryan Energy Corp. (N.P.L.)", and subsequently changed its
name to "Crew Development Corporation". The Corporation was continued on January
28, 2000, by Articles of Continuance (the "Articles") and Bylaws (the "Bylaws")
into the Yukon Territory, Canada, under Corporate Access Number 27703.
The Corporation's Articles and Bylaws do not outline the Corporation's objects
or purposes. The following is a summary of certain provisions of the
Corporation's Articles and Bylaws and contain references to the BUSINESS
CORPORATIONS ACT (Yukon) (the "Yukon Act") applicable to the Corporation. Please
note that this is only a summary and is not intended to be exhaustive; for
further information please refer to the full version of the Corporation's
Articles and Bylaws, which are available at the Corporation's registered office
located at Suite 400 - 837 West Hastings Street, Vancouver, British Columbia V6C
3N6.
DIRECTOR'S POWER TO VOTE ON A PROPOSAL, ARRANGEMENT OR CONTRACT IN WHICH THE
DIRECTOR IS MATERIALLY INTERESTED
A director or officer who is a party to, or who is a director or officer of or
has a material interest in any entity which is a party to, a material contract
or proposed material contract with the Corporation must disclose to the board of
directors of the Corporation the nature and extent of his interest in accordance
with the Yukon Act. A director who holds such material interest may not vote on
resolutions authorizing the Corporation to enter into such material contract but
will be
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<Page>
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:
o 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;
1. a contract relating primarily to a director's remuneration as a
director, officer, employee or agent of the corporation or an
affiliate;
2. a contract for purchasing and maintaining insurance to cover directors
against liability incurred by them as directors as specified under the
Yukon Act;
3. a contract for the indemnification of a director by the corporation as
specified under the Yukon Act; or
4. 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:
o the director discloses their interest as required; and
5. 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.
DIRECTOR'S POWER TO DETERMINE THE COMPENSATION OF DIRECTORS
The compensation of the directors is governed by the Bylaws, which allows the
board of directors of the Corporation to determine such compensation. The
directors shall also be entitled to be reimbursed for travelling and other
expenses properly incurred by them in attending meetings of the board of
directors on any committee thereof.
BORROWING POWERS EXERCISABLE BY THE DIRECTORS
Without limiting the borrowing powers of the Corporation as set forth in the
Yukon Act, the board of directors is authorized from time to time:
o 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;
6. 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;
7. subject to the Yukon Act, to issue guarantees on behalf of the
Corporation to secure the performance of the obligations of any
person; and
8. to charge, mortgage, hypothecate, pledge or otherwise create a
security interest in all or any currently owned or subsequently
acquired real or personal, movable or immovable, property and
undertaking of the Corporation, including book debts, rights, powers
and franchises for the purpose of securing any such bonds, debentures,
notes or other evidences of indebtedness or guarantee or any other
present or future indebtedness or liability of the Corporation.
Nothing above limits or restricts the borrowing of money by the Corporation on
bills of exchange or promissory notes made, drawn, accepted or endorsed by or on
behalf of the Corporation.
RETIREMENT AND NON-RETIREMENT OF DIRECTORS UNDER AN AGE LIMIT REQUIREMENT
There are no such provisions applicable to the Corporation under its Articles,
Bylaws or the Yukon Act.
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<Page>
NUMBER OF SHARES REQUIRED TO BE OWNED BY A DIRECTOR
A director of the Corporation is not required to hold a share in the capital
stock of the Corporation as qualification of his office.
DESCRIPTION OF CORPORATION COMMON SHARES
The authorized capital of the Corporation consists of 250,000,000 Corporation
Common Shares without par value. A complete description of the rights and
restrictions of Corporation Common Shares is contained in the Articles.
Of the Corporation's authorized share capital, a total of 173,786,515
Corporation Common Shares were issued and outstanding as of March 15, 2005. All
Corporation Common Shares rank equally as to voting rights, participation in a
distribution of the assets of the Corporation upon a liquidation, dissolution or
winding-up of the Corporation and the entitlement of dividends. The holders of
Corporation Common Shares are entitled to receive notice of all shareholder
meetings and to attend and vote at such meetings. Shareholders are not entitled
to cumulative voting. Each Common Share carries with it the right to one vote.
Corporation Common Shares do not have pre-emptive or conversion rights. In
addition, there are no sinking fund or redemption provisions applicable to
Corporation Common Shares.
The declaration of dividends on Corporation Common Shares is within the
discretion of the Corporation's board of directors. The Corporation has not paid
any dividends on its Corporation Common Shares and has no policy with respect to
the payment of dividends.
The Corporation Common Shares issued and outstanding are not subject to further
capital calls by the Corporation and there are no provisions in the
Corporation's Articles or Bylaws or the Yukon Act discriminating against any
existing or prospective holder of Corporation Common Shares as a result of such
shareholder owning a substantial number of shares.
Neither the Articles nor the Bylaws have any limitations on non-resident or
foreign ownership of Corporation Common Shares.
The Yukon Act provides that the rights and provisions attached to any class of
shares may not be amended unless consented to by a separate resolution passed by
a majority of not less than 2/3 of the votes cast, in person or by proxy, by
holders of shares of that class.
Neither the Corporation's Articles nor Bylaws contain any provision which would
have an effect of delaying, deferring or preventing a change in control of the
Corporation in the event of a merger, acquisition or corporate restructuring
involving the Corporation or any of its subsidiaries.
SHAREHOLDER MEETINGS
The Corporation's annual meeting of shareholders shall take place within
eighteen months of the date of its incorporation and subsequently not later than
fifteen months from the last annual meeting of shareholders.
A meeting of the shareholders of the Corporation may be held in Vancouver,
British Columbia, or London, England or at such other place as may be determined
by the board of directors of the Corporation.
The board of directors may fix in advance a record date, preceding the date of
any meeting of the shareholders by not more than 50 days and not less than 21
days, for the determination of the shareholders entitled to notice of the
meeting; provided that, notice of such record date shall be given not less than
seven days before such record date.
A quorum for the transaction of business at a meeting of shareholders of the
Corporation is two shareholders present in person or represented by proxy.
Only members who are registered holders of the Corporation's shares at the close
of business on the record date who either attend the meeting of shareholders or
who have completed and delivered a form of proxy in the prescribed manner shall
be entitled to vote or to have their shares voted at the meeting.
On a show of hands, every person who is present at a meeting of shareholders and
entitled to vote thereat shall have one vote. Whenever a vote by show of hands
shall have been taken upon a question, unless a ballot thereon is so required or
demanded, a declaration by the chairman of the meeting that the vote upon the
question has been carried or carried by a particular majority or not carried, an
entry to that effect in the minutes of the meeting shall be conclusive
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<Page>
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.
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<Page>
C. MATERIAL CONTRACTS
During the two years ended March 15, 2005, the Corporation entered into the
following material contracts:
1. 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. Vestrum 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.
There are no specific limitations imposed by Canadian law or the Corporation's
Articles of Incorporation or By-Laws on the right of non-residents of Canada to
hold or to vote the Corporation's shares, other than those imposed by the
INVESTMENT CANADA ACT (Canada). This legislation subjects an acquisition of
control of the Corporation by a non-Canadian to government review if the value
of the Corporation's assets as calculated pursuant to the legislation exceeds a
threshold amount. The threshold amount is adjusted annually to reflect inflation
and the Canadian real growth rate. A reviewable acquisition may not proceed
unless the relevant minister is satisfied or is deemed to be satisfied that
there is likely to be a net benefit to Canada from the transaction.
The acquisition of a majority of the Corporation's voting shares is deemed to be
an acquisition of control under the INVESTMENT CANADA ACT (Canada). The
acquisition of less than a majority but more than one-third of the Corporation's
voting shares is presumed to be an acquisition of control unless the acquirer
can establish that there is no control in fact by the acquirer through the
ownership of voting shares. The acquisition of less than one-third of the
Corporation's voting shares is deemed not to be an acquisition of control. Share
acquisitions in the ordinary course of an acquirer's business as a trader or
dealer in securities are exempt from review under this legislation.
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E. TAXATION
The following is a general discussion of certain possible Canadian and United
Sates federal income tax consequences, under current law, generally applicable
to a U.S. Holder (as hereinafter defined) of Corporation Common Shares. This
discussion does not address all potentially relevant federal income tax matters
and it does not address consequences peculiar to persons subject to special
provisions of federal income tax law, such as those described below as excluded
from the definition of a U.S. Holder. In addition, this discussion does not
cover any state, local, or foreign tax consequences.
THE DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IT IS NOT INTENDED TO BE, NOR
SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY HOLDER OR PROSPECTIVE
HOLDER OF CORPORATION COMMON SHARES AND NO OPINION OR REPRESENTATION WITH
RESPECT TO THE CANADIAN OR UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO ANY
SUCH HOLDER OR PROSPECTIVE HOLDER IS MADE. ACCORDINGLY, HOLDERS AND PROSPECTIVE
HOLDERS OF CORPORATION COMMON SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS ABOUT
THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF PURCHASING, OWNING
AND DISPOSING OF CORPORATION COMMON SHARES.
CANADIAN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon the current provisions of the CANADA TAX
ACT and the regulations (the "Regulations") enacted thereunder as at the date
hereof, the Corporation's understanding of the current published administrative
and assessing policies of the Canada Customs and Revenue Agency, all specific
proposals to amend the CANADA TAX ACT and the Regulations publicly announced by
the Minister of Finance before the date hereof (the "Proposed Amendments") and
the provisions of the Convention as at the date hereof. This summary does not
take into account provincial, territorial or foreign income tax considerations
(see "United States Federal Income Tax Consequences" below), and does not take
into account or anticipate any changes in law, whether by judicial, governmental
or legislation decision or action except to the extent of the Proposed
Amendments. No assurance can be given that any of the Proposed Amendments will
be enacted into law or that legislation will implement the Proposed Amendments
in the manner now proposed.
DIVIDENDS ON CORPORATION COMMON SHARES
Under the Convention, dividends which are paid or credited, or are deemed to be
paid or credited, to a U.S. Resident in respect of Corporation Common Shares
will generally be subject to Canadian withholding tax at a rate of 5% of the
gross amount of the dividends if the beneficial owner of the dividends is a
company which owns at least 10% of the voting stock of the Corporation or 15% of
the gross amount of the dividends if the beneficial owner of the dividends is
any other U.S. Resident (other than certain exempt organizations referred to in
Article XXI of the Convention).
DISPOSITION OF CORPORATION COMMON SHARES
A U.S. Resident will generally not be subject to tax under the CANADA TAX ACT in
respect of any capital gain realized on the disposition or deemed disposition of
Corporation Common Shares unless such Corporation Common Shares are "taxable
Canadian property", as defined in the Canada Tax Act, to the U.S. Resident.
Corporation Common Shares will not generally constitute taxable Canadian
property to a U.S. Resident unless either (i) at any time during the five -year
period ending at the time of the disposition of Corporation Common Shares by
such U.S. Resident, 25% or more of the issued shares (and in the view of the
Canada Customs and Revenue Agency, taking into account any rights to acquire
shares) of any class or series of the capital stock of the Corporation were
owned by such U.S. Resident, persons with whom the U.S. Resident did not deal at
arm's length or such U.S. Resident together with such persons, or (ii) the U.S.
