UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of April, 2008.
Commission File Number: 0-30390
ROCHESTER RESOURCES LTD
- --------------------------------------------------------------------------------
(Translation of registrant's name into English)
#1305 - 1090 West Georgia Street, Vancouver, British Columbia, V6E 3V7, Canada
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F: FORM 20-F [X] FORM 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): _______
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): _______
Indicate by check mark whether the registrant by furnishing the information
contained in this Form, is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
YES [ ] NO [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3- 2(b): 82-_____________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
ROCHESTER RESOURCES LTD
Date: April 30, 2008 /s/ Nick DeMare
----------------------------- -------------------------------------
Nick DeMare,
Chairman
ROCHESTER RESOURCES LTD.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
FEBRUARY 29, 2008
(Unaudited - Prepared by Management)
MANAGEMENT'S COMMENTS ON UNAUDITED
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements of
Rochester Resources Ltd. for the nine months ended February 29, 2008, have been
prepared by and are the responsibility of the Company's management. These
statements have not been reviewed by the Company's external auditors.
ROCHESTER RESOURCES LTD.
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited - Prepared by Management)
FEBRUARY 29, MAY 31,
2008 2007
$ $
ASSETS
CURRENT ASSETS
Cash 2,327,470 1,680,753
Amounts receivable (Note 3) 887,448 269,997
Prepaid expenses and deposits 13,558 52,580
Inventories (Note 4) 1,242,295 116,706
------------ ------------
4,470,771 2,120,036
IVA TAX RECEIVABLE 1,624,617 1,045,413
MINERAL PROPERTY INTERESTS (Note 5) 27,156,180 26,240,492
PROPERTY, PLANT AND EQUIPMENT (Note 6) 2,304,282 1,364,623
------------ ------------
35,555,850 30,770,564
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 1,471,470 388,386
Current portion of long-term debt (Note 7) 783,840 962,910
------------ ------------
2,255,310 1,351,296
LONG-TERM DEBT (Note 7) - 615,193
ASSET RETIREMENT OBLIGATION (Note 15) 627,387 590,894
FUTURE INCOME TAX LIABILITIES 4,300,000 4,300,000
------------ ------------
7,182,697 6,857,383
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 8) 30,094,986 96,437,468
CONTRIBUTED SURPLUS (Note 10) 4,194,412 2,891,157
DEFICIT (5,916,245) (75,415,444)
------------ ------------
28,373,153 23,913,181
------------ ------------
35,555,850 30,770,564
============ ============
NATURE OF OPERATIONS (Note 1)
APPROVED BY THE BOARD
/s/ ALFREDO PARRA , Director
- ------------------
/s/ NICK DEMARE , Director
- ------------------
The accompanying notes are an integral part of these interim
consolidated financial statements.
ROCHESTER RESOURCES LTD.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - Prepared by Management)
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2008 2007 2008 2007
$ $ $ $
REVENUE 2,507,487 - 7,262,014 -
COST OF OPERATIONS (2,084,709) - (5,321,282) -
DEPLETION AND AMORTIZATION (248,301) - (747,641) -
------------ ------------ ------------ ------------
OPERATING PROFIT 174,477 - 1,193,091 -
------------ ------------ ------------ ------------
EXPENSES
General and administration 470,811 210,218 1,298,664 513,666
Accretion of reclamation obligation 12,170 - 36,493 -
Interest expense on long-term debt 20,856 110,380 83,724 110,380
Stock-based compensation (Note 9) 29,542 1,829,000 1,391,952 2,288,000
------------ ------------ ------------ ------------
533,379 2,149,598 2,810,833 2,912,046
------------ ------------ ------------ ------------
LOSS BEFORE OTHER ITEMS (358,902) (2,149,598) (1,617,742) (2,912,046)
------------ ------------ ------------ ------------
OTHER ITEMS
Interest and other income 16,746 6,090 31,188 42,491
Foreign exchange gain (loss) 76,464 (159,432) 85,625 (213,936)
------------ ------------ ------------ ------------
93,210 (153,342) 116,813 (171,445)
------------ ------------ ------------ ------------
NET LOSS FOR THE PERIOD (265,692) (2,302,940) (1,500,929) (3,083,491)
============ ============ ============ ============
BASIC AND DILUTED LOSS PER SHARE $(0.01) $(0.09) $(0.05) $(0.18)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 32,519,735 25,900,663 31,055,333 17,122,463
============ ============ ============ ============
The accompanying notes are an integral part of these interim
consolidated financial statements.
ROCHESTER RESOURCES LTD.
INTERIM CONSOLIDATED STATEMENTS OF DEFICIT
(Unaudited - Prepared by Management)
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2008 2007 2008 2007
$ $ $ $
DEFICIT - BEGINNING OF PERIOD (5,650,553) (72,521,934) (75,415,444) (71,741,383)
ELIMINATION OF DEFICIT (Note 8(a)) - - 71,000,128 -
------------ ------------ ------------ ------------
(5,650,553) (72,521,934) (4,415,316) (71,741,383)
NET LOSS FOR THE PERIOD (265,692) (2,302,940) (1,500,929) (3,083,491)
------------ ------------ ------------ ------------
DEFICIT - END OF PERIOD (5,916,245) (74,824,874) (5,916,245) (74,824,874)
============ ============ ============ ============
The accompanying notes are an integral part of these interim
consolidated financial statements.
ROCHESTER RESOURCES LTD.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - Prepared by Management)
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2008 2007 2008 2007
$ $ $ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the period (265,692) (2,360,280) (1,500,929) (3,083,491)
Adjustment for items not involving cash
Depletion and amortization 248,301 3,608 747,641 15,129
Accretion of reclamation obligation 12,170 - 36,493 -
Stock-based compensation 29,542 1,829,000 1,391,952 2,288,000
Interest expense (2,722) - 5,778 -
Foreign exchange gain (15,990) - (107,653) -
------------ ------------ ------------ ------------
5,609 (527,672) 573,282 (780,362)
Decrease (increase) in amounts receivable 930,891 (256,088) (617,451) (750,876)
Decrease (increase) in prepaid expenses
and deposits 7,145 (12,766) 39,022 (24,918)
Increase in inventories (631,433) - (216,761) -
Increase in IVA tax receivable (266,735) - (579,204) -
Decrease in accounts payable
and accrued liabilities (194,144) (33,336) (146,430) (92,796)
------------ ------------ ------------ ------------
(148,667) (829,862) (947,542) (1,648,952)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Issuance of common shares 215,471 3,519,523 4,690,170 6,713,512
Share issue costs - (247,559) (121,221) (266,182)
Repayment of long-term debt (225,990) (241,000) (686,610) (241,000)
------------ ------------ ------------ ------------
(10,519) 3,030,964 3,882,339 6,206,330
------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Cash assumed on acquisition of ALB - 3,962 - 3,962
Additions to property, plant and equipment (549,466) - (720,589) -
Additions to mineral property interests (295,317) (2,125,856) (1,567,491) (6,686,832)
------------ ------------ ------------ ------------
(844,783) (2,121,894) (2,288,080) (6,681,870)
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH
FOR THE PERIOD (1,003,969) 79,208 646,717 (2,124,492)
CASH - BEGINNING OF PERIOD 3,331,439 1,453,976 1,680,753 3,657,676
------------ ------------ ------------ ------------
CASH - END OF PERIOD 2,327,470 1,533,184 2,327,470 1,533,184
============ ============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION (Note 14)
The accompanying notes are an integral part of these interim
consolidated financial statements.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2008
(Unaudited - Prepared by Management)
1. NATURE OF OPERATIONS
Rochester Resources Ltd. (the "Company") is engaged in gold and silver
mining and the exploration and development of its mineral property
interests in Mexico. Construction of the cyanidation processing plant
and related infrastructure at the Mina Real Property was completed at
the end of December 2006 and commissioning of the mill commenced in
January 2007. Effective June 1, 2007 the Mina Real Property was
determined by management to have achieved commercial production.
