EXHIBIT 99.1
ACADIAN MINING CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Acadian Mining Corporation:
We have audited the consolidated balance sheets of Acadian Mining Corporation as
at December 31, 2008 and 2007 and the consolidated statements of loss and
comprehensive loss, deficit and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with Canadian and United States generally
accepted auditing standards. These standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2008
and 2007 and the results of its operations and cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.
Markham, Ontario "Wasserman Ramsay"
March 25, 2009 Chartered Accountants
except Note 18 which is Licensed Public Accountants
at July 16, 2009
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-US REPORTING DIFFERENCES
The reporting standards in the United States for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
Note 1 to the consolidated financial statements. Our report to the shareholders,
dated March 25, 2009, is expressed in accordance with Canadian reporting
standards which do not permit a reference to such events and conditions in the
auditors' report when these are adequately disclosed in the consolidated
financial statements.
Markham, Ontario "Wasserman Ramsay"
July 16, 2009 Chartered Accountants
Licensed Public Accountants
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
CONSOLIDATED BALANCE SHEETS - DECEMBER 31
2008 2007
ASSETS
Current:
Cash and cash equivalents (Note 7) $ 210,211 $ 3,022,868
Accounts receivable 619,297 4,957,044
Inventories (Note 12) 1,455,355 4,274,202
Prepaid expenses and deposits 177,543 325,404
-------------------------
2,462,406 12,579,518
Cash held for site remediation 1,612,500 1,562,500
Property, plant and equipment (Note 3) 11,496,431 24,463,613
Deferred mine development costs - 1,245,455
Investment Royal Roads Corp. (Note 14) 4,043,039 7,741,767
Mineral resource properties (Note 4) 14,046,331 15,450,583
-------------------------
$ 33,660,707 $63,043,436
=========================
LIABILITIES
Current:
Debtor in possession financing (Note 6) $ 170,000 $ -
Accounts payable and accrued liabilities 6,703,976 4,446,692
Capital lease obligation due within one year (Note 11) 4,753,821 1,247,506
Equipment loans payable (Note 11) 370,997 -
Due to Royal Roads Corp. (Note 6) 2,778,367 -
-------------------------
$ 14,777,161 $ 5,694,198
-------------------------
Accrued site remediation 1,017,002 990,777
Obligation under capital lease (Note 11) - 4,169,661
-------------------------
1,017,002 5,160,438
-------------------------
SHAREHOLDERS' EQUITY
Capital stock (Note 5) 57,116,962 57,449,188
Contributed surplus (Note 10) 5,829,343 2,345,076
Deficit (45,079,761) (7,605,464)
-------------------------
17,866,544 52,188,800
-------------------------
$ 33,660,707 $63,043,436
=========================
See Description of operations, basis of presentation
and going concern issue - (Note 1)
See Commitments - (Note 7)
Approved on behalf of the Board:
"G. William Felderhof" "Terrence F. Coughlan"
G. William Felderhof, Director Terrence F. Coughlan, Director
The accompanying notes form an integral part of these consolidated financial
statements
ACADIAN MINING CORPORATION
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
2008 2007
Revenue
Lead sales $ 11,421,567 $ 2,695,256
Zinc Sales 14,895,614 7,038,791
--------------------------
26,317,181 9,734,047
--------------------------
Cost of sales
Production costs 27,490,838 9,068,838
Depreciation, depletion and amortization 3,729,665 1,100,410
Accretion 27,807 18,402
--------------------------
31,248,310 10,187,650
--------------------------
Gross Profit (loss) (4,931,129) (453,603)
==========================
Expenses
Amortization $ 81,121 $ 83,421
Filing fees 75,687 236,995
Insurance 350,820 218,243
Financing charges (Note 13) 543,073 164,757
Investor relations and shareholder information 279,074 453,067
Office and general 714,869 343,025
Professional fees (Note 6) 1,287,936 628,948
Rent 94,028 90,825
Royalties 513,571 200,317
Salaries and benefits 2,364,432 1,441,959
Stock-based compensation expense 317,610 1,995,185
Supplies 584,073 84,416
Transfer agent fees 78,240 26,218
Travel 176,708 201,558
--------------------------
7,461,242 6,168,934
--------------------------
Operating loss before impairment charge, investment income and share investees (12,392,371) (6,622,537)
Interest and other income (Note 13) 89,017 411,039
Share of income (loss) of investees accounted for using the equity method (420,943) (189,481)
Impairment charge (24,750,000) -
--------------------------
Net loss before income tax (37,474,297) (6,400,979)
Future income tax recovery - (1,029,240)
--------------------------
Net loss and comprehensive loss for the year $(37,474,297)$ (5,371,739)
==========================
Loss per share - basic and diluted $ (0.26)$ (0.05)
==========================
Weighted average number of shares outstanding - basic and diluted 146,248,770 116,561,926
--------------------------
The accompanying notes form an integral part of these consolidated financial
statements
ACADIAN MINING CORPORATION
CONSOLIDATED STATEMENTS OF DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
2008 2007
$ $
Deficit, beginning of year $ (7,605,464)$(2,233,725)
Net loss for the year (37,474,297) (5,371,739)
-------------------------
Deficit, end of year $(45,079,761)$(7,605,464)
=========================
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
2008 2007
Cash was provided by (used in) the following activities:
Operating:
Net loss for the year $(37,474,297)$ (5,371,739)
Item not requiring an outlay of cash:
Impairment charge 24,750,000 -
Depreciation, depletion and amortization 3,810,786 1,265,252
Accretion 26,225 18,402
Future income tax - (3,147,845)
Non-controlling interest in earnings 420,943 189,481
Stock-based compensation 317,610 1,995,185
Net change in non-cash working capital items (Note 9) 9,542,991 (5,889,568)
--------------------------
1,394,258 (10,940,832)
--------------------------
Investing:
Expenditures on mineral resource properties (4,295,790) (4,095,762)
Acquisitions, net of cash acquired - -
Investment and advances investee 56,820 -
Acquisition of ScoZinc Royalty - (1,362,121)
Mine development costs - (1,245,455)
Purchase of Property, plant and equipment (5,196,393) (17,330,683)
--------------------------
(9,435,363) (24,034,021)
--------------------------
Financing:
Issuance of shares capital - net of cash costs and flow-through funds 2,873,941 27,795,151
Redemption and cancellation of common shares (81,511) -
Proceeds of equipment financing (net of repayments) 370,997 -
Proceeds of capital lease financing 585,600 7,363,010
Repayment of capital lease obligation (1,248,946) (1,945,843)
Loan from Royal Roads Corp. 2,778,367 -
Net change in Flow-through funds - 2,706,558
Cash held for site remediation (50,000) (1,562,500)
--------------------------
5,228,448 34,356,376
--------------------------
Net change in cash and cash equivalents for the year (2,812,657) (618,477)
Cash and cash equivalents, beginning of the year 3,022,868 3,641,345
--------------------------
Cash and cash equivalents, end of the year $ 210,211 $ 3,022,868
==========================
The accompanying notes form an integral part of these consolidated financial
statements
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
1. Description of operations, basis of presentation and going concern
issues
Scozinc Limited Companies' Creditor Arrangement Act Proceedings
On December 22, 2008, Acadian Mining Corporation's (the "Company")
wholly owned subsidiary Scozinc Limited ("ScoZinc"), requested and was
granted protection under the Companies' Creditors Arrangement Act
("CCAA") for an initial period of 30 days. This was subsequently
extended by the Nova Scotia Supreme Court ("Court") until May 22, 2009.
The purpose of the protection and extension is to enable ScoZinc to
conclude all operations and complete necessary mine site remediation
efforts in order to put the mine site on care and maintenance. It will
also enable ScoZinc to prepare a plan of arrangement or compromise for
submission to its creditors and to the Court - Scozinc mining and
milling operations ceased March 24, 2009.