Resident's Corporation Common Shares are otherwise deemed to be taxable Canadian
property. Capital gains realized on the disposition of Corporation Common Shares
that constitute taxable Canadian property to a U.S. Resident will nevertheless,
by virtue of the Convention, not be subject to tax under the Canadian Tax Act,
provided that shares of the Corporation do not derive their value principally
from real property, including the right to explore for or exploit natural
resources and rights to amounts computed by reference to production, situated in
Canada at the time of disposition.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations, published Internal
Revenue Service ("IRS") rulings, published administrative positions of the IRS
and court decisions that are currently applicable, any or all of which could be
materially and adversely changed, possibly on a retroactive basis, at any time.
This discussion does not consider the potential effects, both adverse and
beneficial, of any recently proposed legislation which, if enacted, could be
applied, possibly on a retroactive basis, at any time.
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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 or a trust when such a trust has elected to be treated as
a U.S. person for federal income tax purposes. This summary does not address the
tax consequences to, and U.S. Holder does not include, persons subject to
specific provisions of federal income tax law, such as tax-exempt organizations,
qualified retirement plans, individual retirement accounts and other
tax-deferred accounts, financial institutions, insurance companies, real estate
investment trusts, regulated investment companies, broker-dealers, non-resident
alien individuals, persons or entities that have a "functional currency" other
than the U.S. Dollar, shareholders who hold Corporation Common Shares as part of
a straddle, hedging or a conversion transaction, and shareholders who acquired
their Corporation Common Shares through the exercise of employee stock options
or otherwise as compensation for services.
A "U.S. Resident" means a U.S. Holder who (i) is a resident of the United States
for the purposes of the Canada-United States Income Tax Convention, 1980 (the
"Convention"); (ii) is not currently, nor has previously been a resident of
Canada or deemed to be a resident of Canada for the purposes of the INCOME TAX
ACT (Canada) (herein referred to as the "Canada Tax Act") at any time while the
holder has held Corporation Common Shares; (iii) holds his or her Corporation
Common Shares as capital property; (iv) deals at arm's length with the
Corporation for the purposes of the Canada Tax Act; and (v) does not use or
hold, and is not deemed under the CANADA TAX ACT to use or hold, such
Corporation Common Shares in carrying a business or performing independent
services in Canada. Corporation Common Shares will generally be considered to be
capital property to a U.S. Resident unless they are held as inventory in the
course of carrying on a business or were acquired in a transaction considered to
be an adventure or concern in the nature of trade.
This summary is limited to U.S. Holders who own Corporation Common Shares as
capital assets. This summary does not address the consequences to a person or
entity holding an interest in a shareholder or the consequences to a person of
the ownership, exercise or disposition of any options, warrants or other rights
to acquire Corporation Common Shares.
DIVIDENDS ON CORPORATION COMMON SHARES
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to Corporation Common Shares of are required to include in gross
income for United States federal income tax purposes the gross amount of such
distributions equal to the U.S. Dollar value of such dividends on the date of
receipt (based on the exchange rate on such date) to the extent that the
Corporation has current or accumulated earnings and profits, without reduction
for any Canadian income tax withheld from such distributions. Such Canadian tax
withheld may be credited, subject to certain limitations, against the U.S.
Holder's federal income tax liability or, alternatively, may be deducted in
computing the U.S. Holders' federal taxable income by those who itemize
deductions. (See more detailed discussion at "Foreign Tax Credit" below). To the
extent that distributions exceed current or accumulated earnings and profits of
the Corporation, they will be treated first as a return of capital up to the
U.S. Holder's adjusted basis in the Corporation Common Shares and thereafter as
gain from the sales or exchange of the Corporation Common Shares. Preferential
tax rates for long-term capital gains are applicable to a U.S. Holder which is
an individual, estate or trust. There are currently no preferential tax rates
for long-term capital gains for a U.S. Holder which is a corporation.
In the case of foreign currency received as a dividend that is not converted by
the recipient into U.S. Dollars on the date of receipt, a U.S. Holder will have
a tax basis in the foreign currency equal to its U.S. Dollar value on the date
of receipt. Generally, any gain or loss recognized upon a subsequent sale or
other disposition of the foreign currency, including the exchange for U.S.
Dollars, will be ordinary income or loss. However, an individual whose 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
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several complex limitations which are beyond the scope of this discussion.
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. (See discussion under Passive Foreign
Investment Company).
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.
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
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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 be able to satisfy record
keeping requirements which will be imposed on a Qualified Electing Fund ("QEF").
Each U.S. Holder of the Corporation is urged to consult a tax advisor with
respect to how the PFIC rules affect their tax situation.
A U.S. Holder who holds stock in a foreign corporation during any year in which
such company qualifies as a PFIC may elect to be subject to United States
federal income taxation under one of two alternative tax regimes. In the event
that no such election is made, the PFIC rules will apply. The following is a
discussion of the two alternative elective tax regimes applied to such U.S.
Holders of the Corporation. In addition, special rules apply if a foreign
corporation qualifies as both a PFIC and a "controlled foreign company" (as
defined below) and a U.S. Holder owns, directly and indirectly, ten percent
(10%) or more of the total combined voting power of classes of shares of such
foreign corporation (See more detailed discussion at "Controlled Foreign
Company" below).
Assuming that the Corporation satisfies record-keeping requirements, a U.S.
Holder who elects in a timely manner to treat the Corporation as a QEF (an
"Electing U.S. Holder") will be subject, under Section 1293 of the Code, to
current federal income tax for any taxable year in which the Corporation
qualifies as a PFIC on his pro rata share of the Corporation's (i) "net capital
gain" (the excess of net long-term capital gain over net short-term capital
loss), which will be taxed as long-term capital gain to the Electing U.S. Holder
and (ii) "ordinary earnings" (the excess of earnings and profits over net
capital gain), which will be taxed as ordinary income to the Electing U.S.
Holder, in each case, for the shareholder's taxable year in which (or with
which) the Corporation's taxable year ends, regardless of whether such amounts
are actually distributed.
The effective QEF election also allows the Electing U.S. Holder to (i) generally
treat any gain realized on the disposition of Corporation Common Shares (or
deemed to be realized on the pledge of his shares) as capital gain; (ii) treat
his share of the Corporation's net capital gain, if any, as long-term capital
gain instead of ordinary income; and (iii) either avoid interest charges
resulting from PFIC status altogether, or make an annual election, subject to
certain limitations, to defer payment of current taxes on his share of the
Corporation's annual realized net capital gain and ordinary earnings subject,
however, to an interest charge. If the Electing U.S. Holder is not a
corporation, such an interest charge would be treated as "personal interest"
that is not deductible.
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
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regarding the availability of and procedure for electing to recognize gain or
earnings and profits under the foregoing rules. In addition, special rules apply
if a foreign corporation qualifies as both a PFIC and a "controlled foreign
corporation" (as defined below) and a U.S. Holder owns, directly and indirectly,
ten percent (10%) or more of the total combined voting power of classes of
shares of such foreign corporation (See more detailed discussion at "Controlled
Foreign Corporation" below).
If the Corporation no longer qualifies as a PFIC in a subsequent year, a timely
QEF election will remain in effect, although not applicable, during those years
that the Corporation is not a PFIC. Therefore, if the Corporation requalifies as
a PFIC, the QEF election previously made is still valid, and the U.S. Holder is
required to satisfy the requirements of that election. Furthermore, a QEF
election remains in effect with respect to a U.S. Holder, although dormant,
after a U.S. Holder disposes of its entire interest in the Corporation. Upon the
U.S. Holder's reacquisition of an interest in the Corporation, the QEF election
will apply to the newly acquired stock of the Corporation.
Effective for tax years of U.S. Holders beginning after December 31, 1997, U.S.
Holders who hold (actually or constructively) marketable stock of a foreign
corporation that qualifies as a PFIC, may annually elect to mark such stock to
the market (a "mark-to-market election"). If such an election is made, such U.S.
Holder will not be subject to the special taxation rules of Section 1291
described below for the taxable year for which the mark-to-market election is
made. A U.S. Holder who makes such an election will include in income for the
taxable year for which the election was made in an amount equal to the excess,
if any, of the fair market value of the Corporation Common Shares as of the
close of such tax year over such U.S. Holder's adjusted basis in such
Corporation Common Shares. In addition, the U.S. Holder is allowed a deduction
for the lesser of (i) the excess, if any, of such U.S. Holder's adjusted tax
basis in the Corporation Common Shares over the fair market value of such shares
as of the close of the tax year, or (ii) the excess, if any, of (A) the
mark-to-market gains for the Corporation Common Shares included by such U.S.
Holder for prior tax years, including any amount which would have been included
for any prior tax year but for Section 1291 interest on tax
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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
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.
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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 Suite 400-837 West Hastings Street, Vancouver,
British Columbia, V6C 3N6.
I. SUBSIDIARY INFORMATION
There is no information relating to the Corporation's subsidiaries which must be
provided in Canada and which is not otherwise called for under Canadian GAAP.
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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY RISK
For the year under review the Group's functional currency was the Canadian
dollar. Following the inception of the Nalunaq mining operation and the
commencement of commercial revenues denominated in US dollars from Q1 2005, the
Board believes a change in the functional currency of the Group is appropriate.
Accordingly from July 1, 2004 the results of the Group will be prepared in US
dollars.
The Group does not, at present, undertake any trading activity in financial
instruments. Crew's development projects are based in Canada, Greenland, Norway,
Ghana and the Philippines. Management of the Group is based in the UK.
Foreign exchange risk is also managed by satisfying foreign denominated
expenditures or liabilities with cash flows or assets denominated in the same
currency. The Group 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 the end of the year the only monetary assets held by the Group were cash
balances of $2.7million. $1.2 million of these total cash holdings was held in
Norwegian Kroner against NOK denominated borrowings, $0.2 million held in
Canadian dollars, $0.7 million in British Pounds and the balance of $0.6 million
in Danish krone.
INTEREST RATE RISK
Monetary assets and liabilities are subject to the risk of movements in interest
rates. At June 30, 2004 the Group had monetary liabilities of $18.9 million
denominated in Norwegian Kroner. This liability is held at fixed interest terms.
At 30 June 2004, the Group held $2.7million of cash on deposit. $1.2 million of
this balance was held in Norway, $0.2 million held in Canada, $0.7 million in UK
and the balance of $0.6 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 for Canadian and
sterling dollar assets, or the applicable inter-bank interest rates for
financial assets held in other currencies.
COMMODITY RISK
Nalunaq commenced its mining operations on May 1, 2004 and made its first
commercial sale of gold ore in August 2004. Since then the group will receive a
revenue stream based on worldwide commodity prices. The Company 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.
ENVIRONMENTAL RISK
All phases of the Company's operations are subject to environmental regulation
in the various jurisdictions in which it operates. These regulations mandate,
among other things, the maintenance of air and water quality standards and land
reclamation. They also set forth limitations on the generation, transportation,
storage and disposal of solid and hazardous waste. Environmental legislation is
evolving in a manner which will require stricter standards and enforcement,
increased fines and penalties for non-compliance, more stringent environmental
assessments of proposed projects and a heightened degree of responsibility for
companies and their officers, directors and employees. There is no assurance
that future changes in environmental regulation, if any, will not adversely
affect the Company's operations. Government approvals and permits are currently,
and may in the future be, required in connection with the Company's operations.