These interim consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles
("Canadian GAAP") applicable to a going concern which assumes that the
Company will realize its assets and discharge its liabilities in the
normal course of business. The Company's ability to continue as a going
concern is dependent on the Company's ability to raise equity or other
financing as required and ultimately achieve profitable operations.
These financial statements do not include any adjustments to the amount
and classification of recorded assets and liabilities that night be
necessary should the Company be unable to continue as a going concern.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of financial statements in conformity with Canadian
GAAP requires management to make estimates and assumptions that affect
the amounts reported in the interim consolidated financial statements
and accompanying notes. Actual results could differ from those
estimates. The interim consolidated financial statements have, in
management's opinion, been properly prepared using careful judgement
with reasonable limits of materiality. These interim consolidated
financial statements should be read in conjunction with the most recent
annual consolidated financial statements. The significant accounting
policies follow that of the most recently reported annual financial
statements.
ACCOUNTING POLICIES ADOPTED
Revenue Recognition
Revenue from the sale of metals is recognized, net of related royalties
and sales commissions, when: (i) persuasive evidence of an arrangement
exists; (ii) the risks and rewards of ownership pass to the purchaser
including delivery of the product; (iii) the selling price is fixed or
determinable; and (iv) collectibility is reasonably assured. Settlement
adjustments, if any, are reflected in revenue when the amounts are
known.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective June 1, 2007 the Company has adopted two new accounting
standards related to financial instruments that were issued by the
Canadian Institute of Chartered Accountants. These accounting policy
changes were adopted on a prospective basis with no restatement of
prior period financial statements. The new standards and accounting
policy changes are as follows:
Financial Instruments - Recognition and Measurement (Section 3855)
In accordance with this new standard, the Company now classifies all
financial instruments as either held-to-maturity, available-for-sale,
held-for-trading, loans and receivables, or other financial
liabilities. Financial assets held-to-maturity, loans and receivables
and financial liabilities other than those held-for-trading are
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2008
(Unaudited - Prepared by Management)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
measured at amortized cost. Available-for-sale instruments are measured
at fair value with unrealized gains and losses recognized in other
comprehensive income. Instruments classified as held-for-trading are
measured at fair value with unrealized gains and losses recognized on
the statement of loss.
Upon adoption of this new standard, the Company has designated its cash
and cash equivalents as held-for-trading, which are measured at fair
value. Exploration advances and other receivables are classified as
loans and receivables, which are measured at amortized cost. Accounts
payable and accrued liabilities are classified as other financial
liabilities, which are measured at amortized cost. As at February
29,2008 the Company did not have any financial assets classified as
available-for-sale and therefore the adoption of the standards noted
above had no effect on the presentation of the Company 's financial
statements.
Comprehensive Income (Section 1530)
Comprehensive income is the change in shareholders' equity during a
period from transactions and other events and circumstances from
non-owner sources. In accordance with this new standard, the Company
now reports a statement of comprehensive income and a new category,
accumulated other comprehensive income, in the shareholders' equity
section of the balance sheet. The components of this new category will
include unrealized gains and losses on financial assets classified as
available-for-sale.
COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform
with the presentation as at and for the nine month period ended
February 29, 2008.
3. AMOUNTS RECEIVABLE
FEBRUARY 29, MAY 31,
2008 2007
$ $
Production receivable 752,452 190,812
Other receivables 134,996 79,185
------------ ------------
887,448 269,997
============ ============
4. INVENTORIES
FEBRUARY 29, MAY 31,
2008 2007
$ $
Stock-piled ore 413,403 -
Mine stores, supplies and other 828,892 116,706
------------ ------------
1,242,295 116,706
============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2008
(Unaudited - Prepared by Management)
5. MINERAL PROPERTY INTERESTS
FEBRUARY 29, MAY 31,
2008 2007
$ $
Producing
Mina Real Property
Acquisition and other 18,458,507 18,458,507
Deferred exploration and development costs 9,262,618 7,948,907
Accumulated depletion (847,261) (201,108)
------------ ------------
26,873,864 26,206,306
------------ ------------
Non-Producing
Santa Fe Property
Acquisition and other 91,548 34,186
Deferred exploration 190,768 -
------------ ------------
282,316 34,186
------------ ------------
27,156,180 26,240,492
============ ============
(a) Mina Real Property
In January 2006 the Company entered into an option agreement
with ALB Holdings Ltd. ("ALB") to acquire up to a 51% interest
in the Mina Real Property located in Tepic, Mexico. The Mina
Real Property comprises of six concessions covering
approximately 7,358 hectares. Under the agreement the Company
made an option payment of US $110,000 and issued 250,000
common shares, at a fair value of $337,500. The Company could
then earn its interests, as follows:
(i) an initial 20% interest on funding the initial US
$750,000;
(ii) a further 20% interest on funding a further US
$750,000; and
(iii) a further 11% interest on payment of US $900,000, at
the minimum rate of US $75,000 per month, commencing
July 1, 2006, with each payment vesting at 0.9166%
interest.
On October 20, 2006 the Company and ALB completed negotiations
and ALB agreed to waive the requirement for any further
payments and the Company was deemed to have fully earned its
51% interest in the Mina Real Property. On December 1, 2006
the Company acquired the remaining 49% interest in the Mina
Real Property through the acquisition of ALB through the
issuance of 10,500,000 common shares of the Company.
(b) Santa Fe Property
On March 12, 2007 the Company entered into an option agreement
to acquire a 70% interest in the Santa Fe Property located in
Tepic, Mexico near the Mina Real Property. The agreement
comprises one concession covering approximately 3,823
hectares. Under the terms of the agreement, the Company has
agreed to implement a program of exploration to determine if
the Santa Fe Property can be economically exploited. In
addition, if the exploration work is successful, the Company
has agreed to provide the necessary capital to construct a
processing plant capable of processing a minimum of 200 tonnes
per day. The Company will pay a monthly fee of US $10,000
while it is conducting exploration and development on the
Santa Fe Property.
The Company has also staked an additional two concessions
covering approximately 13,164 hectares adjacent to the Santa
Fe Property.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2008
(Unaudited - Prepared by Management)
6. PROPERTY, PLANT AND EQUIPMENT
FEBRUARY 29, 2008
--------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
Motor vehicles 149,689 23,339 126,350
Office equipment 36,021 2,746 33,275
Mill and mine equipment 1,014,224 95,215 919,009
Buildings 201,585 12,559 189,026
Land 1,036,622 - 1,036,622
------------ ------------ ------------
2,438,141 133,859 2,304,282
============ ============ ============
MAY 31, 2007
--------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
Motor vehicles 69,907 6,928 62,979
Office equipment 16,060 402 15,658
Mill and mine equipment 883,184 22,079 861,105
Buildings 118,495 2,962 115,533
Land 309,348 - 309,348
------------ ------------ ------------
1,396,994 32,371 1,364,623
============ ============ ============
7. LONG-TERM DEBT
FEBRUARY 29, MAY 31,
2008 2007
$ $
Amount due to Huajicari - US $800,000
(May 31, 2007 - US $1,475,000) 783,840 1,578,103
Less: current portion - US $800,000 (783,840) (962,910)
------------ ------------
- 615,193
============ ============
The amount due to Compania Minera Huajicari ("Huajicari") is unsecured
and carries interest at a rate of 10% per annum, with repayment on a
monthly basis of US $75,000 plus accrued interest. As at February 29,
2008 accrued interest of $5,778 was recorded and has been included in
accounts payable and accrued liabilities.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2008
(Unaudited - Prepared by Management)
8. SHARE CAPITAL
Authorized: Unlimited common shares without par value
Issued: NINE MONTHS ENDED YEAR-ENDED
FEBRUARY 29, 2008 MAY 31,2007
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
$ $
Balance, beginning of period 29,665,438 96,437,468 11,237,735 75,890,208
Reduction of capital - (71,000,128) - -
------------ ------------ ------------ ------------
29,665,438 25,437,340 11,237,735 75,890,208
------------ ------------ ------------ ------------
Issued during the period
For cash
Private placements 2,000,000 4,000,000 4,600,456 6,575,524
Exercise of warrants 337,518 353,380 2,864,247 3,188,286
Exercise of options 378,000 336,790 463,000 302,360
For corporate finance fee 125,000 250,000 - -
For commission 126,113 252,226 - -
Reallocation from contributed surplus
relating to the exercise of options - 250,322 - 226,662
Reallocation from contributed surplus
relating to the exercise of agent's
option and warrants - 17,520 - 32,965
For acquisition of ALB - - 10,500,000 10,500,000
------------ ------------ ------------ ------------
2,966,631 5,460,238 18,427,703 20,825,797
Less: share issue costs - (802,592) - (278,537)
------------ ------------ ------------ ------------
2,966,631 4,657,646 18,427,703 20,547,260
------------ ------------ ------------ ------------
Balance, end of period 32,632,069 30,094,986 29,665,438 96,437,468
============ ============ ============ ============
(a) On November 20, 2007 the shareholders of the Company passed a
special resolution to reduce the Company's capital by
$71,000,128, being an amount equal to the deficit of the
Company at May 31, 2005. This deficit arose as a result of
prior unsuccessful business activities previously carried out
by the Company under the direction of its former management
and board. The reduction of capital resulted in a
corresponding elimination of $71,000,128 of the deficit.
