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 OCTOBER, 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: October 31, 2008 /s/ Nick DeMare
----------------------------- -------------------------------------
Nick DeMare,
Chairman
ROCHESTER RESOURCES LTD.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
AUGUST 31, 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 three months ended August 31, 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)
AUGUST 31, MAY 31,
2008 2008
$ $
ASSETS
CURRENT ASSETS
Cash 109,762 948,093
Amounts receivable (Note 3) 2,102,853 1,905,596
Prepaid expenses and deposits 135,438 198,352
Inventories (Note 4) 703,237 873,902
------------ ------------
3,051,290 3,925,943
IVA TAX RECEIVABLE - 579,774
MINERAL PROPERTY INTERESTS (NOTE 5) 27,151,004 26,204,499
PROPERTY, PLANT AND EQUIPMENT (NOTE 6) 5,574,069 5,018,199
------------ ------------
35,776,363 35,728,415
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 3,192,177 2,200,022
Current portion of long-term debt (Note 7) 955,632 1,115,457
------------ ------------
4,147,809 3,315,479
LONG-TERM DEBT (NOTE 7) 1,182,922 693,429
ASSET RETIREMENT OBLIGATION (NOTE 15) 648,640 640,006
FUTURE INCOME TAX LIABILITIES 4,060,729 4,098,760
------------ ------------
10,040,100 8,747,674
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (NOTE 8) 30,281,745 30,281,745
CONTRIBUTED SURPLUS (NOTE 10) 4,286,627 4,207,560
DEFICIT (8,832,109) (7,508,564)
------------ ------------
25,736,263 26,980,741
------------ ------------
35,776,363 35,728,415
============ ============
NATURE OF OPERATIONS AND GOING CONCERN (Note 1)
SUBSEQUENT EVENTS (Note 17)
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 LOSS AND COMPREHENSIVE LOSS AND DEFICIT
FOR THE THREE MONTHS ENDED AUGUST 31
(UNAUDITED - PREPARED BY MANAGEMENT)
2008 2007
$ $
REVENUE 1,708,317 1,766,783
COST OF OPERATIONS (2,198,874) (1,315,838)
DEPLETION AND AMORTIZATION (279,010) (237,407)
------------ ------------
OPERATING PROFIT (LOSS) (769,567) 213,538
------------ ------------
EXPENSES
General and administration 430,860 394,199
Accretion of reclamation obligation 8,634 12,553
Interest expense on long-term debt (Note 7) 18,134 34,546
Stock-based compensation (Note 9) 79,067 506,785
------------ ------------
536,695 948,083
------------ ------------
LOSS BEFORE OTHER ITEMS (1,306,262) (734,545)
------------ ------------
OTHER ITEMS
Interest and other income 13,223 4,168
Foreign exchange loss (68,537) (31,150)
------------ ------------
(55,314) (26,982)
------------ ------------
LOSS BEFORE INCOME TAXES (1,361,576) (761,527)
FUTURE INCOME TAX RECOVERY 38,031 -
------------ ------------
NET LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD (1,323,545) (761,527)
DEFICIT - BEGINNING OF PERIOD (7,508,564) (75,415,444)
------------ ------------
DEFICIT - END OF PERIOD (8,832,109) (76,176,971)
============ ============
BASIC AND DILUTED LOSS PER SHARE $(0.04) $(0.03)
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 32,832,061 29,719,129
============ ============
The accompanying notes are an integral part of these interim
consolidated financial statements.
ROCHESTER RESOURCES LTD.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31
(UNAUDITED - PREPARED BY MANAGEMENT)
2008 2007
$ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the period (1,323,545) (761,527)
Adjustment for items not involving cash
Depletion and amortization 279,010 237,407
Accretion of reclamation obligation 8,634 12,553
Stock-based compensation 79,067 506,785
Interest expense 2,687 9,553
Foreign exchange 119,670 (20,575)
Future income tax recovery (38,031) -
------------ ------------
(872,508) (15,804)
Decrease (increase) in amounts receivable 311,317 (409,345)
Decrease in prepaid expenses and deposits 62,914 12,713
Decrease (increase) in inventories 170,665 (11,935)
Decrease (increase) in non-current portion of
IVA tax receivable 71,200 (142,402)
Increase in accounts payable and
accrued liabilities 705,942 77,631
------------ ------------
449,530 (489,142)
------------ ------------
FINANCING ACTIVITIES
Long-term debt 584,650 -
Payment on long-term debt (374,652) (238,028)
Issuance of common shares - 160,425
------------ ------------
209,998 (77,603)
------------ ------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (467,005) (102,215)
Additions to mineral property interests (1,030,854) (635,456)
------------ ------------
(1,497,859) (737,671)
------------ ------------
DECREASE IN CASH FOR THE PERIOD (838,331) (1,304,416)
CASH - BEGINNING OF PERIOD 948,093 1,680,753
------------ ------------
CASH - END OF PERIOD 109,762 376,337
============ ============
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 THREE MONTHS ENDED AUGUST 31, 2008
(UNAUDITED - PREPARED BY MANAGEMENT)
1. NATURE OF OPERATIONS AND GOING CONCERN
Rochester Resources Ltd. (the "Company") is engaged in the exploration,
development and operation of its Mina Real Mine and the exploration of
its Santa Fe Property, all located in Mexico.
The amounts shown as mineral property interests represent net costs to
date, less amounts depleted and do not necessarily represent present or
future values. The recoverability of these amounts and any additional
amounts required to place these properties into commercial production
are dependent upon certain factors. These factors include the existence
of ore deposits sufficient for commercial production and the Company's
ability to obtain the required additional financing necessary to
develop its mineral property interests.