To the extent such approvals are required and not obtained, the Company could be
curtailed or prohibited from continuing its mining operations or from proceeding
with planned exploration or development of mineral properties.
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.
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ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS
Not Applicable.
ITEM 15. CONTROLS AND PROCEDURES
The Corporation has a limited management infrastructure, which is based, at its
Head Office in Weybridge, Surrey, UK. The Corporation had identified, and its
auditors reported a material weakness in internal controls, specifically
relating to in-house knowledge required to apply to certain aspects of US and
Canadian GAAP. Consequently the Corporation has increased its finance team to
include individuals with appropriate experience in applying Canadian and US GAAP
related issues.
With the exception of the above, under the supervision and with the
participation of management of the Corporation, including the Chief Executive
Officer and 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 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 22 therein). For a history of
exchange rates in effect for Canadian Dollars as against U.S. Dollars, see Item
3.A "Key Information - Selected Financial Data".
ITEM 18. EXHIBITS
E. CONSOLIDATED FINANCIAL STATEMENTS
DESCRIPTION OF DOCUMENT
Cover Sheet
Auditors' Report dated October 15, 2004
Consolidated Balance Sheets as at June 30, 2004 and 2003
Consolidated Statements of Loss and Deficit for the Fiscal Years Ended
June 30, 2004, 2003 and 2002
Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30,
2004, 2003 and 2002 Notes to the Consolidated Financial Statements
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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 March 15, 2005
By: /s/ Jan Vestrum
------------------------------
Jan Vestrum
Chief Executive Officer
Crew Development Corporation
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CERTIFICATIONS
I, Jan Vestrum, certify that:
1. I have reviewed this annual report on Form 20-F of Crew Gold Corporation
(the "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 Corporation as of, and for, the periods presented in this
annual report;
4. The Corporation's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Corporation and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Corporation, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this annual report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the Corporation's disclosure controls
and procedures and presented in this annual report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the Corporation's internal
control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is
reasonably likely to materially affect, the Corporation's internal
control over financial reporting.
5. The Corporation's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the Corporation's auditors and the audit committee of the Corporation's
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Corporation's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Corporation's internal
control over financial reporting.
Dated March 15, 2005
By: /s/ Jan Vestrum
------------------------------
Jan Vestrum
Chief Executive Officer
Crew Gold Corporation
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I, James Cole, certify that:
1. I have reviewed this annual report on Form 20-F of Crew Gold Corporation
(the "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 Corporation as of, and for, the periods presented in this
annual report;
4. The Corporation's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Corporation and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Corporation, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this annual report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the Corporation's disclosure controls
and procedures and presented in this annual report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the Corporation's internal
control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is
reasonably likely to materially affect, the Corporation's internal
control over financial reporting.
5. The Corporation's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the Corporation's auditors and the audit committee of the Corporation's
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Corporation's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Corporation's internal
control over financial reporting.
Dated March 15, 2005
By: /s/ James Cole
------------------------------
James Cole
Chief Financial Officer
Crew Gold Corporation
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AUDITORS' REPORT AND CONSOLIDATED FINANCIAL STATEMENTS OF
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
JUNE 30, 2004 AND 2003
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Deloitte & Touche LLP
2800 - 1055 Dunsmuir Street
4 Bentall Centre
P.O. Box 49279
Vancouver BC V7X 1P4
Canada
AUDITORS' REPORT Tel: (604) 669-4466
Fax: (604) 685-0395
To the Shareholders of www.deloitte.ca
Crew Gold Corporation
We have audited the consolidated balance sheets of Crew Gold Corporation as at
June 30, 2004 and 2003 and the consolidated statements of loss and deficit and
cash flows for each of the years in the three year period ended June 30, 2004.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at June 30, 2004 and
2003 and the results of its operations and its cash flows for each of the years
in the three year period ended June 30, 2004 in accordance with Canadian
generally accepted accounting principles.
The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion.
(SIGNED) DELOITTE & TOUCHE LLP
Chartered Accountants
Vancouver, British Columbia
October 15, 2004
COMMENTS BY AUDITOR ON CANADA - UNITED STATES REPORTING DIFFERENCES
The standards of the Public Company Accounting Oversight Board (United States)
require the addition of an explanatory paragraph when the financial statements
are affected by conditions and events that cast substantial doubt on the
Company's ability to continue as a going concern, such as those described in
Note 1 to the consolidated financial statements. Although we conducted our
audits in accordance with both Canadian generally accepted auditing standards
and the standards of the Public Company Accounting Oversight Board (United
States), our report to the shareholders dated October 15, 2004 is expressed in
accordance with Canadian reporting standards which do not permit a reference to
such conditions and events in the auditors' report when these are adequately
disclosed in the consolidated financial statements.
The standards of the Public Company Accounting Oversight Board (United States)
require the addition of an explanatory paragraph (following the opinion
paragraph) when there are changes in accounting policies that have a material
effect on the comparability of the Company's consolidated financial statements,
such as the changes described in Notes 2 (j) and 2 (m) to the consolidated
financial statements. Our report to the shareholders, dated October 15, 2004, is
expressed in accordance with Canadian reporting standards which do not require a
reference to such changes in accounting policies in the auditors' report when
the change is properly accounted for and adequately disclosed in the
consolidated financial statements.
(SIGNED) DELOITTE & TOUCHE LLP
Chartered Accountants
Vancouver, British Columbia
October 15, 2004
- --------------------------------------------------------------------------------
81
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
CONSOLIDATED BALANCE SHEETS
AS AT JUNE 30
(EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
2004 2003
--------- --------
ASSETS
CURRENT
Cash $ 2,682 $ 6,690
Accounts receivable 291 359
Prepaid expenses 1,035 344
Inventories (Note 4) 4,772 -
Due from Metorex Limited 537 639
Investment in Metorex Limited (Note 6) 2,178 3,717
Investment in Asia Pacific Resources (Note 7) 56 1,731
- -----------------------------------------------------------------------------------------
11,551 13,480
NALUNAQ PROPERTY, PLANT AND EQUIPMENT (Note 3) 71,911 45,135
INVESTMENT IN AND ADVANCES TO BARBERTON
MINES LTD. (Note 5) 9,611 5,258
OTHER MINERAL PROPERTY INTERESTS (Note 8) 4,451 3,453
OTHER ASSETS (Note 20) 2,536 1,067
- -----------------------------------------------------------------------------------------
$ 100,060 $ 68,393
- -----------------------------------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 10,289 $ 3,186
Promissory notes due to related parties - 379
- -----------------------------------------------------------------------------------------
10,289 3,565
REHABILITATION PROVISION (Note 9) 772 -
CONVERTIBLE BONDS (Note 10) 18,899 -
FUTURE INCOME TAXES (Note 11) 3,338 3,338
NON-CONTROLLING INTEREST 3,842 4,008
- -----------------------------------------------------------------------------------------
37,140 10,911
- -----------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital (Note 12) 166,679 160,115
Equity component of convertible bonds (Note 10) 757 -
Share purchase warrants (Notes 12 (f) and (g)) 540 22
Contributed surplus (Note 12 (e)) 275 275
Deficit (106,550) (102,708)
Cumulative translation adjustment (Note 13) 1,219 (222)
- -----------------------------------------------------------------------------------------
62,920 57,482
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
$ 100,060 $ 68,393
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</Table>
CONTINUING OPERATIONS (Note 1) COMMITMENTS AND CONTINGENCIES (Notes 14 and 15)
ON BEHALF OF THE BOARD:
- ------------------------------- -------------------------------
Jan Vestrum, Director Cam Belsher, Director
See accompanying Notes to the Consolidated Financial Statements.
- --------------------------------------------------------------------------------
82
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
FOR THE YEARS ENDED JUNE 30,
(EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
2004 2003 2002
----------- ----------- ----------
MINERAL SALES $ - $ - $ 111,731
DIRECT COSTS OF MINERAL SALES - - (87,426)
AMORTIZATION - - (4,109)
- ---------------------------------------------------------------------------------------------------------------
- - 20,196
- ---------------------------------------------------------------------------------------------------------------
EXPENSES
Administration, office and general 6,622 5,268 14,041
Professional fees 949 1,723 1,857
- ---------------------------------------------------------------------------------------------------------------
7,571 6,991 15,898
- ---------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSES)
Equity earnings from investment in Barberton Mines Ltd. (Note 5) 2,779 91 -
Gain (loss) on investment in Metorex Limited (Note 6) 242 (5,449) (8,811)
Provision for impairment of Chibuluma South Mine (Note 6 (b)) - - (8,451)
Gain (loss) on geothermal asset (Note 8 (f)) 1,323 (2,897) (1,503)
Gain (loss) on investment in Asia Pacific Resources (Note 7) 808 (2,887) (19,593)
Costs related to Mindoro Nickel Project (Note 8 (e)) - - (1,573)
Provision for impairment of other mineral property interests - - (5,010)
Restructuring costs - (593) -
Interest and finance charges (2,380) (267) (1,531)
Stock option expense (Note 2 (m)) (414) - -
Foreign exchange gain (loss) 421 (120) 1,511
Interest and other income, net 853 35 2,157
- ---------------------------------------------------------------------------------------------------------------
3,632 (12,087) (42,804)
- ---------------------------------------------------------------------------------------------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES AND
NON-CONTROLLING INTEREST (3,939) (19,078) (38,506)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES (Note 11)
Current - - 4,875
Future - - (4,229)
- ---------------------------------------------------------------------------------------------------------------
- - 646
- ---------------------------------------------------------------------------------------------------------------
LOSS BEFORE NON-CONTROLLING INTEREST (3,939) (19,078) (39,152)
NON-CONTROLLING INTEREST 97 217 (1,599)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
NET LOSS (3,842) (18,861) (40,751)
DEFICIT, BEGINNING OF YEAR (102,708) (83,847) (42,697)
DIVIDEND (Note 8 (f)) - - (228)
NET LIABILITIES ACQUIRED ON REVERSE TAKEOVER
OF NORTH PACIFIC GEOPOWER (Note 8 (f)) - - (171)
- ---------------------------------------------------------------------------------------------------------------
DEFICIT, END OF YEAR $ (106,550) $ (102,708) $ (83,847)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
LOSS PER SHARE - BASIC AND DILUTED $ (0.03) $ (0.14) $ (0.31)
- ---------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 143,324,571 138,664,295 131,790,183
- ---------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to the Consolidated Financial Statements.