Under the terms of the initial order, Grant Thornton Limited, was named
court appointed monitor under the CCAA Proceedings. The Monitor will
report to the court from time to time on the financial and operational
position of the Company as well as any other matters deemed relevant to
the CCAA Proceedings.
As a consequence of the CCAA Proceedings, all actions to enforce or
otherwise effect payment or repayment of any liabilities preceding the
petition date (December 22, 2008) have been stayed until May 22, 2009.
As part of the CCAA Proceedings, ScoZinc obtained an order granting it
access to Debtor in Possession financing ("DIP" financing) of up to
$1.0 million. The DIP order grants TCE Capital Corporation (the DIP
provider) a priority charge and security interest in all of the
property of ScoZinc as security for repayment of amounts advanced
pursuant to the DIP Facility. In the initial order the Company was
granted approval for temporary DIP financing of up to $250,000 provided
by two officers of the Company, which was subsequently repaid from
funds advanced by TCE Capital Corporation. The Company estimates that
ScoZinc will be cash flow negative in the amount of approximately
$900,000 during the CCAA proceedings and that the DIP lender will be
required to realize on ScoZinc's assets or rely on its guarantee from
the Company to recover their advances.
As a result of this filing the Company's long term debt, including
capital lease obligations and equipment financing, was in default and
has therefore been reclassified as current liabilities.
Contributing factors
The selling price of base metal minerals decreased dramatically during
the course of the current year and particularly after November 1st
which, in combination with certain production issues at ScoZinc's mine
site resulted in the Company incurring operational losses, facing an
increase in debt load and becoming unable to meet its cash flow
requirements. This occurred in combination with the collapse of the
equity and debt financing markets associated with the current global
credit crisis and therefore the Company was unable to secure any
additional long term debt or equity financing to help mitigate the
financial impact of these issues.
Impairment charge
As a result of the matters described in the preceding paragraphs it was
necessary to assess the recoverability of the carrying value of
ScoZinc's mining assets. The Company reviewed the impact of the above
noted variables, including the CCAA Proceeding and the cessation of
mining operations. The estimated realizable value was then calculated
by estimating the future cash flow which includes; estimating
recoverable reserves; future metal prices and foreign exchange rates;
and, estimating future operating and capital costs.
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
1. Description of operations, basis of presentation and going concern
issues (Continued)
Based on the financial matters described above and the current business
environment it is not possible to accurately determine the estimated
realizable value of the mine equipment and mineral properties. It is
also not possible, at this time, to determine whether or not the
Company will continue as a going concern and realize its assets and
discharge its liabilities and commitments in the ordinary course of
business. Should the Company be unable to continue as a going concern,
further write downs will likely occur and they will likely be material.
As well, given that the CCAA process being undertaken by ScoZinc is
incomplete and additional financing has not been completed, further
material write-downs could occur. This preliminary valuation represents
management's best estimate at this time. Based on this review, the
Company recorded an asset impairment charge of $24,750,000 during the
year ended December 31, 2008. The allocation of the impairment charge
against the various asset classes is as noted below:
Mining equipment and pit costs $14,800,000
Mineral properties and deferred exploration expenditures 5,362,000
Deferred Mine development costs 1,368,000
Investment in Royal Roads Corp. 3,220,000
--------------
Total impairment charge $24,750,000
==============
The investment in Royal Roads Corp. ("RRO") has a market value as at
December 31, 2008 of $981,500. This is a long term investment of the
Company and the carrying value has been adjusted to the 29.18%
ownership applied to the December 31, 2008 book value of RRO
representing management's estimate of the fair value of the investment.
Financing Update
Management of the Company continues to pursue debt and/or equity
funding to resolve its current financial position, investigate possible
asset sales and seek potential partners to advance its gold mineral
properties to the development and mining stage. In this regard on March
17, 2009 the Company announced it had entered into an agreement with
Golden River Resources Corporation ("Golden River") to complete a
private placement of up to 338,111,334 common shares for aggregate
proceeds of up to $10,000,000. The first tranche of $1.0 million
dollars (38,111,334 shares at $0.026 per share) is subject to
regulatory approvals and is expected to occur in one or more closings
on or before April 10, 2009. The second tranche of $9.0 million
(300,000,000 shares at $0.03 per share) will close in one or more
closings and is subject to the completion of due dilligence by Golden
River, the resolution of ScoZinc's CCAA Proceedings, the acquisition by
the Company of the remaining 50% interest in the Fifteen Mile Stream
mineral claims for a cash payment of $70,000, a non-interest bearing
note payable for $1.0 million due one year from the date of acquisition
and a 1% Net Smelter Royalty to Mr. Will Felderhof, President of the
Company and members of his family, as well as shareholder and
regulatory approval.
Basis of presentation and going concern issues
These financial statements have been prepared in accordance with
Canadian generally accepted accounting principles on a going concern
basis, which presumes the ScoZinc will continue in operations for the
foreseeable future and will be able to realize its assets and discharge
its liabilities and commitments in the ordinary course of business. The
events noted above bring into question this assumption.
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
1. Description of operations, basis of presentation and going concern
issues (Continued)
As at December 31, 2008, the Company has negative working capital in
the amount of $12,314,755 and shareholders equity in the amount of
$17,860,493. While ScoZinc is under CCAA protection, these financial
statements have been prepared using the going concern basis which
assumes the Company will be able to realize its assets and discharge
its liabilities in the normal course of business for the foreseeable
future. The CCAA provides ScoZinc with a period of time to wind down
its operations and pursue additional financing. This allowed the
Company to pursue other financial options including additional
financing, sale of assets or a partner for its gold properties. Should
the going concern assumption prove not to be appropriate further
adjustments will be required to the carrying amounts and/or
classification of the Company's assets and liabilities and the
adjustments are likely to be material. The consolidated financial
statements do not reflect any adjustments related to conditions that
occurred subsequent to December 31, 2008.
The consolidated financial statements do not purport to reflect or
provide for the consequences of the CCAA Proceedings. Specifically,
these financial statements do not purport to show assets at their net
realizable value on a liquidation basis or their availability to
satisfy liabilities.
2. Accounting policies
The financial statements of the Company have been prepared by
management in accordance with Canadian generally accepted accounting
principles. The financial statements have, in management's opinion,
been properly prepared within reasonable limits of materiality and
within the framework of the accounting policies summarized below:
(a) Basis of Consolidation
The Company accounts have been consolidated with its
subsidiary, ScoZinc Limited. The Company accounts were
consolidated with Royal Roads Corp. until March 31, 2007.
Subsequent to March 31, 2007 Royal Roads Corp. issued shares
sufficient to drop the Company's holdings to less than fifty
percent. The financial statements now include Royal Roads
Corp. activities on an equity accounted basis.
In accordance with the Company's stated accounting policy,
long lived assets are reviewed and evaluated for impairment
whenever events or changes in circumstances indicate the
carrying amount of an asset may not be recoverable. Management
reviewed the recoverability based on the decline in world base
metal prices and the lack of credit facilities which have
negatively impacted base metals mines.
(b) Cash and cash equivalents
Cash and cash equivalents consists of cash, demand deposits
and highly liquid short term investments with an initial term
of 90 days or less.
(c) Revenue recognition and receivables
Revenue is recognized at the time that the crushed ore is
shipped, which is also the time that title transfers. The
crushed ore is sold under contracts that provide for the final
prices to be determined by the quoted market prices in a
period subsequent to the date of sale. Revenue is recorded
using a provisional pricing based on the market prices in the
month of shipment and the assayed amount of minerals contained
in the crushed ore.
Variations between the price recorded at shipment and the
final prices are caused by changes in the market and result in
an embedded derivative in accounts receivable. The embedded
derivative is recorded at fair value each period until the
final settlement occurs, with changes in the fair value
classified as a component of revenue.
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
2. Accounting policies (Continued)
(d) Inventories
Inventory is recorded at the lower of cost and net realizable
value. The classifications include stockpiled ore, in-process
inventory, finished goods inventory and materials. The costs
of production inventory include direct production costs and
attributable overheads including amortization and accretion
expenses.
