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 JUNE, 2009.
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: June 02, 2009 /s/ Nick DeMare
----------------------------- -------------------------------------
Nick DeMare,
Chairman
ROCHESTER RESOURCES LTD.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
FEBRUARY 28, 2009
(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 28, 2009, 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 28, MAY 31,
2009 2008
$ $
ASSETS
CURRENT ASSETS
Cash 137,904 948,093
Amounts receivable (Note 4) 1,263,991 1,905,596
Prepaid expenses 80,911 198,352
Inventories (Note 5) 845,139 873,902
------------ ------------
2,327,945 3,925,943
IVA TAX RECEIVABLE - 579,774
MINERAL PROPERTY INTERESTS (NOTE 6) 20,825,837 26,204,499
PROPERTY, PLANT AND EQUIPMENT (NOTE 7) 6,144,792 5,018,199
DEFERRED SHARE ISSUE COSTS (NOTE 18) 24,241 -
------------ ------------
29,322,815 35,728,415
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 3,392,146 2,200,022
Current portion of long-term debt (Note 8) 585,428 1,115,457
------------ ------------
3,977,574 3,315,479
LONG-TERM DEBT (NOTE 8) 1,434,938 693,429
ASSET RETIREMENT OBLIGATION (NOTE 16) 684,466 640,006
FUTURE INCOME TAX LIABILITIES 1,450,000 4,098,760
NON-CONTROLLING INTEREST 2,523,395 -
------------ ------------
10,070,373 8,747,674
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (NOTE 9) 31,978,067 30,281,745
CONTRIBUTED SURPLUS (NOTE 11) 4,563,502 4,207,560
DEFICIT (17,289,127) (7,508,564)
------------ ------------
19,252,442 26,980,741
------------ ------------
29,322,815 35,728,415
============ ============
NATURE OF OPERATIONS AND GOING CONCERN (NOTE 1)
SUBSEQUENT EVENTS (NOTE 18)
APPROVED BY THE BOARD
/s/ EDUARDO LUNA , 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
(UNAUDITED - PREPARED BY MANAGEMENT)
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
2009 2008 2009 2008
$ $ $ $
REVENUE 396,560 2,507,487 2,844,000 7,262,014
COST OF OPERATIONS (953,775) (2,084,709) (4,700,964) (5,321,282)
DEPLETION AND AMORTIZATION (172,550) (248,301) (559,965) (747,641)
------------ ------------ ------------ ------------
OPERATING PROFIT (LOSS) (729,765) 174,477 (2,416,929) 1,193,091
------------ ------------ ------------ ------------
EXPENSES
General and administration 535,922 470,811 1,548,644 1,298,664
Accretion of reclamation obligation 15,077 12,170 44,460 36,493
Interest expense on long-term debt 37,168 20,856 95,359 83,724
Stock-based compensation (Note 10) 167 29,542 79,822 1,391,952
------------ ------------ ------------ ------------
588,334 533,379 1,768,285 2,810,833
------------ ------------ ------------ ------------
LOSS BEFORE OTHER ITEMS (1,318,099) (358,902) (4,185,214) (1,617,742)
------------ ------------ ------------ ------------
OTHER ITEMS
Write-down of mineral property interest (Note 6) - - (6,000,000) -
Interest and other income 18,330 16,746 40,647 31,188
Foreign exchange gain (loss) (263,927) 76,464 (275,608) 85,625
Loss on disposition of interest in
subsidiaries (Note 3) (2,033,041) - (2,033,041) -
------------ ------------ ------------ ------------
(2,278,638) 93,210 (8,268,002) 116,813
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES AND
NON-CONTROLLING INTEREST (3,596,737) (265,692) (12,453,216) (1,500,929)
FUTURE INCOME TAX RECOVERY 550,000 - 2,648,760 -
NON-CONTROLLING INTEREST IN LOSS OF SUBSIDIARIES 23,893 - 23,893 -
------------ ------------ ------------ ------------
NET LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD (3,022,844) (265,692) (9,780,563) (1,500,929)
============ ============ ============ ============
BASIC AND DILUTED LOSS PER SHARE $(0.07) $(0.01) $(0.27) $(0.05)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 40,822,228 32,519,735 36,085,104 31,055,333
============ ============ ============ ============
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 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
2009 2008 2009 2008
$ $ $ $
DEFICIT - BEGINNING OF PERIOD (14,266,283) (5,650,553) (7,508,564) (75,415,444)
ELIMINATION OF DEFICIT (Note 9(a)) - - - 71,000,128
------------ ------------ ------------ ------------
(14,266,283) (5,650,553) (7,508,564) (4,415,316)
NET LOSS FOR THE PERIOD (3,022,844) (265,692) (9,780,563) (1,500,929)
------------ ------------ ------------ ------------
DEFICIT - END OF PERIOD (17,289,127) (5,916,245) (17,289,127) (5,916,245)
============ ============ ============ ============
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 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
2009 2008 2009 2008
$ $ $ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the period (3,022,844) (265,692) (9,780,563) (1,500,929)
Adjustment for items not involving cash
Depletion and amortization 172,550 248,301 559,965 747,641
Accretion of reclamation obligation 15,077 12,170 44,460 36,493
Stock-based compensation 167 29,542 79,822 1,391,952
Interest expense 77,295 (2,722) 78,412 5,778
Foreign exchange gain (114,057) (15,990) (62,191) (107,653)
Write-down of mineral property interest - - 6,000,000 -
Future income tax recovery (550,000) - (2,648,760) -
Loss on disposition of interest in subsidiaries 2,033,041 - 2,033,041 -
Non-controlling interest (23,893) - (23,893) -
------------ ------------ ------------ ------------
(1,412,664) 5,609 (3,719,707) 573,282
Decrease (increase) in amounts receivable 438,110 930,891 1,221,379 (617,451)
Decrease (increase) in prepaid expenses and
deposits 73,368 7,145 117,441 39,022
(Increase) decrease in inventories (263,303) (631,433) 28,763 (216,761)
Increase in IVA tax receivable (237,237) (266,735) - (579,204)
Decrease in accounts payable and accrued
liabilities (429,707) (194,144) 175,828 (146,430)
------------ ------------ ------------ ------------
(1,831,433) (148,667) (2,176,296) (947,542)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Issuance of common shares 1,050,000 215,471 2,050,350 4,690,170
Share issue costs (154,845) - (297,149) (121,221)
Proceeds from long-term debt 18,000 - 1,180,968 -
Repayment of long-term debt (399,197) (225,990) (907,297) (686,610)
Proceeds from minority interest 2,442,288 - 2,742,288 -
------------ ------------ ------------ ------------
2,956,246 (10,519) 4,769,160 3,882,339
------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Additions to property, plant and equipment - (549,466) (1,247,525) (720,589)
Additions to mineral property interests (1,035,221) (295,317) (2,155,528) (1,567,491)
------------ ------------ ------------ ------------
(1,035,221) (844,783) (3,403,053) (2,288,080)
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH FOR THE PERIOD 89,592 (1,003,969) (810,189) 646,717
CASH - BEGINNING OF PERIOD 48,312 3,331,439 948,093 1,680,753
------------ ------------ ------------ ------------
CASH - END OF PERIOD 137,904 2,327,470 137,904 2,327,470
============ ============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION (Note 15)
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 28, 2009
(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 nine months ended February 28, 2009 the Company incurred a
net loss of $9,780,563 and, as at February 28, 2009, the Company had an
accumulated deficit of $17,289,127, a working capital deficit of
$1,649,629 and non-current portion of long-term debt totalling
$1,434,938. In addition, operations at the Mina Real Mine have been
intermittent since early October 2008 while the Company focuses on the
development of its mineral property interests to provide sufficient
mill feed to maintain mill operations at a steady rate of production.