- --------------------------------------------------------------------------------
83
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30,
(EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
2004 2003 2002
--------- ---------- ----------
OPERATING ACTIVITIES
Net loss $ (3,842) $ (18,861) $ (40,751)
Add (deduct) items not affecting cash:
Amortization 90 - 4,109
Equity earnings from investment in Barberton Mines
Limited (Note 5) (2,779) (91) -
(Gain) loss on investment in Metorex Limited (Note 6) (246) 5,449 8,811
Provision for impairment of Chibuluma South Mine - - 8,451
(Gain) loss on sale of geothermal asset (Note 8 (f)) (1,323) 2,897 -
(Gain) loss on investment in Asia Pacific Resources (Note 7) (808) 2,887 19,593
Stock option expense 414 - -
Provision for impairment of other mineral property interests - - 5,010
Future income taxes - - (4,229)
Non-controlling interest (97) (217) 1,599
Other - 693 (841)
Change in non-cash operating working capital items (Note 16 (a)) 1,964 663 (8,801)
- --------------------------------------------------------------------------------------------------------------
(6,627) (6,580) (7,049)
- --------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net proceeds on convertible bonds 22,411 - -
Issuance of common shares for cash (Note 12 (d)) 2,830 - 3,364
Issuance of share purchase warrants (Note 12 (g)) 105 21 275
Repayments of amount due from Metorex Limited 102 1,555 798
Dividends received (paid) 54 858 (99)
Increase in long-term debt - - 5,012
Paid to non-controlling interest of subsidiaries - - (1,671)
- --------------------------------------------------------------------------------------------------------------
25,502 2,434 7,679
- --------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds on disposal of investment in Metorex Limited
(Note 6 (a) (i)) 1,785 21,333 2,969
Proceeds on disposal of investment in Asia Pacific Resources
Limited (Note 7) 2,483 303 -
Proceeds on disposal of geothermal asset (Note 8 (f)) 233 - -
Reduction of cash on de-consolidation of Metorex - - (8,071)
Investment in Barberton Mines Limited (Note 5) - (5,133) -
Expenditures on Nalunaq mineral property, plant and
equipment (Note 3) (26,766) (8,782) (8,466)
Security deposit for mine closure costs (Note 3) (594) (877) -
Expenditures on other mineral property interests (Note 8) (998) (491) (2,718)
Investment in Asia Pacific Resources - - (5,000)
Acquisition of property, plant and equipment - - (14,160)
Other 974 107 397
- --------------------------------------------------------------------------------------------------------------
(22,883) 6,460 (35,049)
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
NET CASH (OUTFLOW) INFLOW (4,008) 2,314 (34,419)
CASH POSITION, BEGINNING OF YEAR 6,690 4,376 38,795
- --------------------------------------------------------------------------------------------------------------
CASH POSITION, END OF YEAR $ 2,682 $ 6,690 $ 4,376
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES 16 (a), (b) AND (c) FOR NON-CASH INVESTING ACTIVITIES AND SUPPLEMENTAL
CASH FLOW INFORMATION.
See accompanying Notes to the Consolidated Financial Statements.
- --------------------------------------------------------------------------------
84
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
Crew Gold Corporation ("Crew" or the "Company") is an international
mining company focused on identifying, acquiring and developing resource
projects world-wide. At present, Crew operates a high-grade gold mining
operation in Greenland and controls development projects in 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.
These financial statements have been prepared on a going concern basis
which assumes that the Company will continue to realise its assets and
discharge its liabilities in the normal course of operations. During
2004 the Company recorded a net loss of $3,842,000 and at June 30, 2004
has net working capital of $1,262,000. Continuation of the Company as a
going concern is dependent on the Company achieving profitable
commercial operation on its Nalunaq mineral property and/or additional
debt or equity contributions from shareholders or third parties.
Subsequent to June 30, 2004 the Company shipped its first commercial
quantities of mined ore from Nalunaq. If the Company were unable to
continue as a going concern material adjustments would be required to
the carrying value of assets and liabilities and the balance sheet
classifications used.
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, 2004 are as follows:
Subsidiary % interest
---------- ----------
Nalunaq Gold Mine A/S (Greenland) ("Nalunaq") 82.5%
Crew Norway AS (formerly Crew Norway AS) 100%
Hwini-Butre Minerals Ltd. (Ghana) 100%
The Company's 20% interest in Barberton Mines Ltd ("Barberton")
is recorded using the equity method.
- --------------------------------------------------------------------------------
85
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
The Company's 72% 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 78%.
- --------------------------------------------------------------------------------
86
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(a) BASIS OF CONSOLIDATION (CONTINUED)
The Company's investment in Metorex Limited ("Metorex") was
recorded using the equity method in the period from July 1, 2002
to June 20, 2003. 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
6). As a result of further share sales during the year ended June
30, 2004 the Company's interest has dropped to 3.18%.
(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, title and risks of
ownership have passed, collection is reasonably assured and the
price is reasonably determinable.
Revenue from the sale of metals may be subject to adjustment upon
final settlement of estimated metal prices, weights and assays.
Adjustments to revenue for metal prices are recorded monthly and
other adjustments are recorded on final settlement.
(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
- --------------------------------------------------------------------------------
87
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
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 are 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 recorded at cost. All costs
related to the acquisition, exploration and development of
mineral properties are capitalised until either commercial
production is established, the property is determined to be
impaired or it is abandoned. Depletion is calculated on mineral
properties using the units-of-production method over the expected
life of the operation based on the proven and probable reserves.
Buildings, 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:
<Table>
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, - diminishing balance basis at annual rates of furniture and
fixtures between 20% and 30%
</Table>
- --------------------------------------------------------------------------------
88
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
(h) PROPERTY EVALUATIONS
The Company evaluates the carrying amounts of its mining
properties and related buildings, plant and equipment when events
or changes in circumstances indicate that the carrying amount may
not be recoverable. If the Company has reason to believe that an
impairment may exist, estimated future undiscounted cash flows
are prepared using estimated recoverable ounces of gold
(considering current proven and probable reserves and mineral
resources expected to be converted into mineral reserves) and
corresponding by-product credits along with estimated future
metals prices estimated operating and capital costs. The
inclusion of mineral resources is based on various circumstances,
including but not limited to the existence and nature of known
mineralization, location of the property, results of recent
drilling and analysis to demonstrate the ore is commercially
recoverable. The future cash flows cover the known ore reserve at
the time. If the future undiscounted cash flows are less than the
carrying value of the assets, the assets will be written down to
fair value and the write-off charged to earnings in the current
period.
The carrying value of exploration stage mineral property
interests represent costs incurred to date and do not reflect
present or future values. The Company is in the process of
exploring its 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) INVENTORIES
Metal Inventories are stated at the lower of cost (which includes
the applicable proportion of production overheads and depletion
and depreciation) and net realisable value. Materials and
consumable supplies are recorded at the lower of cost and
replacement cost.
(j) PROVISION FOR RECLAMATION AND CLOSURE
Effective July 1, 2003 the Company adopted the standard of the
CICA handbook, ASSET RETIREMENT OBLIGATIONS, which requires that
the fair value of liabilities for asset retirement obligations be
recognised in the period in which they are incurred. A
corresponding increase to the carrying amount of the related
assets is generally recorded and depreciated over the life of the
asset. The amount of the liability is subject to re-measurement
at each reporting period. This differs from the prior practice
that involved accruing for the estimated reclamation and closure
liability through charges to income on a unit-of-production basis
over the
- --------------------------------------------------------------------------------
89
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
estimated life of the mine. The effect of this charge was to
record a reclamation liability and related asset in the amount of
$485,000 at July 1, 2003. There was no material impact on the
Company's consolidated net loss or opening deficit.
(k) CONVERTIBLE BONDS
The convertible bonds issued during the period have been
segregated into their debt and equity components. The financial
liability component, representing the value allocated to the
liability at the time of inception, is recorded as a long-term
liability. The remaining component, representing the value
ascribed to the holders' option to convert the principal amount
into common shares, is classified in shareholders' equity as
"Equity component of convertible bonds". These components have
been measured at their respective fair values on the date the
bonds were issued. The finance costs associated with the issue of
the convertible bonds are held as deferred financing costs and
amortized over the period of the liability. Over the term of the
debt obligation, the equity component is accreted to the face
value of the instrument by recording an additional interest
expense.
(l) 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.
(m) STOCK OPTIONS
Effective July 1, 2003 the Company adopted the new
recommendations of the CICA Handbook Section 3870, STOCK-BASED
COMPENSATION AND OTHER STOCK-BASED PAYMENTS. Under the amended
standards of this Section, the fair value of all stock-based
awards granted are estimated using the Black-Scholes model and
are recorded in operations over their vesting periods. The
compensation cost related to stock options granted after July 1,
2003 is recorded in operations. Previously, the Company provided
note disclosure of pro forma net earnings and pro forma earnings
per share as if the fair value based method had been used to
account for share purchase options granted to employees,
directors and officers after July 1, 2003. The amended
recommendations have been applied prospectively from July 1, 2003
without restatement of prior periods.
- --------------------------------------------------------------------------------
90
<Page>
(m) STOCK OPTIONS (CONTINUED)
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
The total compensation expense recognised in the statement of
operations for share purchase options granted in year ended June
30, 2004 totalled $414,000. Had the same basis been applied to
2003 share purchase options granted, net earnings for the year
ended June 30, 2003 would have been as follows:
<Table>
Net loss for the year $ (18,861)
Fair value of share compensation to employees (475)
------------------------------------------------------------------------
Pro forma net loss for the year $ (19,336)
------------------------------------------------------------------------
------------------------------------------------------------------------
Pro forma net loss per share $ (0.14)
------------------------------------------------------------------------
------------------------------------------------------------------------
</Table>
Stock-based compensation expense is determined using an option
pricing model assuming no dividends are to be paid, a weighted
average volatility of the Company's share price of 67%
(2003-66%), an annual risk free interest rate of 3% (2003-3.9%)
and expected lives of three years (2003-one or five years).
(n) 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 or the conversion of
convertible bonds, and are excluded from the computation if their
effect is antidilutive.
- --------------------------------------------------------------------------------
91
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
3. NALUNAQ MINERAL PROPERTY INTEREST
At June 30, 2002 the Company had an 82% interest in the Nalunaq I/S
joint venture whose principal asset was a gold development project in
Greenland.
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.
Commercial operation of the Nalunaq mine commenced subsequent to June
30, 2004. Amounts recovered from sale of the ore stockpile accumulated
during the development stage, net of direct processing, shipping and
selling costs have been recorded as a reduction of mining development
costs.
The following table shows the continuity of the Nalunaq mineral property
interest during the two years ended June 30, 2004:
<Table>
<Caption>
2004 2003
-------- --------
Balance, beginning of year $ 45,135 $ 34,460
-------------------------------------------------------------------------------
Movements in the year
Acquisition of interest - 1,893
Expenditures incurred during the year 31,502 8,782
Amounts recovered from the stockpile (7,216) -
Costs of processing and shipping stockpile 2,490 -
-------------------------------------------------------------------------------
Net movement 26,776 10,675
-------------------------------------------------------------------------------
Balance, end of year $ 71,911 $ 45,135
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</Table>
The components of the Nalunaq mineral property, plant and equipment are
as follows:
<Table>
<Caption>
2004 2003
------------ ------------
COST AND NET Cost and Net
BOOK VALUE Book Value
Mine assets
Buildings, plant and equipment $ 18,579 $ 899
Mining property and development cost 53,332 44,236
-------------------------------------------------------------------------------
$ 71,911 $ 45,135
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
92
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
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 $877,000 Danish Kroner (DKK 4.2
million) to the government of Greenland to cover future estimated mine
closure costs and a three-year monitoring program. This security deposit
was increased to $1,471,000 (DKK 6.58 million) during the year ended
June 30, 2004. 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.