Stockpiles are comprised of coarse ore that has been extracted
from the mine and is awaiting further processing. Mining
production costs are added to the stockpiles as incurred and
removed from the stockpile based on an average cost per tonne
as the material is moved to a further phase of production.
In process and concentrate inventories include costs of the
ore removed from the stockpile as well as mill production
costs incurred to convert the ore into a saleable product.
Costs are determined on an average basis.
Mine and mill supplies include equipment parts, fuel and
reagents consumed in ore processing. Materials and supplies
are valued at the lower of average cost or replacement cost.
(e) Mining interests and deferred development and exploration
expenditures
It is the Company's policy to defer expenditures related to
the exploration and development of its mining properties,
including direct administrative expenditures, until such time
as they are brought into production or are deemed economically
unfeasible. Upon commencement of commercial production, the
cost of acquiring the mining property and all related deferred
exploration and development expenditures will be amortized on
a unit of production basis. Should the properties be abandoned
or be determined to be economically unfeasible they will be
written off in their entirety.
(f) Stripping Costs
The Company accounts for stripping costs according to CICA
Emerging Issues Committee (EIC) No. 160, "Stripping Costs
Incurred in the Production Phase of a Mining Operation".
EIC-160 clarifies the treatment of costs associated with
activity of removing overburden and other mine waste materials
in the production stage and requires that these costs be
charged to income in the period in which they are incurred,
except when the stripping activity provides a betterment to
the property. Costs represent a betterment when the stripping
provides access to reserves that will be produced in future
periods that would not have otherwise been accessible in the
absence of the activity.
(g) Property, plant and equipment
Property, plant and equipment are recorded at cost.
Depreciation is provided for on head-office assets using the
declining balance method at the following annual rates (in the
year of acquisition one-half of the calculated depreciation is
recognized):
Vehicles 30%
Building 5%
Office fixtures and computer equipment 20%
Assets from the ScoZinc acquisition are depreciated on a
straight line balance method over the expected life of the
mine at thirteen and one half years, assets under capital
lease are depreciated on a straight line basis over the four
year term of the lease.
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
2. Accounting policies (Continued)
(h) Leases
Leases meeting certain criteria are accounted for as a capital
lease. Imputed interest is charged against income. The
capitalized value of the assets is depreciated over the term
of the lease. The Company has entered into leasing agreements
of four year terms for mining equipment. Obligations under
capital leases are reduced by the rental payments net of
imputed interest. All other leases are treated as operating
lease.
(i) Stock based compensation
The Company has a stock-based compensation plan that is
described in Note 6. The CICA Handbook, Section 3870,
establishes standards for the recognition, measurement and
disclosure of stock-based compensation and other stock-based
payments for goods and or services. The Section requires that
awards of stock be measured at fair value.
(j) Earnings per share
The Company has adopted the new recommendations of the CICA
Handbook section 3500, Earning per Share ("EPS"). The revised
section requires the presentation of both basic and diluted
EPS on the face of the income statement regardless of the
materiality of the difference between them. In addition, the
new recommendations require the use of the treasury stock
method to compute the dilutive effects of options, warrants
and similar instruments as opposed to the previous method used
which was the imputed earnings approach. The section also
requires the disclosure of a reconciliation of the calculation
of basic and diluted EPS.
(k) Flow-though shares
The Company accounts for the future income tax effect of
flow-through share offerings as laid out in Emerging Issues
Committee ("EIC") 146. As required under EIC 146 any future
income tax effect of the flow-through offering is recognized
as a share issue expense in the period in which the
expenditures are renounced under the provision of the Income
Tax Act.
(l) Reclamation and Closure Costs
Effective January 1, 2004, the Company adopted CICA 3110,
"Asset Retirement Obligations" which requires that the
estimated fair value of liabilities for asset retirement
obligations be recognized in the period in which they are
incurred. A corresponding increase to the carrying amount of
the related asset is recorded and depreciated over the life of
the asset. The estimates used in the valuations are based
primarily on legal and regulatory requirements. It is possible
that the Company's estimates of its ultimate reclamation and
closure liabilities could change as a result of changes in
regulations, the extent of environmental remediation required,
the means of reclamation or cost estimates. Changes in
estimates are accounted for prospectively from the period the
estimate is revised.
(m) Long-lived assets
The Company monitors the recoverability of long-lived assets,
based on factors such as current market value, future asset
utilization, business climate and future undiscounted cash
flows expected to result from the use of the related assets.
The Company's policy is to record an impairment loss in the
period when it is determined that the carrying amount of the
asset may not be recoverable. The impairment loss is
calculated as the amount by which the carrying amount of the
asset exceeds the undiscounted estimate of future cash flows
from the asset.
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
2. Accounting policies (Continued)
(n) Financial instruments
Effective January 1, 2007, the Company adopted the following
new CICA Handbook sections regarding financial instruments:
(i) Section 3855, Financial Instruments - Recognition and
Measurement; (ii) Section 3861 - Financial Instruments -
Disclosure and Presentation; (iii) Section 3865, Hedges; and
(iv) Section 1530 - Comprehensive Income.These sections
provide standards for recognition, measurement, disclosure and
presentation of financial assets, financial liabilities and
non-financial derivatives. The standard requires all financial
instruments within its scope, including derivatives, to be
included on the balance sheet and measured either at fair
value or in certain circumstances at cost or amortized cost.
Changes in fair value are recognized in either the statement
of operations or the statement of comprehensive income.
All financial assets and liabilities are classified into one
of the following five categories: held for trading, held to
maturity, loans and receivables, available for sale financial
assets, or other financial liabilities. Held for trading
financial assets are measured at fair value and changes are
recognized in net income; available for sale financial assets
are measured at fair value with changes recorded in other
comprehensive income until the investment is derecognized or
impaired at which time the amounts would be recorded in net
income. Loans and receivables, held to maturity investments
and other financial liabilities are measured at amortized
cost.
Under the new standards, policies followed for periods prior
to the effective date generally are not reversed and
therefore, the comparative figures have not been restated. The
adoption of these Handbook sections had no impact on the
opening retained earnings.
The Company has designated its cash and cash equivalents as
held for trading, which are measured at fair value. Accounts
receivable are classified as loans and receivables which are
measured at amortized cost. As mentioned in Note 2(c) the
Company's accounts receivable from mineral sales have an
embedded derivative due to the price fluctuations in the
quoted market prices. Under the new standards, embedded
derivatives are treated as separate derivatives if their
economic characteristics and risks are not clearly or closely
related to that of the host instrument, the terms of the
embedded derivative are the same as those of a stand alone
derivative, and the combined contract is not held for trading
or designated at fair value. These embedded derivatives are
measured at fair value at each balance sheet date with
subsequent changes recognized in net earnings (loss) in the
period the changes arise. Accounts payable and accrued
liabilities are classified as other financial liabilities. The
Company has neither available for sale or held to maturity
instruments.
As at December 31, 2008 the fair values of the Company's
assets and liabilities approximate their carrying value due to
the relatively short maturity or current market rate
associated with these instruments.
Section 3865 of the CICA Handbook specifies the circumstances
under which hedge accounting is permissible and how hedge
accounting may be performed. The Company currently does not
hold any financial instruments designated for hedge
accounting.
Section 1530 of the CICA Handbook introduces the term
Comprehensive income, which consists of net earnings and other
comprehensive income (OCI). Comprehensive income represents
changes in Shareholders equity during the period arising from
transactions and other events with non-owner sources. OCI
includes gains and losses unrealized from available for sale
assets, that are excluded from net earnings in accordance with
GAAP. The Company currently has not designated any instruments
as available for sale and therefore does not currently have
any OCI.
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
2. Accounting policies (Continued)
(o) Future income taxes
The Company accounts for income taxes under the asset and
liability method. The difference between the tax basis of
assets and liabilities and their carrying value on the balance
sheet is used to calculate future tax assets and liabilities.