During the three months ended August 31, 2008 the Company incurred a
net loss of $1,323,545 and, as at August 31, 2008, the Company had an
accumulated deficit of $8,832,109 and a working capital deficit of
$1,096,519. The Company will require additional funding to maintain its
ongoing exploration programs and property commitments, operations and
administration, as well as meeting it debt obligations as they come
due. The Company is continuing in its efforts to generate sufficient
cash from its operations or raise funds to meet its ongoing liabilities
as they fall due. However, there can be no assurance that the Company
will be successful in its efforts, in which case the Company may be
unable to meet its obligations. Should the Company be unable to realize
on its assets and discharge its liabilities in the normal course of
business, the net realizable value of its assets may be materially less
than the amounts recorded on the balance sheet. These consolidated
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 meet its obligations or
continue operations.
Subsequent to August 31, 2008 the Company completed an equity financing
of $1,000,350 and received the remaining US $390,000 on account of a US
$940,000 financing. See Notes 7(c) and 17.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of financial statements in conformity with Canadian
generally accepted accounting principles 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.
NEW ACCOUNTING PRONOUNCEMENTS
ASSESSING GOING CONCERN
The Accounting Standards Board ("AcSB") amended CICA Handbook Section
1400, to include requirements for management to assess and disclose an
entity's ability to continue as a going concern. This section applies
to interim and annual financial statements relating to fiscal years
beginning on or after January 1, 2008. The adoption of this standard
did not have an effect on the Company's disclosure in the financial
statements for the three months ended August 31, 2008.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2008
(UNAUDITED - PREPARED BY MANAGEMENT)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FINANCIAL INSTRUMENTS
The AcSB issued CICA Handbook Section 3862, Financial Instruments -
Disclosures, which requires entities to provide disclosures in their
financial statements that enable users to evaluate (a) the significance
of financial instruments for the entity's financial position and
performance; and (b) the nature and extent of risks arising from
financial instruments to which the entity is exposed during the period
and at the balance sheet date, and how the entity manages those risks.
The principles in this section complement the principles for
recognizing, measuring and presenting financial assets and financial
liabilities in Section 3855, Financial Instruments - Recognition and
Measurement, Section 3863, Financial Instruments - Presentation, and
Section 3865, Hedges. This section applies to interim and annual
financial statements relating to fiscal years beginning on or after
October 1, 2007.
The AcSB issued CICA Handbook Section 3863, Financial Instruments -
Presentation, which is to enhance financial statement users'
understanding of the significance of financial instruments to an
entity's financial position, performance and cash flows. This section
establishes standards for presentation of financial instruments and
nonfinancial derivatives. It deals with the classification of financial
instruments, from the perspective of the issuer, between liabilities
and equity, the classification of related interest, dividends, losses
and gains, and the circumstances in which financial assets and
financial liabilities are offset. This section applies to interim and
annual financial statements relating to fiscal years beginning on or
after October 1, 2007.
The adoption of these standards did not have an effect on the Company's
disclosure in the financial statements for the three months ended
August 31, 2008.
CAPITAL DISCLOSURES
The AcSB issued CICA Handbook Section 1535, which establishes standards
for disclosing information about an entity's capital and how it is
managed. This section applies to interim and annual financial
statements relating to fiscal years beginning on or after October 1,
2007. Refer to Note 16.
GOODWILL
In February 2008, the AcSB issued CICA Handbook Section 3064, Goodwill
and Intangible Assets, which replaces Section 3062, Goodwill and Other
Intangible Assets and Section 3450, Research and Development Costs.
Section 3064 establishes standards for the recognition, measurement,
presentation and disclosure of goodwill subsequent to its initial
recognition and the recognition, measurement and presentation of
intangible assets. Standards concerning goodwill are unchanged from the
standards included in the previous Section 3062. This section applies
to annual and interim financial statements beginning on or after
October 1, 2008.
The Company is currently assessing the impact of the above new
accounting standards on the Company's financial position and results of
operations.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2008
(UNAUDITED - PREPARED BY MANAGEMENT)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS")
In 2006, the AcSB published a new strategic plan that will
significantly affect financial reporting requirements for Canadian
companies. The AcSB strategic plan outlines the convergence of Canadian
GAAP with IFRS over an expected five year transitional period. In
February 2008, the AcSB announced that 2011 is the changeover date for
publicly-listed companies to use IFRS, replacing Canada's own GAAP. The
date is for interim and annual financial statements relating to fiscal
years beginning on or after January 1, 2011. The transition date of
January 1, 2011, will require the restatement for comparative purposes
of amounts reported by the Company for the year ended May 31, 2010.
While the Company has begun assessing the adoption of IFRS for 2011,
the financial reporting impact of the transition to IFRS cannot be
reasonably estimated at this time.
3. AMOUNTS RECEIVABLE
AUGUST 31, MAY 31,
2008 2008
$ $
Production receivable 348,124 785,227
IVA tax receivable 1,448,809 940,235
Other receivables 305,920 180,134
------------ ------------
2,102,853 1,905,596
============ ============
4. INVENTORIES
AUGUST 31, MAY 31,
2008 2008
$ $
Ore in process 221,157 344,714
Mine stores, supplies and other 482,080 529,188
------------ ------------
703,237 873,902
============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2008
(UNAUDITED - PREPARED BY MANAGEMENT)
5. MINERAL PROPERTY INTERESTS
AUGUST 31, MAY 31,
2008 2008
$ $
Producing
Mina Real Property
Acquisition and other 18,458,507 18,458,507
Deferred exploration and
development costs 7,747,799 7,747,799
Accumulated depletion (1,802,430) (1,571,159)
------------ ------------
24,403,876 24,635,147
------------ ------------
Non-Producing
Mina Real Property
Deferred exploration and
development costs 2,236,155 1,089,452
Santa Fe Property
Acquisition and other 254,302 223,229
Deferred exploration 256,671 256,671
------------ ------------
2,747,128 1,569,352
------------ ------------
27,151,004 26,204,499
============ ============
(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 at a fair
value of $10,500,000.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2008
(UNAUDITED - PREPARED BY MANAGEMENT)
5. MINERAL PROPERTY INTERESTS (continued)
(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.