The Company requires 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. In January 2009 the Company sold a 20% interest in its Mina Real
Mine and 14% interest in the Santa Fe Property, as described in Note 3.
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.
See also Note 18.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of financial statements in conformity with Canadian
generally accepted accounting principles ("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.
These consolidated financial statements have been prepared in
accordance with Canadian GAAP and include the accounts of the Company,
its wholly-owned subsidiary ALB Holdings Ltd. ("ALB"), its 80% owned
subsidiary Mina Real Mexico S.A. de C.V. ("Mina Real") and 56% owned
subsidiary Compania Minera Santa Fe S.A. de C.V. ("Compania Minera").
Inter-company balances and transactions are eliminated on
consolidation. See also Note 3.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009
(UNAUDITED - PREPARED BY MANAGEMENT)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
ADOPTION OF NEW ACCOUNTING STANDARDS
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 nine months ended February 28, 2009.
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 Company has included the required disclosures recommended by
Section 3862 and 3863 in Note 14 of these financial statements.
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. The Company has included the required disclosures recommended by
Section 1535 in Note 17 of these financial statements.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009
(UNAUDITED - PREPARED BY MANAGEMENT)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
NEW ACCOUNTING PRONOUNCEMENTS
GOODWILL AND INTANGIBLE ASSETS
The AcSB issued Section 3064, GOODWILL AND INTANGIBLE ASSETS, which
replaces Section 3062, GOODWILL AND OTHER INTANGIBLE ASSETS, and
Section 3450, RESEARCH AND DEVELOPMENT COSTS. This new section
establishes standards for the recognition, measurement, presentation
and disclosure of goodwill subsequent to its initial recognition and of
intangible assets. This section applies to interim and annual financial
statements relating to fiscal years beginning on or after October 1,
2008.
The Company does not anticipate the above new accounting standards to
have an impact on the Company's financial position and results of
operations.
BUSINESS COMBINATIONS, CONSOLIDATED FINANCIAL STATEMENTS AND
NON-CONTROLLING INTERESTS
The CICA issued three new accounting standards in January 2009: Section
1582, BUSINESS COMBINATIONS, Section 1601, CONSOLIDATED FINANCIAL
STATEMENTS, and Section 1602, NON-CONTROLLING INTERESTS. These new
standards will be effective for fiscal years beginning on or after
January 1, 2011. The Company is in the process of evaluating the
requirements of the new standards.
Section 1582 replaces Section 1581, BUSINESS COMBINATIONS, and
establishes standards for the accounting for a business combination. It
provides the Canadian equivalent to International Financial Reporting
Standards ("IFRS") 3, BUSINESS COMBINATIONS. The section applies
prospectively to business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period
beginning on or after January 1, 2011. Sections 1601 and 1602 together
replace Section 1600, CONSOLIDATED FINANCIAL STATEMENTS. Section 1601,
establishes standards for the preparation of consolidated financial
statements. Section 1601 applies to interim and annual consolidated
financial statements relating to fiscal years beginning on or after
January 1, 2011. Section 1602 establishes standards for accounting for
a non-controlling interest in a subsidiary in consolidated financial
statements subsequent to a business combination. It is equivalent to
the corresponding provisions of IFRS IAS 27, CONSOLIDATED AND SEPARATE
FINANCIAL STATEMENTS, and applies to interim and annual consolidated
financial statements relating to fiscal years beginning on or after
January 1, 2011.
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.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009
(UNAUDITED - PREPARED BY MANAGEMENT)
3. DISPOSITION
Effective January 21, 2009, the Company disposed of a 20% interest in
Mina Real. Mina Real owns a 70% interest in Compania Minera. Under the
sale agreement Mina Real issued shares to each of E-Energy Ventures
Ltd. ("E-Energy") and Cooper Minerals Ltd. ("Cooper") (collectively the
"Partners") for total consideration of $2,950,000.
Pursuant to the agreement, all net profit received from the operations
at the Mina Real Property shall be divided on a 80% / 20% basis,
between the Company and the Partners, respectively with a fixed royalty
of $25,000 per month paid free and clear of any and all cost or expense
incurred in connection with the operation of the Mina Real Property.
During the nine months ended February 28, 2009 the Company recorded a
royalty of $25,000 to the Partners, which has been included as part of
cost of operations.
The Company has a back-in option to re-acquire in whole and not in part
the equity interest in Mina Real and Compania Minera. The back-in
option shall have a term of three years wherein:
o during the initial year the back-in option shall not be
exercisable;
o during the second year the back-in option shall be exercisable
by a cash payment of $2,075,000; and
o during the third year the back-in option shall be exercisable
by a cash payment of $2,000,000.
The Company paid a finder's fee of $191,750 and issued finder's
warrants which are exercisable to acquire 1,300,000 common shares of
the Company at an exercise price of $0.17 per share on or before
January 20, 2010. The fair value of the finder's warrants have been
estimated using the Black-Scholes option pricing model. The assumptions
used were: dividend yield - 0%; expected volatility - 122%; a risk-free
interest rate of 0.85%; and an expected life of one year. The value
assigned to the finder's warrants was $195,000. The Company also
incurred additional legal and filing fees of $15,962.
The Company has recorded a loss of $2,033,041 on the disposition as
follows:
$
Gross proceeds on sale 2,950,000
Finder's fee (191,750)
Value assigned to finder's warrants (195,000)
Legal and associated costs (15,962)
------------
Net proceeds 2,547,280
Carrying cost 4,580,329
-------------
Loss on disposition (2,033,041)
============
4. AMOUNTS RECEIVABLE
FEBRUARY 28, MAY 31,
2009 2008
$ $
Production receivable - 785,227
IVA tax receivable 1,060,598 940,235
Other receivables 203,393 180,134
------------ ------------
1,263,991 1,905,596
============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009
(UNAUDITED - PREPARED BY MANAGEMENT)
5. INVENTORIES
FEBRUARY 28, MAY 31,
2009 2008
$ $
Precipitate 178,722 -
Ore in process 288,361 344,714
Mine stores, supplies and other 378,056 529,188
------------ ------------
845,139 873,902
============ ============
6. MINERAL PROPERTY INTERESTS
FEBRUARY 28, MAY 31,
2009 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 and write-downs (9,929,098) (1,571,159)
------------ ------------
16,277,208 24,635,147
------------ ------------
Non-Producing
Mina Real Property
Deferred exploration and development costs 3,957,756 1,089,452
Santa Fe Property
Acquisition and other 325,705 223,229
Deferred exploration 265,168 256,671
------------ ------------
4,548,629 1,569,352
------------ ------------
20,825,837 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:
o an initial 20% interest on funding the initial US
$750,000;
o a further 20% interest on funding a further US
$750,000; and
o 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.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009
(UNAUDITED - PREPARED BY MANAGEMENT)
6. MINERAL PROPERTY INTERESTS (continued)
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.
In November 2008 the Company recorded a $6,000,000 write-down
on the Mina Real Property to reflect management's estimate of
its fair value.
(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.
(c) See also Note 3.
7. PROPERTY, PLANT AND EQUIPMENT
FEBRUARY 28, 2009
--------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
Motor vehicles 266,322 55,308 211,014
Office equipment 41,672 7,719 33,953
Mill and mine equipment 1,987,427 172,396 1,815,031
Buildings 1,932,317 25,821 1,906,496
Land 2,178,298 - 2,178,298
------------ ------------ ------------
6,406,036 261,244 6,144,792
============ ============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009
(UNAUDITED - PREPARED BY MANAGEMENT)
7. PROPERTY, PLANT AND EQUIPMENT (continued)
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
============ ============ ============
8. LONG-TERM DEBT
FEBRUARY 28, MAY 31,
2009 2008
$ $
Amount due to Huajicari (a) 158,838 571,665
Amounts due on land and surface rights
purchases (b) 680,560 1,237,221
Debenture financing (c) 1,180,968 -
------------ ------------
2,020,366 1,808,886
Less: Current portion (585,428) (1,115,457)
------------ ------------
1,434,938 693,429
============ ============
(a) The US $125,000 (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.
Subsequent to February 28, 2009 the Company paid the remaining
outstanding balance.
(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 $39,334 (pesos 470,801) plus interest,
calculated at a simple rate of 7.2% per annum.
During the nine months ended February 28, 2009 the Company
capitalized interest totalling $58,120.
(c) The Company has received US $929,384 under a proposed
convertible debenture offering (the "Offering") with the
directors of the Company. Under the initial proposed terms of
the Offering the convertible debentures were expected to bear
interest at a rate of 12% per annum and mature on December 31,
2010. The convertible debentures would 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 would 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. The
Company is currently negotiating the terms of the Offering.
The submission for regulatory approval to close this Offering
is pending upon re-negotiation.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009
(UNAUDITED - PREPARED BY MANAGEMENT)
8. LONG-TERM DEBT (continued)
The Company has recorded interest expense at a rate of 12% per
annum on the funds received. During the nine months ended
February 28, 2009 the Company recorded $76,609 interest
expense, which has been included in accounts payable and
accrued liabilities.
9. SHARE CAPITAL
Authorized: Unlimited common shares without par value
Issued: FEBRUARY 28, 2009 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 9,223,000 2,050,350 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
------------ ------------ ------------ ------------
9,223,000 2,050,350 3,166,623 5,646,997
Less: share issue costs - (354,028) - (802,592)
------------ ------------ ------------ ------------
9,223,000 1,696,322 3,166,623 4,844,405
------------ ------------ ------------ ------------
Balance, end of period 42,055,061 31,978,067 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) During the nine months ended February 28, 2009 the Company
completed:
(i) a brokered private placement for 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.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009
(UNAUDITED - PREPARED BY MANAGEMENT)
9. 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 - 87%; a risk-free interest
rate of 2.68% - 2.92%; and an expected life of two
years. The value assigned to the Agent's Warrants was
$39,120. The Company also incurred $62,276 in legal
and filings fees associated with this private
placement; and
(ii) a non-brokered private placement of 7,000,000 common
shares, at a price of $0.15 per common share, for
total gross proceeds of $1,050,000. The Company paid
a cash finder's fee of $105,000 and also issued
finder's warrants which are exercisable to acquire
700,000 common shares of the Company, at an exercise
price of $0.17 per common share, of which 333,333
finder's warrants will expire on December 5, 2009 and
366,667 finder's warrants will expire on December 22,
2009.
The fair value of the finder's warrants have been
estimated using the Black-Scholes option pricing
model. The assumptions used were: dividend yield -
0%; expected volatility - 122%; a risk-free interest
rate of 0.85%; and an expected life of one year. The
value assigned to the finder's warrants was $42,000.
The Company also incurred $25,604 in legal and
filings fees associated with this private placement.
(c) A summary of the number of common shares reserved pursuant to
the Company's outstanding warrants at February 28, 2009 and
February 29, 2008 and the changes for the nine months ending
on those dates is as follows:
2009 2008
---------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE
$ $
Balance, beginning of period 3,004,254 2.21 2,363,458 1.90
Issued 3,289,340 0.17 1,209,306 2.00
Exercised - - (337,518) 1.05
Expired (1,794,948) 2.21 - -
------------ ------------
Balance, end of period 4,498,646 0.87 3,235,246 2.11
============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009
(UNAUDITED - PREPARED BY MANAGEMENT)
9. SHARE CAPITAL (continued)
The following table summarizes information about the number of
common shares reserved pursuant to warrants outstanding at
February 28, 2009:
EXERCISE
NUMBER PRICE EXPIRY DATE
$
1,000,000 2.25 April 25, 2009
209,306 2.00 April 25, 2009
333,333 0.17 December 5, 2009
366,667 0.17 December 22, 2009
1,300,000 0.17 January 20, 2010
779,000 0.75 September 18, 2010
124,640 0.45 September 18, 2010
221,000 0.75 September 22, 2010
35,360 0.45 September 22, 2010
111,500 0.75 September 24, 2010
17,840 0.45 September 24, 2010
------------
4,498,646
============
(d) See also Note 18.
10. 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 minimum 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. Options granted may be subject to vesting provisions as
determined by the Board of Directors and have a maximum term of five
years.
During the nine months ended February 28, 2009 the Company granted
200,000 (2008 - 1,254,000) stock options to the Company's directors,
employees and consultants and recorded compensation expense of $62,000
(2008 - $1,255,910) on these stock options and $17,822 (2008 -
$136,042) on stock options which vested during the period.
The fair value of stock options granted and vested is estimated using
the Black-Scholes option pricing model with the following assumptions
made during the nine months ended February 28, 2009 and February 29,
2008:
2009 2008
Risk-free interest rate 85% - 3.31% 3.78% - 4.71%
Estimated volatility 78% - 122% 78% - 99%
Expected life 1 year - 2.3 years 2 years - 3 years
Expected dividend yield 0% 0%
Estimated forfeiture rate 0% 0%
The average fair value of stock options granted and vested during the
nine months ended February 28, 2009 was $0.31 (2008 - $1.00) per share.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009
(UNAUDITED - PREPARED BY MANAGEMENT)
10. STOCK OPTIONS AND STOCK-BASED COMPENSATION (continued)
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 28,
2009 and February 29, 2008 and the changes for the nine months ending
on those dates is as follows:
2009 2008
---------------------------- ----------------------------
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 1,254,000 1.94
Exercised - - (378,000) 0.89
Expired (22,500) 0.62 (330,000) 1.77
------------ ------------
Balance, end of period 3,130,500 1.69 3,128,000 1.72
============ ============
The following table summarizes information about the stock options
outstanding and exercisable at February 28, 2009:
NUMBER NUMBER EXERCISE
OUTSTANDING EXERCISABLE PRICE EXPIRY DATE
$
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
500,000 400,000 2.12 October 26, 2010
80,000 80,000 2.30 November 16, 2010
297,500 297,500 0.90 September 5, 2011
------------ ------------
3,130,500 2,947,166
============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009
(UNAUDITED - PREPARED BY MANAGEMENT)
11. CONTRIBUTED SURPLUS
The Company's contributed surplus as February 28, 2009 and February 29,
2008 and the changes for the nine months ending on those dates is
presented below:
2009 2008
$ $
Balance, beginning of period 4,207,560 2,891,157
Stock-based compensation on stock
options (Note 10) 79,822 1,391,952
Stock-based compensation on
agent's warrants 39,120 179,145
Stock-based compensation on
finder's warrants 237,000 -
Stock options exercised - (250,322)
Agent's warrants exercised - (17,520)
------------ ------------
Balance, end of period 4,563,502 4,194,412
============ ============
12. RELATED PARTY TRANSACTIONS
(a) During the nine months ended February 28, 2009 and February
29, 2008 the Company was charged for various services provided
by companies controlled by current and former directors and
officers of the Company, as follows:
2009 2008
$ $
Accounting and administration 81,010 51,150
Management fees - 18,360
Professional fees 182,909 91,651
------------ ------------
263,919 161,161
============ ============
These fees have been either expensed to operations or
capitalized to mineral property interest based on the nature
of the expenditures. As at February 28, 2009, accounts payable
and accrued liabilities include $148,413 (2008 - $16,674) 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 8(c).
13. 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 28, 2009
--------------------------------------------
IDENTIFIABLE NET
ASSETS REVENUES LOSS
$ $ $
Mineral operations (Mexico) 29,187,524 2,844,000 (6,338,025)
Corporate (Canada) 135,291 40,647 (3,442,538)
------------ ------------ ------------
29,322,815 2,884,647 (9,780,563)
============ ============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009
(UNAUDITED - PREPARED BY MANAGEMENT)
13. SEGMENTED INFORMATION (continued)
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)
============ ============ ============
14. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Fair value estimates of financial instruments are made at a specific
point in time, based on relevant information about financial markets
and specific financial instruments. As these estimates are subjective
in nature, involving uncertainties and matters of significant judgment,
they cannot be determined with precision. Changes in assumptions can
significantly affect estimated fair values.
The carrying value of cash, amounts receivable and accounts payable and
accrued liabilities approximate their fair value because of the
short-term nature of these instruments. Long-term debt is classified as
Other Liabilities and measured at amortized cost.
The Company's risk exposures and the impact on the Company's financial
instruments are summarized below:
CREDIT RISK
Credit risk is the risk of loss associated with a counterparty's
inability to fulfill its payment obligations. The Company's credit risk
is primarily attributable to amounts receivable. Management believes
that the credit risk concentration with respect to financial
instruments included in amounts receivable is remote because these
receivables are due primarily from a government agency and various
advances receivable.
LIQUIDITY RISK
Liquidity risk is the risk that the Company will not have the resources
to meet its obligations as they fall due. The Company manages this risk
by closely monitoring cash forecasts and managing resources to ensure
that it will have sufficient liquidity to meet its obligations.
MARKET RISK
Market risk is the risk of loss that may arise from changes in market
factors such as interest rates, foreign exchange rates, and commodity
and equity prices. These fluctuations may be significant.
(a) Interest Rate Risk
The Company is exposed to interest rate risk to the extent
that the cash and cash equivalents bear floating rates of
interest. The interest rate risk on cash and on the Company 's
obligations are not considered significant.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009
(UNAUDITED - PREPARED BY MANAGEMENT)
14. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
(b) Foreign Currency Risk
The Company has operations in Canada and Mexico subject to
foreign currency fluctuations. The Company's operating
expenses are incurred in Canadian Dollars and Mexican Pesos.
In addition the Company also has long-term debt denominated in
US Dollars. The fluctuation of the Canadian Dollar in relation
to these other currencies will have an impact upon the
profitability of the Company and may also affect the value of
the Company's assets and the amount of shareholders' equity.
The Company has not entered into any agreements or purchased
any instruments to hedge possible currency risks. At February
28, 2009, 1 Canadian Dollar was equal to 11.97 Mexican Pesos
and 0.79 US Dollar.
Balances are as follows:
CANADIAN
MEXICAN US DOLLAR
PESOS DOLLAR EQUIVALENT
Cash 583,921 66,203 132,583
Amounts receivable 14,926,801 - 1,247,018
Prepaid expenses and deposits 899,592 - 75,154
Inventories 10,115,734 - 845,091
Accounts payable and accrued liabilities (31,356,776) - (2,619,614)
Long-term debt (8,145,828) (1,054,384) (2,015,183)
------------ ------------ ------------
(12,976,556) (988,181) (2,334,951)
============ ============ ============
Based on the net exposures as of February 28, 2009 and
assuming that all other variable remain constant, a 1%
depreciation on the Canadian Dollar against the Mexican Pesos
and US Dollar would result in an annual increase on loss of
approximately $27,000.
(c) Price Risk
The Company is exposed to price risk with respect to commodity
and equity prices. Equity price risk is defined as the
potential adverse impact on the Company's earnings due to
movements in individual equity prices or general movements in
the level of the stock market. Commodity price risk is defined
as the potential adverse impact on earnings and economic value
due to commodity price movements and volatilities. The Company
closely monitors commodity prices of gold and other precious
and base metals, individual equity movements, and the stock
market to determine the appropriate course of action to be
taken by the Company. As a matter of policy the Company does
not hedge its gold and silver production. Fluctuations in
pricing may be significant.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009
(UNAUDITED - PREPARED BY MANAGEMENT)
15. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash activities were conducted by the Company during the nine
months ended February 28, 2009 and February 29, 2008 as follows:
2009 2008
$ $
Financing activities
Minority interest's investment in subsidiaries (195,000) -
Share issue costs (81,120) (681,371)
Issuance of common shares for non-cash consideration - 770,068
Contributed surplus 276,120 (88,697)
------------ ------------
- -
============= ============
Investing activities
Additions to property, plant and equipment 36,648 (320,558)
Additions to mineral property interests (974,532) (1,104,857)
------------ ------------
(937,884) (1,425,415)
============ ============
Operating activity
Increase in accounts payable and accrued liabilities 937,884 1,425,415
============ ============
Other supplemental cash flow information:
2009 2008
$ $
Interest paid in cash 77,139 90,039
============ ============
Income taxes paid in cash - -
============ ============
16. ASSET RETIREMENT OBLIGATION
FEBRUARY 28, FEBRUARY 29,
2009 2008
$ $
Balance, beginning of period 640,006 590,894
Accretion 44,460 36,493
------------ ------------
Balance, end of period 684,466 627,387
============ ============
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 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.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009
(UNAUDITED - PREPARED BY MANAGEMENT)
17. 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 operating and 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. See also
Note 18.
18. SUBSEQUENT EVENTS
(a) Subsequent to February 28, 2009:
(i) the Company completed a private placement of
8,209,750 units, at a price of $0.20 per unit, for
total gross proceeds of $1,641,950. 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 $0.30 per common share for a period of
eighteen months. The Company paid a cash finder's fee
of $131,356 and also issued finder's warrants which
are exercisable to acquire 820,975 common shares of
the Company at an exercise price of $0.20 per common
share for a period of eighteen months. As at February
28, 2009 the Company had incurred share issue costs
of $24,241 associated with this private placement;
(ii) the Company issued 500,000 common shares on the
exercise of warrants at an exercise price of $0.30
per common share; and
(iii) warrants to purchase 1,209,306 common shares of the
Company expired without exercise.
(b) See also Note 8(a).
ROCHESTER RESOURCES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009
The following Management's Discussion and Analysis ("MD&A") of Rochester
Resources Ltd. ("Rochester" or the "Company") is prepared as at April 28, 2009
and should be read in conjunction with the Company's unaudited interim
consolidated financial statements and accompanying notes for the nine months
ended February 28, 2009 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 is also registered with the U.S. Securities and Exchange Commission
("SEC") as a foreign private issuer under the Securities Act of 1934. The
Company has not filed its Form 20F report for 2008 and is unlikely to do so in
the immediate future. 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 effective January 16, 2009, on the Pink OTC Markets
("Pink Sheets") under the symbol "RCTFF".
DISPOSITION
Effective January 21, 2009, the Company disposed of a 20% interest in Mina Real
Mexico S.A. de C.V. ("Mina Real"). Mina Real owns a 70% interest in Compania
Minera Santa Fe S.A. de C.V. ("Compania Minera"). Under the sale agreement Mina
Real issued shares to each of E-Energy Ventures Ltd. ("E-Energy") and Cooper
Minerals Ltd. ("Cooper") (collectively the "Partners") for total consideration
of $2,950,000.
Pursuant to the agreement, all net profit received from the operations at the
Mina Real Property shall be divided on a 80% / 20% basis, between the Company
and the Partners, respectively with a fixed royalty of $25,000 per month paid
free and clear of any and all cost or expense incurred in connection with the
operation of the Mina Real Property. During the nine months ended February 28,
2009 the Company recorded a royalty of $25,000 to the Partners, which has been
included as part of cost of operations.
- 1 -
The Company has a back-in option to re-acquire in whole and not in part the
equity interest in Mina Real and Compania Minera. The back-in option shall have
a term of three years wherein:
o during the initial year the back-in option shall not be exercisable;
o during the second year the back-in option shall be exercisable by a
cash payment of $2,075,000; and
o during the third year the back-in option shall be exercisable by a cash
payment of $2,000,000.
The Company paid a finder's fee of $191,750 and issued finder's warrants which
are exercisable to acquire 1,300,000 common shares of the Company at an exercise
price of $0.17 per share on or before January 20, 2010. The fair value of the
finder's warrants have been estimated using the Black-Scholes option pricing
model. The assumptions used were: dividend yield - 0%; expected volatility -
122%; a risk-free interest rate of 0.85%; and an expected life of one year. The
value assigned to the finder's warrants was $195,000. The Company also incurred
additional legal and filing fees of $15,962.
The Company has recorded a loss of $2,033,041 on the disposition as follows:
$
Gross proceeds on sale 2,950,000
Finder's fee (191,750)
Value assigned to finder's warrants (195,000)
Legal and associated costs (15,962)
------------
Net proceeds 2,547,280
Carrying cost 4,580,329
------------
Loss on disposition (2,033,041)
============
PROPERTY UPDATE
OVERVIEW
The Company currently holds an 80% interest in Mina Real which holds a 100%
interest in the Mina Real Property, a gold silver property located in the state
of Nayarit, Mexico, east of the capital city of Tepic. Mina Real 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.
OPERATIONS
A summary of operating statistics for the nine months ended February 28, 2009 is
as follows:
- --------------------------------------------------------------------------------
RESULTS NINE MONTHS ENDED
FEBRUARY 28, 2009
- --------------------------------------------------------------------------------
Tonnes Processed 24,930 tonnes
- --------------------------------------------------------------------------------
Gold Grade 4.4 grams/tonne
- --------------------------------------------------------------------------------
Silver Grade 115.1 grams/tonne
- --------------------------------------------------------------------------------
Recovery Gold (%) 91.10%
- --------------------------------------------------------------------------------
Recovery Silver (%) 54.51%
- --------------------------------------------------------------------------------
Gold Produced 3,213 ounces
- --------------------------------------------------------------------------------
Payable Gold 3,164.81 ounces
- --------------------------------------------------------------------------------
Silver Produced 50,289 ounces
- --------------------------------------------------------------------------------
Payable Silver 48,780.33 ounces
- --------------------------------------------------------------------------------
Gold Equivalent Produced 3,706 ounces
- --------------------------------------------------------------------------------
Developed Metres 4,935 metres
- --------------------------------------------------------------------------------
Samples Taken 16,938 samples
- --------------------------------------------------------------------------------
Diamond Drilling Metres 334 metres
- --------------------------------------------------------------------------------
Access Road Kilometres 1.2 kilometres
- --------------------------------------------------------------------------------
- 2 -
During the nine months ended February 28, 2009 a total of 24,930 tonnes were
processed through the mill. This throughput level is significantly below design
production capabilities of the mill. In regards to milling operations it can be
stated that the facility, when operating, is functioning in line with design
parameters. The poor operating statistics are not the result of the mill not
being able to properly process the material which is delivered but the issue has
been having sufficient feed to run the mill at design parameters on a steady
state. As a result the mill operated on an intermittent basis during the
previous quarter and the mill was shut down all of December 2008.
In early January 2009 the mill resumed operations and processed 6,814 tonnes for
the months of January and February 2009. Production during this period was 560
ounces of gold and 17,289 ounces of silver. Subsequent to the quarter end
operations showed some improvement. During March 2009 a total of 4,105 tonnes
were milled with average grade of gold being 2.3 grams/tonne and silver being
299.4 grams/tonne. Through April 26, 2009 a total of 4,477 tonnes had been
milled with average grade of 1.6 grams/tonne gold and 313 grams/tonne silver.
Work on the plant expansion has been deferred pending completion of additional
financing. The cost to complete the expansion is estimated at US $530,000 with
the largest single item being mill liner costs of about US $150,000. The balance
of the budget is related to piping and electrical materials. Work on the new dry
tailings containment system is completed and testing is expected to commence in
early May 2009. The old tailings dam will be decommissioned once the new system
is fully functional. The new tailings dam is expected to be at full capacity in
August 2009.
The Falcon system has been installed but is not operational. There have been
issues which require additional testing.
The Company's production of precipitate is sold to Penoles and processed at
their refinery in Torreon. From early February until April 14, 2009 employees at
Penoles were on strike and as a result the Company could not ship its
production. As at April 28, 2009 the Company held 4.7 tonnes of precipitates in
inventory. The precipitates contain 49,374 ounces of silver and 491 ounces of
gold. While the labour disruption has ended Penoles is still going through its
start up and as of April 27, 2009 the Company had not resumed shipments, though
we anticipate being able to do so in early May 2009.
During the quarter ended February 28, 2009 production continued mainly from
Tajos Cuates, in the levels Hundido, Chalata and Socavon. A total of 1,717.7
metres were developed this quarter, 30.9 metres at Florida and the balance at
Tajos Cuates. The majority of mill feed will come from the Tajos Cuates area for
the balance of the fiscal year. The grades at Tajos Cuates have historically
been higher in silver. Through April 26, 2009 the average grade for the month of
April was 2.3 grams/tonne gold and 313 grams/tonne silver. It is expected that
production grades at Tajos Cuates for the balance of the year should be in the
range of 2.6 grams/tonne gold and 342 grams/tonne silver.
The issue of maintenance of mine operating scoop trams continued this quarter.
There are nine scoop trams in the fleet of which only four have been available
during the quarter ended February 28, 2009. As of April 28, 2009 six scoop trams
were operational.
In early April, the Company started to build the road to Macedo and El Gringo
area. Commencing in May 2009, the Company plans to begin a drift development
program of 750 metres and to have a new source of feed to reach 300 tonnes per
day. For this project the Company needs to have sufficient working capital at
the appropriate time.
During the quarter the Company received the results of an extensive review of
the geology, structural setting and mineralization of the Mina Real District,
Nayarit State, Mexico. The review was carried out by Dr. Tony Starling,
principal of Telluris Consulting Ltd. ("Telluris") of the United Kingdom, who
reported to Dr. Alfredo Parra, the Company's Qualified Person. Telluris is a
geological consultancy established in 1993 that specializes in the application
of structural and alteration studies to mineral deposits. Dr. Starling has 19
years experience in Mexico and has been instrumental in the discovery of several
new ore bodies throughout Mexico.
The Telluris report summarizes the results of a 12 day field visit to the Mina
Real Mine and project area in December 2008. The review and fieldwork at Mina
Real concentrated on viewing available underground workings and accessible
surface outcrops. Telluris was engaged to achieve a better understanding of
structural controls on mineralization at the Mina Real Property, and to assist
in identifying potential target areas for the Company's planned future
exploration and drill programs.
- 3 -
The principal conclusions were:
o There are three main deformation events evident in the district;
o The exposed mineralization appears to represent the uppermost levels of
an intermediate sulphidation epithermal system that has potential to be
expanded at both depth and along strike;
o The mineralization may have undergone both hydrothermal and structural
telescoping so that different stages of mineralization may be present
at the current topographic level;
o Within the main structures there is a strong control by early to
syn-mineralization andesite dykes whose margins have been
preferentially sheared. The same structures are also intruded by late-
to post-mineral basalt dykes that are magnetic, relatively fresh and
may provide a geophysical target;
o There may be an association with rhyolitic flow domes and the belief is
that this area is a good analogue with the Bolanos district (Jalisco).
COMPANIA MINERA
SANTA FE: The Santa Fe Property comprises one concession covering approximately
3,823 hectares. Compania Minera was established to hold the Santa Fe concession
and Mina Real holds a 70% interest in this entity. In addition the Company added
to its land position by staking directly an additional 13,164 hectares adjacent
to the Santa Fe concession.
Mina Real 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. At the Santa Fe Property there exists 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 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.
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 FEB 28/09 NOV 30/08 AUG 31/08 MAY 31/08 FEB 29/08 NOV 30/07 AUG 31/07 MAY 31/07
$ $ $ $ $ $ $ $
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
OPERATIONS:
Revenues 396,560 739,123 1,708,317 2,091,771 2,507,487 2,987,744 1,766,783 Nil
Cost of operations (953,775) (1,548,315) (2,198,874) (2,642,333) (2,084,709) (1,920,735) (1,315,838) Nil
Depletion and amortization (172,550) (108,405) (279,010) (622,410) (248,301) (261,933) (237,407) Nil
Expenses (588,334) (643,256) (536,695) (616,150) (533,379) (1,329,371) (948,083) (732,976)
Other items (2,278,638) (5,934,050) (55,314) (4,437) 93,210 50,585 (26,982) 142,406
Future income tax recovery 550,000 2,060,729 38,031 201,240 Nil Nil Nil Nil
Non-controlling interest
in subs. 23,893 Nil Nil Nil Nil Nil Nil Nil
Net loss (3,022,844) (5,434,174) (1,323,545) (1,592,319) (265,692) (473,710) (761,527) (590,570)
Basic and diluted loss
per share (0.07) (0.16) (0.04) (0.05) (0.01) (0.02) (0.03) (0.04)
Dividends per share Nil Nil Nil Nil Nil Nil Nil Nil
BALANCE SHEET:
Working capital (deficit) (1,649,629) (2,368,730) (1,096,519) 610,464 2,215,461 4,558,148 684,866 768,740
Total assets 29,322,815 30,362,530 35,776,363 35,728,415 35,555,850 34,657,344 30,539,200 30,770,564
Total long-term liabilities 1,434,938 1,614,397 1,182,922 693,429 Nil 125,100 368,740 615,193
Asset retirement obligation 684,466 669,389 648,640 640,006 627,387 615,217 603,447 590,894
Future income tax
liabilities 1,450,000 2,000,000 4,060,729 4,098,760 4,300,000 4,300,000 4,300,000 4,300,000
Non-controlling interest 2,523,395 Nil Nil Nil Nil Nil Nil Nil
------------------------------------ ------------------------------------------------- ----------
- 4 -
RESULTS OF OPERATIONS
During the nine months ended February 28, 2009 (the "2009 period") the Company
reported a net loss of $9,780,563, compared to a net loss of $1,500,929 for the
nine months ended February 29, 2008 (the "2008 period"), an increase in loss of
$8,279,634. The increase is mainly attributed to the $6,000,000 write-down of
mineral interests in November 2008 and the $2,033,041 loss on disposition of
interest in subsidiaries which resulted in a future income tax recovery of
$2,648,760, along with a $3,610,020 deterioration in operating profits resulting
from the operating problems at Mina Real and partially offset by a $1,312,130
decrease in stock-based compensation expense.
The Company recognized net revenue during the 2009 period of $2,844,000
generated on the sale of 3,722 ounces of gold equivalent, for an average of $764
net revenue per ounce (net of royalty and treatment charges).
-------------------- -------------------- -------------------- -------------------- --------------------
THREE MONTHS ENDING FEBRUARY 29, 2009 NOVEMBER 30, 2008 AUGUST 31, 2008 MAY 31, 2008 FEBRUARY 29, 2008
-------------------- -------------------- -------------------- -------------------- --------------------
Ounces of gold
equivalent 576 oz 928 oz 2,218 oz 2,416 oz 3,293 oz
-------------------- -------------------- -------------------- -------------------- --------------------
PER PER PER PER PER
TOTAL OUNCE TOTAL OUNCE TOTAL OUNCE TOTAL OUNCE TOTAL OUNCE
$ $ $ $ $ $ $ $ $ $
Net revenue 396,560 688.47 739,123 796.47 1,708,317 770.21 2,091,771 865.80 2,507,487 761.46
-------------------- -------------------- -------------------- -------------------- --------------------
Cost of operations 953,775 1,655.86 1,548,315 1,668.45 2,198,874 991.38 2,642,333 1,093.68 2,084,709 633.07
-------------------- -------------------- -------------------- -------------------- --------------------
Depletion
and amortization 172,550 299.57 108,405 116.82 279,010 125.79 622,410 257.62 248,301 75.40
-------------------- -------------------- -------------------- -------------------- --------------------
Operating profit(loss) (729,765)(1,266.95) (917,597) (988.79) (769,567) (346.96) (1,172,972) (485.50) 174,477 52.99
-------------------- -------------------- -------------------- -------------------- --------------------
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. During
February 2009, Penoles operations were suspended due to a labour disruption and
the Company was unable to ship its production. As a result the Company initiated
negotiations to identify alternate buyers. The Company was unable to conclude
agreements on terms that were acceptable. The labour dispute at Penoles was
settled on April 14, 2009 and the Company anticipates resuming shipments in
early May 2009.
The cost of operations for the nine months ending February 28, 2009 and February
29, 2008 comprise the following:
2009 2008
$ $
Mine costs 1,482,800 2,351,397
Mill costs 1,713,640 2,438,921
Service department costs 1,504,524 530,964
------------ ------------
4,700,964 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 ending February 28, 2009
and February 29, 2008 are as follows:
2009 2008
$ $
Accounting and administrative 81,010 69,510
Audit 74,019 59,885
Consulting 465,470 137,415
Corporate development 80,885 133,610
Insurance 15,750 23,080
Investor relations 80,000 70,000
Legal 19,724 20,200
Office 187,476 211,171
Regulatory fees 12,999 14,057
Rent - 14,133
- 5 -
2009 2008
$ $
Salaries and benefits 420,796 404,526
Shareholder costs 12,639 19,979
Transfer agent fees 8,174 13,908
Travel 89,702 107,190
------------ ------------
1,548,644 1,298,664
============ ============
General and administrative expenses of $1,548,644 were reported for the 2009
period, an increase of $249,980, from $1,298,664 in the 2008 period. Specific
expenses of note during the 2009 period as compared to the 2008 period are as
follows:
o accounting and administrative fees of $81,010 (2008 - $69,510) charged
by Chase Management Ltd. ("Chase") a private corporation owned by Mr.
Nick DeMare, a director of the Company;
o incurred audit fees of $74,019 for the audit of the Company's year-end
financial statements, an increase of $14,134 from $59,885 incurred in
2008;
o consulting fees totalling $465,470 (2008 - $137,413) were paid, of
which $182,909 (2008 - $91,651) were paid mainly to current and former
directors and officers and $137,618 (2007 - $18,439) was paid for
consultants in Mexico;
o corporate development expenses of $80,885 (2008 - $133,610) for ongoing
market awareness and promotional campaigns in Canada and Europe;
o $80,000 (2008 - $70,000) was paid to Empire Communications inc.
("Empire") to provide investor relations services;
o travel expenses of $89,702 (2008 - $107,190) for ongoing mine site
visits to Mexico and participation in investment conferences;
o incurred $15,750 (2008 - $23,080) for director and officers' liability
insurance;
o office expenses of $187,476 (2008 - $211,171) were incurred, of which
$174,394 (2008 - $190,752) was for costs associated with the mining
office in Mexico; and
o during the 2009 period salaries and benefits expense of $420,796 (2008
- $404,526) was paid mainly for the administrative staff in Mexico.
During the 2009 period the Company recorded stock-based compensation expense of
$62,000 on the granting of 200,000 stock options and $17,822 from vesting of
prior grants. During the 2008 period the Company recorded stock-based
compensation expense of $1,255,910 on the granting of 1,254,000 stock options
and $136,042 from vesting of prior grants.
Interest income is generated from cash held with the Company's financial
institution. During the 2009 period, the Company reported interest and other
income of $40,647 as compared to $31,188 during the 2008 period.
During the 2009 period the Company recorded a total of $6,121,595 (2008 -
$1,561,841) for additions to mineral property interests, of which $110,973 (2008
- - $248,130) was attributed to acquisition and deferred exploration activities on
the Santa Fe Property and $6,010,622 (2008 - $1,313,711) for deferred
exploration and development activities on the Mina Real Project. During the 2009
period the Company recognized a net $3,940,000 write-down ($6,000,000
write-down, offset by $2,060,000 future income tax recovery) on the carrying
cost of the Mina Real Project. A further loss of $2,033,041 was recognized on
the sale of the 20% interest of Mina Real. Exploration, development and
production activities conducted in the 2009 period are described in "Exploration
Projects" in this MD&A.
During the 2009 period, the Company recorded a total of $1,210,875 (2008 -
$1,041,147) for additions to property, plant and equipment of which $44,645
(2008 - $727,274) was for the purchase of land and $1,166,230 (2008 - $313,873)
was for the purchase of plant and equipment.
FINANCIAL CONDITION / CAPITAL RESOURCES
During the nine months ended February 28, 2009 the Company incurred a net loss
of $9,780,563 and, as at February 28, 2009, the Company had an accumulated
deficit of $17,289,127, a working capital deficit of $1,649,629 and non-current
portion of long-term debt totalling $1,434,938. The Company requires additional
- 6 -
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 recession has had 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 might be
necessary should the Company be unable to meet its obligations or continue
operations.
During the nine months ended February 28, 2009, the Company entered into
agreements to raise gross proceeds of $2,050,350 from the issuance of 9,223,000
common shares and $2,950,000 from the sale of a 20% equity interest in Mina
Real. This financing has not provided the Company with all the necessary funding
it requires to fully implement its work plans. The Company is currently working
on further financings to ensure the funds needed for the business plan are
available.
Subsequent to February 28, 2009 the Company completed a private placement for
8,209,750 units for gross proceeds of $1,641,950.
CONTRACTUAL OBLIGATIONS
The following table summarizes the Company's contractual obligations as of
February 28, 2009
PAYMENTS DUE BY PERIOD
------------------------------------------------------------
LESS THAN GREATER THAN
1 YEAR 1 TO 2 YEARS 2 YEARS TOTAL
$ $ $ $
------------ ------------ ------------ ------------
Contractual Obligations
Long-term debt 585,428 1,434,938 - 2,020,366
============ ============ ============ ============
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
ADOPTION OF NEW ACCOUNTING STANDARDS
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 nine months ended February 28,
2009.
- 7 -
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 Company has included the required disclosures recommended by Section 3862
and 3863 in Note 14 of these financial statements.
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. The Company has included the
required disclosures recommended by Section 1535 in Note 17 of these financial
statements.
NEW ACCOUNTING PRONOUNCEMENTS
GOODWILL AND INTANGIBLE ASSETS
The AcSB issued Section 3064, GOODWILL AND INTANGIBLE ASSETS, which replaces
Section 3062, GOODWILL AND OTHER INTANGIBLE ASSETS, and Section 3450, RESEARCH
AND DEVELOPMENT COSTS. This new section establishes standards for the
recognition, measurement, presentation and disclosure of goodwill subsequent to
its initial recognition and of intangible assets. This section applies to
interim and annual financial statements relating to fiscal years beginning on or
after October 1, 2008.
The Company does not anticipate the above new accounting standards to have an
impact on the Company's financial position and results of operations.
BUSINESS COMBINATIONS, CONSOLIDATED FINANCIAL STATEMENTS AND NON-CONTROLLING
INTERESTS
The CICA issued three new accounting standards in January 2009: Section 1582,
BUSINESS COMBINATIONS, Section 1601, CONSOLIDATED FINANCIAL STATEMENTS, and
Section 1602, NON-CONTROLLING INTERESTS. These new standards will be effective
for fiscal years beginning on or after January 1, 2011. The Company is in the
process of evaluating the requirements of the new standards.
Section 1582 replaces Section 1581, BUSINESS COMBINATIONS, and establishes
standards for the accounting for a business combination. It provides the
Canadian equivalent to International Financial Reporting Standards ("IFRS") 3,
BUSINESS COMBINATIONS. The section applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after January 1, 2011. Sections
1601 and 1602 together replace Section 1600, CONSOLIDATED FINANCIAL STATEMENTS.
Section 1601, establishes standards for the preparation of consolidated
financial statements. Section 1601 applies to interim and annual consolidated
financial statements relating to fiscal years beginning on or after January 1,
2011. Section 1602 establishes standards for accounting for a non-controlling
interest in a subsidiary in consolidated financial statements subsequent to a
business combination. It is equivalent to the corresponding provisions of IFRS
- 8 -
IAS 27, CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS, and applies to interim
and annual consolidated financial statements relating to fiscal years beginning
on or after January 1, 2011.
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 nine months ended February 28, 2009 and February 29, 2008
the Company was charged for various services provided by companies
controlled by current and former directors and officers of the Company,
as follows:
2009 2008
$ $
Accounting and administration 81,010 51,150
Management fees Nil 18,360
Professional fees 182,909 91,651
------------ ------------
263,919 161,161
============ ============
These fees have been either expensed to operations or capitalized to
mineral property interest based on the nature of the expenditures. As
at February 28, 2009, accounts payable and accrued liabilities include
$148,413 (2008 - $16,674) 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) The Company has received US $929,384 under a proposed convertible
debenture offering (the "Offering") with the directors of the Company.
Under the initial proposed terms of the Offering the convertible
debentures were expected to bear interest at a rate of 12% per annum
and mature on December 31, 2010. The convertible debentures would 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 would 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. The Company is currently negotiating the terms
of the Offering. The submission for regulatory approval to close this
Offering is pending upon re-negotiation.
The Company has recorded interest expense at a rate of 12% per annum on
the funds received. During the nine months ended February 28, 2009 the
Company recorded $76,609 interest expense, which has been included in
accounts payable and accrued liabilities.
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 environmentalapprovals. There is no assurance
- 9 -
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 2009
period, the Company was charged a total of $80,000 (2008 - $70,000) by Empire.
OUTSTANDING SHARE DATA
The Company's authorized share capital is unlimited common shares without par
value. As at April 28, 2009, there were 50,264,811 issued and outstanding common
shares. In addition there were 3,130,500 stock options outstanding at exercise
prices ranging from $0.50 to $2.30 per share and 7,715,190 warrants outstanding,
with exercise prices ranging from $0.17 to $0.75 per share.
- 10 -
FORM 52-109FV2
CERTIFICATION OF INTERIM FILINGS
VENTURE ISSUER BASIC CERTIFICATE
I, EDUARDO LUNA, 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 28, 2009.
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, with respect to 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, 2009
/s/ EDUARDO LUNA
- -----------------------
Eduardo Luna
Chief Executive Officer
- --------------------------------------------------------------------------------
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National
Instrument 52-109 CERTIFICATION OF DISCLOSURE IN ISSUERS' ANNUAL AND INTERIM
FILINGS (NI 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 NI 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 NI 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.
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FORM 52-109FV2
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 28, 2009.
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, with respect to 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, 2009
/s/ JOSE MANUAL SILVA
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Jose Manual Silva
Chief Financial Officer
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NOTE TO READER
In contrast to the certificate required for non-venture issuers under National
Instrument 52-109 CERTIFICATION OF DISCLOSURE IN ISSUERS' ANNUAL AND INTERIM
FILINGS (NI 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 NI 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 NI 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.
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