The future tax assets and liabilities have been measured using
substantively enacted tax rates that will be in effect when
the differences are expected to reverse.
(p) Foreign Currency Translation
Revenues and expenses denominated in foreign currencies are
translated into Canadian dollars at the average exchange rate
for the period.
(q) Investment in Company Subject to Significant influence
Investments in companies subject to significant influence are
carried using the equity method of accounting under which the
investment is originally recorded at costs and is adjusted for
the investors share of the investees income or loss. The
investment in companies subject to significant influence will
be written down when there is a decline in value that is other
than temporary.
(r) Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements
and the reported amount of revenues and expenses during the
period. Actual results may differ from those estimates.
(s) Changes in Accounting policies
The Canadian Institute of Chartered Accountants ("CICA")
issued the following new Handbook Sections, which were
effective for interim periods beginning on or after October 1,
2007 and were adopted in the current fiscal year:
i) Section 3862, "Financial Instruments - Disclosures",
describes the required disclosure for the assessment
of the significance of financial instruments for an
entity's financial position and performance and of
the nature and extent of risks arising from financial
instruments to which the entity is exposed and how
the entity manages those risks. This section and
Section 3863, "Financial Instruments - Presentation"
replaced Section 3861, "Financial Instruments -
Disclosure and Presentation".
ii) Section 3863, "Financial Instruments - Presentation",
establishes standards for presentation of financial
instruments and nonfinancial derivatives.
iii) Section 1535, "Capital Disclosures", establishes
standards for disclosing information about an
entity's capital and how it is managed. It describes
the disclosure requirements of the entity's
objectives, policies and processes for managing
capital, the quantitative data relating to what the
entity regards as capital, whether the entity has
complied with capital requirements, and, if it has
not complied, the consequences of such
non-compliance.
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
2. Accounting policies (Continued)
(s) Changes in Accounting policies (Continued)
The additional disclosures, required as a result of
the adoption of (i) Sec 3862 and 3863, have been
included in Note 15, Financial Instruments and (ii).
Sec 1535, have been included in Note 16, Capital
management.
iv) In June 2007, the CICA issued Section 3031,
"Inventories", to harmonize accounting for inventories
under Canadian GAAP with IFRS. This standard requires
the measurement of inventories at the lower of cost and
net realizable value and includes guidance on the
determination of cost, including allocation of
overheads and other costs to inventory. The standard
also requires the consistent use of either first-in,
first-out (FIFO) or weighted average cost formula to
measure the cost of inventories and requires the
reversal of previous write downs to net realizable
value when there is a subsequent increase in the value
of inventories. The new standard applies to fiscal
years beginning on or after January 1, 2008. The
Company adopted this standard on January 1, 2008.
(t) Accounting pronouncements applicable to future periods
i) Sections 3064 and 1000 - Goodwill and Intangible
Assets
In February 2008, the CICA issued new Section 3064,
"Goodwill and intangible assets", replacing Section
3062, "Goodwill and Other intangible assets", and
Section 3450, "Research and development costs".
Section 3064 addresses when an internally developed
intangible asset meets the criteria for recognition
as an asset. The Section also issued amendments to
Section 1000, "Financial Statement Concepts". These
changes are effective for fiscal years beginning on
or after October 1, 2008, with earlier adoption
permitted, and will be adopted by the Company
effective January 1, 2009. The objectives of the
changes are to reinforce a principles-based approach
to the recognition of costs as assets and to clarify
the application of the concept of matching revenues
and expenses in Section 1000. Collectively, these
changes bring Canadian practice closer to
International Financial Reporting Standards and U.S.
GAAP by eliminating the practice of recognizing as
assets a variety of startup, preproduction and
similar costs that do not meet the definition and
recognition criteria of an asset. The Company has
determined that adoption of the new standards will
not have a significant effect on the Company's
financial statements.
ii) International Financial Reporting Standards ("IFRS")
The CICA plans to require public companies to adopt
IFRS effective no later than January 1, 2011.
Management is planning to review the transition to
IFRS and determine the potential impact, if any, on
the Company's consolidated financial statements.
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
3. Property, plant and equipment
Accumulated Impairment
Cost Depreciation Charge Net
Office:
Building $ 120,840 $ 9,457 $ - $ 111,383
Automotive equipment 122,748 46,366 - 76,382
Equipment 165,000 29,550 - 135,450
Office fixtures and computer equipment 525,732 155,345 - 370,387
-------------------------------------------------
934,320 240,718 - 693,602
-------------------------------------------------
Mine site:
Land 566,950 - - 566,950
Building 2,370,491 283,628 - 2,086,863
Automotive equipment 392,547 97,153 - 295,394
Mobile equipment under capital lease 8,183,999 2,551,611 1,878,500 3,753,888
Equipment 18,709,641 1,688,407 12,921,500 4,099,734
-------------------------------------------------
30,223,628 4,620,799 14,800,000 10,802,829
-------------------------------------------------
Balance December 31, 2008 $31,157,948 $ 4,861,517 $14,800,000 $11,496,431
=================================================
Office:
Building $ 53,932 $ 5,355 $ - $ 48,577
Automotive equipment 72,394 24,421 - 47,973
Equipment 165,000 14,775 - 150,225
Office fixtures and computer equipment 335,719 63,636 - 272,083
-------------------------------------------------
627,045 108,187 - 518,858
-------------------------------------------------
Mine site:
Land 83,761 - - 83,761
Building 2,238,454 106,224 - 2,132,230
Automotive equipment 321,656 32,166 - 289,490
Equipment 7,451,450 728,991 - 6,722,459
15,235,954 519,139 - 14,716,815
-------------------------------------------------
25,331,275 1,386,520 - 23,944,755
-------------------------------------------------
Balance December 31, 2007 $25,958,320 $ 1,494,707 $ - $24,463,613
=================================================
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
4. Mineral resource properties
Mineral resource properties consist of the following:
Accumulated Impairment
Cost Depreciation Charge Total
Nova Scotia:
Forest Hill $1,347,481 $ 2,174,760 $ - $ 3,522,241
Beaver Dam 564,762 4,546,424 - 5,111,186
Tangier 290,598 476,426 - 767,024
Goldenville 183,483 598,275 - 781,758
ScoZinc Mine(1) 2,756,289 722,305 3,478,594 -
Other 1,499,887 4,247,641 1,883,406 3,864,122
-----------------------------------------------
Balance December 31, 2008 $6,642,500 $ 12,765,831 $5,362,000 $14,046,331
===============================================
Nova Scotia:
Forest Hill $1,345,245 $ 2,086,774 $ - $ 3,432,019
Beaver Dam 556,470 4,252,703 - 4,809,173
Tangier 282,580 362,170 - 644,750
Goldenville 178,892 572,807 - 751,699
ScoZinc Mine 2,452,494 666,205 - 3,118,699
Other 838,709 1,855,534 - 2,694,243
-----------------------------------------------
Balance December 31, 2007 $5,654,390 $ 9,796,193 $ - $15,450,583
===============================================
(1) As of July 1, 2007, ScoZinc Limited's Scotia Mine property is being
amortized over the expected life of the mine, which was eight years. The
costs are net of accumulated amortization of $479,836 (2007-$49,756).
(2) In accordance with the Company's stated accounting policy, long lived
assets are reviewed and evaluated for impairment whenever events or changes
in circumstances indicate the carrying amount of an asset may not be
recoverable. Management reviewed the recoverability based on the decline in
world base metal prices and the lack of credit facilities which contributed
to its subsidiary ScoZinc Limited seeking protection under the Companies'
Creditors Arrangement Act.
Based on the review, the Company recorded an impairment charge which was
allocated to the open pit at Scotia Mine, zinc milling, mining and storage
assets and base metal claims associated with the Scotia Mine.