6. PROPERTY, PLANT AND EQUIPMENT
AUGUST 31, 2008
--------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
Motor vehicles 246,274 47,169 199,105
Office equipment 41,672 4,944 36,728
Mill and mine equipment 1,987,427 150,755 1,836,672
Buildings 1,364,511 21,833 1,342,678
Land 2,158,886 - 2,158,886
------------ ------------ ------------
5,798,770 224,701 5,574,069
============ ============ ============
MAY 31, 2008
--------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
Motor vehicles 246,272 33,797 212,475
Office equipment 39,175 3,747 35,428
Mill and mine equipment 1,985,038 121,881 1,863,157
Buildings 791,023 17,537 773,486
Land 2,133,653 - 2,133,653
------------ ------------ ------------
5,195,161 176,962 5,018,199
============ ============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2008
(UNAUDITED - PREPARED BY MANAGEMENT)
7. LONG-TERM DEBT
AUGUST 31, MAY 31,
2008 2008
$ $
Amount due to Huajicari (a) 372,050 571,665
Amounts due on land and surface
rights purchases (b) 1,181,854 1,237,221
Debenture financing (c) 584,650 -
------------ ------------
2,138,554 1,808,886
Less: Current portion (955,632) (1,115,457)
------------ ------------
1,182,922 693,429
============ ============
(a) The US $350,000 (May 31, 2008 - US $575,000) 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
August 31, 2008 accrued interest of $2,687 was recorded and
has been included in accounts payable and accrued liabilities.
(b) The Company has acquired land and surface rights to enable
access to the development of the Mina Real Property. The
Company has agreed to make monthly principal payments of
approximately $48,500 (pesos 470,801) plus interest,
calculated at a simple rate of 7.2% per annum.
During the three months ended August 31, 2008 the Company
capitalized interest totalling $23,253.
(c) During August 2008 the Company announced that it had agreed to
conduct a US$940,000 unsecured convertible debenture offering
(the "Offering") with the directors of the Company. Under the
terms of the Offering the convertible debentures are expected
to bear interest at a rate of 12% per annum and mature on
December 31, 2010. The convertible debentures will be
convertible at the election of the holders into units, at a
conversion price of $0.75 per unit, with each unit being
comprised of one common share of the Company and one-half of
one common share purchase warrant. Each whole warrant will
entitle the holder to purchase one additional common share of
the Company at an exercise price of $0.75 per share until
December 31, 2010.
During the three months ended August 31, 2008 the Company
received US $550,000 on account of the Offering. Subsequent to
August 31, 2008 the Company received the remaining balance of
US $390,000. The submission for regulatory approval to close
this Offering is pending.
The Company has recorded interest expense at a rate of 12% per
annum on the funds received. During the three months ended
August 31, 2008 the Company recorded $6,772 interest expense,
which has been included in accounts payable and accrued
liabilities.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2008
(UNAUDITED - PREPARED BY MANAGEMENT)
8. SHARE CAPITAL
Authorized: Unlimited common shares without par value
Issued: AUGUST 31, 2008 MAY 31, 2008
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
$ $
Balance, beginning of period 32,832,061 30,281,745 29,665,438 96,437,468
Reduction of capital - - - (71,000,128)
------------ ------------ ------------ ------------
32,832,061 30,281,745 29,665,438 25,437,340
------------ ------------ ------------ ------------
Issued during the period
For cash
Private placements - - 2,000,000 4,000,000
Exercise of warrants - - 532,510 509,374
Exercise of options - - 383,000 346,040
For corporate finance fee - - 125,000 250,000
For commission - - 126,113 252,226
Reallocation from contributed surplus
relating to the exercise of options - - - 256,322
Reallocation from contributed surplus
relating to the exercise of agent's
option and warrants - - - 33,035
------------ ------------ ------------ ------------
- - 3,166,623 5,646,997
Less: share issue costs - - - (802,592)
------------ ------------ ------------ ------------
- - 3,166,623 4,844,405
------------ ------------ ------------ ------------
Balance, end of period 32,832,061 30,281,745 32,832,061 30,281,745
============ ============ ============ ============
(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) A summary of the number of common shares reserved pursuant to
the Company's outstanding warrants at August 31, 2008 and 2007
and the changes for the three months ending on those dates is
as follows:
AUGUST 31, 2008 AUGUST 31, 2007
---------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE
$ $
Balance, beginning of period 3,004,254 2.21 2,363,458 1.90
Exercised - - (137,300) 1.03
------------ ------------
Balance, end of period 3,004,254 2.21 2,226,158 1.96
============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2008
(UNAUDITED - PREPARED BY MANAGEMENT)
8. SHARE CAPITAL (continued)
The following table summarizes information about the number of
common shares reserved pursuant to warrants outstanding at
August 31, 2008:
EXERCISE
NUMBER PRICE EXPIRY DATE
$
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
1,000,000 2.25 April 25, 2009
209,306 2.00 April 25, 2009
------------
3,004,254
============
(c) See also Note 17.
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 three months ended August 31, 2008, the Company granted
200,000 (2007 - 424,000) stock options to the Company's directors,
employees and consultants and recorded compensation expense of $62,000
(2007 - $462,160) on these stock options and $17,067 (2007 - $44,625)
on stock options which vested.