4. INVENTORIES
Inventories as at June 30, 2004 are as follows:
<Table>
<Caption>
2004 2003
------- ------
Stockpiled ore $ 3,745 $ -
Materials and consumable supplies 1,027 -
------------------------------------------------------------------------
$ 4,772 $ -
------------------------------------------------------------------------
------------------------------------------------------------------------
</Table>
5. INVESTMENT IN AND ADVANCES TO BARBERTON MINES LTD.
The following table shows the continuity of the investment in Barberton
for the two years ended June 30, 2004:
<Table>
Balance, June 30, 2002 $ -
Initial investment and advance 5,133
Equity and other earnings from investment in Barberton 125
-------------------------------------------------------------------------------
Balance, June 30, 2003 5,258
Equity and other earnings from investment in Barberton 2,779
Translation adjustment 1,574
-------------------------------------------------------------------------------
Balance, June 30, 2004 $ 9,611
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
93
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
5. INVESTMENT IN AND ADVANCES TO BARBERTON MINES LTD. (CONTINUED)
Effective June 15, 2003, the Company acquired a 20% interest in the ETC
Division of Avgold Limited (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 $5,133,000 (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 on June 15, 2003 were as follows
(expressed in actual dollar amounts):
<Table>
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
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</Table>
On October 29, 2003 it was agreed by Special Resolution to increase the
authorised share capital of Barberton Mines Limited from Rand 12,000,000
to Rand 12,016,000 by the creation of 16,000 cumulative variable rate
redeemable preference shares of Rand 1 each. These shares have no voting
rights. On December 23, 2003 the shareholder loans of Rand 150,000,000
were converted to 15,000 cumulative variable rate redeemable preference
shares of Rand 1. The issue price of each of these shares was Rand
10,000. Rand 9,999, being the surplus between issue price and par value,
was credited to share a premium account of Barberton.
- --------------------------------------------------------------------------------
94
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
In exchange for converting Rand 30,000,000 of shareholder loans, Crew
received 3,000 preference shares of par value Rand 1 each with a deemed
aggregate issue price of Rand 3,000,000 ($5,800,000). The exchange of
shareholder loans for preference shares was recorded at the book value
of the loans with no net increase in the carrying values of the
Company's investment in Barberton.
The following is a summary of the assets, liabilities and results of
operations of Barberton Mines Limited prepared after adjustments to
harmonize accounting policies with those of the Company and converted
from South African Rand ("Rand") to Canadian Dollars:
<Table>
<Caption>
2004 2003
--------- --------
Current assets $ 9,915 $ 3,571
Producing mining property, plant and equipment 70,993 57,540
Other assets 6,954 3,161
-------------------------------------------------------------------------------
ASSETS $ 87,862 $ 64,272
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Current liabilities 13,967 11,633
Long-term debt 5,309 14,886
Shareholder loans 1,047 26,783
Other liabilities 19,761 10,580
-------------------------------------------------------------------------------
LIABILITIES 40,084 63,882
-------------------------------------------------------------------------------
NET SHAREHOLDERS' EQUITY 47,778 390
-------------------------------------------------------------------------------
LIABILITIES AND EQUITY $ 87,862 $ 64,272
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
2004 2003
-------- -------
Mineral sales $ 63,671 $ 2,396
Mining expenditures 53,760 1,768
-------------------------------------------------------------------------------
9,911 628
Other income (expenses) 9,792 (71)
Provisions for income and deferred taxes (5,808) (167)
-------------------------------------------------------------------------------
Net earnings $ 13,895 $ 390
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
95
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
6. INVESTMENT IN METOREX LIMITED
The Company currently holds a 3.18% interest in Metorex Limited
("Metorex"), a South African company with gold, coal and base metal
interests. This investment has been carried at cost since June 15, 2003
when the Company reduced its ownership in Metorex from 21% to 5.34% and
is classified as a current asset as the Company intends to dispose of
this investment during the next year.
The Company held a 53% interest in Metorex on June 30, 2001 and
accounted for its investment using the consolidation method until it
reduced its interest to 41% on April 26, 2002. The interest in Metorex
was accounted for using the equity method from April 27, 2002 until June
15, 2003 when further disposals reduced the Company's interest to 5.34%.
<Table>
Balance, June 30, 2002 $ 28,810
Carrying value of interest in Metorex sold before exchange loss
realized on disposal (25,565)
Dividends (859)
Translation adjustment 1,331
-------------------------------------------------------------------------------
Balance, June 30, 2003 3,717
Carrying value of interest in metorex sold in 2004 (1,539)
-------------------------------------------------------------------------------
Balance, June 30, 2004 $ 2,178
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</Table>
(a) The loss on the Company's investment in Metorex during each of
the years ended June 30, 2004, 2003 and 2002 consists of the
following:
<Table>
<Caption>
2004 2003 2002
----- --------- ---------
Gains (losses) on disposals of interest (i) $ 246 $ (4,140) $ (1,071)
Dilution loss - - (1,134)
Dividend from Metorex 54 - -
Equity earnings from investment (ii) - 1,052 1,550
Provisions for impairment of investment (iii) - (1,144) (7,381)
--------------------------------------------------------------------------------------------
Loss on investment in Metorex before
exchange loss realized on disposals 300 (4,232) (8,036)
Foreign exchange loss realized on disposals (58) (1,217) (775)
--------------------------------------------------------------------------------------------
Gain (loss) on investment in Metorex $ 242 $ (5,449) $ (8,811)
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
96
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
6. INVESTMENT IN METOREX LIMITED (CONTINUED)
(a) (continued)
(i) In three separate transactions during the year ended June
30, 2004, the Company sold a total of 3,874,000 shares of
Metorex for cash proceeds of $1,785,000, resulting in
total profits on disposal of $246,000 and a reduction in
the Company's interest in Metorex to 3.1%. Subsequent to
June 30, 2004 a further 1.1million shares have been sold,
resulting in an additional gain on disposal of $72,000.
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 $21,333,000, resulting in
total losses on disposal of $4,140,000 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 $1,071,000.
(ii) 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' net earnings
from April 27, 2002 to June 30, 2002 at 41%.
(iii) As at June 30, 2004 and 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
$1,144,000 less than the carrying value, accordingly, the
Company 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. The market value of the
investment at June 30, 2004 was $2,505,000
(2003-$3,717,000).
(c) 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.
- --------------------------------------------------------------------------------
97
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
7. INVESTMENT IN ASIA PACIFIC RESOURCES
At June 30, 2004, the Company holds approximately 0.2% (2003 - 6.22%) of
Asia Pacific Resources Ltd. ("Asia Pacific") with a carrying value of
$56,000 (2003 - $1,731,000). At June 30, 2003, the market value of the
investment in Asia Pacific was $2,887,000 less than its carrying value
and accordingly, the Company recorded a provision for this decline in
value. During the year ended June 30, 2002, the Company determined that
its investment in Asia Pacific had become impaired due to the prolonged
period in which there had been a substantial decline in the value of
Asia Pacific shares and, as a result, recorded a provision for loss in
value of the investment of $19,593,000.
During the year ended June 30, 2004, the Company continued its strategy
of a managed exit from its investment in Asia Pacific and sold
27,918,000 shares for total proceeds of $2,483,000. This resulted in
gains on disposal of $808,000 (2003 - 4,154,000 shares for total
proceeds of $304,000, resulting in a loss on disposal of $28,000).
Subsequent to year end the Company completed its exit from the
investment in Asia Pacific and recorded a profit on disposal on
approximately $20,000 on the residual balance of shares held.
8. 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:
<Table>
<Caption>
2004 2003
------- -------
Other mineral property interests, beginning of year $ 3,453 $ 5,859
Expenditures incurred during the year 998 491
Provision for impairment of geothermal asset (f) - (2,897)
---------------------------------------------------------------------------------
Other mineral property interests, end of year $ 4,451 $ 3,453
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
98
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
8. OTHER MINERAL PROPERTY INTERESTS (CONTINUED)
Consisting of:
<Table>
<Caption>
2004 2003
------- -------
Hwini-Butre Gold Project (Ghana) (a) $ 3,215 $ 3,213
Sequinner Olivine (Greenland) (b) 222 84
Nanortalik IS (Greenland) (c) 1,002 144
Ringvassoy (Norway) (d) 12 12
Mindoro Nickel Project (Philippines) (e) - -
Geothermal Project (g) - -
----------------------------------------------------------------------------------
$ 4,451 $ 3,453
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
</Table>
(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 15).
(b) SEQUINNER OLIVINE
During the year ended June 30, 2003, the Company exercised an
option to acquire 100% of the mineral rights to the Sequinner
Olivine property in Southern Greenland.
During the year ended June 30, 2004, 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 was responsible for the
management of further drilling and for the preparation of the
BFS, whereas Minelco covered related costs. The BFS was completed
and approved by the Minelco Board during the period. The Company
is presently in negotiations to secure funding for the project.
(c) NANORTALIK IS
In connection with the ownership restructuring of the Nalunaq
assets and the formation of Nalunaq Gold Mine A/S (Note 3), 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 commenced as a joint venture between the
Company (67% interest) and NunaMinerals A/S (33% interest).
During the year ended June 30, 2003 the joint venture incurred
$232,000 in exploration costs. During the year ended June 30,
2004, the Company funded an additional $452,000. Nunaminerals was
unable to participate in this capital call
- --------------------------------------------------------------------------------
99
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
and as a consequence, suffered a dilution resulting in an
increase in the Company's interest from 67% to 72%. After the
year end the Company funded a further DKK 2.9 million ($630,000)
of development expenditure. This will increase the Company's
holding in the venture to 77.6%.
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.
<Table>
<Caption>
2004 2003
------- -------
Assets $ 418 $ 153
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Liabilities $ (603) $ (123)
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Expenses and net loss $ (332) $ (76)
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Cash flows from operating activities $ (332) $ 47
Cash flows from investing activities (461) (142)
Cash flows from financing activities 787 106
</Table>
(d) RINGVASSOY GOLD PROJECT
The Ringvassoy gold project is found in an Archean Greenstone
belt, in Northern Norway. The Company has secured claims, which
cover a number of gold mineralized areas, and is conducting a
grassroots exploration campaign. The results have been
sufficiently encouraging that the company will continue these
activities.
- --------------------------------------------------------------------------------
100
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
8. OTHER MINERAL PROPERTY INTERESTS (CONTINUED)
(e) MINDORO NICKEL PROJECT
In 1997, an Exploration Permit ("EP") for the Mindoro concession
was granted to Aglubang Mining Corp, a fully owned subsidiary of
Crew. In 2001 the key section of the concession was granted a
Mineral Production-Sharing Agreement ("MPSA"), which secured for
the group the exclusive right to develop the property into a mine
for a period of 25 years. According to this agreement the Group
was granted a five-year period to complete a Bankable Feasibility
Study ("BFS") and an Environmental Impact Assessment ("EIA"). The
MPSA covered the area where the Group had defined a measured and
indicated resource.
In July 2001 the MPSA was cancelled unexpectedly by the
Department of Environment and Natural Resources ("DNER") in the
Philippines. As a consequence of the cancellation the Company
recorded impairment provisions against the full carrying value of
its investment in the project totalling $34 million to June 30,
2001 and recognized additional costs of $1.6 million during the
year ended June 30, 2002. On March 24, 2004 the Company announced
that its Philippine subsidiary Aglubang Mining Corp had received
notification that the cancellation of its MPSA had been revoked
and set aside, which effectively reinstated fully the MPSA and
title to the property.
As at June 30, 2004 the carrying value of the project in the
financial statements was $Nil. No adjustments have been made in
the financial statements to re-instate the project at its
original carrying value. Management believes that the costs
incurred to date on the project are of significant worth to the
Company and will be of ongoing benefit as work recommences on the
project.