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
5. Capital Stock
Authorised:
Unlimited number of common shares
Unlimited number of preference shares
Capital stock is made up as follows: 2007 2008
Warrants (i) $ 3,330,829 $53,900
Unlimited number of preference shares (ii) 54,118,359 57,063,062
------------------------------
$ 57,449,188 $57,116,962
==============================
(i) Warrants issued:
Balance December 31, 2006 $ 1,190,561
Issued during the year - private placements 2,888,883
Value allocated to common shares on exercise (748,615)
--------------
Balance December 31, 2007 3,330,829
Broker warrants issued 53,900
Value of expired warrants allocated to contributed surplus (3,330,829)
--------------
Balance December 31, 2008 $ 53,900
==============
(ii) Common shares issued: # of shares $ value
Balance December 31, 2006 106,658,941 29,708,038
Issued for mining properties 117,500 112,275
Options exercised 330,000 127,905
Warrants exercised 15,931,466 8 ,829,314
Warrant value allocated to common shares on
exercise 748,615
Private placement 19,050,000 17,854,059
Less: Share issue costs (3,261,847)
------------------------------
Balance December 31, 2007 142,087,907 54,118,359
Issued for mining properties 120,000 42,000
Options exercised 350,000 208,000
Warrants exercised (155,000) (51,589)
Warrant value allocated to common shares on
exercise
Private placement 11,000,000 3,000,000
Less: Share issue costs (253,708)
------------------------------
Balance December 31, 2008 153,402,907 $57,063,062
==============================
(a) During the prior year the Company completed a private
placement for a total of 19,050,000 equity units ("Units") at
a price of $1.05 per Unit for aggregate gross proceeds of
$20,002,500 ("Offering"). Each Unit consisted of one common
share and one-half of one common share purchase warrant
("Warrant"). One whole Warrant entitled the holder to
subscribe for one common share for $1.35 at any time until
September 30, 2008. The Warrants were allocated a value of
$1,492,520. None of the warrants were exercised before they
expired.
The Company paid the underwriters a work fee and a cash
commission equal to 6.75% of the proceeds of the Offering and
issued warrants to acquire 1,285,875 Underwriter Unit
Warrants. The Underwriter Unit Warrants were exercisable at
$1.05 at any time until July 21, 2008. Each Underwriter Unit
Warrant was comprised of one Common Share and one quarter of
one Common Share purchase warrant, with each whole warrant
entitling the holder to acquire one Common Share at $1.35 at
any time July 21, 2008. None of the Underwriter Unit Warrants
were exercised before they expired. # The securities issued in
connection with the Offering were subject to a four month hold
period from the date of issue.
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
5. Capital Stock (Continued)
(b) During the year the Company completed a private placement for
6,000,000 common shares at a price of $0.25 per share and
5,000,000 flow-through common shares at a price of $0.30 for
aggregate gross proceeds of $3,000,000.
The Company paid the underwriters a work fee and a cash
commission equal to 6% of the proceeds of the private
placement and issued Broker warrants to acquire 220,000 common
shares at $0.30 per common share exercisable anytime until
September 2, 2009.
The securities issued in connection with the Offering were
subject to a four month hold period from the date of issue.
Stock-based compensation plan
The Company has a common share purchase option plan (the "Plan") for
directors, officers, and employees. Options granted under the Plan have
a five-year term. Options are granted at a price no lower than the
market price of the common shares at the time of the grant.
A summary of the Company's options at December 31, 2007 and December
31, 2008 is presented below:
Options Weighted-Average
Outstanding Exercise Price
-----------------------------------
At December 31, 2006 5,377,000 $0.46
Exercised (330,000) $0.20
Cancelled (300,000) $1.10
Granted 3,300,000 $1.03
-----------------------------------
8,047,000 $0.68
At December 31, 2007
Granted 685,000 $0.58
Cancelled (350,000) $1.10
Expired (1,172,000) $0.35
Exercised (350,000) $0.20
-----------------------------------
At December 31, 2008 6,860,000 $0.80
===================================
The weighted average exercise price of options granted during the year
was $0.46 (2007 - $0.60)
The following table summarizes information about the options
outstanding at December 31, 2008:
Options
Exercise Outstanding and Remaining
Price Exercisable Contractual Life
-------------------------------------------
$ 0.38 200,000 .1 years
$ 0.20 475,000 .8 years
$ 0.18 125,000 4.8 years
$ 0.82 100,000 3.9 years
$ 0.71 1,500,000 2.3 years
$ 0.53 1,350,000 2.9 years
$ 1.12 350,000 3.3 years
$ 1.00 2,000,000 3.5 years
$ 1.01 200,000 3.7 years
$ 0.71 2,000,000 3.5 years
$ 1.01 260,000 4.2 years
$ 0.58 300,000 4.5 years
----------------------------------
6,860,000 3.0 years
==================================
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
5. Capital Stock (Continued)
The following table summarizes information about the options
outstanding at December 31, 2007:
Exercise Options Outstanding Remaining
Price and Exercisable Contractual Life
-----------------------------------------------------------------
$0.20 825,000 0.4 years
$0.35 1,172,000 0.9 years
$0.38 200,000 1.1 years
$0.71 1,500,000 1.8 years
$0.53 1,350,000 3.9 years
$1.12 350,000 4.7 years
$1.00 2,000,000 4.5 years
$1.01 250,000 4.3 years
$1.10 300,000 0.3 years
$0.82 100,000 4.9 years
------------------------------------------
8,047,000 3.0 years
==========================================
Share purchase warrants
A summary of the Company's warrants at December 31, 2007 and December
31, 2008 is presented below:
Warrants Weighted-Average
Outstanding Exercise Price
-------------------------------------------
At December 31, 2006 15,973,128 $0.55
Exercised (15,920,616) $0.55
Expired (52,512) $0.51
Granted 11,132,344 $1.32
-------------------------------------------
11,132,344 $1.32
At December 31, 2007
Expired (11,132,344) $1.32
Granted 220,000 $0.30
-------------------------------------------
At December 31, 2008 220,000 $0.30
===========================================
The following table summarizes information about the warrants
outstanding at December 31, 2008:
Warrants
Exercise Outstanding and
Price Exercisable Expiry
-----------------------------------------------------------------
$0.30 220,000 0.3 years
===================== ====================
The following table summarizes information about the warrants
outstanding at December 31, 2007:
Warrants
Exercise Outstanding and
Price Exercisable Expiry
-----------------------------------------------------------------
$1.35 9,525,000 .75 years
$1.05 1,285,875 .5 years
$1.35 321,469 .5 years
------------------------------------------
11,132,344 0.71 years
==========================================
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
6. Related Party Transactions
At year end there were $2,778,367 in advances payable to Royal Roads
Corp. due November 30, 2009 with interest at 10 percent per annum,
payable quarterly. The Company guaranteed the full amount of the debt
and, as security therefore, granted security over all of its assets,
including the share of Royal Roads Corp. that it owns. In addition,
ScoZinc issued a debenture in the amount of $2.775 million over all of
its assets with a fixed charge on the Scotia Mine facility in support
of the borrowings. The Company has accrued $124,898 in interest on this
loan. Royal Roads Corp. released its security, as it relates to ScoZinc
assets, as part of the CCAA Proceedings disclosed in note 1.
The Company shares office facilities with Royal Roads Corp and Buchans
River Ltd. During the year the Company recovered $207,893 in common
costs from these companies. The amount recovered is estimated to be the
fair value of the costs.
Included in Professional Fees is $60,500 and in Deferred Exploration
costs is $60,500 in consulting fees paid to a director of the Company.
As at December 31, 2008, the Debtor in Possession financing (of
$170,000) was provided by two individuals who are officers and
directors of the Company, which was subsequently repaid from the Debtor
in Possession financing provided by TCE Capital Corporation.
All related party transactions and balances have been recorded at
amounts agreed to by the parties which approximate the exchange amount.
7. Commitments
The Company is committed to minimum annual lease payments of $ 103,607
on its premises until October, 2013.