(b) On October 25, 2007 the Company completed a private placement
of 2,000,000 units at $2.00 per unit for gross proceeds of
$4,000,000. Each unit comprises one common share and one-half
share purchase warrant. One full warrant entitles the holder
to purchase an additional common share at an exercise price of
$2.25 per share for a period of 18 months. The Company paid
Canaccord Capital Corp. (the "Agent") a cash commission of
$40,274 and issued 126,113 units (the "Agent's Units"), at a
fair value of $252,226. Each Agent's Unit comprises one common
share and one-half share purchase warrant, with the same
exercise terms as the purchase warrants. The Company also paid
Canaccord an administration fee of $15,000 and issued 125,000
common shares, for a $250,000 corporate finance fee, and
146,250 warrants (the "Agent's Warrants"). Each Agent's
Warrant is exercisable into a common share at an exercise
price of $2.00 per share for a period of 18 months.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2008
(Unaudited - Prepared by Management)
8. SHARE CAPITAL (continued)
The fair value of the Agent's Warrants have been estimated
using the Black-Scholes option pricing model. The assumptions
used were: dividend yield - 0%; expected volatility - 78%; a
risk-free interest rate of 4.08%; and an expected life of 18
months. The value assigned to the Agent's Warrants was
$179,145.
The Company also incurred additional share issue costs of
$65,947 on this private placement.
(c) A summary of the number of common shares reserved pursuant to
the Company's outstanding warrants at February 29, 2008 and
February 28, 2007 and the changes for the nine months ending
on those dates is as follows:
2008 2007
---------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE
$ $
Balance, beginning of period 2,363,458 1.90 1,282,000 0.97
Issued 1,209,306 2.00 3,300,455 1.50
Exercised (337,518) 1.05 (1,444,722) 1.12
Expired - - (54,750) 2.00
------------ ------------
Balance, end of period 3,235,246 2.11 3,082,983 1.45
============ ============
The following table summarizes information about the number of
common shares reserved pursuant to the Company's warrants
outstanding and exercisable at February 29, 2008:
EXERCISE
NUMBER PRICE EXPIRY DATE
$
230,992 0.80 May 3, 2008
700,000 2.75 November 17, 2008
499,949 1.40 December 11, 2008
74,999 2.25 February 2, 2009
520,000 2.25 February 12, 2009
1,063,056 2.25 April 25, 2009
146,250 2.00 April 25, 2009
------------
3,235,246
============
On February 1, 2008 the Company extended the expiring terms
for 74,999 warrants, originally due to expire on February 2,
2008, to a revised expiry date of February 2, 2009, and for
520,000 warrants, originally due to expire on February 12,
2008, to a revised expiry date of February 12, 2009.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2008
(Unaudited - Prepared by Management)
9. STOCK OPTIONS AND STOCK-BASED COMPENSATION
The Company has established a rolling stock option plan (the "Plan"),
in which the maximum number of common shares which can be reserved for
issuance under the Plan is 10% of the issued and outstanding shares of
the Company. The exercise price of the options is set at the Company's
closing share price on the day before the grant date, less allowable
discounts in accordance with the policies of the TSX Venture Exchange.
The options have a maximum term of five years.
During the nine months ended February 29, 2008 the Company granted
1,254,000 (2007 - 2,425,000) stock options to the Company's directors,
employees and consultants and recorded compensation expense of
$1,255,910 (2007 - $2,288,000) on these stock options and $136,042
(2007 - $9,000) on stock options which vested during the period.
The fair value of stock options granted to directors, employees and
consultants is estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions used for the grants
made during the nine months ended February 29, 2008 and February 28,
2007:
2008 2007
Risk-free interest rate 3.78% - 4.71% 3.92% - 3.96%
Estimated volatility 78% - 99% 93% - 103%
Expected life 2 years - 3 years 5 years
Expected dividend yield 0% 0%
The weighted average fair value of stock options granted during the
period to the Company's directors, employees and consultants was $1.00
(2007 - $0.90) per share.
Option-pricing models require the use of estimates and assumptions
including the expected volatility. Changes in the underlying
assumptions can materially affect the fair value estimates and,
therefore, existing models do not necessarily provide reliable measure
of the fair value of the Company's stock options.
A summary of the Company's outstanding stock options at February 29,
2008 and February 28, 2007 and the changes for the nine months ending
on those dates is as follows:
2008 2007
---------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE
OUTSTANDING PRICE OUTSTANDING PRICE
$ $
Balance, beginning of period 2,582,000 1.57 720,000 0.62
Granted 1,254,000 1.94 2,425,000 1.64
Exercised (378,000) 0.89 (415,500) 0.64
Cancelled (330,000) 1.77 (100,000) 0.80
------------ ------------
Balance, end of period 3,128,000 1.72 2,629,500 1.56
============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2008
(Unaudited - Prepared by Management)
9. STOCK OPTIONS AND STOCK-BASED COMPENSATION (continued)
The following table summarizes information about the stock options
outstanding and exercisable at February 29, 2008:
NUMBER NUMBER EXERCISE
OUTSTANDING EXERCISABLE PRICE EXPIRY DATE
$
22,500 22,500 0.62 January 17, 2009
150,000 150,000 1.40 November 24, 2009
1,504,000 1,504,000 1.85 January 8, 2010
50,000 16,667 2.15 February 14, 2010
100,000 - 1.65 June 8, 2010
274,000 274,000 1.65 June 12, 2010
650,000 423,750 2.12 October 26, 2010
80,000 80,000 2.30 November 16, 2010
297,500 297,500 0.90 September 5, 2011
------------ ------------
3,128,000 2,768,417
============ ============
10. CONTRIBUTED SURPLUS
The Company's contributed surplus as February 29, 2008 and February 28,
2007 and the changes for the nine months ending on those dates is
presented below:
2008 2007
$ $
Balance, beginning of period 2,891,157 608,284
Stock-based compensation on stock
options (Note 9) 1,391,952 2,288,000
Stock-based compensation on agent's
warrants 179,145 -
Stock options exercised (250,322) (198,412)
Agent's warrants exercised (17,520) -
------------ ------------
Balance, end of period 4,194,412 2,697,872
============ ============
11. RELATED PARTY TRANSACTIONS
During the nine months ended February 29, 2008 and February 28, 2007
the Company was charged for various services provided by companies
controlled by current and former directors and officers of the Company,
as follows:
2008 2007
$ $
Accounting and administration 51,150 -
Management fees 18,360 58,500
Professional fees 91,651 62,892
------------ ------------
161,161 121,392
============ ============
These fees have been either expensed to operations or capitalized to
mineral property interest based on the nature of the expenditures. As
at February 29, 2008, accounts payable and accrued liabilities include
$16,674 (2007 - $8,257) due to these related parties. These
transactions were measured at the exchanged amount which was the amount
of consideration established and agreed to by the related parties.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2008
(Unaudited - Prepared by Management)
12. SEGMENTED INFORMATION
The Company operates in one industry segment, the acquisition,
exploration and development of mineral interests. The Company's mineral
operations are located in Mexico and its corporate assets are located
in Canada.
FEBRUARY 29, 2008
--------------------------------------------
IDENTIFIABLE NET
ASSETS REVENUES INCOME (LOSS)
$ $ $
Mineral operations (Mexico) 33,223,703 7,262,014 560,697
Corporate (Canada) 2,332,147 31,188 (2,061,626)
------------ ------------ ------------
35,555,850 7,293,202 (1,500,929)
============ ============ ============
MAY 31, 2007
--------------------------------------------
IDENTIFIABLE
ASSETS REVENUES NET LOSS
$ $ $
Mineral operations (Mexico) 29,217,261 - (113,548)
Corporate (Canada) 1,553,303 46,622 (3,560,513)
------------ ------------ ------------
30,770,564 46,622 (3,674,061)
============ ============ ============
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of financial instruments at February 29, 2008 were
estimated based on relevant market information and the nature and terms
of financial instruments. Management is not aware of any factors which
would significantly affect the estimated fair market amounts, however,
such amounts have not been comprehensively revalued for purposes of
these financial statements. Disclosure subsequent to the balance sheet
dates and estimates of fair value at dates subsequent to February 29,
2008 may differ significantly from that presented.
Fair value approximates the amounts reflected in the financial
statements for cash, amounts receivable and accounts payable and
accrued liabilities due to their relative short periods to maturity. In
addition, the fair value of long-term debt is approximated by their
carrying amount as the debt bears a fair market rate of interest.
The Company may be subject to currency risk due to the fluctuations of
exchange rates between the Canadian dollar and other foreign
currencies. However, the Company is not subject to significant interest
and credit risks arising from these instruments.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2008
(Unaudited - Prepared by Management)
14. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash activities were conducted by the Company during the nine
months ended February 29, 2008 and February 28, 2007 as follows:
2008 2007
$ $
Financing activities
Long-term debt - 2,146,375
Share issue costs (681,371) -
Issuance of common shares for
acquisition of ALB - 10,500,000
Issuance of common shares for non-cash
consideration 770,068 198,412
Contributed surplus (88,697) (198,412)
------------ ------------
- 12,646,375
============ ============
Investing activities
Additions to property, plant and equipment (320,558) -
Additions to mineral property interests (1,104,857) (12,646,375)
------------ ------------
(1,425,415) (12,646,375)
============ ============
Operating activity
Increase in accounts payable and
accrued liabilities 1,425,415 -
============ ============
Other supplemental cash flow information:
2008 2007
$ $
Interest paid in cash 90,039 -
============ ============
Income taxes paid in cash - -
============ ============
15. ASSET RETIREMENT OBLIGATION
A summary of the Company's reclamation obligation on the Mina Real
Property at February 29, 2008 and February 28, 2007 and the changes for
the nine months ended on those dates is as follows:
2008 2007
$ $
Balance, beginning of period 590,894 -
Accretion 36,493 -
------------ ------------
Balance, end of period 627,387 -
============ ============
The total undiscounted amount of estimated cash flows required to
settle the Company's estimated obligation is $750,000 which has been
discounted using a credit adjusted risk free rate of 8.5% and inflation
rate of 4%. The present value of the reclamation liability may be
subject to change based on management's current estimates, changes in
remediation technology or changes to the applicable laws and
regulations. Such changes will be recorded in the accounts of the
Company as they occur.
ROCHESTER RESOURCES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE NINE MONTH PERIOD ENDED FEBRUARY 29, 2008
The following Management's Discussion and Analysis ("MD&A") of Rochester
Resources Ltd. ("Rochester" or the "Company") is prepared as at April 25, 2008
and should be read in conjunction with the Company's unaudited interim
consolidated financial statements and accompanying notes for the nine month
period ended February 29, 2008, which are available along with further
information on the Company including any news releases and historical reports
referred to in this MD&A on the SEDAR website at www.sedar.com. Those financial
statements have been prepared in accordance with Canadian generally accepted
accounting principles ("Canadian GAAP"). Except as otherwise disclosed, all
dollar figures included therein and in the following management discussion and
analysis ("MD&A") are quoted in Canadian dollars.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This MD&A contains certain forward looking statements that involve risks and
uncertainties such as statements of the Company's plans, objectives, strategies,
expectations, and intentions. The words "may", "would", "could", "will",
"intend", "plan", "believe", "estimate", "expect" and similar expressions, as
they relate to the Company, or its management, are intended to identify such
forward looking statements. Many factors could cause the Company's actual
results, performance or achievements to be materially different from any future
results, performance or achievements that may be expressed or implied by such
forward looking statements, including those factors discussed below and in
filings made with the Canadian securities regulatory authorities. Should one or
more of these risk factors or uncertainties materialize, or should assumptions
underlying the forward looking statements prove incorrect, actual results may
vary materially from those described herein as intended, planned, anticipated,
believed, estimated or expected. The Company does not intend, and does not
assume any obligation to update these forward looking statements.
COMPANY OVERVIEW
The Company is a junior gold/silver producer engaged in the production and the
continued exploration and development of its Mina Real and Santa Fe Properties
located in the State of Nayarit, Mexico. Nayarit is located in the Sierra Madre
Occidental range, the largest epithermal precious metal region in the world,
which hosts the majority of Mexico's gold and silver deposits. The Company
substantially completed the construction of a cyanidation processing plant at
the end of December 2006. Initial milling operations commenced in January 2007
with the commissioning process being completed by May 31, 2007. The Company has,
in a very compressed time frame, acquired, developed and brought into production
a gold property in Mexico. The Company now has an operating mill which is
generating cash flow from operations. The Company is also implementing an
exploration and development program utilizing funds raised in the capital
markets and cash flow from operations to define additional resources and
production capabilities.
The Company is a reporting issuer in British Columbia, Alberta and Saskatchewan.
The Company trades on the TSX Venture Exchange ("TSXV") under the symbol "RCT",
the Frankfurt Stock Exchange Open Market under the trading Symbol "R5I" and on
the Over the Counter Bulletin ("OTCBB") under the symbol "RCTFF". The Company is
also registered with the U.S. Securities and Exchange Commission ("SEC") as a
foreign private issuer under the Securities Act of 1934.
PROPERTY UPDATE
OVERVIEW
The Company holds a 100% interest in the Mina Real Property, a gold silver
property comprising 7,358 hectares located in the state of Nayarit, Mexico, east
of the capital city of Tepic. The Mina Real Property is held through the
Company's wholly-owned subsidiary, Mina Real Mexico SA de CV ("Mina Real
Mexico").
- 1 -
The Company also has an option agreement to acquire a 70% interest in the Santa
Fe gold/silver property located immediately east of the Mina Real Property. The
Santa Fe Property comprises one concession covering approximately 3,823
hectares. Compania Minera Santa Fe SA de CV was established to hold the Santa Fe
concession and the Company holds a 70% interest in this entity. In addition the
Company added to its land position by staking an additional 13,164 hectares
adjacent to the Santa Fe concession.
OPERATIONS SUMMARY
During the three month period ended February 29, 2008 the Company produced 3,302
ounces of gold equivalent. This production was 35% less than the planned
production of 5,100 ounces of gold equivalent. The failure to achieve planned
production was due, in part, to not recovering the free gold and silver in the
circuit and higher than expected dilution in the mine.
With respect to operating capabilities of the plant gold recoveries are within
budget parameters at +90% levels and approximately 50% for silver. In January
when working on alternatives for increasing silver recovery it was found that
the amount of free gold and silver in the circuit had increased and was not
being recovered. The efforts to increase silver recovery have focussed on the
installation of a Falcon Gravimetric concentrator. This centrifugal
concentration unit is anticipated to increase silver recovery significantly from
current levels and it will also improve gold recovery. The capital cost of this
unit is in the range of $100,000. The addition of the Falcon concentrator alone
is not expected to improve silver recovery to the 90% plus levels but it will
have a marked improvement on silver recovery and will more than pay for the
capital cost of installation in a very short period of time. Modifications to
the circuit will not be completed until quarter three, 2008.
Production from the mine has also been negatively impacted by the failure to
achieve targeted development of workings. Maintenance of mine equipment, the
availability of spare parts and qualified mechanics has contributed
significantly to this problem and has resulted in significant down time.
The immediate priority is to conduct sufficient development work to ensure that
the ore required to feed the mill at 300 tonnes per day is available with an
average head grade of 8.5 grams of gold and 150 grams of silver per tonne.
Florida NW, where exploration efforts have identified seven new veins, is
expected to be the focus of the development work over the coming months. Florida
NW is seen as an area which has the potential to hold significant tonnage with
good grade potential. Access into Florida NW was delayed while the Company
negotiated a surface rights agreement. The agreement was finalized in January
and work crews were immediately mobilized in late January.
While there have been challenges this quarter the Company's management and
operations team have worked diligently to address these issues and implement a
plan to address these problems. Looking forward we remain confident regarding
the prospects and potential of the Mina Real Mine. Ongoing work at Florida,
Florida NW, Tajos Cuates and Santa Fe show that, while we are experiencing
normal industry wide set-backs, we also have significant opportunity.
We are projecting that we will have completed construction and be operating at
300 tonnes per day by quarter three, 2008. Once this priority project is
completed we plan to resume the exploration and development programs at Tajos
Cuates and Santa Fe.
MINING OPERATIONS
December 2007
During the month 6,334 tonnes were transported to the mill, containing an
average grade of 7.89 g/t Au and 148 g/t Ag.
In December 2007, at Florida, a total of 288 metres of drifting were developed,
of which 33 metres were in ore, producing a total of 313 tonnes, with an average
grade of 4.3 g/t Au and 169.4 g/t Ag.
At Florida NW, in the 1320 level, a total of 16.5 metres of ramp were developed
to cut the veins that outcrop in this area.
- 2 -
In the Tajos Cuates area, in the 896 level, 61.5 metres were developed. In
addition, 57 metres were developed to cut the Tajos Cuates 1 vein on the Chalata
level.
During the month it became apparent that scoop tram maintenance and availability
was an issue. The Company has seven scoop trams but during the month only four
were operational and these only had 68.5% availability. Considering that there
are seven scoop trams in the fleet the overall availability was about 30%.
Maintenance of this equipment is an ongoing problem with long lead times for
spare parts required and a lack of qualified mechanics contributing to down
time. As a result of this problem, the decision was made to establish a workshop
in the city of Tepic, located just under two hours from the mine, in order to
facilitate repairs of mining equipment and reduce maintenance down time.
January 2008
In January 2008, at Florida, a total of 390.1 metres were developed of which
36.3 metres were in ore, producing a total of 325 tonnes with a grade of 8.2 g/t
Au and 176 g/t Ag. Actual development was 30% below plan.
During the month 6,453 tonnes were transported to the mill, containing an
average grade of 6.27g/t Au and 175.8 g/t Ag.
At Florida NW at the 1320 level 121.1 metres of ramp were developed to access
and intersect the veins that outcrop in this area, we have cut two veins. The
ramp will continue to access deeper levels for development and production
purposes.
In Tajos Cuates area, at the 896 level, 158 metres of drift development was
completed. Further drifting of 50 metres is required to reach beyond the area
containing old workings.
The availability factor of scoop trams increased by 10% in this month. During
the month of January the Company placed an order for two new scoop trams. The
units are manufactured in China, are favourably priced, with the necessary
specifications for use at Florida. The first unit is expected in March.
February 2008
In February 338.6 metres were developed of which 26.7 metres were in ore,
producing a total of 674 tonnes of ore from developments with a grade of 4.6 g/t
Au and 208 g/t Ag. Drifting for this period was 30% below plan.
The Company decided to temporarily suspend developments at Tajos Cuates and
devote all resources to developing Florida North. Results in the Florida North
area have been positive and the area can be accessed faster in order to provide
additional mill feed for the anticipated upgrade to 300 tonnes per day.
At Florida NW at the 1320 level an additional 87 metres of ramp were developed
in the month of February.
During the month 6,039 tonnes were transported to the mill, containing an
average grade of 6.76g/t Au and 147.53 g/t Ag.
March 2008
In March 2008, a total of 287 metres were developed of which 160.9 metres were
in ore, producing a total of 5,890 tonnes with a grade of 7.62 g/t Au and 149.4
g/t Ag. The drift development of 527 metres was below plan by 49%.
During the month 6,056 tonnes were transported to the mill, containing an
average grade of 6.7 g/t Au and 147.5 g/t Ag.
The original mine plan called for mine development to continue in conjunction
with production. In order to maintain throughput to the mill with grade control,
a minimum of 500 metres of drift development is required each month. If
development of 500 metres is not achieved the consequence is that there are
fewer workings from which to produce and as a consequence less flexibility to
maintain optimum grade.
In order to address this issue of mine production, management has taken the
following corrective actions:
- 3 -
(1) Identified and retained a qualified contractor so that there will be
three contractors on site - one for each area.
(2) Increased training and supervision of mine staff.
(3) Focused geology department on production rather than exploration.
During March one of the scoop trams arrived on site and was placed into
operation. The second is expected to arrive in early May.
MILL OPERATIONS
December 2007
The tonnes milled and processed were 5,530.5 tonnes with an average grade of
7.01 grams of gold and 132.6 grams of silver, 11% below plan. The recoveries
were 94% for gold and 54% for the silver.
The Company produced 12,292.76 ounces of silver and 1,048.16 ounces of gold, a
total of 1,264.03 ounces of gold equivalent.
The expansion to the existing tailings dam will allow for an additional service
life of between 8 - 10 months considering the increase in production from
quarter three, 2008 onwards.
Geological and topographic work required for the new tailings dam has been
concluded. A geotechnical study was commissioned as part of the permitting
process.
Topographic and geologic studies are finished for the site of the new tailings
dam and the report concludes a geotechnical study is required to determine the
viability of the site for the construction of the new tailings dam.
January 2008
The tonnes milled and processed were 4,820.6 tonnes with an average grade of
5.68 grams of gold and 167.8 grams of silver, 20% below plan. Recoveries were
93.05% for gold and 52.46% for silver. The Company produced 859.34 oz of gold
and 12,159.13 oz of silver, for a total of 1,059.9 oz of gold equivalent.
During January the expansion of the facilities area for workers and employees
was completed, adding 15 additional dormitories and a dining room area. These
new areas are located at the plant, which saves time and improves services to
workers and employees, avoiding transportation time to the town of Estanzuela
were the old facilities used to be.
The Company completed a final budget review for increasing the capacity of the
plant up to 300 tonnes per day. The total investment required is US $1,200,000.
This amount includes a provision for contingencies of 10%. The plant is
scheduled to be ready to increase production in quarter three, 2008.
The geotechnical study required for the new tailings dam was completed.
Unfortunately the land did not qualify due to high fractures. Based on these
results the Company developed a study to determine the viability of filtering
and hauling the tailings and using the same land to deposit a dry residual
material. This alternative has been accepted by SEMARNAT, Mexico's environmental
government agency. The equipment required for this has been ordered and
permitting is in process and time frame is within the planned time frame. The
investment cost will be increase by US $600,000 including the cost of the higher
power capacity required for this alternative. The capacity extension of the
current tailings dam was concluded, providing an additional 10 month capacity.
This time will be sufficient for the implementation of the dry material tailings
dam.
February 2008
The crushing section of the plant has been increasing its efficiency from 11
tonnes per hour in December up to 17 tonnes per hour in February.
The tonnes milled and processed were 5,665.4 tonnes with an average grade of
5.01 grams of gold and 140.2 grams of silver, 2% below plan. The grades for gold
- 4 -
and silver were 30% below plan. Recoveries were 89.72% for gold and 40.18% for
silver.
The Company produced 769.67 oz of gold and 10,313.72 oz of silver, a total of
979.46 ounces of gold equivalent.
In February work continued on the production expansion plan with 50% of the
required materials being ordered.
In order to find other alternatives to increase silver recovery, we conducted
tests to determine if Falcon Gravimetric concentrators would increase silver
recovery. Tests were made taking samples from the output of the mill and from
the ore coming out of the reactor. The results allow us to conclude that it may
be possible to increase recoveries for gold to between 97% - 98% and for silver
to between 75% - 82%. To confirm these results there will be continuous testing
to have enough information to determine the recovery for each element and the
size of the concentrator required.
The cyanide destruction plant continues producing excellent results, maintaining
cyanide values well below permitted levels.
Work continued on the dry tailings dam submissions which will be required to
obtain all necessary government approvals. A meeting with a representative of
SEMARNAT was held to review the process to date and review filings which remain
to be completed.
This month the program for the repair and maintenance of the dirt road from
Santa Maria del Oro to Estanzuela was completed. The municipality supported this
program by funding 60% of the total cost.
March 2008
The tonnes milled and processed were 5,590 tonnes with an average grade of 5.9
grams of gold and 123.8 grams of silver. Recoveries were 92.75% for gold and
39.80% for silver. The Company produced 748 oz of gold and 8,524. 75 oz of
silver, a total of 1,013.16 oz of gold equivalent
Work on the plant expansion continued with completion of the foundations for the
10x10 mill, secondary crusher, press filter and air compressors. In addition,
conveyor belts, ducts for the crushing and milling area are under construction.
To date, 75% of all equipment and materials have been ordered.
The 10x10 ball mill was moved to the site and mounted on its foundations. The
new liners for the ball mill were ordered and work is ongoing on the
installation process.
This month there was an inspection visit from the government agency that
regulates work environment, safety etc. and no significant issues arose from
this inspection.
GEOLOGY AND EXPLORATION
DECEMBER 2007
Direct Exploration
288 metres of drift development were completed at the Florida Mine. A total of
33 metres were developed within the vein and 255 metres in waste rock.
Developments in waste rock were drifts for access and ventilation of veins
already located.
In the Florida Mine, at level 1090, the average grade for 14.0 metres of
development was 6.2 g/t gold and 87 g/t silver. In the Tajos Cuates Mine, for
the 14 metres development completed, we had an average width of 1.69 metres with
3.18 g/t gold and 677 g/t silver. The Tajos Cuates Mine will be a future source
of mill feed.
During the month a total of 1,309 samples were taken and assayed at the mine lab
and 46 samples were sent to SGS, an outside independent laboratory.
- 5 -
Diamond Drill at Santa Fe Project
Diamond Drill Hole CLV-01-07, targeted on the Clavellinos vein system, was
completed at 78.85 metres depth. The hole cut the target structure to the 33.20
m. and continued to intersect small veins until 78.85 m. Assay results defined a
zone of 11.2 m with an average grade of 0.81 g/t Au and 239 g/t Ag, including a
sample of 1.97 m grading of 1.29 g/t Au and 736 g/t Ag.
Diamond Drill Hole CLV-O2-08, located to test deeper on the same section line as
hole CLV-02-08 commenced late in the month.
Regional Exploration
During the month the main development was the recognition of new structures in
the West area and the Tajos Cuates NW area; we have located seven new structures
in these areas, in some of them we have found old workings. The located veins
are: La Perdida, the Turkish, Finca I and Finca II, Camichina, Pitaya
andSapphire.
159 samples from trenches, channel samples and outcrops were taken during the
month. Some highlights are listed below:
21992 sample from La Finca Vein: 4.7 g/t Au and 245 g/t Ag with a 0.6 m width
21973 sample from La Finca II: 3.0 g/t Au and 390 g/t Ag, with a 0.4 m width
24044 sample from Camichina: 4.5 g/t Au and 1,108 g/t Ag with a 0.6 m width
24063 sample from Sapphire: 6.0 g/t Au and 173 g/t Ag with a 0.6 m width
JANUARY 2008
Santa Fe Project
Hole CLV-02-08 continued. Drilling was very slow due to difficult ground
conditions and mechanical problems.
Florida NW
1320 level incline continues with a total development of 190 metres, this
inclines has the objective of access to deeper levels for exploration.
1385 North incline: Advance 15.0 metres within the vein, the grade of this drift
is 7.5 g/t gold and 171 g/t of silver over a width of 1.42 metres.
1385 South incline develops 17 metres within the vein, samples indicates grades
of 14 g/t gold and 213 g/t silver. over a width between 0.4 and 1.5 metres.
Tajos Cuates Mine
Drifting continued on the Chalata level.
FEBRUARY 2008
Santa Fe Project
Diamond drillhole CLV-02-08 was completed at 223.7 m total depth. It intersected
a number of zones of faulting and associated silicification. Assay results are
pending.
Florida NW
Diamond drilling with two drill rigs continued during the month.
1385 N Incline: 37.5 metres of drifts within the vein were developed with an
average of 1.1 metres width and a grade of 4.5 g/t gold and 150 g/t silver.
- 6 -
1385S Incline: 45. 0 metres were developed within the vein that has a 1.13 metre
width an average grade of 3.0 g/t gold and 234 g/t silver.
Incline 1320: total length of this incline is 220 metres. It cuts a series of
fault zones and a structure with veinlets and alteration with grades of 1.6 g/t
gold and 72 g/t silver and an average width of 1.5 metres. This incline is being
developed out of the vein and it cuts ore as it goes to deeper levels.
To the date the exploration at Florida NW area has shown positive results.
Trenches, channel samples, drifting confirms the existence of seven veins,
additional development is ongoing.
Tajos Cuates
The Chalata drift continues to the north 67 metres were developed during the
month.
SELECTED FINANCIAL DATA
The following selected financial information is derived from the unaudited
interim consolidated financial statements of the Company prepared in accordance
with Canadian GAAP.
------------------------------------ ------------------------------------------------- ----------
FISCAL 2008 FISCAL 2007 FISCAL 2006
------------------------------------ ------------------------------------------------- ----------
THREE MONTH PERIODS ENDING FEB 29/08 NOV 30/08 AUG 31/07 MAY 31/07 FEB 28/07 NOV 30/06 AUG 31/06 MAY 31/06
$ $ $ $ $ $ $ $
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
OPERATIONS:
Revenues 2,507,487 2,987,744 1,766,783 Nil Nil Nil Nil Nil
Cost of operations (2,084,709) (1,920,735) (1,315,838) Nil Nil Nil Nil Nil
Depletion and amortization (248,301) (261,933) (237,407) Nil Nil Nil Nil Nil
Expenses (533,379) (1,329,371) (948,083) (545,036) (2,039,218) (640,911) (121,537) (237,338)
Other items 93,210 50,585 (26,982) (45,534) (263,722) (3,134) (14,969) (22,415)
Net loss (265,692) (473,710) (761,527) (590,570) (2,302,940) (644,045) (136,506) (259,753)
Basic and diluted loss per
share (0.01) (0.02) (0.03) (0.04) (0.09) (0.05) (0.01) (0.06)
Dividends per share Nil Nil Nil Nil Nil Nil Nil Nil
BALANCE SHEET:
Working capital 2,215,461 4,558,148 684,866 768,740 1,227,597 1,898,776 3,595,277 3,536,076
Total assets 35,555,850 34,657,344 30,539,200 30,770,564 23,019,599 7,765,911 6,531,028 4,971,556
Total long-term liabilities Nil 125,100 368,740 615,193 936,000 Nil Nil Nil
Asset retirement 627,387 615,217 603,447 590,894 Nil Nil Nil Nil
Future income tax liability 4,300,000 4,300,000 4,300,000 4,300,000 Nil Nil Nil Nil
------------------------------------ ------------------------------------------------- ----------
RESULTS OF OPERATIONS
During the nine months ended February 29, 2008 (the "2008 period") the Company
reported a net loss of $1,500,929 compared to a net loss of $3,083,491 for the
nine months ended February 28, 2007 (the "2007 period"), a decrease in loss of
$1,582,562. The periods are not comparable as the Company was not in commercial
production prior to June 1, 2007 and had no production in the corresponding 2007
period. As a result, no depletion on mineral property interests or amortization
on property, plant and equipment was taken until the 2008 period.