The fair value of stock options granted 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 three months ended
August 31, 2008 and 2007:
AUGUST 31, 2008 AUGUST 31, 2007
Risk-free interest rate 2.89% - 3.31% 4.51% - 4.71%
Estimated volatility 78% - 79% 99%
Expected life 2 years - 2.3 years 2.3 years - 3 years
Expected dividend yield 0% 0%
The weighted average fair value of stock options granted during the
three months ended August 31, 2008 was $0.31 (2007 - $1.09) 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.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2008
(UNAUDITED - PREPARED BY MANAGEMENT)
9. STOCK OPTIONS AND STOCK-BASED COMPENSATION (continued)
A summary of the Company's outstanding stock options at August 31, 2008
and 2007 and the changes for the three months ending on those dates is
as follows:
AUGUST 31, 2008 AUGUST 31, 2007
---------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE
OUTSTANDING PRICE OUTSTANDING PRICE
$ $
Balance, beginning of period 2,953,000 1.69 2,582,000 1.57
Granted 200,000 0.50 524,000 1.65
Exercised - - (30,000) 0.62
Cancelled/Expired - - (330,000) 1.77
------------ ------------
Balance, end of period 3,153,000 1.68 2,746,000 1.57
============ ============
The following table summarizes information about the stock options
outstanding and exercisable at August 31, 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
1,479,000 1,479,000 1.85 January 8, 2010
50,000 33,333 2.15 February 14, 2010
100,000 33,333 1.65 June 8, 2010
274,000 274,000 1.65 June 12, 2010
200,000 200,000 0.50 August 26, 2010
500,000 341,250 2.12 October 26, 2010
80,000 80,000 2.30 November 16, 2010
297,500 297,500 0.90 September 5, 2011
------------ ------------
3,153,000 2,910,916
============ ============
10. CONTRIBUTED SURPLUS
The Company's contributed surplus as August 31, 2008 and 2007 and the
changes for the three months ending on those dates is presented below:
AUGUST 31, AUGUST 31,
2008 2007
$ $
Balance, beginning of period 4,207,560 2,891,157
Stock-based compensation on stock
options (Note 9) 79,067 506,785
Stock options exercised - (15,000)
------------ ------------
Balance, end of period 4,286,627 3,382,942
============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2008
(UNAUDITED - PREPARED BY MANAGEMENT)
11. RELATED PARTY TRANSACTIONS
(a) During the three months ended August 31, 2008 and 2007 the
Company was charged for various services provided by companies
controlled by current and former directors and officers of the
Company, as follows:
AUGUST 31, AUGUST 31,
2008 2007
$ $
Accounting and administration 27,220 17,370
Professional fees 27,063 44,144
------------ ------------
54,283 61,514
============ ============
These fees have been either expensed to operations or
capitalized to mineral property interest based on the nature
of the expenditures. As at August 31, 2008, accounts payable
and accrued liabilities include $36,191 (2007 - $24,659) 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.
(b) See also Note 7(c).
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.
AUGUST 31, 2008
--------------------------------------------
IDENTIFIABLE NET
ASSETS REVENUES LOSS
$ $ $
Mineral operations (Mexico) 35,672,982 1,708,317 (1,037,041)
Corporate (Canada) 103,381 13,223 (286,504)
------------ ------------ ------------
35,776,363 1,721,540 (1,323,545)
============ ============ ============
MAY 31, 2008
--------------------------------------------
IDENTIFIABLE NET
ASSETS REVENUES LOSS
$ $ $
Mineral operations (Mexico) 34,760,993 9,353,785 (389,827)
Corporate (Canada) 967,422 38,329 (2,703,421)
------------ ------------ ------------
35,728,415 9,392,114 (3,093,248)
============ ============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2008
(UNAUDITED - PREPARED BY MANAGEMENT)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of financial instruments at August 31, 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 August 31,
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.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash activities were conducted by the Company during the three
months ended August 31, 2008 and 2007 as follows:
AUGUST 31, AUGUST 31,
2008 2007
$ $
Financing activities
Issuance of common shares non-cash
consideration - 15,000
Contributed surplus - (15,000)
------------ ------------
- -
============ ============
Investing activities
Additions to property, plant and equipment (136,604) -
Additions to mineral property interests (341,382) (345,623)
------------ ------------
(477,986) (345,623)
============ ============
Operating activity
Increase in accounts payable and
accrued liabilities 477,986 345,623
============ ============
Other supplemental cash flow information:
AUGUST 31, AUGUST 31,
2008 2007
$ $
Interest paid in cash 12,828 37,031
============ ============
Income taxes paid in cash - -
============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2008
(UNAUDITED - PREPARED BY MANAGEMENT)
15. ASSET RETIREMENT OBLIGATION
AUGUST 31, AUGUST 31,
2008 2007
$ $
Balance, beginning of period 640,006 590,894
Accretion 8,634 12,553
------------ ------------
Balance, end of period 648,640 603,447
============ ============
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 reclamation obligation relates to the Mina Real
Property. 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.
16. MANAGEMENT OF CAPITAL
The Company manages its cash, common shares, stock options and warrants
as capital. The Company's objectives when managing capital are to
safeguard its ability to continue as a going concern, pursue the
development of mineral resource interests and to maintain a flexible
capital structure which optimizes the costs of capital at an acceptable
risk.
The Company manages its capital structure and makes adjustments to it
in light of changes in economic conditions and the risk characteristics
of underlying assets. To maintain or adjust the capital structure, the
Company may attempt to issue new shares, issue debt, acquire or dispose
of assets or adjust the amount of cash and cash equivalents.
In order to facilitate the management of its capital requirements, the
Company prepares expenditure budgets that are updated as necessary
depending on various factors, including successful capital deployment
and general industry conditions.
The Company does not expect its current capital resources will be
sufficient to meet all of its future exploration plans, operating
requirements and debt retirement obligations and is dependant upon
future equity or debt transactions to meet these obligations.
17. SUBSEQUENT EVENTS
During September 2008 the Company completed a brokered private
placement totalling 2,223,000 units, at a purchase price of $0.45 per
unit, for gross proceeds of $1,000,350. Each unit comprised one common
share of the Company and one-half of one common share purchase warrant.
Each whole warrant entitles the holder to purchase one additional
common share of the Company at an exercise price of $0.75 per share for
a period of two years. The Company also paid the agent a commission of
$80,028 and issued 177,840 agent's warrants (the Agent's Warrants").
Each Agent's Warrant is exercisable at an exercise price of $0.45 per
share for a period of two years.