The Company has agreed with the Province of Nova Scotia to remediate
the Scotia Mine facility to an agreed status at the end of mining
operations at the site. The Company had previously deposited $1,400,000
with the Province to guarantee the remediation work. The rehabilitation
cost has been set up in the Company accounts and is being charged to
operations over the estimated life of the mine.
In March of 2009 the Company commenced a slope stability project in the
Scotia Mine pit with an estimated cost of $700,000. The Province of
Nova Scotia has agreed to release funds from the remediation bond to
fund the project. The Company has agreed to restore the bond to
$1,400,000 prior to the re-commencement of operations in the pit.
During the year the Company raised $1,500,000 in capital through the
issue of flow through shares. At year end the Company had spent
$557,139 on qualifying activities. If the Company does not expend the
balance of funds, $942,861, prior to December 31, 2009 they would be
liable to repay the investors the tax credits claimed on these funds.
The estimated maximum liability is one half of the funds not spent.
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
8. Income taxes
The Company has available approximately $28,151,000 (2007 - $9,845,000)
in non-capital loss carry-forwards which can be carried forward and
used against future taxable income until expiry as noted below. In
addition, the Company has available approximately $1,991,000 in share
issue costs for tax purposes which can be deducted from taxable income
on a straight line basis over a five year period. The benefit
associated with these losses has not been recognized.
2009 $ 138,000
2010 800,000
2014 1,070,000
2015 1,393,000
2026 4,125,000
2027 8,425,000
2028 12,200,000
---------------------
$ 28,151,000
=====================
The Company has the following future income tax assets and
(liabilities):
2007 2008
------------------------------------------
$ 3,556,000 $ 7,885,000
Non capital losses and share issue costs
Mineral resource properties (1,466,000) 1,233,000
Property, plant and equipment and other 815,000 2,590,000
Valuation allowance (2,905,000) (11,708,000)
------------------------------------------
Liability recognized in the financial statements $ - $ -
==========================================
The following reconciles the effective tax rate to the statutory rate
on a percentage basis:
2007 2008
Statutory tax rate 36.12% 34.67%
Tax effect of losses not recognized -20.05% -34.67%
Tax effect of non deductible expenses 0.00% 0.00%
------------------------------------------
Effective tax rates 16.07% 0.00%
==========================================
9. Supplemental cash flow information
2007 2008
------------------------------------------
Change in non-cash working capital:
Accounts receivable $ (4,659,217) $ 4,337,747
Prepaid expenses and deposits 4,582 1,743
Accounts payable and accrued liabilities 3,039,270 2,257,284
Debtor in possession financing - 170,000
Inventory (4,274,203) 2,776,217
------------------------------------------
==========================================
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
9. Supplemental cash flow information (Continued)
2007 2008
Non-cash financing and investing activities:
Common shares issued for interest in
mineral resource properties $ 42,000 $ 112,275
Agents warrants issued $ 53,900 $ 760,442
Future income tax recognized on
renounced CEE $ - $ 1,029,240
Cash paid for interest $ 365,407 $ 131,624
Cash paid for income taxes $ - $ -
10. Contributed surplus
Balance December 31, 2006 $ 540,571
Issue of options on acquisition of claims 43,351
Stock based compensation 1,761,154
--------------------
Balance December 31, 2007 $ 2,345,076
Excess of acquisition price over capital value of cancelled shares (29,922)
Value of unexercised expired warrants 3,330,829
Stock based compensation 317,610
Transfer to share capital on exercise of options (134,250)
--------------------
Balance December 31, 2008 $ 5,829,343
====================
In determining the stock-based compensation expense, the fair value of
the options issued were estimated using a Black-Scholes option pricing
model with the following weighted average assumptions used: dividend
yield of 0% (2007-0%), expected volatility of 108% (2007-77%), risk
free interest rate of 3.25% (2007-4.4%) and expected life of 60 months
(2007 - 60 months).
11. Obligation Under Capital Leases and Equipment loans payable
Obligation Under Capital Lease
ScoZinc has entered into lease agreements for heavy equipment with
Komatsu Finance ("Komatsu") which transfer substantially all the
benefits and risks of ownership to ScoZinc. The leases bear interest at
7.2%, are for a four year term and have an option for Scozinc to
acquire the assets for 10% of the original cost. ScoZinc placed a
twenty percent down payment on the leases. ScoZinc's obligations under
the leases are guaranteed by the Company.
ScoZinc suspended payments to Komatsu in December 2008 prior to seeking
protection under the Companies' Creditor Arrangement Act. In February
ScoZinc returned a portion of the leased fleet and Komatsu has agreed
to leave the balance of the equipment in place until mid April when
ScoZinc's slope stability project is scheduled to be completed. ScoZinc
is currently paying $7,000 per week in interest to Komatsu. As the
lease payments are in default they are all considered to be current
liabilities.
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
11. Obligation Under Capital Leases and Equipment loans payable (Continued)
Obligation Under Capital Lease (Continued)
The annual lease payments due in each of the next 5 years were:
2009 $ 1,820,251
2010 1,726,896
2011 1,603,590
2012 91,569
---------------------
5,242,306
Less: amount representing interest (488,485)
---------------------
$ 4,753,821
=====================
Equipment loans:
During the current year ScoZinc entered into equipment loans for
various pieces of equipment with an average interest rate of 2%. The
loans are secured by the equipment financed and are guaranteed by the
Company. ScoZinc has defaulted on payments are therefore the loans are
all considered current liabilities.
The annual principal payments due in each of the next 5 years were:
2009 $ 162,905
2010 157,810
2011 50,282
---------------------
370,997
Less: current portion (370,997)
---------------------
$ -
=====================
12. Inventories
Inventories are valued at the lower of cost and net realizable value.
2007 2008
------------------------------------------
Parts inventory $ 496,253 $ 772,451
Ore in stock piles 2,012,524 -
Zinc and lead concentrates 1,765,425 682,904
------------------------------------------
$ 4,274,202 $ 1,455,355
==========================================
Inventories of lead and zinc concentrates in the current year are being
carried at net realizable value as the ScoZinc's cost is higher than
net realizable value. The Ore in stock piles has been completely
written off due to the fact that based on current selling prices
ScoZinc is only recovering the costs of milling the ore. The write down
of inventory during the year amounted to approximately $3.0 million
dollars and is included in production costs.
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
13. Interest and Other Income
2007 2008
Interest Income $ 280,381 $ 119,058
Foreign exchange loss (11,760) (37,432)
Miscellaneous revenue 142,418 7,391
------------------------------------------
$ 411,039 $ 89,017
==========================================
Financing Charges
Interest on Long term debt $ 131,624 $ 365,407
Interest and bank charges 33,133 52,768
Interest on Royal Roads Corp. loan - 124,898
------------------------------------------
$ 164,757 $ 543,073
==========================================
14. Investment in Royal Roads Corp.
At year end the Company owned approximately 32.7 million shares of
Royal Roads Corp. representing 29.18% of the issued and outstanding
shares of Royal Roads Corp. The investment is accounted for using the
equity method of accounting.
During the current year as part of its impairment analysis the Company
wrote down this investment from its carrying value of approximately
0.22 per share to 0.12 per share. Management believes that this value
more accurately reflects the investments long term value. The write
down amounted to $3.2 million.
The market value of the investment at December 31, 2008 was
approximately $981,500.
15. Financial Instruments
Credit Risk
There are no significant concentration on credit risk. The credit risk
exposure is considered normal for the business.
Fair value of financial instruments
The book value of cash and cash equivalents, receivables, and accounts
payable and accrued liabilities all approximate their fair values at
December 31, 2008.
The fair value of the embedded derivative in the accounts receivable
sales contracts at December 31, 2008 was a liability of $736,548 which
is netted against the accounts receivable account where the original
contract is recorded.
Interest rate risk
The Company's debt is limited to accounts payable and an obligation
under capital leases therefore there is limited exposure to interest
rate risk.