The Company recognized net revenue during the 2008 period of $7,262,014
generated on the sale of 9,693 ounces of gold equivalent, for an average of $749
net revenue per ounce (net of royalty and treatment charges).
----------------------- ----------------------- -----------------------
THREE MONTH PERIOD ENDING: FEBRUARY 29, 2008 NOVEMBER 30, 2007 AUGUST 31, 2007
----------------------- ----------------------- -----------------------
Ounces of gold equivalent 3,293 oz 3,744 oz 2,656 oz
----------------------- ----------------------- -----------------------
TOTAL PER OUNCE TOTAL PER OUNCE TOTAL PER OUNCE
$ $ $ $ $ $
---------- ---------- ---------- ---------- ---------- ----------
Net revenue 2,507,487 761.46 2,987,744 798.01 1,766,783 665.20
Cost of operations 2,084,709 633.07 1,920,735 513.02 1,315,838 495.42
Depletion and amortization 248,301 75.40 261,933 69.96 237,407 89.39
Operating profit 174,477 52.99 805,076 215.03 213,538 80.39
----------------------- ----------------------- -----------------------
- 7 -
All production from the mill is shipped and sold to MetMex Penoles SA de CV
("Penoles"), a major Mexican mining and processing company, at their smelter in
Torreon, located approximately 1,000 kilometres from the mill. Pursuant to the
Company's sales contract with Penoles, the Company is paid for 98.5% of the gold
shipped and 97% of the silver shipped. The price paid by Penoles is based on the
average of the closing London final for the month production is shipped. The
Company initiated negotiations with an alternate buyer in order to obtain more
favourable terms. An alternate buyer has been identified and terms have been
settled but in order to implement the Company must finalize a transition
arrangement with Penoles.
The cost of operations for the nine months ended February 29, 2008 comprise the
following:
$
Mine costs 2,351,397
Mill costs 2,438,921
Service department costs 530,964
----------
5,321,282
==========
The service department costs include activities which provide services to both
mine and mill departments.
General and administrative expenses for the nine months ended February 29, 2008
and February 28, 2007 are as follows:
2008 2007
$ $
Accounting and administrative 69,510 59,485
Audit 59,885 12,540
Consulting 137,415 60,052
Corporate development 133,610 67,420
Insurance 23,080 -
Investor relations 70,000 51,508
Legal 20,200 13,445
Management fees - 58,500
Office 211,171 50,423
Regulatory fees 14,057 13,609
Rent 14,133 7,800
Salaries and benefits 404,526 57,295
Shareholder costs 19,979 10,653
Transfer agent fees 13,908 14,188
Travel 107,190 36,748
---------- ----------
1,298,664 513,666
========== ==========
General and administrative expenses of $1,298,664 were reported in the 2008
period, an increase of $784,998, from $513,666 in the 2007 period. Specific
expenses of note during the 2008 period as compared to the 2007 period are as
follows:
- accounting, management and administrative fees of $69,510 (2007 -
$62,325) charged by Chase Management Ltd. ("Chase") a private
corporation owned by Mr. Nick DeMare, a director of the Company;
- consulting fees totalling $137,413 (2007 - $60,052) were paid, of which
$91,651 (2007 - $60,052) were paid mainly to current and former
directors and officers;
- corporate development expenses of $133,610 (2007 - $67,420) for ongoing
market awareness and promotional campaign and participation in several
international investment conferences;
- $70,000 (2007 - $18,000) was paid to Empire Communications inc.
("Empire") to provide investor relations services. During the 2007
period, $33,508 was paid to Accent Marketing Limited ("Accent") to
provide a market awareness campaign and investor relation activities in
Europe. The agreement was terminated on November 23, 2007;
- 8 -
- travel expenses of $107,910 (2007 - $36,748) for ongoing mine site
visits to Mexico and participation in several international investment
conferences;
- incurred $23,080 for director and officers' insurance for the 2008
period;
- audit fees of $59,885 (2007 - $12,540) were recorded. The increase is
attributed to the timing and recording of audit fees for fiscal 2007;
- during the 2007 period management fees of $58,500 were paid to the
former President of the Company; ? office expenses of $211,171 (2007 -
- 50,423) were incurred, of which $190,752 was for costs associated with
the mining office in Mexico; and
- during the 2008 period salaries and benefits expense of $404,326 (2007
- $57,295) was paid, of which $355,924 was mainly for the
administrative staff in Mexico.
Interest income is generated from cash held with the Company's financial
institution. During the 2008 period, the Company reported interest and other
income of $31,188 as compared to $42,491 during the 2007 period. The decrease is
attributed to higher levels of cash held during the 2007 period.
During the 2008 period the Company recorded a total of $1,561,841 for additions
to mineral property interests, of which $248,130 was attributed to exploration
activities on the Santa Fe Property and $1,313,711 for exploration activities on
the Mina Real Project. Exploration, development and pre-production activities
conducted in the 2008 period are described in "Exploration Projects" in this
MD&A.
FINANCIAL CONDITION / CAPITAL RESOURCES
During the 2008 period the Company completed a 2,000,000 unit brokered private
placement for gross proceeds of $4,000,000. In addition the company issued
715,518 common shares on the exercise of stock options and warrants for gross
proceeds of $690,170. As at February 29, 2008, the Company had working capital
of $2,215,461 compared to $768,740 as of May 31, 2007. The Company believes that
it currently has sufficient financial resources to conduct anticipated
exploration programs, make capacity and recovery improvements to the mill and
related infrastructure and provide adequate working capital for the upcoming
year. However, exploration activities may change due to ongoing results and
recommendations, or the Company may acquire additional properties, which may
entail significant funding or exploration commitments. In the event that the
occasion arises, the Company may be required to obtain additional financing. The
Company has relied solely on equity financing to raise the requisite financial
resources. While it has been successful in the past, there can be no assurance
that the Company will be successful in raising future financing should the need
arise.
CONTRACTUAL OBLIGATIONS
The following table summarizes the Company's contractual obligations as of
February 29, 2008
PAYMENTS DUE BY PERIOD
-------------------------------------------------
LESS THAN 1 TO GREATER THAN
1 YEAR 2 YEARS 2 YEARS TOTAL
$ $ $ $
---------- ---------- ---------- ----------
Contractual Obligations
Long-term debt 783,840 - - 783,840
========== ========== ========== ==========
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
PROPOSED TRANSACTIONS
The Company has no proposed transactions.
CRITICAL ACCOUNTING ESTIMATES
A detailed summary of all the Company's significant accounting policies is
included in Note 2 to the May 31, 2007 audited consolidated financial
statements.
- 9 -
CHANGES IN ACCOUNTING POLICIES
Revenue Recognition
Revenue from the sale of metals is recognized, net of related royalties and
sales commissions, when: (i) persuasive evidence of an arrangement exists; (ii)
the risks and rewards of ownership pass to the purchaser including delivery of
the product; (iii) the selling price is fixed or determinable; and (iv)
collectibility is reasonably assured. Settlement adjustments, if any, are
reflected in revenue when the amounts are known.
Recent Accounting Pronouncements
Effective June 1, 2007 the Company has adopted two new accounting standards
related to financial instruments that were issued by the Canadian Institute of
Chartered Accountants. These accounting policy changes were adopted on a
prospective basis with no restatement of prior period financial statements. The
new standards and accounting policy changes are as follows:
Financial Instruments - Recognition and Measurement (Section 3855)
In accordance with this new standard, the Company now classifies all financial
instruments as either held-to-maturity, available-for-sale, held-for-trading,
loans and receivables, or other financial liabilities. Financial assets
held-to-maturity, loans and receivables and financial liabilities other than
those held-for-trading are measured at amortized cost. Available-for-sale
instruments are measured at fair value with unrealized gains and losses
recognized in other comprehensive income. Instruments classified as
held-for-trading are measured at fair value with unrealized gains and losses
recognized on the statement of loss.
Upon adoption of this new standard, the Company has designated its cash and cash
equivalents as held-for-trading, which are measured at fair value. Exploration
advances and other receivables are classified as loans and receivables, which
are measured at amortized cost. Accounts payable and accrued liabilities are
classified as other financial liabilities, which are measured at amortized cost.
As at February 29,2008 the Company did not have any financial assets classified
as available-for-sale and therefore the adoption of the standards noted above
had no effect on the presentation of the Company 's financial statements.
Comprehensive Income (Section 1530)
Comprehensive income is the change in shareholders' equity during a period from
transactions and other events and circumstances from non-owner sources. In
accordance with this new standard, the Company now reports a statement of
comprehensive income and a new category, accumulated other comprehensive income,
in the shareholders' equity section of the balance sheet. The components of this
new category will include unrealized gains and losses on financial assets
classified as available-for-sale.
TRANSACTIONS WITH RELATED PARTIES
During the nine months ended February 29, 2008 and February 28, 2007 the Company
was charged for various services provided by companies controlled by current and
former directors and officers of the Company, as follows:
2008 2007
$ $
Accounting and administration 51,150 -
Management fees 18,360 58,500
Professional fees 91,651 62,892
---------- ----------
161,161 121,392
========== ==========
These fees have been either expensed to operations or capitalized to mineral
property interest based on the nature of the expenditures. As at February 29,
2008, accounts payable and accrued liabilities include $16,674 (2007 - $8,257)
due to these related parties. These transactions were measured at the exchanged
amount which was the amount of consideration established and agreed to by the
related parties.
- 10 -
RISKS AND UNCERTAINTIES
The Company competes with other mining companies, some of which have greater
financial resources and technical facilities, for the acquisition of mineral
concessions, claims and other interests, as well as for the recruitment and
retention of qualified employees.
The Company is in compliance in all material regulations applicable to its
exploration activities. Existing and possible future environmental legislation,
regulations and actions could cause additional expense, capital expenditures,
restrictions and delays in the activities of the Company, the extent of which
cannot be predicted. Before production can commence on any properties, the
Company must obtain regulatory and environmental approvals. There is no
assurance that such approvals can be obtained on a timely basis or at all. The
cost of compliance with changes in governmental regulations has the potential to
reduce the profitability of operations.
The Company's activities are conducted in Mexico. Consequently, the Company is
subject to certain risks, including currency fluctuations and possible political
or economic instability which may result in the impairment or loss of mining
title or other mineral rights, and mineral exploration and mining activities may
be affected in varying degrees by political stability and governmental
regulations relating to the mining industry.
INVESTOR RELATIONS ACTIVITIES
The Company has an arrangement with Empire to provide investor relations
services under which the Company is currently paying a monthly fee of $10,000.
During the 2008 period, the Company paid a toal of $70,000 to Empire. On October
26, 2007, the Company granted Empire a further 35,000 options with an exercise
price of $2.15 per share, subject to vesting provisions.
OUTSTANDING SHARE DATA
The Company's authorized share capital is unlimited common shares without par
value. As at April 25, 2008, there were 32,632,069 issued and outstanding common
shares. In addition there were 3,128,000 stock options outstanding at exercise
prices ranging from $0.62 to $2.30 per share and 3,235,246 warrants outstanding,
with exercise prices ranging from $0.80 to $2.75 per share.
- 11 -
APPENDIX B
CERTIFICATION OF INTERIM FILINGS
VENTURE ISSUER BASIC CERTIFICATE
I, ALFREDO PARRA, CHIEF EXECUTIVE OFFICER OF ROCHESTER RESOURCES LTD., certify
the following:
1. REVIEW: I have reviewed the interim financial statements and interim
MD&A (together the interim filings) of Rochester Resources Ltd. (the
issuer) for the interim period ending February 29, 2008.
2. NO MISREPRESENTATIONS: Based on my knowledge, having exercised
reasonable diligence, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, for the period
covered by the interim filings.
3. FAIR PRESENTATION: Based on my knowledge, having exercised reasonable
diligence, the interim financial statements together with the other
financial information included in the interim filings fairly present in
all material respects the financial condition, results of operations
and cash flows of the issuer, as of the date of and for the periods
presented in the interim filings.
Date: April 28, 2008
/s/ Alfredo Parra
- -----------------------
Alfredo Parra
Chief Executive Officer
IF THE CERTIFYING OFFICER'S TITLE IS NOT "CHIEF EXECUTIVE OFFICER" OR "CHIEF
FINANCIAL OFFICER", INDICATE IN WHICH OF THESE CAPACITIES THE CERTIFYING OFFICER
IS PROVIDING THE CERTIFICATE.
- --------------------------------------------------------------------------------
NOTE TO READER
In contrast to the certificate required under Multilateral Instrument 52-109
Certification of Disclosure in Issuers' Annual and Interim Filings (MI 52-109),
this Venture Issuer Basic Certificate does not include representations relating
to the establishment and maintenance of disclosure controls and procedures
(DC&P) and internal control over financial reporting (ICFR), as defined in MI
52-109. In particular, the certifying officers filing this certificate are not
making any representations relating to the establishment and maintenance of:
i) controls and other procedures designed to provide reasonable assurance
that information required to be disclosed by the issuer in its annual
filings, interim filings or other reports filed or submitted under
securities legislation is recorded, processed, summarized and reported
within the time periods specified in securities legislation; and
ii) a process to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuer's GAAP.
The issuer's certifying officers are responsible for ensuring that processes are
in place to provide them with sufficient knowledge to support the
representations they are making in this certificate.
Investors should be aware that inherent limitations on the ability of certifying
officers of a venture issuer to design and implement on a cost effective basis
DC&P and ICFR as defined in MI 52-109 may result in additional risks to the
quality, reliability, transparency and timeliness of interim and annual filings
and other reports provided under securities legislation.
- --------------------------------------------------------------------------------
APPENDIX B
CERTIFICATION OF INTERIM FILINGS
VENTURE ISSUER BASIC CERTIFICATE
I, JOSE MANUAL SILVA, CHIEF FINANCIAL OFFICER OF ROCHESTER RESOURCES LTD.,
certify the following:
1. REVIEW: I have reviewed the interim financial statements and interim
MD&A (together the interim filings) of Rochester Resources Ltd. (the
issuer) for the interim period ending February 29, 2008.
2. NO MISREPRESENTATIONS: Based on my knowledge, having exercised
reasonable diligence, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, for the period
covered by the interim filings.
3. FAIR PRESENTATION: Based on my knowledge, having exercised reasonable
diligence, the interim financial statements together with the other
financial information included in the interim filings fairly present in
all material respects the financial condition, results of operations
and cash flows of the issuer, as of the date of and for the periods
presented in the interim filings.
Date: April 28, 2008
/s/ Jose Manual Silva
- -----------------------
Jose Manual Silva
Chief Financial Officer
IF THE CERTIFYING OFFICER'S TITLE IS NOT "CHIEF EXECUTIVE OFFICER" OR "CHIEF
FINANCIAL OFFICER", INDICATE IN WHICH OF THESE CAPACITIES THE CERTIFYING OFFICER
IS PROVIDING THE CERTIFICATE.
- --------------------------------------------------------------------------------
NOTE TO READER
In contrast to the certificate required under Multilateral Instrument 52-109
Certification of Disclosure in Issuers' Annual and Interim Filings (MI 52-109),
this Venture Issuer Basic Certificate does not include representations relating
to the establishment and maintenance of disclosure controls and procedures
(DC&P) and internal control over financial reporting (ICFR), as defined in MI
52-109. In particular, the certifying officers filing this certificate are not
making any representations relating to the establishment and maintenance of:
i) controls and other procedures designed to provide reasonable assurance
that information required to be disclosed by the issuer in its annual
filings, interim filings or other reports filed or submitted under
securities legislation is recorded, processed, summarized and reported
within the time periods specified in securities legislation; and
ii) a process to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuer's GAAP.
The issuer's certifying officers are responsible for ensuring that processes are
in place to provide them with sufficient knowledge to support the
representations they are making in this certificate.
Investors should be aware that inherent limitations on the ability of certifying
officers of a venture issuer to design and implement on a cost effective basis
DC&P and ICFR as defined in MI 52-109 may result in additional risks to the
quality, reliability, transparency and timeliness of interim and annual filings
and other reports provided under securities legislation.
- --------------------------------------------------------------------------------