See also Note 7(c).
ROCHESTER RESOURCES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE MONTHS ENDED AUGUST 31, 2008
The following Management's Discussion and Analysis ("MD&A") of Rochester
Resources Ltd. ("Rochester" or the "Company") is prepared as at October 27, 2008
and should be read in conjunction with the Company's unaudited interim
consolidated financial statements and accompanying notes for the three months
ended August 31, 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 most productive 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 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").
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.
- 1 -
OPERATIONS
A summary of operating statistics for the quarters ended August 31, 2008 and May
31, 2008 are as follows:
- --------------------------------------------------------------------------------------------------------------------
FIRST QUARTER ENDED FOURTH QUARTER ENDED
RESULTS AUGUST 31, 2008 MAY 31, 2008
- --------------------------------------------------------------------------------------------------------------------
Tonnes Processed 12,990 tonnes 15,456 tonnes
- --------------------------------------------------------------------------------------------------------------------
Gold Grade 4.85 grams/tonne 5.12 grams/tonne
- --------------------------------------------------------------------------------------------------------------------
Silver Grade 114.23 grams/tonne 135.07 grams/tonne
- --------------------------------------------------------------------------------------------------------------------
Recovery Gold (%) 91% 93%
- --------------------------------------------------------------------------------------------------------------------
Recovery Silver (%) 44% 39%
- --------------------------------------------------------------------------------------------------------------------
Gold Produced 1,844 ounces 2,354 ounces
- --------------------------------------------------------------------------------------------------------------------
Payable Gold 1,816 ounces 2,319 ounces
- --------------------------------------------------------------------------------------------------------------------
Silver Produced 20,991 ounces 26,325 ounces
- --------------------------------------------------------------------------------------------------------------------
Payable Silver 20,361 ounces 25,535 ounces
- --------------------------------------------------------------------------------------------------------------------
Gold Equivalent Produced 2,230 ounces 2,870 ounces
- --------------------------------------------------------------------------------------------------------------------
Developed Metres 1,581 metres 846 metres
- --------------------------------------------------------------------------------------------------------------------
Samples Taken 5,859 samples 4,730 samples
- --------------------------------------------------------------------------------------------------------------------
Diamond Drilling Metres 334 metres 1,891 metres
- --------------------------------------------------------------------------------------------------------------------
Access Road Kilometres 1.2 kilometres 4 kilometres
- --------------------------------------------------------------------------------------------------------------------
Cost of Production Per Tonne CDN $169.27/tonne CDN $170.95/tonne
- --------------------------------------------------------------------------------------------------------------------
Operating Costs per Equivalent Ounce Gold CDN $986.04/ounce CDN $920.67/ounce
- --------------------------------------------------------------------------------------------------------------------
Our work to date has shown us the Mina Real property is a property of
substantial merit and has the potential for long term production. The principal
challenge for the Company is to convert this potential to resources and
reserves.
We have identified 37 veins in the area and all have geological potential
however to date we have only developed 10 or 12 of these veins If we take into
consideration the potential identified already within the area subjected to
exploration that represents only 40% of the total land owned by the Company, it
is reasonable to assume that considerable undiscovered potential remains for
additional gold and silver deposits given that the area yet to be explored has a
geological environment very similar to the one we are currently exploring and
developing.
The cyanidation plant and the knowledge gained from processing material from the
different mineralized zones has provided us with knowledge to consider different
alternatives as to production processes. The production problems we are
experiencing are not related to mill operations. In all aspects the mill is
achieving all performance parameters.
While the outlook remains positive, the delays encountered have put a strain on
current operations and cash flow. We require improvements to the maintenance
program for the mine production equipment to increase availability. We are also
looking to more quickly develop access to new production areas and finish
building the new tailings dam and filtration system.
The operating statistics for this quarter indicate that operations cannot
continue if these results continue. Management has developed a plan to deal with
these issues and return to a positive cash flow. In order to guarantee the
success of this plan the Company requires additional capital funding and
improved cash flow from production. At this time the two sources of financing,
the capital markets and operations are experiencing complications. It is very
difficult given the current capital markets to complete financings and secondly,
it will take the Company time to stabilize its operations which have been
delayed even more with the effects of the rainy season. The Company has worked
with its creditors from operations and they are co-operating with the Company
providing the Company with time to work on refinancing. To fully fund the work
plan which has been developed the Company requires additional financing and
discussions are ongoing. In the event that no form of financing is forthcoming
then operations will have to be suspended.
- 2 -
MINING OPERATIONS
During the quarter ended August 31, 2008 production continued mainly from the
Florida I area. The production target for the first quarter was 18,308 tonnes
with grades of 5.96 grams/tonne gold and 131.2 grams/tonne silver. The problem
of maintaining sufficient working faces continues. The Company has a development
program underway which, if successfully implemented, will be reflected in the
last quarter of calendar 2008. The key to successful implementation is having
the necessary working capital to implement the work programs.
The Florida IV and Veta Nueva areas continue to be developed, though the pace of
development has slowed significantly.
The development program efforts during this quarter included preparing Tajos
Cuates as the next source of feed. It is anticipated that by late October
production can commence from Tajos Cuates. The material at Tajos Cuates has
exhibited much higher silver grade and with the Falcon in operation silver
recovery is expected to increase significantly.
MILL OPERATIONS
During the quarter ended August 31, 2008 mill operations were negatively
impacted by the onset of the rainy season. Crushing of wet material is more
difficult and ongoing interruptions result in higher consumption of reagents,
thereby increasing the production cost.
The Company has several capital projects under way which impact mill operations.
The first is construction of a new tailings confinement facility, then expansion
of mill capacity to 300 tonnes per day and finally installation of a Falcon
gravimetric concentrator.
Subsequent to quarter end the Falcon system was installed and began operations.
It is anticipated that the Falcon system will have a positive effect on silver
recovery commencing by the end of the second quarter.