Foreign currency rate risk
The Company does not currently have any hedges in place for foreign
currency risk. All revenue and expenses denominated in foreign
currencies are recorded using the average exchange rate for the period.
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
16. Capital Management
The Company's objective when managing capital are: (i) to ensure
sufficient liquidity to support its financial obligations and execute
its operating and strategic plans; (ii) to minimize the cost of capital
while taking into consideration current and future industry, market and
economic risks and conditions, and (iii) to maintain an optimal capital
structure that provides necessary financial flexibility while also
ensuring compliance with any financial covenants.
The Company's objectives when managing capital are to safeguard the
Company's ability to continue as a going concern in order to pursue the
development of its mining properties and to maintain flexible capital
structure which optimizes the costs of capital at an acceptable rate.
In the management of capital the Company includes shareholders' equity
and long term debt in the definition of capital as follows:
2007 2008
Shareholders' Equity $ 52,188,500 $ 17,860,493
Equipment loans - 370,997
Capital Leases 5,417,173 4,753,821
------------------------------------------
$ 57,605,673 $ 22,985,311
==========================================
There are no externally imposed capital requirements. The Company
manages the capital structure and makes adjustments to it depending on
economic conditions and the rate of anticipated expenditures. To
maintain or adjust the capital structure, the company may attempt to
issue new shares, issue new debt, acquire or dispose of assets or
adjust the amount of cash and cash equivalents and investments.
17. Subsequent Event
On March 17, 2009 the Company announced it had entered into an
agreement with Golden River to complete a private placement of up to
338,111.334 for aggregate proceeds of up to $10,000,000. The first
tranche of $1.0 million (38,111,334 shares at $0.026 per share) is
subject to regulatory approvals and is expected to occur April 10,
2009. The second tranche of $9.0 million 300,000,000 shares at $0.03
per share) will close in one or more closings and is subject to
completion of due diligence by Golden River, the resolution of
ScoZinc's CCAA proceedings, the acquisition by the Company of the
remaining 50% in the Fifteen Mile Stream mineral claims for a cash
payment of $70,000, a non-interest bearing note payable of $1.0 million
due one year from the date of acquisition and a 1% Net Smelter Royalty
to Mr. Will Felderhof, President of the Company and members of his
family, as well as regulatory and shareholder approval.
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
18. Differences between Canadian and United States Generally Accepted
Accounting principles
The impact of the differences between Canadian GAAP and US GAAP on the
consolidated balance sheets would be as follows:
2008
----------------------------------------------------------------
Balance Cdn GAAP Adjustments Balance US GAAP
----------------------------------------------------------------
Current assets $ 2,462,406 $ - $ 2,462,406
Cash held for site remediation 1,612,500 - 1,612,500
Property, plant and equipment 11,496,431 - 11,496,431
Investment in Royal Roads Corp. (i) 4,043,039 (2,652,608) 1,390,431
Mineral resource properties (ii) 14,046,331 (12,203,425) 1,842,906
----------------------------------------------------------------
$ 33,660,707 $ (14,856,033) $ 18,804,674
================================================================
Current Liabilities (v) $ 14,777,161 $ 250,000 $ 15,027,161
Accrued site remediation 1,017,002 - 1,017,002
Shareholders' equity 17,866,544 (15,106,033) 2,760,511
----------------------------------------------------------------
$ 33,660,707 $ (14,856,033) $ 18,804,674
================================================================
2007
----------------------------------------------------------------
Balance Cdn GAAP Adjustments Balance US GAAP
----------------------------------------------------------------
Current assets $ 12,579,518 $ - $ 12,579,518
Cash held for site remediation 1,562,500 - 1,562,500
Property, plant and equipment 24,463,613 - 24,463,613
Deferred development costs (iii) 1,245,455 (1,245,455) -
Investment in Royal Roads Corp. (i) 7,741,767 (4,310,814) 3,430,953
Mineral resource properties (ii) 15,450,583 (12,112,256) 3,338,327
----------------------------------------------------------------
$ 63,043,436 $ (17,668,525) $ 45,374,911
================================================================
Current Liabilities (v) $ 5,694,198 $ $ 5,694,198
Accrued site remediation 990,777 - 990,777
Obligation under capital lease 4,169,661 - 4,169,661
Shareholders' equity 52,188,800 (17,668,525) 34,520,275
----------------------------------------------------------------
$ 63,043,436 $ (17,668,525) $ 45,374,911
================================================================
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
18. Differences between Canadian and United States Generally Accepted
Accounting principles (Continued)
The impact of the differences between Canadian GAAP and US GAAP on the
consolidated statements of loss and comprehensive loss would be as
follows:
2008 2007
------------------------------------------
Net loss and comprehensive loss for the year, Canadian GAAP $ (37,474,297) $ (5,371,739)
Adjustment
Reversal of write off of deferred exploration costs
included in impairment charge 3,713,800 -
Partial reversal of write down of investment in Royal
Roads Corp (vi) 2,376,550 -
Deferred exploration costs (ii) (2,982,678) (1,800,027)
Share of income (loss) of investees accounted for using
the equity method (i) (1,540,586) (931,398)
Deferred development costs (iii) 1,245,455 (1,245,455)
Flow through shares (v) - (406,240)
------------------------------------------
Net loss for the year and comprehensive loss, US GAAP $ (34,661,586) $ (9,754,859)
==========================================
Loss per share - basic and diluted $ (0.24) $ (0.08)
==========================================
Weighted average number of shares - basic and diluted 146,248,770 116,561,926
==========================================
The impact of the differences between Canadian GAAP and US GAAP on the
consolidated statements of cash flows would be as follows:
2008 2007
Cash flows provided by (used in) operating activities,
Canadian GAAP $ 1,394,258 $ (10,940,832)
Adjustment
Deferred development costs - (1,245,455)
Exploration expenditures (2,982,678) (1,800,027)
------------------------------------------
Cash flows used in operating activities, US GAAP (1,588,420) (13,986,314)
==========================================
5,228,448 34,356,376
Cash flows provided by financing activities,
Canadian and US GAAP (9,435,363) (24,034,021)
Cash flows from investing activities, Canadian GAAP
Adjustment
Deferred development costs - 1,245,455
Exploration expenditures 2,982,678 1,800,027
------------------------------------------
(6,452,685) (20,988,539)
==========================================
Increase (decrease) in cash and cash equivalents (2,812,657) (618,477)
Cash and cash equivalents, beginning of year 3,022,868 3,641,345
------------------------------------------
Cash and cash equivalents, end of year $ 210,211 $ 3,022,868
------------------------------------------
==========================================
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
18. Differences between Canadian and United States Generally Accepted
Accounting principles (Continued)
(i) Under Canadian and US GAAP, the Company accounts for its
investment in Royal Roads Corp. using the equity method of
accounting. Under US GAAP, the Company's share of Royal Roads
Corp. loss was $1,540,586 and $931,398 higher in 2008 and
2007, respectively, to reflect the fact that Royal Roads Corp.
is required to expense exploration expenditures under US GAAP
as described in (ii) below , to reflect the difference in
accounting for the dilution gain as described in (iv) below
and to account for differences in the US GAAP treatment of
flow-through shares as described in (v) below.
(ii) Under Canadian GAAP, exploration costs and costs of acquiring
mineral rights are capitalized during the search for a
commercially mineable body of ore. For US GAAP purposes,
exploration expenditures can only be deferred subsequent to
the establishment of proven and probable reserves. For US GAAP
purposes, the Company has therefore expensed its exploration
expenditures.
During 2008 under Canadian GAAP the Company took an impairment
charge against certain of its assets including a portion of
the deferred exploration costs related to lead and zinc
properties. Under US GAAP these expenditures would have been
expensed as incurred and therefore the portion of the write
off related to these assets is reversed under US GAAP.
(iii) Under Canadian GAAP in 2007, the Company had capitalized
certain pre-production costs associated with the Scozinc Mine.