(f) 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
- --------------------------------------------------------------------------------
101
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
(f) GEOTHERMAL PROJECT (CONTINUED)
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.
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.
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 to $1, resulting in a
provision for impairment of $2,897,000 during the year ended June
30, 2003.
On September 26, 2003, pursuant to an agreement dated September
3, 2003 the Company sold its 86.1% shareholding in NPGP. In
consideration for the sale of this subsidiary, the Company
received cash consideration of $233,000 and forgave an
inter-company debt of $560,000, which was repayable by NPGP to
the Company.
- --------------------------------------------------------------------------------
102
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
8. OTHER MINERAL PROPERTY INTERESTS (CONTINUED)
(f) GEOTHERMAL PROJECT (CONTINUED)
At the time of closing, NPGP had external liabilities of $569,000
all of which were assumed by the purchaser of NPGP. The Company
also agreed to defer the repayment of an additional loan from
NPGP of $833,000 which will now be payable to the Company on
December 31, 2011. The Company has made full provision for this
amount and the gain on the sale of the shares has been reduced
accordingly.
The transaction resulted in a gain for the Company of $1,323,000
during the year ended June 30, 2004 as follows:
<Table>
Net deficit on investment in NPGP $ (2,483)
Proceeds of sale 233
---------------------------------------------------------------
Gain before the undernoted (2,716)
Loans forgiven by the Company 560
Provision against other loans 833
---------------------------------------------------------------
Gain on disposal $ (1,323)
---------------------------------------------------------------
---------------------------------------------------------------
</Table>
9. REHABILITATION COSTS
Depending upon local legislation, Group companies are generally required
to restore operating mines at the end of their producing life to a
condition acceptable to the local authorities. These costs are provided
in full based on the best estimate of the future costs to be incurred on
a discounted basis.
Movements in the provision for Rehabilitation Costs for the year are as
follows:
<Table>
Balance at July 1, 2003 $ 485
provided in year ended June 30, 2004 287
--------------------------------------------------------------
Balance at June 30, 2004 $ 772
--------------------------------------------------------------
--------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
103
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
10. CONVERTIBLE BONDS
On September 8, 2003, the Company issued through a private placement,
Norwegian Kroner (NOK)120 million ($22.1 million) three-year senior
convertible bonds with three major financial institutions based in
London. The bonds were issued in denominations of NOK10,000 and rank
pari passu among themselves. After deducting finance costs of
NOK8.5 million ($1.5 million) net proceeds were NOK111.5 million
($20.6 million).
INTEREST, CONVERSION AND PRINCIPAL REPAYMENT TERMS
The bonds bear a 9% coupon, payable semi-annually in arrears. The
principal portion of the bonds is convertible, at the option of the
holder and subject to request for conversion pursuant to the conditions
of the agreement, into common shares of the Company at a conversion
price of NOK3.60 ($0.67) per share. The maximum number of shares that
may be issued on conversion is 33.3 million. In the period from issue
till June 30, 2004, 5,742,221 shares were issued following conversion of
bonds.
If the bonds are not converted, the principal portion is fully repayable
on September 8, 2006. Interest expense on the convertible bond totalling
$1.5 million (2002 - $Nil) has been charged to profit and loss for the
year ended June 30, 2004. To date interest payments of $960,000 have
been made.
The finance costs associated with the issue of the convertible bonds are
held as deferred financing costs and being amortized over the period of
the liability.
The convertible bonds at June 30, 2004 have been segregated into their
debt and equity components as follows:
<Table>
<Caption>
JUNE 30, Date of
2004 Issue
-------- -------
Equity component $ 757 $ 914
Debt component (net of financing costs of $978,000
($1,500,000 on date of issue) 18,899 21,215
</Table>
Over the term of the debt obligation, the equity component is accreted
to the face value of the instrument by recording an additional interest
expense.
- --------------------------------------------------------------------------------
104
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
11. INCOME TAXES
Future income tax assets and liabilities arise at June 30 from the
following:
<Table>
<Caption>
2004 2003
--------- ---------
Future income tax assets
Investments $ 578 $ 1,074
Mineral property, plant and equipment - 3,947
Loss carry-forwards 17,172 14,558
Other 166 116
------------------------------------------------------------------------------------
17,916 19,695
Valuation allowance (15,359) (19,695)
------------------------------------------------------------------------------------
Future income tax assets 2,557 -
------------------------------------------------------------------------------------
Future income tax liabilities
Mineral property, plant and equipment (5,895) (3,338)
------------------------------------------------------------------------------------
Future income tax liabilities (5,895) (3,338)
------------------------------------------------------------------------------------
Future income tax liabilities, net $ (3,338) $ (3,338)
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</Table>
A reconciliation of the provision for (recovery of) income taxes is as
follows:
<Table>
<Caption>
2004 2003 2002
-------- -------- ---------
Recovery of income taxes based on
Canadian statutory tax rate of 33%
(2003 - 39%; 2002 - 42%) $ (1,272) $ (7,368) $ (16,219)
Add (deduct)
Lower foreign tax rates (85) 185 (384)
Tax effect of losses not recognized 2,127 7,056 19,429
Reassessment of Metorex's prior year
taxes - - (736)
Other - 127 (1,444)
----------------------------------------------------------------------------------------------
Provision for income taxes $ 770 $ - $ 646
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
105
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
11. INCOME TAXES (CONTINUED)
As at June 30, 2004, the Company and its subsidiaries have estimated
non-capital losses carried forward for Canadian income tax purposes of
approximately $19,900,000 (2003 - $19,700,000), which can be applied to
reduce future Canadian income taxes payable and will expire in 2005 to
2011. As at June 30, 2004 the Company's subsidiaries also have estimated
non-capital losses carried forward for Greenland, Norwegian and
Philippine income tax purposes of approximately $22.5 million, $8.6
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. T he 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.
12. SHARE CAPITAL
(a) The authorized share capital at June 30, 2004 is 250,000,000
common shares without par value (2003 - 250,000,000 common shares
without par value).
(b) Details of changes in the issued share capital since
June 30, 2001 are as follows:
<Table>
<Caption>
Number
of shares Amount
----------- -------------
Balance, June 30, 2001 128,506,194 $ 156,750,902
Issued for cash on private placement (h) 10,158,101 3,364,032
------------------------------------------------------------------------------------------
Balance, June 30, 2002 and 2003 138,664,295 160,114,934
Issued on conversion of convertible bonds (c) 5,472,221 3,733,516
Issued for cash on exercise of stock options
AND WARRANTS (D) 6,983,333 2,830,167
------------------------------------------------------------------------------------------
Balance, June 30, 2004 151,119,849 $ 166,678,617
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
106
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
12. SHARE CAPITAL (CONTINUED)
(c) As detailed in Note 11 to these financial statements, the Company
issued convertible bonds on September 8, 2003. The following
table summarises the share issues arising on conversion of bonds
between the date of issue and June 30, 2004. These bonds are
denominated in NOK and their issue price is calculated with
reference to the prevailing exchange rate on the date of
conversion.
<Table>
<Caption>
Number Issue
Date of Issue of Shares Price Amount
------------------ --------- ------ -----------
September 24, 2003 1,111,111 $ 0.69 $ 768,153
November 12, 2003 833,333 0.66 551,292
March 11, 2004 1,111,111 0.67 748,325
April 2, 2004 2,416,666 0.69 1,665,746
---------------------------------------------------------------------------
Total converted in year 5,472,221 $ 0.68 $ 3,733,516
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</Table>
(d) The following table summarises the share issues arising on
conversion of stock options and warrants during the year ended
June 30, 2004:
<Table>
<Caption>
Number Issue
Date of Issue of Shares Price Amount
------------------ --------- ------ -----------
STOCK OPTIONS
January 2, 2004 500,000 $ 0.33 $ 165,000
March 9, 2004 500,000 0.36 180,000
April 6, 2004 333,333 0.41 136,667
April 14, 2004 150,000 0.49 73,500
---------------------------------------------------------------------------
Total options converted in year 1,483,333 0.37 555,167
---------------------------------------------------------------------------
---------------------------------------------------------------------------
STOCK PURCHASE WARRANTS
November 12, 2003 2,000,000 0.42 840,000
March 11, 2004 1,750,000 0.42 735,000
June 18, 2004 1,750,000 0.40 700,000
---------------------------------------------------------------------------
Total converted in year 5,500,000 0.41 2,275,000
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Total converted in year 6,983,333 $ 0.41 $ 2,830,167
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
107
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
12. SHARE CAPITAL (CONTINUED)
(e) 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 $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 was classified
as a contributed surplus.
(f) 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.
(g) During the year ended June 30, 2004, the Company issued 1,500,000
warrants to purchase 1,500,000 shares of the Company at an
exercise price $0.90 per share. Of these warrants, 800,000 were
issued to the Chairman and 700,000 were issued to the President
and CEO of the Company in exchange for total cash consideration
of $105,000.
(h) 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.
(i) 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.
(j) 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, 2004, there were 2,733,500 options available
for grant.
- --------------------------------------------------------------------------------
108
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
12. SHARE CAPITAL (CONTINUED)
(j) (continued)
The following table summarizes share option activity since June
30, 2002:
<Table>
<Caption>
Options outstanding
----------------------------
Weighted
Number of average
shares exercise price
------------ --------------
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
Granted 3,725,000 0.84
Exercised (6,983,333) 0.41
Cancelled (1,206,667) 0.74
-------------------------------------------------------------------
Balance, June 30, 2004 6,905,000 $ 0.72
-------------------------------------------------------------------
-------------------------------------------------------------------
</Table>
The following table summarizes outstanding and exercisable share
options at June 30, 2004:
<Table>
<Caption>
Number of Weighted
Share Options Expiry Average
Outstanding Date Exercise Price
------------- ---------------- --------------
2,000,000 March 6, 2007 $ 0.40
1,500,000 October 24, 2004 0.90
500,000 November 2, 2004 0.33
680,000 June 26, 2005 1.33
500,000 July 22, 2008 0.42
200,000 August 12, 2008 0.55
500,000 September 2, 2008 0.84
525,000 October 23, 2008 0.84
500,000 March 10, 2009 1.20
-------------------------------------------------------------
6,905,000 $ 0.72
-------------------------------------------------------------
-------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
109
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
13. CUMULATIVE TRANSLATION ADJUSTMENT
The cumulative translation adjustment comprises:
<Table>
<Caption>
2004 2003
------- --------
Cumulative effect of unrealized losses on foreign
exchange translation in prior periods $ (222) $ (2,769)
Increase in unrealized gain on translation of net assets
in Barberton (Note 5) 1,383 -
Reduction for portion of translation adjustment related to
disposals and dilution of interest in Metorex (Note 6 (a)) 58 1,216
Decrease in unrealized loss on translation of net assets - 1,331
-----------------------------------------------------------------------------------------------
Cumulative unrealized losses on foreign exchange
Translation at end of year $ 1,219 $ (222)
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
</Table>
This balance represents the net unrealized foreign currency translation
gains and losses on the Company's net investments in Barberton and
Metorex.
14. COMMITMENTS
The Company is committed to minimum annual non-cancelable future
operating lease payments as follows:
<Table>
<Caption>
2004 2003
----- -----
Within one year $ 285 $ 543
Years two to five 112 278
-------------------------------------------
$ 397 $ 821
-------------------------------------------
-------------------------------------------
</Table>
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.
- --------------------------------------------------------------------------------
110
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
15. CONTINGENCIES
(i) 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.
(ii) The Hwini-Butre gold concession (the "HB Gold Concession") is a
gold exploration project in south-western Ghana. Hwini-Butre
Minerals Ltd. ("HBM"), a 100%-owned Ghanaian subsidiary of Crew
Development Corporation, 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.
During the year ended June 30, 2004, a judgement relating to a
legal dispute instituted by HBM to finalize certain title
disputes was unexpectedly issued against HBM. The judgement was
appealed immediately to the Court of Appeal.
Management believes the judgement to be in error and will pursue
vigourously an appeal. Management believes an appeal will be
successful and consequently no impairment provision has been made
against the carrying value of the Hwini-Butre gold concession. At
June 30, 2004 the carrying value of this investment was
$3,213,000.
- --------------------------------------------------------------------------------
111
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
16. CASH FLOW STATEMENT INFORMATION
(a) CHANGE IN NON-CASH OPERATING WORKING CAPITAL ITEMS
<Table>
<Caption>
2004 2003 2002
------- ------ --------
(Increase) decrease in
Accounts receivable $ 68 $(160) $ 1,419
Inventories (4,772) - (1,595)
Prepaid expenses (691) (94) (68)
Due from associated companies - - (1,722)
(Decrease) increase in
Accounts payable and accrued liabilities 7,103 210 (6,749)
Rehabilitation provision 772 - -
Accrued restructuring costs (137) 328 -
Promissory notes due to related parties (379) 379 -
Due to associated companies - - (86)
-------------------------------------------------------------------------------------
$ 1,964 $ 663 $ (8,801)
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</Table>
(b) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<Table>
<Caption>
2004 2003 2002
------ ------ -------
Cash payments for interest $ 952 $ 21 $ 1,531
Cash payments for income taxes - 54 4,620
</Table>
(c) NON-CASH INVESTING ACTIVITIES
During 2003, the Company recorded a non-cash addition in the
amount of $1,893,000 to the Nalunaq property interest as
described in Note 3.
17. RELATED PARTY TRANSACTIONS
Related party transactions, not disclosed elsewhere in these financial
statements, comprise:
The Company also paid management fees during the year ended June 30,
2004 of $480,000 (2003 - $502,000; 2002 - $253,000) and a bonus of $Nil
(2003 - $Nil; 2002 - $280,000) to a company controlled by the President
and CEO of the Company.
- --------------------------------------------------------------------------------
112
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
During the year ended June 30, 2004, law firms of which directors of the
Company were partners received total legal fees of $255,000 from the
Company (2003 - $470,000; 2002 - $462,000). During the year ended June
30, 2004, recruitment firms controlled by a Director of the Company
received total fees of $110,000 from the Company (2003 and 2002 - $Nil).
18. SEGMENTED INFORMATION
OPERATING SEGMENTS
The Company manages its commercial mining operations by the type of
commodity produced. Following the commencement of mining at Nalunaq in
May 2004, management considers the company operates in two particular
segments. These are Gold Mining and Exploration and development of gold
concessions and other mineral properties.
Segment information for the year ended June 30, 2004 and 2003 is as
follows:
(a) LOSS FOR THE YEAR BY ACTIVITY
<Table>
<Caption>
Year Ended June 30, 2004
-----------------------------------------------------
Exploration
Gold and Corporate
Mining Development Items Total
-------- ----------- --------- --------
Depreciation and depletion $ - $ (61) $ (29) $ (90)
Interest and finance charges (76) - (2,304) (2,380)
Other administration, office
and general expenses (426) (373) (5,733) (6,532)
Professional fees (105) (46) (798) (949)
Other corporate items - - 6,012 6,012
Non-controlling interest 97 - - 97
-------------------------------------------------------------------------------------------
(Loss) before tax $ (510) $ (480) $ (2,852) $ (3,842)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Additions to capital assets $ 26,776 $ 1,001 $ - $ 27,777
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
113
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
OPERATING SEGMENTS (CONTINUED)
(a) LOSS FOR THE YEAR BY ACTIVITY (CONTINUED)
<Table>
<Caption>
Year Ended June 30, 2003
-----------------------------------------------------
Exploration
Gold and Corporate
Mining Development Items Total
-------- ----------- --------- ----------
Depreciation and depletion $ - $ - $ - $ -
Interest and finance charges - - (266) (266)
Other administration, office
and general expenses - - (5,269) (5,269)
Professional fees - - (1,723) (1,723)
Other corporate items - - (11,820) (11,820)
Non-controlling interest - 217 - 217
--------------------------------------------------------------------------------------------
(Loss) before tax $ - $ 217 $(19,078) $ (18,861)
--------------------------------------------------------------------------------------------
Additions to capital assets $ - $ 10,883 $ - $ 10,883
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
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 $ 15,735 $ 18,340 $ 44,520 $ 17,125 $ - $ - $111,731
---------------------------------------------------------------------------------------------------------------------------
Interest income 39 - 185 424 197 187 832 1,864
Amortization of
capital assets (566) (1,016) (1,831) - (695) (156) (87) (4,351)
Provisions for asset
impairments - - - (8,451) - (24,603) - (33,054)
Loss on investment in
Metorex Limited - - - - - - (8,037) (8,037)
Loss on dilution of
interest in
geothermal asset - - - - - - (1,503) (1,503)
Costs related to
Mindoro Nickel
Project - - - - - (1,573) - (1,573)
Interest expense - (283) (51) (1,089) (108) - - (1,531)
Other income
(expenses) (14,832) (16,059) (15,069) (36,758) (10,320) (2,150) (6,864) (102,052)
Non-controlling interest - - - - (1,195) 84 (488) (1,599)
Income taxes 162 - (469) (1,180) (1,783) 1,110 1,514 (646)
--------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 814 $ (1,623) $ 1,105 (2,534) $ 3,221 $ (27,101) $ (14,633) $(40,751)
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Additions to capital
assets $ 133 $ 1,967 $ 215 $ 10,246 $ 1,598 $ 8,734 $ 404 $ 23,297
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
114
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
OPERATING SEGMENTS (CONTINUED)
(b) LOSS BY GEOGRAPHICAL SEGMENT
<Table>
<Caption>
2004 2003 2002
--------- ---------- ----------
Greenland $ (510) $ - $ (27,101)
Africa - - 983
Europe - - -
Philippines (480) - -
Canada (2,852) (18,861) (14,633)
-----------------------------------------------------------------
$ (3,842) $ (18,861) $ (40,751)
----------------------------------------------------------------
----------------------------------------------------------------
</Table>
(c) CAPITAL ASSETS BY ACTIVITY
Capital assets consists of property, plant and equipment and
mineral property interests allocated by activity as follows:
<Table>
<Caption>
2004 2003
--------- ----------
Gold mining $ 71,911 $ 45,135
Exploration and development 4,463 3,436
Corporate 75 190
-------------------------------------------------------
$ 76,449 $ 48,761
-------------------------------------------------------
-------------------------------------------------------
</Table>
(d) CAPITAL ASSETS BY GEOGRAPHICAL SEGMENT
Capital assets consist of property, plant and equipment and
mineral property interests in the following locations:
<Table>
<Caption>
2004 2003
--------- ----------
Greenland $ 73,135 $ 45,363
Africa 3,215 3,213
Europe 75 91
Philippines 24 89
Canada - 5
-------------------------------------------------------
$ 76,449 $ 48,761
-------------------------------------------------------
-------------------------------------------------------
</Table>
In addition, the Company had short-term investments in associated
companies in Africa with a carrying value of $9,611,000 at June 30, 2003
($3,716,000 at June 30, 2003). The principal activities of these
companies is gold mining.
- --------------------------------------------------------------------------------
115
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
19. 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.
20. OTHER ASSETS
Other assets consist of:
<Table>
<Caption>
2004 2003
------- -------
Security deposit (Note 3) $ 1,471 $ 877
Deferred financing costs (Note 10) 978 -
Other 87 190
----------------------------------------------------------------------
$ 2,536 $ 1,067
----------------------------------------------------------------------
----------------------------------------------------------------------
</Table>
21. SUBSEQUENT EVENTS
Subsequent to June 30, 2004, the Company arranged a senior unsecured
bond loan of NOK 100-150 million ($19.1-28.7 million) with a fixed
interest rate of 9.5%. Management anticipates that the loan will be
drawn down on October 27, 2004 and repaid on October 27, 2009. The
Company may redeem the loan in October 2007 at a price of 103.0% of the
face value and in October 2008 at 101.5% of the face value.
- --------------------------------------------------------------------------------
116
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
22. 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:
<Table>
<Caption>
CONSOLIDATED BALANCE SHEETS 2004 2003
--------- --------
Total assets under Canadian GAAP $ 100,060 $ 68,393
Decrease in Nalunaq mineral property interest due to expensing
of exploration costs (b) (23,800) (23,800)
Decrease in other mineral property interests due to expensing
of exploration costs (b) (1,270) (272)
Decrease in investment in Barberton Mines Ltd. due to expensing
of exploration costs (b) (93) -
Increase in carrying value of Asia Pacific Resources (e) 46 -
Increase in carrying value of Metorex Limited (c) 343 -
Effect of application of foreign exchange translation (d)
Increase (decrease) in carrying value of
Nalunaq mineral property interest 2,616 766
Other assets 33 (21)
Effect of unrealized gain on derivatives held by Barberton Mines Ltd. (f) 1,168 -
-----------------------------------------------------------------------------------------------------------------
Total assets under U.S. GAAP $ 79,103 $ 45,066
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Total liabilities under Canadian GAAP $ 37,140 $ 10,911
Reduction of future tax liability related to expensing of exploration costs (b) (3,156) (3,156)
Reduction of non-controlling interest due to expensing of exploration costs (b) (3,525) (3,525)
Increase in convertible bonds (i) 557 -
-----------------------------------------------------------------------------------------------------------------
Total liabilities under U.S. GAAP $ 31,016 $ 4,230
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Total shareholders' equity under Canadian GAAP $ 62,920 $ 57,482
Cumulative adjustment to mineral property interests and equity
investees, net of future income taxes and non-controlling
interest due to expensing exploration costs (b) (18,482) (17,390)
Effect of different treatment of the available-for-sale investments in
Metorex Limited and Asia Pacific Resources on: (c), (e)
Cumulative other comprehensive income 763 4,031
Deficit (374) (4,031)
Reduction due to convertible bonds (i)
Equity component of convertible bonds (757) -
Deficit 200 -
Effect of different treatment of the Metorex consolidation of interests on: (c)
Cumulative other comprehensive income (66) (161)
Deficit 66 161
Effect of application of foreign exchange translation on: (d)
Cumulative other comprehensive income 2,973 1,068
Deficit (324) (324)
Effect of unrealized gain on derivatives held by Barberton Mines Ltd. (f) 1,168 -
-----------------------------------------------------------------------------------------------------------------
Total shareholders' equity under U.S. GAAP $ 48,087 $ 40,836
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
117
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
22. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
CONSOLIDATED STATEMENTS OF LOSS
<Table>
<Caption>
2004 2003 2002
------------- ------------- -------------
Net loss under Canadian GAAP $ (3,842) $ (18,861) $ (40,751)
Write-off of additional US GAAP carrying value of
impaired assets due to different purchase price
allocation in prior year acquisitions (a) - - (3,312)
Effect of mining exploration expenditures expensed
in current period on: (b)
Equity earnings from Barberton Mines Ltd. (93) - -
Mineral exploration expense (998) 1,463 (10,134)
Effect of different treatment of the Metorex
consolidation of interests on: (c)
(Loss) gain on investment in Metorex Limited (66) (1,076) 2,883
Loss on investment in Metorex Limited (c) (473) 1,144 -
Provision for impairment of investment in Asia
Pacific Resources (e) (2,795) 2,887 14,272
Effect of application of foreign exchange
translation on other expenses (d) - - (178)
Stock compensation expense (g) 414 - -
Effect of unrealized gain on derivatives on: (f)
Equity earnings from Barberton Mines Ltd. 1,168 - -
Interest and other income - - (343)
Provision for future income taxes - - 103
Non-controlling interest - - 113
Accretion of convertible bonds (i) 200 - -
---------------------------------------------------------------------------------------------------------
Net loss under U.S. GAAP $ (6,485) $ (14,443) $ (37,347)
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Fair value of the re-priced warrants (h) $ - $ - $ (1,036)
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Net loss for the period attributable to common
shareholders under U.S. GAAP $ (6,485) $ (14,443) $ (38,383)
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Other comprehensive income
Effect of application of foreign exchange
translation $ 2,000 $ (3,908) $ 7,430
Adjustment of unrealized losses on
available-for-sale investments 3,269 (4,031) -
---------------------------------------------------------------------------------------------------------
5,269 (7,939) 7,430
---------------------------------------------------------------------------------------------------------
Comprehensive net loss under U.S. GAAP $ (1,216) $ (22,382) $ (30,953)
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Net loss per share under U.S. GAAP $ (0.05) $ (0.10) $ (0.29)
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Diluted net loss per share under U.S. GAAP $ (0.05) $ (0.10) $ (0.29)
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Comprehensive net loss per share under
U.S. GAAP $ (0.01) $ (0.16) $ (0.23)
---------------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding under U.S. GAAP 143,324,571 138,664,295 131,790,183
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
118
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
22. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
2004 2003 2002
---------- ---------- ----------
Cash flows from operating activities
under Canadian GAAP $ (6,627) $ (6,580) $ (7,049)
Reclassification of exploration
expenditures (b) (998) (902) (11,183)
-----------------------------------------------------------------------------------------
Cash flows from operating activities
under U.S. GAAP $ (7,625) $ (7,482) $ (18,232)
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Cash flows from financing activities
under Canadian GAAP $ 25,502 $ 2,434 $ 7,679
-----------------------------------------------------------------------------------------
Cash flows from financing activities
under U.S. GAAP $ 25,502 $ 2,434 $ 7,679
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Cash flows from investing activities
under Canadian GAAP $ (22,883) $ 6,460 $ (35,049)
Reclassification of exploration
expenditures (b) 998 902 11,183
-----------------------------------------------------------------------------------------
Cash flows from investing activities
under U.S. GAAP $ (21,885) $ 7,362 $ (23,866)
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
119
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
22. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
(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
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 Botswana Diamondfields Inc.
acquisition increased by $4,554,000 under U.S. GAAP at the date
of acquisition.
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.
(b) DEFERRED EXPLORATION COSTS
Under U.S. GAAP, exploration costs related to mineral properties
are expensed until there is substantial evidence that a
commercial body of ore has been located and can be exploited by
the Company.
In March 2000, the Accounting Standards Board of the Canadian
Institute of Chartered Accountants ("CICA") issued Accounting
Guideline No. 11 entitled ENTERPRISES IN THE DEVELOPMENT STAGE -
("AcG 11"). The guideline addresses three distinct issues
including (i) capitalization of costs/expenditures, (ii)
impairment and (iii) disclosure. Prior to its issuance,
development stage entities were exempt from certain aspects of
Canadian GAAP.
- --------------------------------------------------------------------------------
120
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
22. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
(b) DEFERRED EXPLORATION COSTS (CONTINUED)
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 under US GAAP as a
result of the completion of the bankable feasibility study. The
adjustment in 2004 relates to exploration expenditure on other
properties incurred in the year.
(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 ("Metorex") as
described in Note 6 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 and a higher
carrying value for the investment in Metorex.
In 2002 when the Company recorded a provision for impairment of
the investment in Metorex, the amount of the provision was lower
under U.S. GAAP than Canadian GAAP.
- --------------------------------------------------------------------------------
121
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
22. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
(c) CARRYING VALUE OF THE INVESTMENT IN METOREX LIMITED (CONTINUED)
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, 2004, $66,000 (2003 - $1,076,000) 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 $95,000 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 is
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, an amount of $473,000 is recognized on the income
statement under US GAAP, which represents the portion of the
prior unrealized losses now realized as a result of the sale of
Metorex shares. The $1,143,000 positive adjustment in 2003
represents the unrealized loss on Metorex recognized under
Canadian GAAP at June 30, 2003 which is properly recorded as a
component of comprehensive loss under US GAAP.
(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 foreign financial
statements which use the currency of measurement in the economic
environment in which they operate are translated into Canadian
dollars 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.
- --------------------------------------------------------------------------------
122
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
22. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
(e) INVESTMENT IN ASIA PACIFIC RESOURCES
Under U.S. GAAP, the Company is required to account for its
investment in Asia Pacific Resources in accordance with the
provisions of SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES. In accordance with this standard,
this investment is classified as available-for-sale and is
carried at its market value with the unrealized loss being
included as a separate component of shareholders' equity.
Under Canadian GAAP the Company accounts for the investment in
Asia Pacific as a short-term investment, which is carried at the
lower of cost or market value . Therefore, the unrealized loss on
this investment of $2,887,000 as at June 30, 2003 is recognized
on the income statement under Canadian GAAP, but is included in a
separate component of shareholders' equity under US GAAP.
During the year ended June 30, 2004, the Company sold 27,918,000
shares of Asia Pacific for total proceeds of $2,483,000. An
amount of $2,795,000 has been included in the US GAAP income
statement for 2004 reflecting the portion of the prior losses now
realized as a result of the sale of Asia Pacific shares.
(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 and which do not qualify for
the exemption for "normal purchase" or "normal sale"
transactions, 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 are held by Metorex
Limited and Barberton Mines Ltd., are designated as hedges of
future revenues, except for those derivatives which do not meet
the criteria for treatment as hedging instruments as outlined in
CICA Accounting Guideline 13, HEDGING TRANSACTIONS". Unrealized
gains or losses on the latter derivatives are credited or charged
to income each period. Gains and losses on derivative contracts
which do qualify as hedging instruments under Canadian GAAP are
recorded in the period the related hedged item is settled.
- --------------------------------------------------------------------------------
123
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
22. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
(g) 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.
As described in Note 2 (m), under Canadian GAAP, the Company
adopted the new recommendations of CICA Handbook Section 3870,
STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS, with
effect from July 1, 2003. Under the amended standards of this
Section, the fair value of all stock-based awards granted are
estimated using the Black-Scholes model and are recorded in the
statement of operations over their vesting periods.
The US GAAP difference in the statement of loss relates to the
effect of stock compensation expense in 2004 recorded under
Canadian GAAP.
The following pro forma financial information presents the net
loss and the loss per share had the Company adopted SFAS 123 for
US GAAP purposes for all stock options issued to directors,
officers and employees in the years ended June 30:
<Table>
<Caption>
2004 2003 2002
--------- ---------- ----------
Net loss for the year under
U.S. GAAP $ (6,485) $ (14,443) $ (38,383)
Additional stock based
compensation cost (533) (888) (678)
---------------------------------------------------------------------------------------
Pro forma net loss $ (7,018) $ (15,331) $ (39,061)
---------------------------------------------------------------------------------------
Pro forma basic and diluted
loss per share $ (0.05) $ (0.11) $ (0.30)
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
124
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
22. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
(g) STOCK-BASED COMPENSATION (CONTINUED)
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:
<Table>
<Caption>
2004 2003 2002
---- ---- ----
Expected life (years) 3.0 2.5 3.1
Expected volatility 67% 66% 63%
Risk-free interest rate 3.0% 3.9% 4.4%
</Table>
The US GAAP difference in the calculation of the 2004 and prior
pro forma additional stock compensation cost relates to the
impact of stock options issued in years prior to July 1, 2003
which are not recorded under Canadian GAAP but which vest in 2003
and 2004 and are therefore included in the pro forma calculation
for US GAAP purposes.
(h) WARRANTS
Under US GAAP, the re-pricing of share purchase warrants in the
year ended June 30, 2002, as described in Note 12 (i), 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.
(i) CONVERTIBLE BONDS
Under Canadian GAAP, convertible bonds have been segregated into
their liability and equity components measured at their
respective fair values at the date the convertible bonds were
issued. The liability component is being accreted to the face
value of the convertible bonds by the recording of additional
interest expense.
Under US GAAP, the convertible bonds issued during the year are
recorded entirely as debt with no portion segregated as an equity
component.
- --------------------------------------------------------------------------------
125
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
22. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
(j) 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.
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 adopted this standard on July 1, 2003.
Adoption of this standard did not have a material impact on the
Company's financial position or disclosure.
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 adopted the provisions of SFAS No.
150 on July 1, 2003. Adoption of this standard did not have a
material impact on the Company's results of operations and
financial position.
- --------------------------------------------------------------------------------
126
<Page>
CREW GOLD CORPORATION
(FORMERLY CREW DEVELOPMENT CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS; ALL TABULAR AMOUNTS EXPRESSED IN THOUSANDS)
- --------------------------------------------------------------------------------
(j) RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
In March 2004, the Emerging Issues Task Force issued EITF 04-2,
WHETHER MINERAL RIGHTS ARE TANGIBLE OR INTANGIBLE ASSETS ("EITF
04-2"). The Task Force reached a consensus that mineral rights
are tangible assets. In April 2004, the FASB issued proposed FASB
Staff Positions ("FSPs") FAS 141-1 and FAS 142-1, INTERACTION OF
FASB STATEMENTS NO. 141, BUSINESS COMBINATIONS ("SFAS 141"), AND
NO. 142, GOODWILL AND OTHER INTANGIBLE ASSETS ("SFAS 142"), AND
EITF ISSUE NO. 04-2, WHETHER MINERAL RIGHTS ARE TANGIBLE OR
INTANGIBLE ASSETS. The proposed FSPs amend SFAS 141 and 142 to
conform them to the Task Force consensus. The FSPs are effective
for the first reporting period beginning after April 29, 2004.
The Company does not anticipate that the adoption of EITF 04-2
and FSPs 141-1 and 142-1 will have a material impact on the
Company's results of operations, financial position or
disclosures.
In March 2004, the EITF issued EITF 04-3, MINING ASSETS:
IMPAIRMENT AND BUSINESS Combinations. EITF 04-3 requires mining
companies to consider cash flows related to the economic value of
mining assets (including mineral properties and rights) beyond
those assets' proven and probable reserves, as well as
anticipated market price fluctuations, when assigning value in a
business combination in accordance with SFAS 141 and when testing
the mining assets for impairment in accordance with SFAS 144. The
consensus is effective for fiscal periods beginning after March
31, 2004.
- --------------------------------------------------------------------------------
127