Substantially all of the equipment necessary to increase production to 300
tonnes per day is on site. At this time completion of this capital project is on
hold while efforts to improve mine production continue. The time required to
complete the remaining work on the mill capacity expansion is expected to be
less than one month.
The Company's current tailing confinement dam is approaching full capacity and
work has been ongoing on a new tailings system. Under the current regulatory
regime, tailings confinement is moving towards storage of dry tailings. During
this quarter, the land was levelled for the new confinement area for dry
tailings. Structural and roofing engineering for the drying area was completed
and remaining materials and equipments were acquired and are on site. This
project will be in operation in November if resources are available.
UPDATE ON PROPERTY EXPLORATION
The Company operates in Mexico through two subsidiaries, Mina Real Mexico, which
holds the Mina Real Property and Compania Minera Santa Fe, which holds the Santa
Fe property.
MINA REAL MEXICO
Mina Real Mexico is producing, developing and exploring the Mina Real Property.
The Mina Real Property contains a number of significant gold-silver occurrences:
FLORIDA AREA: The Company has identified 16 veins, three developed (Florida I,
II and III), two currently under exploration and development (Florida IV and
Veta Nueva). The Company is developing drifts and adits at three different
levels at Florida IV and Veta Nueva. The Company is focussing its efforts in
these areas.
MACEDO AREA: This zone is located to the SE of Florida and from the work done to
date this area is thought to be the continuation of the vein system of the
Florida area.
- 3 -
TAJOS CUATES AREA: The main vein system at Tajos Cuates is extensive and has
been traced for over 1.6 km at surface, with additional parallel and cross veins
identified and currently under exploration. The Company staked further ground to
the NE to protect the zone.
OTHER AREAS: The three areas mentioned above are where the Company is focussing
its current activities. These areas cover approximately 40% of the Company's
total land holdings. The Company has yet to undertake any work on the remaining
60% of the property, which has a similar geological setting.
Subsequent to quarter end an updated 43-101 report was prepared by Victor
Jaramillo P.Geo. on the Mina Real Property and is filed on SEDAR.
COMPANIA MINERA SANTA FE
SANTA FE: The Company holds a 70% interest in this property and has agreed to
fund a development program on the property. There are no annual work commitments
however a monthly property payment of US $10,000 per month is payable. The Santa
Fe Property covers 3,823 hectares and is located near the Mina Real Mine. At
Santa Fe there exist a number of low sulphidation epithermal veins carrying gold
and silver values in a geological environment very similar to the one currently
being developed in the Mina Real area.
The Santa Fe Property is seen as having significant geological potential. To
date, 17 veins have been located on the 50% of the property which has been
prospected and mapped.
The Santa Fe area is seen as a potential source of future production. At this
time management's objective is to defer the exploration and development at Santa
Fe until development and cash flow from Mina Real provides internal cash flow to
fund costs.
The Company is proceeding with a 43-101 report on the Santa Fe Property.
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 2009 FISCAL 2008 FISCAL 2007
---------- ------------------------------------------------- ------------------------------------
THREE MONTH PERIODS ENDING AUG 31/08 MAY 31/08 FEB 28/08 NOV 30/07 AUG 31/07 MAY 31/07 FEB 28/07 NOV 30/06
$ $ $ $ $ $ $ $
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
OPERATIONS:
Revenues 1,708,317 2,091,771 2,507,487 2,987,744 1,766,783 Nil Nil Nil
Cost of operations (2,198,874) (2,642,333) (2,084,709) (1,920,735) (1,315,838) Nil Nil Nil
Depletion and amortization (279,010) (622,410) (248,301) (261,933) (237,407) Nil Nil Nil
Expenses (536,695) (616,150) (533,379) (1,329,371) (948,083) (732,976) (2,039,218) (640,911)
Other items (55,314) (4,437) 93,210 50,585 (26,982) 142,406 (263,722) (3,134)
Future income tax recovery 38,031 201,240 Nil Nil Nil Nil Nil Nil
Net loss (1,323,545) (1,592,319) (265,692) (473,710) (761,527) (590,570) (2,302,940) (644,045)
Basic and diluted loss
per share (0.04) (0.05) (0.01) (0.02) (0.03) (0.04) (0.09) (0.05)
Dividends per share Nil Nil Nil Nil Nil Nil Nil Nil
BALANCE SHEET:
Working capital (deficit) (1,096,519) 610,464 2,215,461 4,558,148 684,866 768,740 1,227,597 1,898,776
Total assets 35,776,363 35,728,415 35,555,850 34,657,344 30,539,200 30,770,564 23,019,599 7,765,911
Total long-term liabilities 1,182,922 693,429 Nil 125,100 368,740 615,193 936,000 Nil
Asset retirement obligation 648,640 640,006 627,387 615,217 603,447 590,894 Nil Nil
Future income
tax liabilities 4,060,729 4,098,760 4,300,000 4,300,000 4,300,000 4,300,000 Nil Nil
---------- ------------------------------------------------- ------------------------------------
RESULTS OF OPERATIONS
During the three months ended August 31, 2008 (the "2008 period") the Company
reported a net loss of $1,323,545, compared to a net loss of $761,527 for the
three months ended August 31, 2007 (the "2007 period"), an increase in loss of
$562,018.
- 4 -
The Company recognized net revenue during the 2008 period of $1,708,317
generated on the sale of 2,218 ounces of gold equivalent, for an average of
$770.21 net revenue per ounce (net of royalty and treatment charges).
-------------------- -------------------- -------------------- -------------------- --------------------
THREE MONTHS ENDING AUGUST 31, 2008 MAY 31, 2008 FEBRUARY 29, 2008 NOVEMBER 30, 2007 AUGUST 31, 2007
-------------------- -------------------- -------------------- -------------------- --------------------
Ounces of gold
equivalent 2,218 oz 2,416 oz 3,293 oz 3,744 oz 2,656 oz
-------------------- -------------------- -------------------- -------------------- --------------------
PER PER PER PER PER
TOTAL OUNCE TOTAL OUNCE TOTAL OUNCE TOTAL OUNCE TOTAL OUNCE
$ $ $ $ $ $ $ $ $ $
Net revenue 1,708,317 770.21 2,091,771 865.80 2,507,487 761.46 2,987,744 798.01 1,766,783 665.20
-------------------- -------------------- -------------------- -------------------- --------------------
Cost of operations 2,198,874 991.38 2,642,333 1,093.68 2,084,709 633.07 1,920,735 513.02 1,315,838 495.42
-------------------- -------------------- -------------------- -------------------- --------------------
Depletion
and amortization 279,010 125.79 622,410 257.62 248,301 75.40 261,933 69.96 237,407 89.39
-------------------- -------------------- -------------------- -------------------- --------------------
Operating profit(loss) (769,567) (346.96) (1,172,972) (485.50) 174,477 52.99 805,076 215.03 213,538 80.39
-------------------- -------------------- -------------------- -------------------- --------------------
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 three months ending August 31, 2008 and 2007
comprise the following:
2008 2007
$ $
Mine costs 917,111 749,998
Mill costs 713,789 538,195
Service department costs 567,974 27,645
------------ ------------
2,198,874 1,315,838
============ ============
The service department costs include activities which provide services to both
mine and mill departments.
General and administrative expenses for the three months ending August 31, 2008
and 2007 are as follows:
2008 2007
$ $
Accounting and administrative 27,220 17,370
Consulting 67,211 51,313
Corporate development 56,201 30,030
Insurance 5,250 7,756
Investor relations 30,000 18,000
Legal 1,328 1,180
Office 40,121 72,428
Regulatory fees 2,675 2,150
Salaries and benefits 144,986 154,183
Shareholder costs 3,140 4,605
Transfer agent fees 1,971 2,853
Travel 50,757 32,331
------------ ------------
430,860 394,199
============ ============
General and administrative expenses of $430,860 were reported the 2008 period,
an increase of $36,661, from $394,199 in the 2007 period. Specific expenses of
note during the 2008 period as compared to the 2007 period are as follows:
- accounting and administrative fees of $27,220 (2007 - $17,370) charged
by Chase Management Ltd. ("Chase") a private corporation owned by Mr.
Nick DeMare, a director of the Company;
- 5 -
- consulting fees totalling $67,211 (2007 - $51,313) were paid, of which
$27,063 (2007 - $44,144) were paid mainly to current and former
directors and officers;
- corporate development expenses of $56,201 (2007 - $30,030) for ongoing
market awareness and promotional campaigns in Canada and Europe;
- $30,000 (2007 - $18,000) was paid to Empire Communications inc.
("Empire") to provide investor relations services;
- travel expenses of $50,757 (2007 - $32,331) for ongoing mine site
visits to Mexico;
- incurred $5,250 (2007 - $7,756) for director and officers' liability
insurance for fiscal 2009;
- office expenses of $40,121 (2007 - $72,428) were incurred, of which
$35,557 (2007 - $66,049) was for costs associated with the mining
office in Mexico; and
- during the 2008 period salaries and benefits expense of $144,986 (2007
- $154,183) was paid 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 $13,223 as compared to $4,168 during the 2007 period.
During the 2008 period the Company recorded a total of $1,177,776 (2007 -
$635,456) for additions to mineral property interests, of which $31,073 (2007 -
$109,282) was attributed to acquisition and deferred exploration activities on
the Santa Fe Property and $1,146,703 (2007 - $526,174) for deferred exploration
and development 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.
During the 2008 period, the Company recorded a total of $603,609 for additions
to property, plant and equipment of which $25,233 was for the purchase of land
and $578,376 was for the purchase of plant and equipment, primarily mill and
mining equipment for the expansion.
FINANCIAL CONDITION / CAPITAL RESOURCES
During the three months ended August 31, 2008 the Company incurred a net loss of
$1,323,545 and, as at August 31, 2008, the Company had an accumulated deficit of
$8,832,109 and a working capital deficit of $1,096,519. The Company will require
additional funding to maintain its ongoing exploration programs and property
commitments, operations and administration, as well as meeting it debt
obligations as they come due. The Company is continuing in its efforts to
generate sufficient cash from its operations or raise funds to meet its ongoing
liabilities as they fall due. The current global financial crisis and impending
recession will have a significant impact on the price received by the Company
for its gold and silver production and its ability to raise future equity
capital. If available, it is expected that future equity capital issues will
result in significant dilution to the Company's shareholders. There can be no
assurance that the Company will be successful in its efforts, in which case the
Company may be unable to meet its obligations. Should the Company be unable to
realize on its assets and discharge its liabilities in the normal course of
business, the net realizable value of its assets may be materially less than the
amounts recorded on the balance sheet. These consolidated 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
meet its obligations or continue operations.
Subsequent to August 31, 2008 the Company completed an equity financing of
$1,000,350 and received the remaining US $390,000 on account of a US $940,000
financing. These financings did not fully address the Company's additional
funding requirements.
CONTRACTUAL OBLIGATIONS
The following table summarizes the Company's contractual obligations as of
August 31, 2008
PAYMENTS DUE BY PERIOD
------------------------------------------------------------
LESS THAN GREATER THAN
1 YEAR 1 TO 2 YEARS 2 YEARS TOTAL
$ $ $ $
------------ ------------ ------------ ------------
Contractual Obligations
Long-term debt 955,632 363,173 819,749 2,138,554
============ ============ ============ ============
- 6 -
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, 2008 audited consolidated financial
statements.
CHANGES IN ACCOUNTING POLICIES
NEW ACCOUNTING PRONOUNCEMENTS
ASSESSING GOING CONCERN
The Accounting Standards Board ("AcSB") amended CICA Handbook Section 1400, to
include requirements for management to assess and disclose an entity's ability
to continue as a going concern. This section applies to interim and annual
financial statements relating to fiscal years beginning on or after January 1,
2008. The adoption of this standard did not have an effect on the Company's
disclosure in the financial statements for the three months ended August 31,
2008.
FINANCIAL INSTRUMENTS
The AcSB issued CICA Handbook Section 3862, Financial Instruments - Disclosures,
which requires entities to provide disclosures in their financial statements
that enable users to evaluate (a) the significance of financial instruments for
the entity's financial position and performance; and (b) the nature and extent
of risks arising from financial instruments to which the entity is exposed
during the period and at the balance sheet date, and how the entity manages
those risks. The principles in this section complement the principles for
recognizing, measuring and presenting financial assets and financial liabilities
in Section 3855, Financial Instruments - Recognition and Measurement, Section
3863, Financial Instruments - Presentation, and Section 3865, Hedges. This
section applies to interim and annual financial statements relating to fiscal
years beginning on or after October 1, 2007.
The AcSB issued CICA Handbook Section 3863, Financial Instruments -
Presentation, which is to enhance financial statement users' understanding of
the significance of financial instruments to an entity's financial position,
performance and cash flows. This section establishes standards for presentation
of financial instruments and nonfinancial derivatives. It deals with the
classification of financial instruments, from the perspective of the issuer,
between liabilities and equity, the classification of related interest,
dividends, losses and gains, and the circumstances in which financial assets and
financial liabilities are offset. This section applies to interim and annual
financial statements relating to fiscal years beginning on or after October 1,
2007.
The adoption of these standards did not have an effect on the Company's
disclosure in the financial statements for the three months ended August 31,
2008.
CAPITAL DISCLOSURES
The AcSB issued CICA Handbook Section 1535, which establishes standards for
disclosing information about an entity's capital and how it is managed. This
section applies to interim and annual financial statements relating to fiscal
years beginning on or after October 1, 2007.
GOODWILL
In February 2008, the AcSB issued CICA Handbook Section 3064, Goodwill and
Intangible Assets, which replaces Section 3062, Goodwill and Other Intangible
Assets and Section 3450, Research and Development Costs. Section 3064
establishes standards for the recognition, measurement, presentation and
disclosure of goodwill subsequent to its initial recognition and the
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recognition, measurement and presentation of intangible assets. Standards
concerning goodwill are unchanged from the standards included in the previous
Section 3062. This section applies to annual and interim financial statements
beginning on or after October 1, 2008.
The Company is currently assessing the impact of the above new accounting
standards on the Company's financial position and results of operations.
INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS")
In 2006, the AcSB published a new strategic plan that will significantly affect
financial reporting requirements for Canadian companies. The AcSB strategic plan
outlines the convergence of Canadian GAAP with IFRS over an expected five year
transitional period. In February 2008, the AcSB announced that 2011 is the
changeover date for publicly-listed companies to use IFRS, replacing Canada's
own GAAP. The date is for interim and annual financial statements relating to
fiscal years beginning on or after January 1, 2011. The transition date of
January 1, 2011, will require the restatement for comparative purposes of
amounts reported by the Company for the year ended May 31, 2010. While the
Company has begun assessing the adoption of IFRS for 2011, the financial
reporting impact of the transition to IFRS cannot be reasonably estimated at
this time.
TRANSACTIONS WITH RELATED PARTIES
(a) During the three months ended August 31, 2008 and 2007 the Company was
charged for various services provided by companies controlled by
current and former directors and officers of the Company, as follows:
AUGUST 31, AUGUST 31,
2008 2007
$ $
Accounting and administration 27,220 17,370
Professional fees 27,063 44,144
------------ ------------
54,283 61,514
============ ============
These fees have been either expensed to operations or capitalized to
mineral property interest based on the nature of the expenditures. As
at August 31, 2008, accounts payable and accrued liabilities include
$36,191 (2007 - $24,659) 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.
(b) During August 2008 the Company announced that it had agreed to conduct
a US$940,000 unsecured convertible debenture offering (the "Offering")
with the directors of the Company. Under the terms of the Offering the
convertible debentures are expected to bear interest at a rate of 12%
per annum and mature on December 31, 2010. The convertible debentures
will be convertible at the election of the holders into units, at a
conversion price of $0.75 per unit, with each unit being comprised of
one common share of the Company and one-half of one common share
purchase warrant. Each whole warrant will entitle the holder to
purchase one additional common share of the Company at an exercise
price of $0.75 per share until December 31, 2010.
During the three months ended August 31, 2008 the Company received US
$550,000 on account of the Offering. Subsequent to August 31, 2008 the
Company received the remaining balance of US $390,000. Submission for
regulatory approvals to close on the Offering has not been made. In
light of the recent conditions in the financial markets and the impact
on the price of the Company's common shares, the Company is reassessing
the terms of the convertible debentures.
The Company has recorded interest expense at a rate of 12% per annum on
the funds received. During the three months ended August 31, 2008 the
Company recorded $6,772 interest expense, which has been included in
accounts payable and accrued liabilities.
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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.
The agreement may be terminated with written 30 days notice. During the 2008
period, the Company paid a total of $30,000 (2007 - $18,000) to Empire.
OUTSTANDING SHARE DATA
The Company's authorized share capital is unlimited common shares without par
value. As at October 27, 2008, there were 35,055,061 issued and outstanding
common shares. In addition there were 3,153,000 stock options outstanding at
exercise prices ranging from $0.62 to $2.30 per share and 4,293,594 warrants
outstanding, with exercise prices ranging from $0.45 to $2.75 per share.
- 9 -
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 August 31, 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: October 29, 2008
/s/ ALFREDO PARRA
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Alfredo Parra
Chief Executive Officer
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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.
- --------------------------------------------------------------------------------
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 August 31, 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: October 29, 2008
/s/ JOSE MANUAL SILVA
- -----------------------
Jose Manual Silva
Chief Financial Officer
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------