For US GAAP purposes these items would be expensed as
incurred. As these costs were written off for Canadian GAAP
purposes in 2008 the write-down is reversed in 2008 for US
GAAP purposes.
(iv) During 2007, an investee of Royal Roads Corp had issued
additional shares and diluted Royal Roads Corp.'s equity
interest. For Canadian GAAP purposes, Royal Roads Corp.
recorded a gain on dilution of $191,309 as a component of the
equity loss in 2007 with Company's share being 29.18% of this
amount. Under US GAAP, gains on dilution related to
investments in development stage enterprises are considered to
be capital transactions and recorded directly to shareholders'
equity.
(v) Under Canadian income tax legislation, a company is
permitted to issue shares whereby the company agrees to
incur qualifying expenditures and renounce the related
income tax deductions to investors. The Company accounted
for the issue of flow-through shares in accordance with the
provisions of CICA Emerging Issues Committee Abstract 146,
Flow-Through Shares in 2007. At the time of issue, the funds
received are recorded as share capital. At the time of the
filing of the renunciation of the flow through expenditures
to the investors, the Company records a future income tax
liability with a charge directly to shareholders' equity.
There was no renunciation of the flow-through shares in
2008.
For US GAAP purposes, the premium paid for flow-through shares
in excess of market value at the time of issue is credited to
other liabilities and included in income as the qualifying
expenditures are made. The liability is relieved and the
corresponding future income tax liablity is recognized when
the Company renounces it exploration expenditures to the
flow-through share investors. The difference between the
liability recorded at the time of the issuance and the
deferred tax liability upon renunciation is included as income
tax expense. The Company issued 5,000,000 flow-through shares
for $1,500,000 in 2008 which had not yet been renounced by the
end of the year. Under US GAAP the premium paid on the shares
was $250,000. As a result for US GAAP purposes a liability has
been set up for $250,000 at year end and charged to equity.
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
18. Differences between Canadian and United States Generally Accepted
Accounting principles (Continued)
The Company issued 4,153,846 flow-through shares for
$2,700,000 in 2006 which were renounced in 2007. Under US GAAP
the premium paid on the shares was $623,000. The difference
between this amount and the deferred tax liability recognized
upon renunciation in the amount of $1,029,240 was $406,240 and
would be recognized as a deferred tax expense in 2007 under US
GAAP.
The Company's investee, Royal Roads, also issued flow-through
shares in 2006 and 2007 which were renounced in 2007 and 2008,
respectively. The Company's share of the loss of Royal Roads
increased in the amount of $76,200 and $431,300 in 2007 and
2008, respectively, due to the difference in accounting for
the flow-through shares under US GAAP.
(vi) Under Canadian GAAP, the Company had taken a write down in its
December 31, 2008 financial statements in the value of its
investment in Royal Roads Corp. in the amount of $3,220,000 to
adjust the carrying value of its net realizable value. As the
carrying value of this investment under US GAAP is less than
that under Canadian GAAP (due to items noted in (i) above),
the amount of the required write down under US GAAP is
correspondingly less than the Canadian GAAP write down by
$2,376,550.
Recent US Accounting Pronouncements impacting the Company
In June 2009, the FASB issued SFAS No. 168 "The FASB Accounting
Standards Codification and the Heirarchy of Generally Accepted
Accounting Principles". This statement establishes the FASB Accounting
Standards Codification, ("codification") as the single source of
authoritative GAAP in the United States to be applied by
nongovernmental entities, except for the interpretive releases of the
SEC under authority for federal securities laws, which are sources of
authoritative GAAP for SEC registrants. All guidance contained in the
Codification carries an equal level of authority. The codification is
effective for fiscal and interim and annual periods ending after
September 15, 2009. The Company is currently assessing the impact of
the adoption of this standard, if any, on its financial position,
results of operations or cash flows.
In May 2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS
165"), which provides guidance to establish general standards of
accounting for and disclosures of events that occur after the balance
sheet date but before financial statements are issued or are available
to be issued. SFAS 165 is effective for interim or fiscal periods
ending after June 15, 2009. Management is currently evaluating the
impact of the adoption of SFAS 165 but does not expect the adoption of
SFAS 165 to materially impact the Company's results of operations,
financial position or cash flows.
In April 2008, the FASB issued FASB staff position ("FSP") FAS 142-3,
Determination of the Useful Life of Intangible Assets ("FSP 142-3").
FSP FAS 142-3 amends the factors an entity should consider in
developing renewal or extension assumptions used in determining the
useful life of recognized intangible assets under FASB Statement No.
142, "Goodwill and Other Intangible Assets ". This new guidance applies
prospectively to intangible assets that are acquired individually or
with a group of other assets in business combinations and asset
acquisitions. FSP FAS 142-3 is effective for financial statements
issued for fiscal years and interim periods beginning after December
15, 2008. The Company is currently evaluating the impact, if any, that
FSP FAS 142-3 will have on its financial position, results of
operations, or cash flows.
ACADIAN MINING CORPORATION
(formerly Acadian Gold Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
18. Differences between Canadian and United States Generally Accepted
Accounting principles (Continued)
Recent US Accounting Pronouncements impacting the Company (Continued)
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling
Interests in Consolidated Financial Statements -- an Amendment of ARB
No. 51 ("FAS 160"). FAS 160 amends ARB No. 51 to establish accounting
and reporting standards for the noncontrolling interest in a subsidiary
and for the deconsolidation of a subsidiary. FAS 160 also clarifies
that a noncontrolling interest in a subsidiary is an ownership interest
in the consolidated entity that should be reported as equity in the
consolidated financial statements. FAS 160 is effective for fiscal
years beginning on or after December 15, 2008. Based on its current
operations, the Company does not believe that FAS 160 will have a
significant impact on its financial position, results of operations or
cash flows.
In December 2007, the FASB issued SFAS No. 141(revised 2007), Business
Combinations ("SFAS 141R"). SFAS 141R will significantly change the
accounting for business combinations in a number of areas including the
treatment of contingent consideration, contingencies, acquisition
costs, IPR&D and restructuring costs. In addition, under SFAS 141R,
changes in deferred tax asset valuation allowances and acquired income
tax uncertainties in a business combination after the measurement
period will impact income taxes. SFAS 141R is effective for fiscal
years beginning after December 15, 2008 and, as such, the Company will
adopt this standard in the first quarter of 2009.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities -- Including an
Amendment of FASB Statement No. 115 " ("SFAS 159"). SFAS No. 159
permits entities to choose to measure many financial instruments and
certain other items at fair value. This provides entities with the
opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without being
required to apply complex hedge accounting provisions. The provisions
of SFAS No. 159 are effective as of the beginning of fiscal years that
start after November 15, 2007. The Company adopted SFAS No. 159 on
January 1, 2008 and the adoption did not have any material impact on
its financial position, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements ("SFAS 157"). SFAS 157 defines fair value, establishes a
framework for measuring fair value under generally accepted accounting
principles, and expands disclosures about fair value measurements. SFAS
157 emphasizes that fair value is a market-based measurement, not an
entity-specific measurement, and states that a fair value measurement
should be determined based on the assumptions that market participants
would use in pricing the asset or liability. SFAS 157 applies under
other accounting pronouncements that require or permit fair value
measurements.
SFAS 157, among other things, requires companies to maximize the use of
observable inputs and minimize the use of unobservable inputs when
measuring fair value, and specifies a hierarchy of valuation techniques
based on whether the inputs to those valuation techniques are
observable or unobservable. Observable inputs reflect market data
obtained from independent sources, while unobservable inputs reflect
the company's market assumptions. The effective date was for fiscal
years beginning after November 15, 2007. The adoption of of SFAS 157
did not have any material impact on its financial position, results of
operation or cash flows. In February 2008, the FASB issued FSP FAS
157-2, which delays the effective date of SFAS No. 157 to fiscal years
beginning after November 15, 2008, and interim periods within those
fiscal years, for all nonfinancial assets and nonfinancial liabilities,
except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually).