UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 40-F
(Check one)
REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES
----- EXCHANGE ACT OF 1934
OR
X ANNUAL REPORT PURSUANT TO SECTION 13(A) OR 15(D) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2002 Commission file number 0-29382
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MINEFINDERS CORPORATION LTD.
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(Exact name of Registrant as specified in its charter)
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Not Applicable Ontario, Canada Not Applicable
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(Translation of Registrant's name (Province of other jurisdiction of (I.R.S. Employer Identification
into English (if applicable)) incorporation or organization) Number (if applicable))
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1000
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(Primary Standard Industrial Classification Code Number (if applicable))
2288 - 1177 West Hastings Street Vancouver, British Columbia Canada V6E 2K3
(604) 687-6263
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(Address and telephone number of Registrant's principal executive offices)
C T Corporation System, 111 - 8th Avenue, New York City New York 10011
(212) 894-8890
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(Name, address (including zip code) and telephone number (including area code)
of agent for service in the United States)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class Name of each exchange on which registered
Common Shares without par value American Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
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(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
None
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(Title of Class)
For annual reports, indicate by check mark the information filed with this Form:
X Annual information form X Audited annual financial statements
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Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
As at December 31, 2002, 28,411,737 Common Shares without par value were
outstanding.
Indicate by check mark whether the Registrant by filing 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
(the "Exchange Act"). If "Yes" is marked, indicate the filing number assigned to
the Registrant in connection with such Rule.
Yes: 82- X No
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
X Yes No
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Explanatory Note: Minefinders Corporation Ltd. (the "Company" or the
"Registrant") is a Canadian issuer eligible to file its annual report pursuant
to Section 13 of the Securities Exchange Act of 1934 (the "1934 Act") on Form
40-F. The Company is a "foreign private issuer" as defined in Rule 3b-4 under
the 1934 Act and in Rule 405 under the Securities Act of 1933. Equity securities
of the Company are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f)
and 16 of the 1934 Act pursuant to Rule 3a12-3.
Some of the statements contained in this report are forward-looking statements,
such as estimates and statements that describe the Company's future plans,
objectives or goals, including words to the effect that the Company or
management expects a stated condition or result to occur. Such forward-looking
statements are made pursuant to the safe harbour provisions of the United States
Private Securities Litigation Reform Act of 1995. Since forward-looking
statements address future events and conditions, by their very nature they
involve inherent risks and uncertainties. Actual results relating to, among
other things, reserves, resources, results of exploration, capital costs and
production costs could differ materially from those currently anticipated in
such statements by reason of factors such as changes in general economic
conditions and conditions in the financial markets, changes in demand and prices
for the minerals the Company is engaged in exploration for, litigation,
legislative, environmental and other judicial, regulatory, political and
competitive developments in domestic and foreign areas in which the Company
operates, technological and operational difficulties encountered in connection
with the Company's mining activities, labour relations matters and costs,
changing foreign exchange rates and other matters discussed under "Management's
Discussion and Analysis of Financial Condition and Results of Operations". This
list is not exhaustive of the factors that may affect any of the Company's
forward-looking statements. These and other factors should be considered
carefully and readers should not place undue reliance on the Company's
forward-looking statements. Further information regarding these and other
factors is included in the filings by the Company with the U.S. Securities &
Exchange Commission and Canadian provincial securities regulatory authorities.
Unless otherwise indicated, all dollar amounts in this report are Canadian
dollars.
The exchange rate of Canadian dollars into United States dollars, on December
31, 2002, based upon the noon buying rate in New York City for cable transfers
payable in Canadian dollars as certified for customs purposes by the Federal
Reserve Bank of New York, was U.S.$1.00 = CDN $1.5800.
MINEFINDERS CORPORATION LTD.
RENEWAL ANNUAL INFORMATION FORM
for the year ended December 31, 2002
May 6, 2003
TABLE OF CONTENTS
Page
GLOSSARY AND DEFINED TERMS ................................................... i
REFERENCE INFORMATION ........................................................ v
CORPORATE STRUCTURE .......................................................... 1
GENERAL DEVELOPMENT OF THE BUSINESS .......................................... 1
Significant Acquisitions and Dispositions ................................ 2
Background and Trends .................................................... 2
NARRATIVE DESCRIPTION OF THE BUSINESS ........................................ 3
Overview ................................................................. 3
PRINCIPAL PROPERTY - THE DOLORES PROPERTY ................................ 3
Description and Location ................................................. 3
Accessibility, Climate, Local Resources, Infrastructure and Physiography . 6
History .................................................................. 6
Geology .................................................................. 7
Exploration .............................................................. 8
Drilling ................................................................. 8
Mineralization .......................................................... 10
Sampling and Analysis ................................................... 11
Mineral Resource and Mineral Reserve Estimates .......................... 13
NORTHERN SONORA PROPERTY ................................................ 15
Description and Location ................................................ 15
Climate, Accessibility, Local Resource Infrastructure and Physiography .. 15
Nature of Transport ..................................................... 16
Sampling and Integrity of Samples ....................................... 16
La Bolsa Property: Location and Access .................................. 17
El Malacate Recon: Description and Location ............................. 19
OTHER PROPERTIES ........................................................ 22
La Reserva/El Correo Property ........................................... 22
San Antonio Property .................................................... 23
Other Interests In Properties ........................................... 23
NUMBER OF EMPLOYEES ..................................................... 26
BANKRUPTCY, RECEIVERSHIP OR OTHER SIMILAR PROCEEDINGS ................... 26
COMPETITION ............................................................. 26
RISK FACTORS ............................................................ 26
SELECTED CONSOLIDATED FINANCIAL INFORMATION ................................. 30
Dividend Record and Policy .............................................. 32
MANAGEMENT'S DISCUSSION AND ANALYSIS ........................................ 32
MARKET FOR SECURITIES ....................................................... 32
DIRECTORS AND OFFICERS ...................................................... 32
Shareholdings of Directors and Officers ................................. 33
Committees of the Board of Directors .................................... 33
Corporate Cease Trade Orders or Bankruptcies ............................ 33
Penalties or Sanctions .................................................. 34
Personal Bankruptcies ................................................... 34
Conflicts of Interest ................................................... 34
ADDITIONAL INFORMATION ...................................................... 34
GLOSSARY AND DEFINED TERMS
The following is a glossary of certain mining terms used in this Annual
Information Form.
Adit
A horizontal passage from the surface into the mine, also called a tunnel.
Adularization
Potassic alteration, introduction or replacement by Adularia.
Anomaly
A geological feature distinguished by geophysical or geochemical means, which is
different from the general surroundings and is often of potential economic
value.
Breccia
A coarse-grained clastic rock composed of angular broken fragments.
Cretaceous
The final period of the Mesozoic area (after the Jurassic and before the
Tertiary period), thought to have covered the span of time between 65 and 144
million years ago.
Dome
A circular or elliptical uplift, typically volcanic in origin.
Epithermal
Hydrothermal mineral deposit formed within 1 kilometre of the earth's surface,
in the temperature range of 50-200(degree)C.
g/t or gpt
Grams per tonne.
Graben
An elongate downfaulted basin.
Horst
An elongate block of upfaulted rock.
Hydrothermal
Processes associated with heated or superheated water, especially mineralization
or alteration.
Igneous Rock
Rock which formed directly by crystallization from magma.
Interbedded
Beds laid between or alternating with others of different character.
Intrusive
The process of, and rock formed by, intrusion.
Jurassic
The middle system of the Mesozoic, above the Triassic and below the Cretaceous,
thought to have covered the span of time between 200 and 145 million years ago.
Lithology
The description of rocks in hard specimen and in outcrop, relative to such
characteristics as color, mineralogic composition, and grain size.
Mesozoic
The era of geologic time above the Paleozoic and below the Cenozoic,
approximately from 245 to 65 million years ago.
Metamorphic
Affected by physical, chemical, and structural processes imposed by depth in the
earth's crust.
Metasediment
Metamorphic rock of volcanic origin.
Mineral Reserve, Proven Mineral Reserve, Probable Mineral Reserve
Means that part of a measured mineral resource or indicated mineral resource
that can be extracted legally and at a profit under economic conditions that are
specified and generally accepted as reasonable by the mining industry and which
is demonstrated by a preliminary feasibility study or feasibility study.
THE TERMS "MINERAL RESERVE", "PROVEN MINERAL RESERVE", AND "PROBABLE MINERAL
RESERVE" USED IN THIS ANNUAL INFORMATION FORM ARE CANADIAN MINING TERMS AS
DEFINED IN ACCORDANCE WITH NATIONAL INSTRUMENT 43-101 - STANDARDS OF DISCLOSURE
FOR MINERAL PROJECTS UNDER THE GUIDELINES SET OUT IN THE CANADIAN INSTITUTE OF
MINING, METALLURGY AND PETROLEUM (THE "CIM") STANDARDS ON MINERAL RESOURCES AND
MINERAL RESERVES DEFINITIONS AND GUIDELINES ADOPTED BY THE CIM COUNCIL ON AUGUST
20, 2000. IN THE UNITED STATES, A MINERAL RESERVE IS DEFINED AS A PART OF A
MINERAL DEPOSIT WHICH COULD BE ECONOMICALLY AND LEGALLY EXTRACTED OR PRODUCED AT
THE TIME THE RESERVE DETERMINATION IS MADE.
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RESERVES ARE CATEGORIZED AS FOLLOWS ON THE BASIS OF THE DEGREE OF CONFIDENCE IN
THE ESTIMATE OF THE QUALITY AND GRADE OF THE DEPOSIT.
Proven Mineral Reserve means, in accordance with CIM Standards, for the part of
a deposit which is being mined, or which is being developed and for which there
is a detailed mining plan, the estimated quantity and grade or quality of that
part of a measured mineral resource for which the size, configuration and grade
or quality and distribution of values are so well established, and for which
economic viability has been demonstrated by adequate information on engineering,
operating, economic and other relevant factors, that there is the highest degree
of confidence in the estimate.
THE DEFINITION FOR "PROVEN MINERAL RESERVES" UNDER CANADIAN STANDARDS DIFFERS
FROM THE STANDARDS IN THE UNITED STATES, WHERE PROVEN OR MEASURED RESERVES ARE
DEFINED AS RESERVES IN RESPECT OF WHICH (A) QUANTITY IS COMPUTED FROM DIMENSIONS
REVEALED IN OUTCROPS, TRENCHES, WORKINGS OR DRILL HOLES; GRADE AND/OR QUALITY
ARE COMPUTED FROM THE RESULTS OF DETAILED SAMPLING AND (B) THE SITES FOR
INSPECTION, SAMPLING AND MEASUREMENT ARE SPACED SO CLOSELY AND THE GEOLOGIC
CHARACTER IS SO WELL DEFINED THAT SIZE, SHAPE, DEPTH AND MINERAL CONTENT OF
RESERVES ARE WELL ESTABLISHED.
Probable Mineral Reserve: means, in accordance with CIM Standards, the estimated
quantity and grade or quality of that part of an indicated mineral resource for
which economic viability has been demonstrated by adequate information on
engineering, operating, economic and other relevant factors, at a confidence
level which would serve as a basis for decisions on major expenditures.
THE DEFINITION FOR "PROBABLE MINERAL RESERVES" UNDER CANADIAN STANDARDS DIFFERS
FROM THE STANDARDS IN THE UNITED STATES, WHERE PROBABLE RESERVES ARE DEFINED AS
RESERVES IN RESPECT OF WHICH QUANTITY AND GRADE AND/OR QUALITY ARE COMPUTED FROM
INFORMATION SIMILAR TO THAT USED FOR PROVEN RESERVES (UNDER UNITED STATES
STANDARDS), BUT THE SITES FOR INSPECTION, SAMPLING AND MEASUREMENT ARE FURTHER
APART OR ARE OTHERWISE LESS ADEQUATELY SPACED, AND THE DEGREE OF ASSURANCE,
ALTHOUGH LOWER THAN THAT FOR PROVEN RESERVES, IS HIGH ENOUGH TO ASSUME
CONTINUITY BETWEEN POINTS OF OBSERVATION.
Mineral Resource, Measured Mineral Resource, Indicated Mineral Resource,
Inferred Mineral Resource
Under CIM Standards, Mineral Resource is a concentration or occurrence of
natural, solid, inorganic or fossilized organic material in or on the Earth's
crust in such form and quantity and of such a grade or quality that it has
reasonable prospects for economic extraction. The location, quantity, grade,
geological characteristics and continuity of a Mineral Resource are known,
estimated or interpreted from specific geological evidence and knowledge.
THE TERMS "MINERAL RESOURCE", "MEASURED MINERAL RESOURCE", "INDICATED MINERAL
RESOURCE", AND "INFERRED MINERAL RESOURCE" USED IN THIS ANNUAL INFORMATION FORM
ARE CANADIAN MINING TERMS AS DEFINED IN ACCORDANCE WITH NATIONAL INSTRUMENT
43-101 - STANDARDS OF DISCLOSURE FOR MINERAL PROJECTS UNDER THE GUIDELINES SET
OUT IN THE CIM STANDARDS. THEY ARE NOT DEFINED TERMS UNDER UNITED STATES
STANDARDS AND MAY
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NOT GENERALLY BE USED IN DOCUMENTS FILED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION BY U.S. COMPANIES. AS SUCH, INFORMATION CONTAINED IN THIS
ANNUAL REPORT CONCERNING DESCRIPTIONS OF MINERALIZATION AND RESOURCES MAY NOT BE
COMPARABLE TO INFORMATION MADE PUBLIC BY U.S. COMPANIES SUBJECT TO THE REPORTING
AND DISCLOSURE REQUIREMENTS OF THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION.
A mineral resource estimate is based on information on the geology of the
deposit and the continuity of mineralization. Assumptions concerning economic
and operating conditions including cut-off grades and economic mining widths,
based on factors typical for the type of deposit, may be used if these factors
have not been specifically established for the deposit at the time of the
mineral resource estimate.
A mineral resource is categorised on the basis of the degree of confidence in
the estimate of quantity and grade or quality of the deposit, as follows:
Inferred Mineral Resource: Under CIM Standards, an Inferred Mineral Resource is
that part of a Mineral Resource for which quantity and grade or quality can be
estimated on the basis of geological evidence and limited sampling and
reasonably assumed, but not verified, geological and grade continuity. The
estimate is based on limited information and sampling gathered through
appropriate techniques from locations such as outcrops, trenches, pits, workings
and drill holes.
Indicated Mineral Resource: Under CIM Standards, an Indicated Mineral Resource
is that part of a Mineral Resource for which quantity, grade or quality,
densities, shape and physical characteristics, can be estimated with a level of
confidence sufficient to allow the appropriate application of technical and
economic parameters, to support mine planning and evaluation of the economic
viability of the deposit. The estimate is based on detailed and reliable
exploration and testing information gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill holes that are
spaced closely enough for geological and grade continuity to be reasonably
assumed.
Measured Mineral Resource: Under CIM Standards, a Measured Mineral Resource is
that part of a Mineral Resource for which quantity, grade or quality, densities,
shape, physical characteristics are so well established that they can be
estimated with confidence sufficient to allow the appropriate application of
technical and economic parameters, to support production planning and evaluation
of the economic viability of the deposit. The estimate is based on detailed and
reliable exploration, sampling and testing information gathered through
appropriate techniques from locations such as outcrops, trenches, pits, workings
and drill holes that are spaced closely enough to confirm both geological and
grade continuity.
Mineralization
A mineralized body which has been intersected by sufficient closely spaced drill
holes and/or sampling to support sufficient tonnage and average grade of
metal(s) to warrant further exploration-development work. This mineralized body
does not qualify as a commercially mineable ore body, as prescribed under
Securities and Exchange Commission standards, until a final and comprehensive
economic, technical and legal feasibility study based upon the test results is
concluded and supports Proven/Probable Reserves.
Mineralized
Deposit A mineralized body which has been delineated by drilling and/or
underground sampling to support a sufficient tonnage and average grade of
metal(s). Under SEC standards, such a deposit does not qualify as a reserve
until comprehensive evaluation, based on unit cost, grade, recoveries and other
factors, concludes economic feasibility.
opt
Ounces per ton.
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Ore
Naturally occurring material from which minerals of economic value can be
extracted.
Paleozoic
The era of geologic time from 570 to 225 million years ago, from the end of the
Precambrian to the beginning of the Mesozoic.
Placer
A surficial mineral deposit formed by mechanical concentration of mineral
particles from weathered debris.
Porphyry
An igneous rock characterized by visible crystals in a fine-grained matrix.
Resistivity
A geophysical technique which measures the electrical resistivity between a set
of spaced electrodes to generate a profile of subsurface geology.
Sedimentary Rock
Rock formed by the process of erosion and deposition.
Sericitization
A hydrothermal or metamorphic alteration process involving the introduction of,
or replacement by, sericite muscovite.
Silicification
Alteration process involving the introduction of, or replacement by, silica,
generally resulting in the formation of fine-grained quartz, chalcedony, or
opal, which may fill pores and replace existing minerals.
Stockwork
A three-dimensional network of closely spaced planar to irregular veinlets.
Tertiary
The first period of the Cenozoic, after the Cretaceous and before the Quatenary,
thought to begin about 65 million years ago.
Tuff
Consolidated or cemented volcanic ash. Sometimes used as a general term for all
consolidated pyroclastic rocks.
Volcaniclastic
Refers to fragments derived from volcanic sources (which may be transported some
distance from their place of origin.)
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Information Form ("AIF") and the documents incorporated herein by
reference, contain forward-looking statements. Such forward-looking statements
include, but are not limited to, statements about mineral reserves and
resources, in that they constitute estimates, based on certain assumptions, of
mineralization that may be encountered if a deposit were to be mined. Any
statements that express or involve discussions with respect to predictions,
expectations, plans, projections, objectives, assumptions or future events or
performance (often, but not always, using words or phrases such as "expects" or
"does not expect", "is expected", "anticipates" or "does not anticipate",
"plans", "estimates" or "intends", or stating that certain actions, events or
results "may", "could", "would" or "will" be taken, occur or be achieved) are
not statements of historical fact and may be "forward-looking statements".
Forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Although the Company has attempted to identify
factors that could cause actual actions, events or results to differ materially
from those described in forward-looking statements, there may be other factors
that cause actions, events or results not to be as anticipated, estimated or
intended. There can be no assurance that forward-looking statements will prove
to be accurate, as actual results and future events could differ materially from
those anticipated in such statements. Accordingly, readers should not place
undue reliance on forward-looking statements.
SOME OF THE IMPORTANT RISKS AND UNCERTAINTIES THAT COULD AFFECT FORWARD-LOOKING
STATEMENTS ARE DESCRIBED FURTHER IN THIS DOCUMENT UNDER HEADINGS "NARRATIVE
DESCRIPTION OF THE BUSINESS", "RISK FACTORS" AND "MANAGEMENT DISCUSSION AND
ANALYSIS". SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR
SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY
MATERIALLY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED OR EXPECTED. THE COMPANY
DOES NOT INTEND TO UPDATE THESE FORWARD-LOOKING STATEMENTS. INVESTORS ARE
CAUTIONED AGAINST ATTRIBUTING UNDUE CERTAINTY TO FORWARD-LOOKING STATEMENTS.
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CURRENCY PRESENTATION AND EXCHANGE RATE INFORMATION
This AIF contains references to both US dollars and Canadian dollars. All dollar
amounts referenced, unless otherwise indicated, are expressed in Canadian
dollars and US dollars are referred to as "US dollars" or "US$".
The annual high, low, average and end of period exchange rates for the US dollar
in terms of Canadian dollars for each of the periods indicated, such rates being
the rates in New York City for cable transfers payable in Canadian dollars, as
certified for customs purposes by the Federal Reserve Bank of New York, were as
follows:
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Corporation's Fiscal Year Ended December 31
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2002 2001 2000 1999 1998
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High $1.5190 $1.4995 $1.4505 $1.4440 $1.4180
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Low $1.6049 $1.5925 $1.5335 $1.5095 $1.5745
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Average $1.5702 $1.4192 $1.4870 $1.4827 $1.4894
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Period End $1.5800 $1.5925 $1.4995 $1.4440 $1.5375
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On April 23, 2003, the exchange rate of Canadian dollars into United States
dollars, based upon the noon buying rate in New York City for cable transfers
payable in Canadian dollars as certified for customs purposes by the Federal
Reserve Bank of New York, was U.S. $1.00 equals CDN$1.4512.
INCORPORATION OF FINANCIAL STATEMENTS AND MD&A
Incorporated by reference into this AIF are the audited consolidated financial
statements of the Company, which include its balance sheets as at December 31,
2002 and 2001 and the consolidated statements of loss and deficit, cash flows
and mineral properties and deferred exploration costs of the Company for the
years ended December 31, 2002, 2001 and 2000, together with the summary of
significant accounting policies and notes thereon, included in the Company's
2002 Annual Report. Also incorporated by reference in this AIF is the Company's
management's discussion and analysis ("MD&A") set out at pages 11 through 12 of
the Company's 2002 Annual Report. All financial information in this AIF is
prepared in accordance with Canadian generally accepted accounting principles
("GAAP"). Differences between Canadian and US GAAP pertaining to the Company are
described in Note 10 to our 2002 consolidated financial statements.
REFERENCE INFORMATION
Unless otherwise noted or the context otherwise indicates, "Corporation" refers
to Minefinders Corporation Ltd. alone, and "the Company", "we", "us", "our" and
"our company" refers to Minefinders Corporation Ltd. and its subsidiaries.
Unless otherwise noted, the information contained in this AIF is given at the
date of this AIF.
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CORPORATE STRUCTURE
The Company was incorporated by articles of incorporation under the laws of the
Province of Ontario on February 4, 1975, under the name "Twentieth Century
Explorations Inc.". On May 10, 1979, the Company changed its name from
"Twentieth Century Explorations Inc." to " Minefinders Corporation Ltd.".
The Company's head and principal office is located at 2288 - 1177 West Hastings
Street, Vancouver, British Columbia, Canada V6E 2K3. The Company's registered
and records office is located at Suite 1100 - 200 King Street West, Toronto,
Ontario M5H 3T4. The Company also maintains an exploration office in Reno,
Nevada, United States of America.
The following table sets forth the name of each material subsidiary of the
Company, the jurisdiction of its incorporation and the direct or indirect
percentage ownership by the Company of such subsidiary.
Principal Operating Subsidiaries
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Name Place of Percentage
Incorporation Ownership
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Minera Minefinders S.A. de C.V. Mexico 100%
Compania Minera Dolores S.A de C.V. Mexico 100%
Minefinders (U.S.A.) Inc. Nevada 100%
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The Company's operations in Mexico are conducted through Minera Minefinders S.A.
de C.V. ("Minera") and Compania Minera Dolores S.A. de C.V. ("Minera Dolores")
and in the U.S.A., through Minefinders (U.S.A.) Inc.
The Company is a reporting issuer in British Columbia, Alberta, Saskatchewan,
Manitoba, Ontario and Quebec and the Company's common shares are listed for
trading on the Toronto Stock Exchange ("TSX") under the symbol "MFL" and on the
American Stock Exchange ("AMEX") under the symbol "MFN".
GENERAL DEVELOPMENT OF THE BUSINESS
The Company is in the business of exploration and development of precious and
base metal properties. Interests in these properties are currently held directly
and indirectly and through leases, options and working interests. The Company's
properties are primarily located in Mexico and the U.S.A. The Company's
principal mineral property interests are the Dolores Property located in
Chihuahua, Mexico (the "Dolores Property") and the Northern Sonora Property
located in Sonora, Mexico (the "Northern Sonora Property"). The Northern Sonora
Property includes the La Bolsa gold deposit and the El Malacate project and more
than a dozen other prospects (including the La Reserva/El Correo Property) each
at various levels of exploration. The Company's other mineral property interests
include the Clear, Dottie and Gutsy/Buckskin Mountain Properties in Nevada, the
Oro Blanco Property in Arizona and the San Antonio Property in Zacatecas,
Mexico. The Company also has mineral property interests in Quebec, Canada, but
has no active exploration projects in Canada.
Exploration and Development
In June of 2002, the Company initiated a 30,000 metre drilling program, designed
to bring the Dolores property to final feasibility over the next 12-18 months,
and lead to a production decision. At the earliest, production is not
anticipated to commence on the Dolores deposit until early 2005. Over the three
year period ended December 31, 2002, the Company completed an additional 59
diamond core holes, totalling 18,300 metres and 32 reverse circulation ("RC")
drill holes totalling 6,197 metres of infill drilling on the Dolores deposit,
bringing the total drilling completed on the Dolores property through December
2002 to 195 core and 187 RC holes totalling 85,937 metres. The Company has
selected independent engineering firms to provide an updated resource model and
final feasibility study in 2003. Drilling will continue through the first half
of 2003. Other activities over the past three years on the Dolores property have
included geological mapping and sampling, road construction, re-assaying 9,000
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drill intercepts for silver using multi-acid digestion, completing in August
2002 an independent audit of the measured, indicated and inferred resource
contained in the Dolores main zone deposit and initiating additional
metallurgical studies. During this period, the Company also conducted extensive
exploration of the Northern Sonora properties, which led to a $521,043
investment by a subsidiary of Placer Dome Exploration Inc. ("Placer Dome") for
drilling programs in 2002. In December 2001, the Company entered into an option
agreement with Placer Exploration Mexico Ltd. ("Placer") whereby Placer was
granted an option to earn up to a 70% interest in the El Malacate Property by
incurring work costs in the exploration of the property. Subsequent to
completing the initial drilling program, Placer notified the Company that it was
terminating the option agreement. Consequently, the property has reverted 100%
back to the Company. Exploration activities will continue on the Company's other
properties over the next 12 months with additional drilling planned for the
Northern Sonora properties and the Nevada properties in 2003.
Financing
In September 2000, the Company issued 405,818 units by way of a private
placement for gross proceeds of $446,400. Each unit consisted of one common
share and one-half of a warrant. Each whole warrant entitled the holder to
purchase one common share at $1.35 per share for a two year period.
In January 2001, the Company completed private placements financing (the
"January 2001 Financing") of 1,599,643 units for gross proceeds of $1,477,180.
Each unit consisted of one common share and one warrant entitling the holder to
purchase one common share at $1.00 and $1.15 for a two year period.
During the remainder of 2001, the Company completed private placements to issue
a further 1,402,080 units for total proceeds of $1,612,392 with each unit
consisting of one common share and one-half of a warrant. Each whole warrant
entitled the holder to purchase one common share at $1.40 per share for a period
of two years. Related issuance costs totalled $122,485 in respect of this
financing.
In April 2002, the Company completed a brokered private placement financing of
4,400,000 common shares at $2.30 per share for total proceeds of $10,120,000.
Related share issue costs of $745,593 were incurred in respect of this
financing.
On February 7, 2003, the Company completed a brokered placement consisting of
2,587,500 common shares (the "February 2003 Financing") at $7.00 per share for
gross proceeds of $18,112,500. The shares issued under the February 2003
Financing were qualified by way of short form prospectus. The final short form
prospectus of the Company in respect of the February 2003 Financing was
receipted by the British Columbia, Alberta, Saskatchewan, Manitoba and Ontario
Securities Commissions on January 31, 2003.
Significant Acquisitions and Dispositions
There were no significant acquisitions or dispositions made by the Company
during its most recently completed financial year.
Background and Trends
As the Company is a mineral exploration and development company with no
producing properties, the information required by this sub-item is inapplicable.
The Company's management believes that gold and silver prices will continue to
firm up over the next several years and that the Company will benefit from
rising precious metal prices.
For further information on the Company's material mineral properties, see the
Property discussions in Item 4 commencing on page 3 of this AIF. See the
Selected Consolidated Financial Information in Item 5 of this AIF for
information on significant transactions affecting the development of the
Company's business in the last three years.
-2-
NARRATIVE DESCRIPTION OF THE BUSINESS
Overview
The information provided hereunder has been prepared by Mark H. Bailey, M.Sc.,
P.Geo., President of the Company, who is a "qualified person" as defined in
National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI
43-101").
The Company is a mining exploration and development company. The Company's
principal properties are the Dolores Property and the Northern Sonora Property
(which includes the La Bolsa deposit and the El Malacate project) as well as
more than a dozen other projects including the La Reserva/El Correo group of
claims. All of these properties are without a known body of commercial ore. The
Company's activities on these properties to date have been exploratory in
nature. There is no surface plant or equipment on any of these properties.
Since November 1995, the Company has been actively working on the Dolores
Property completing aerial photos and topography, satellite imagery, road
construction and infrastructure development, surface mapping, surface sampling,
underground sampling, geophysics, diamond core and RC drilling, metallurgical
studies, environmental base line studies and initial resource modelling and mine
engineering. Results from these efforts have led to the discovery of a major
epithermal gold and silver deposit containing an initial estimated 2.77 million
ounces of gold and 161 million ounces of silver.
The La Bolsa mineralized system on the Northern Sonora Property was discovered
and staked in 1994 by Company personnel, and a first phase exploration drilling
program was completed in 1996. A second program was completed in 1998 producing
an independent mineralized deposit estimate of up to 208,000 ounces gold and 2
million ounces of silver. Exploration work was suspended in 1998 pending an
increase in gold prices or a substantial cash influx. Exploration activities
including geological mapping and sampling and drilling continued on the El
Malacate project covering a portion of the Northern Sonora Property with the
completion of nine widely spaced drill holes during 2002. Work on the other
northern Sonora mineral claims from 1996 through 2002 has led to the discovery
of twelve additional gold-silver mineralized systems and several porphyry copper
related base metal systems.
The Company also has interests in a number of secondary properties. Detailed
mapping and sampling conducted over the past five years has defined anomalous
gold zones on the San Antonio Property in Zacatecas, Mexico, where an initial
drilling program is proposed to confirm and test the down dip extension of this
gold mineralization. In addition, we have interests in the Gutsy/Buckskin
Mountain Properties, Nevada, U.S.A., the Clear Property, Nevada, U.S.A., the
Dottie Property, Nevada, U.S.A., the Oro Blanco Property, Arizona, U.S.A. and
the Dubuisson Property, Val d'Or, Quebec. The Company's interest in the
Dubuisson Property consists only of a 2% net royalty interest.
PRINCIPAL PROPERTY - THE DOLORES PROPERTY
For a full report on the Company's principal property, the Dolores Property, see
the report prepared for the Company by Pincock Allen & Holt (the "PAH Report")
entitled "Audit of Resources at the Dolores Gold-Silver Project Chihuahua,
Mexico", dated December 2, 2002, which has been previously filed on SEDAR. The
PAH Report was authored by George Armbrust and Robert Sandefur who are both
"independent qualified persons" as defined in NI 43-101. The PAH Report is
incorporated herein by reference and a brief summary of the information provided
in the PAH Report is provided below.
The Company's current primary focus is on the Dolores Property in respect of
which a drilling and feasibility study is underway. The Dolores Property is a
structurally-controlled, gold-silver deposit located within a sequence of
volcanic rocks. Gold and silver mineralization identified at surface occurs
within a zone over 4,000 metres long and 1,000 metres in width at elevations
that range from 1,400 metres to 1,700 metres above sea level. Mineralization has
also been investigated to the depth of drilling at 1,150 metres elevation or
over 550 metres of vertical extent.
Description and Location
The Dolores Project is located in the Sierra Madre Occidental Range of northern
Mexico at geographic coordinates 29 degrees north latitude, 108 degrees 32
minutes west longitude, in the westernmost part of the State of Chihuahua. A
property location map is shown in Figure 1 and a land status map is shown in
Figure 2. The project area is approximately 250 kilometres west of the city of
Chihuahua.
-3-
The Company, through its 100% owned Mexican subsidiary, Minera Dolores, has a
controlling interest in the Dolores mineral concessions and surface rights
covering the project area. The Company executed a Mining Exploration,
Exploitation and Unilateral Promise of Sale Agreement with Liebano Saenz Ortiz
("Saenz"), the owner of seven exploitation concessions comprising a total of
1,920 hectares covering the core of the Dolores Mining District. This agreement
was subsequently assigned to Minera Dolores. Minera can earn a 100% interest in
these concessions by paying a total of US$1.5 million in cash payments at the
rate of US$25,000 each calendar quarter. Through December 2002, the Company has
paid a total of US$967,000. A Net Smelter Return ("NSR") royalty of 2% on gold
and silver is payable to Saenz upon commercial production and an additional
1.25% NSR on gold only is payable to another party. Two peripheral mineral
concessions (Silvia and Dolores) were staked by the Company bringing the total
area of concessions to 27,700 hectares.
The Dolores Property consists of the nine concessions described in the following
table, comprising a total of 27,700 hectares. All environmental permits are
current and in order and allow the Company to conduct exploration of the Dolores
Property through to the actual permitting for a mine site. In addition to
permits allowing the Company to construct all access and drill roads necessary
to complete the development drilling now underway, the Company has permits for
the use of a nearby landing strip. The Company has also negotiated surface
rights agreements with the Ejido Huizopa and certain individual members of the
Ejido for access and right to conduct all exploration activities on the property
up to and including all mining operations that may occur on these lands as a
result of these exploration activities.
[OBJECT OMITTED]
Figure 1: Property Locations
-4-
The following table lists pertinent information with respect to the Dolores
Property Mining Concessions.
Dolores Property Mining Concessions
- --------------------------------------------------------------------------------
Concession Name Title No. Area (hectares) Expiry Date
- --------------------------------------------------------------------------------
Silvia 217587 2,866 August 20, 2052
Real Cananea 184981 394 December 12, 2039
Real Cananea Uno 184982 180 December 12, 2039
San Judas Tadeo 184983 150 December 12, 2039
Alma Maria 191728 6 December 18, 2041
Ampliacion Real Cananea 184984 350 December 12, 2039
Ampliacion Real Cananea Uno 184985 360 December 12, 2039
Ampliacion Real Cananea Dos 184986 480 December 12, 2039
Dolores 206344 22,914 December 1, 2003
- --------------------------------------------------------------------------------
Total Area 27,700
- --------------------------------------------------------------------------------
Eight of the nine concessions have been granted exploitation status. Taxes are
due every six months, in January and July, on all concessions. Taxes paid in
January 2003 totalled 506,311 Pesos (approximately US$50,000). Annual assessment
work is required for exploration concessions and work expenditures to date,
which can be carried forward, will cover the concessions for the next five
years.
Gold and silver mineralization, identified at surface, occurs within a zone over
4,000 metres long and 1,000 metres in width and has been intersected in drilling
to depths of over 450 metres below the highest topographical elevation. Historic
underground mining was carried out along three main, sub-parallel structures
that occur both within and beyond the resource study area. Figure 2 below
illustrates the location of the known mineralized zones, the mineral resource
area and concession boundaries.
[OBJECT OMITTED]
Figure 2: Dolores Property Mineral Concessions and Mineralized Areas
-5-
Accessibility, Climate, Local Resources, Infrastructure and Physiography
The project area is approximately 250 kilometres west of the city of Chihuahua
and is accessed from the town of Madera (pop. +/- 35,000). Madera is linked by
paved highway and railway with the rest of Mexico and the United States. The 87
kilometre, 3.5 hour trip to Dolores from Madera by vehicle is mostly along
narrow, winding and rough gravel logging roads.
The climate in the area is semi-arid with average annual precipitation of
approximately 25 cm. Most of the precipitation falls during the wet season
lasting from July to mid September. Temperatures range from -10 degrees Celsius
in winter to 45 degrees Celsius in summer. Exploration can be undertaken
throughout the year.
The local economy is supported mainly by cattle ranching, logging and
subsistence level farming. Unskilled labour is available at several villages
within the area. Water for drilling is available from a local reservoir, from
flooded historic underground mine workings and the nearby Rio Tutuaca. Surface
rights to all known mineralization, areas suitable for potential waste disposal,
tailings, storage, heap leach pads and plant sites are held by the Company.
The project area is serviced by narrow, winding, rough roads. A network of roads
to provide access for drilling has been established on the property. Most modern
services are available at Madera.
Site topography is characterized by moderately rugged terrain with elevations
ranging from 1,200 metres above sea level, at the Rio Tutuaca, to 2,000 metres,
at the Mesa Aterrizaje.
The mountaintops are covered with pine, while vegetation in the valleys consists
mainly of thorny shrubs and cactus. Active, intermittent stream erosion has
resulted in the formation of deep V-shaped valleys throughout the area.
History
Mining activity in the area of the Dolores Property is believed to have started
with placer mining circa 1860. In 1898, organized lode mining is reported to
have begun in the area. By 1915, a power line had been installed from Madera,
and processing was accomplished by pulverizing the ores in 25 stamp mills and
recovering gold and silver in a cyanide leach and zinc precipitate circuit.
Records from 1922 through 1929 indicate that the property was producing nearly
50,000 tonnes per year until the mill was destroyed in a fire in early 1929.
Only sporadic high-grade production occurred during 1929 to 1931, and there are
no records of any production since that time.
The Company began acquiring a land position in the district in 1993 and
initiated a preliminary surface exploration program to evaluate the district's
mineral potential. Between 1996 and 2001, the Company completed more than 61,000
metres of drilling, including approximately 136 core holes totalling 32,048.8
metres and approximately 155 RC holes totalling 29,392.2 metres. Detailed
geologic mapping of approximately six square kilometres and widespread
reconnaissance mapping and sampling covering 12 square kilometres have been
combined with ore microscopy, metallurgical study, petrographic analysis and
geochemical studies to form the data base. Geophysical surveys, including 14,900
line metres of induced polarization, resistivity, and magnetic surveys, as well
as base-line environmental studies, were also completed during this period.
Since July of 2002, the Company has completed an additional 24,500 metres (6,197
metres RC and 18,300 metres core) of a planned 30,000 - 35,000 metre drilling
program for 2002-2003.
-6-
The following table shows the historical production of the Dolores Mining
District for the years 1922 to 1931. The accuracy of this information is unknown
to the Company.
Recorded Production from the Dolores Mining District
----------------------------------------------------------------------------------------------------------
Year Tons Mined Average Grade Average Grade Contained Contained
(gm/ton) (oz/ton) Kilograms Kilograms
Au Ag Au Ag Au Ag Au Ag
1922 63,494 *6.1 *635 0.18 18.52 *388.5 *40,313.8 12,492 1,296,088
1923 65,885 6.8 559 0.20 16.30 451.0 36,862.0 14,500 1,185,113
1924 54,005 *8.4 *527 0.24 15.37 *451.0 *28,471.3 14,501 915,351
1925 51,261 *9.6 *505 0.28 14.73 *492.7 *25,862.1 15,841 831,466
1926 48,523 12.7 548 0.37 15.98 606.0 25,718.0 19,483 826,834
1927 42,082 12.5 554 0.36 16.16 ***526.0 ***23,313.4 16,912 749,526
1928 38,146 12.5 400 0.37 11.67 478.0 15,250.0 15,368 490,288
Mill burned in early 1929, subsequent higher grade ore shipped off property for milling (?)
1929 1,306 24.6 872 0.72 25.43 32.0 1,140.0 1,029 36,651
1930 3,686 **30.7 **1671.5 0.90 48.75 118.0 6,153.0 3,794 197,819
1931 3,384 **27.6 **1458.2 0.81 42.53 **93.4 ***4,934.5 3,004 158,646
Total/ weighted average
371,771 9.8 563 0.286 16.26 3,636.7 208,018.1 116,921 6,687,782
----------------------------------------------------------------------------------------------------------
* Back calculated from production using 96% recovery from
Au and 87% recovery of Ag (Average recoveries listed in
annual reports)
** Weighted average from several ore shipments
*** Calculated from Tons Mined and Average Grade
Sources: Anuario de Estaddistica Minero, 1922, 1923, 1926, 1927,
1928, 1929 and 1930, 1931, Annual Reports
- --------------------------------------------------------------------------------
Geology
The Dolores deposit is a structurally-controlled, gold-silver deposit, located
within a sequence of volcanic rocks composed primarily of andesite flows, flow
breccias, and tuffs, which are overlain by latite volcaniclastic breccias. A
variety of intrusive bodies are coeval with the volcanic sequence, the most
common being dikes of latite composition which generally strike in a NNW
direction.
The dominant structural features are regional, sub-parallel, NNW-trending
faults, which dip steeply to the west. Continued down-to-the-west offset within
this structural set is believed to have caused the development of a series of
dilational conjugate faults between the primarily parallel to sub-parallel
faults. These faults are believed to have been influential during the
mineralizing event and locally may help to explain the geometry of the
mineralization.
Gold and silver mineralization identified at surface occurs within a zone over
4,000 metres long and 1,000 metres in width at elevations that range from 1,400
metres to 1,700 metres above sea level. Mineralization has also been
investigated to the depth of drilling at 1,150 metres elevation or over 550
metres of vertical extent.
Precious metal mineralization has been encountered from the surface to the
deepest drilling completed to date, exceeding 500 metres and over wide intervals
(30 to 100 metres). Within this broad zone of mineralization, relatively narrow,
2 to 20 metre wide intense stockwork or mineralized breccia zones, that often
occur along, but not confined to, intrusive contacts contain bonanza grades that
may range from 10 to over 200 grams per tonne gold and 300 to over 13,000 grams
per tonne silver.
At intermediate levels in the system, mineralized feeders widen into breccias
containing druzy cavities, comb structures, crustifications and symmetrical
banding in silica veins and veinlets. Strong hydrothermal brecciation is common
and frequently overprints areas of original tectonic breccia and/or fractures.
The upper extent of widespread mineralization is generally confined to a few
tens of metres above the contact of the latitic volcaniclastic tuffs with the
underlying intermediate andesitic volcanics. It is likely that high porosities
and permeabilities resulted in dispersal and lateral migration of hydrothermal
fluids at the volcaniclastic contact with concimitant cooling generally
restricting ascension of hydrothermal fluids.
-7-
For more details on the geology on the Dolores Property, see section 3 of the
PAH Report, which is incorporated herein by reference.
Exploration
The Company acquired its right to explore the Dolores Property in 1993 and
initiated a preliminary surface exploration program to evaluate the district's
mineral potential. Between 1993 and August 1994, several reconnaissance visits
by Company personnel and various consultants resulted in the collection of
several hundred rock chip samples, including surface grab and channel samples.
Since November 1995, the Company has actively worked on the Dolores Property,
resulting in the discovery of a significant gold and silver deposit.
Exploration efforts have included reconnaissance and detailed surface mapping,
channel sampling on surface and in accessible old underground workings totalling
more than 16,000 rock chip assays, metallurgical studies, initial mine planning
and engineering studies, environmental base line studies, road up-grading and
construction, airphoto and topographical maps and a total of 382 holes for
85,937 metres, providing more than 44,000 drill samples for assay on the Dolores
Property as of the end of fiscal year 2002. Drilling during 2002 included 59
diamond drill holes for 18,300 metres and 32 RC holes for 6,197 metres completed
as part of the current 30,000 to 35,000 metre drill program.
Work on the property was carried out by professional geologists employed by the
Company and a number of independent consulting geologists and engineers. The
principal outside independent consultants over the last 7 years include: H. J.
Choates and W.E. Brereton, of MPH Consulting Limited; McClelland Labs of Reno,
Nevada; Golder and Associates, Tucson, Arizona; Mine Development Associates,
Reno, Nevada; MRDI Canada; SRK Canada; J. Nilsson, P. Eng; Pincock Allen & Holt,
Denver, Colorado; Hazen Research, Inc, Golden Colorado, Roscoe Postle Associates
Inc, Vancouver, B.C. and M3 Engineering & Technology Corp. Tucson, Arizona.
Drilling
Since the start of the first phase of drilling in August 1996, more than 86,000
metres of drilling in 382 holes have been completed to date. Diamond drill holes
amounting to more than 50,348 metres in 195 holes and 187 reverse circulation
drill holes for 35,600 metres constitute the drilling database with drilling
continuing at the time of this AIF.
Of the total holes drilled, more than 328 holes were drilled within the resource
area and will be used in the a new resource calculation. Two holes were lost and
six additional holes were water well and water test wells. Fifty-four holes were
drilled to test targets peripheral to the resource area; three were drilled on
the La Bohemia target, 18 tested the East Dike target, 13 tested the Norte and
north end of the East Dike target, 16 were drilled on the Sur Zone and one hole
was drilled on the La Central target.
Reverse circulation holes were sampled at 1.52 metre intervals and diamond core
holes were typically split at 2 metre assay intervals. One-half of the sample
was sent to the lab for assay and one-half was placed in storage for future
reference.
Through 2002, more than 45,500 samples were assayed and compiled into a
database.
A first phase of diamond drilling was carried out by the Company between August
and December 1996, with 6,609 metres of HQ/NQ core recovered in 30 holes. Most
of the drill holes encountered significant gold and silver mineralization over
substantial widths along a 1,000 metre strike length within the Chabacan target
area. One of the better intersections in D96-22 averaged 2.64 g/t gold and 116.2
g/t silver over 29.8 metres.
A second phase of drilling commenced in January 1997 and ended in February 1997.
At the end of this program, 45 diamond drill holes totalling 10,115 metres had
been completed since initial drilling started in August 1996. The second phase
drilling tested a 2,000 metre strike length south of the Chabacan main zone. One
of the better drill holes in this program, D97-36, intersected 96 metres
averaging 2.00 g/t gold and 32.2 g/t silver.
-8-
A third phase drill program was initially carried out under the direction of
Echo Bay Mines Ltd. ("Echo Bay") staff and later managed by Company personnel.
The drill program consisted of infill drilling to confirm the existing resource
and step-out drilling to expand the resource to include the Hondo and Chabacan
target areas.
All of the infill holes drilled during this phase intersected potentially
economic grade gold and silver mineralization and confirmed continuity of the
main zone deposit over a strike length of 2,000 metres. All holes were drilled
at angles of -450 to -750 and directed to test the down-dip extension of
outcropping surface gold and silver mineralization to depths of 350 metres (see
Figure 3).
[OBJECT OMITTED]
Figure 3: Representative Drill Section with General
Geology and Highlighted Assay Intervals
In August 1997, an independent resource was calculated by Humbolt Mining
Services, based on 107 drill holes. A drill indicated and inferred resource was
estimated at 27.84 million tons with an average grade of 0.038 oz/ton (1.3 g/t)
gold and 1.38 oz/ton (47.3 g/t) silver at a 0.015 oz/ton gold cut-off.
In September 1997, Echo Bay completed a 56 hole drill program with all holes
intersecting significant gold and silver mineralization. In October 1997, the
Company reacquired Echo Bay's interest in the Dolores Property and
-9-
continued with the phase-one feasibility study initiated by Echo Bay that
included column leach testing, environmental base line studies and a preliminary
geotechnical study.
In June 1998, MRDI Canada provided an updated resource calculation as part of a
pre-feasibility scoping study. The calculation was based on 160 drill holes
totalling 35,000 metres of drilling over 1,800 metres of strike length. Using a
0.5 g/t cut-off and uncapped gold equivalent, the following resource was
calculated.
Indicated 23,912,000 tonnes of 1.45 g/t Au Eq.
Inferred 30,385,000 tonnes of 1.245 g/t Au Eq.
--------------------------------------------------------------
Total 54,297,000 tonnes of 1.338 g/t Au Eq.
In September 1998, additional infill drilling was completed on the main zone at
25 metre centres along the 1,800 metre strike length. Incorporating the latest
drill results, an updated resource calculation by MRDI Canada was completed in
November 1998, with indicated and inferred resources for the main zone deposit
totalling 61 million tonnes grading 1.42 g/t gold-equivalent. All gold values
were capped at 4.0 g/t and silver values were capped at 220 g/t. A cut-off grade
of 0.5 g/t gold-equivalent was used. The data provided to MRDI Canada for the
resource study included 238 drill holes (127 diamond drill and 111
reverse-circulation drill holes) totalling 52,898 metres. The drill holes
extended over 2,800 metres of strike length and 1,000 metres across strike.
From January to March 2000, a program of infill drilling confirmed the
continuity of high-grade gold and silver mineralization occurring within feeder
structures surrounded by a broad zone of disseminated mineralization. The
high-grade feeder structures extend for over 4,000 metres along strike and have
been drill-tested to depths of up to 300 metres. Some of the best results from
the 2000 drill program came from hole D00-R140 drilled on section 2175. The
drill hole averaged 1.24g/t gold and 61.7g/t silver over 236 metres. A 15.2
metre section within this zone averaged 11.52g/t gold and 707.7g/t silver.
In August of 2002, Pincock Allen & Holt completed an independent audit of the
resource data-base (compiled through April 2002) and the measured, indicated and
inferred resources previously reported for the Dolores deposit. This audit
resulted in the resource table reproduced below under the section "Mineral
Resource and Mineral Reserve Estimates".
Since June of 2002, a drilling program, consisting of approximately 30,000 to
35,000 metres of infill and stepout drilling has been underway. This drilling
program is designed to bring the main zone resource to a final feasibility and
to expand the mineralized potential of the district. Results from this program
will be incorporated into revised resource models and mine planning, and
incorporated into an independently engineered feasibility study. Through the end
of 2002 a total of 24,500 metres of new drilling has been completed, consisting
of 18,300 metres of core in 59 holes and 6,200 metres of RC in 32 holes.
Mineralization
Gold and silver mineralization identified at surface occurs within a zone over
4,000 metres long and 1,000 metres in width at elevations that range from 1,400
metres to 1,700 metres above sea level. Mineralization has also been
investigated to the depth of drilling at 1,250 metres elevation or over 450
metres of vertical extent.
Precious metal mineralization has been encountered from the surface to the
deepest drilling completed to date, exceeding 500 metres and over wide intervals
(30 to 100 metres). Within this broad zone of mineralization, relatively narrow,
2 to 20 metre wide intense stockwork or mineralized breccia zones, that often
occur along, but not confined to, intrusive contacts contain bonanza grades that
may range from 10 to over 200 grams per tonne gold and 300 to over 13,000 grams
per tonne silver.
Precious metal values are contained within native gold, native silver, electrum,
silver sulfides and silver sulfosalts. Feeders also contain quartz, sericite,
pyrite (locally oxidized to limonite), with lesser amounts of epidote, chlorite,
calcite, fluorite, galena, sphalerite, and occasional chalcopyrite.
-10-
At intermediate levels in the system, mineralized feeders widen into breccias
containing druzy cavities, comb structures, crustifications and symmetrical
banding in silica veins and veinlets. Strong hydrothermal brecciation is common
and frequently overprints areas of original tectonic breccia and/or fractures.
Pervasive silicification of the country rock and multiphase veining in both
breccias and stockwork zones show strong correlation with high grade gold and
silver mineralization, with lower grade material occurring between the feeders.
Mineralization at this level also occurs within localized zones of intense
propylitic alteration that may occur adjacent to the most strongly mineralized
areas within the deposit.
The upper extent of widespread mineralization is generally confined to a few
tens of metres above the contact of the latitic volcaniclastic tuffs with the
underlying intermediate andesitic volcanics. It is likely that high porosities
and permeabilities resulted in dispersal and lateral migration of hydrothermal
fluids at the volcaniclastic contact with concomitant cooling generally
restricting ascension of hydrothermal fluids. Alteration extends laterally for
several hundred metres along and above the contact in a generally silicified,
broken, brecciated, and variably argillized subhorizontal layer. This altered
layer contains anomalous mercury, arsenic, and antimony throughout its extent.
Ore grades of mineralization locally persist beyond tens of metres into the
overlying tuff units but are restricted to narrower zones of fracturing. In the
highest exposures of the central dome area, low-grade mineralization from 40 to
100 parts per billion (ppb) gold is known to occur within small discontinuous
pods of chalcedonic to opalescent vein material.
The episodic nature and variable intensity of mineralizing activity has commonly
resulted in overprinting of several features, including the formation of quartz
stockworks along intrusive contacts, flooding of tectonic breccias with
hydrothermal silica, silicification and dissemination of mineralization
peripheral to structures, re-brecciation and precipitation of stockwork quartz
in several phases, and hydrothermal brecciation that overprints original
tectonic features. A relatively large breccia-pipe like body has been defined
over a 400 metre length (20-60 metres wide) from the surface to depth greater
than 500 metres, which contains consistent higher-grades of mineralization,
indicating a primary mineralizing conduit. Oxidation throughout the area of the
deposit is highly variable. Oxidation has been observed to the depth of
drilling, particularly within the larger fracture zones, yet sulfides are also
known to occur at surface in various localities of the property. The majority of
the deposit can be classified as mixed oxide/sulfide with smaller percentages of
totally oxidized material occurring along structures and near surface, with
progressively increased sulfide content found at depth.
Sampling and Analysis
Rock Chip Sampling and Soil Sampling
Since 1993, in excess of 13,800 rock chip samples have been taken across zones
of mineralization at the Dolores Property. Continuous rock chip samples were
collected over five metre sample lengths (84% of total samples) along sample
lines laid out perpendicular to the 330 degree strike of the altered, silicified
and mineralized rock exposures.
Each sample site was flagged and marked with an aluminum tag. Soil samples were
taken along those portions of the lines covered by overburden. A total of 1,800
soil samples were collected and analyzed. A surveyed baseline and grid lines
spaced at 50 metre intervals were established for control of the rock chip and
soil sampling.
The area covered by the sampling program was approximately six square
kilometres.
All samples were collected from the Dolores site by ALS Chemex Laboratories
("Chemex"), Bondar-Clegg or Inspectorate personnel and taken to a sample
preparation lab either at Chihuahua, Hemosillo or Durango. Following sample
preparation pulps are flown either to Vancouver, Canada or Reno Nevada for final
analysis.
The soil samples were dried and sieved to -80 mesh. The -80 mesh portion was
sent to the Chemex lab in Vancouver, British Columbia. A 30 gram subsample was
then analyzed for gold by fire-assay with an atomic absorption (AA) finish.
Silver values were obtained by aqua-regia digestion followed by AA analysis.
For rock chip samples, a 30 gram sub-sample for gold analyses was used for
fire-assay with an AA finish. Silver analyses were obtained by AA (background
corrected) assay following aqua-regia digestion. One kilogram pulps
-11-
were prepared, instead of the normal 0.2 kg pulps, after comparative analyses
indicated the large sample size ensured greater sample assay consistency.
The rock chip and soil sampling programs were supervised by experienced,
professional geologists. The samples taken are considered to be of acceptable
quality and representative of the mineralization exposed at the sample sites.
The sample results are considered to be reliable since all analyses were
performed at well known reputable laboratories with quality control procedures
in place.
Core Sampling and Reverse-Circulation Sampling
All core was carefully logged in a thorough manner by experienced, professional
geologists in keeping with industry standards and mineralized sections were
photographed before sampling. The mineralized sections were marked for sampling
according to changes in rock type, changes in character and quantity of the
mineralization and at structural contacts. As a result, core sample lengths are
variable. Where there are no lithological or structural changes, sample
intervals are typically two metres in length. All mineralized core was then
split by core-splitter with one-half of the core placed in plastic or cloth
sample bags along with a sample tag number and securely fastened. The other
one-half was replaced in the core trays and stored in core racks on the
property.
Reverse circulation holes were sampled at 1.52 metre intervals. One-half of the
samples, weighing from 12 to 16 kg, were sent for assay and the other one-half
was placed in storage at the site for future reference. Core samples from
drilling programs carried out by the Company were sent to the same Chemex lab
that was used to process rock chip samples and the same preparation, assaying
and quality control procedures were applied.
Quality Control
Quality control of assay data at the Dolores Property was ensured through a
monitoring program (set up by an independent geochemist, Dr. Lovestrom, hired by
Echo Bay) that included use of prepared gold-silver standards, blank samples,
check analyses, duplicate analyses by alternate labs, and metallic screen
analyses. A total of more than one out of every ten samples were a part of the
quality assurance database and all geochemical analyses are performed at ALS
Chemex Laboratories and Inspectorate, well known, industry-standard geochemical
laboratories. Quality assurance was provided by check assays processed at
Bondar-Clegg labs, Vancouver, B.C. and/or between the two other labs listed
above.
2001 Dolores Silver Reanalysis Program
During the summer of 2001, the Company discovered that silver grades for certain
samples from the Dolores Property were underestimated by the aqua-regia
digestion assay techniques which had been used. It is considered likely that the
under-reporting of grade is related to the presence of silver halide minerals in
Dolores ores, possibly as a result of secondary enrichment of silver.
Selection of Samples
After initial check assays showed a significant increase in silver grades using
multi-acid digestion techniques, an extensive silver reanalysis program was
undertaken by the Company. Approximately 8,880 samples were reanalyzed. The
samples selected for reanalysis were primarily consistent runs of greater than
10 g/t silver, or runs which had greater than 5 g/t silver along with
significant amounts of gold.
Chain of Custody and Sampling issues
Splits were pulled from pulp material previously prepared by Chemex in Chihuahua
and Hermosillo. About 35% of the material was stored at Chemex's Chihuahua
facility, with the remainder being stored at Minefinders' Chihuahua warehouse.
All sample retrieval and preparation was carried out by Chemex personnel.
Approximately 400 drill samples and 100 underground samples were not found at
either location, and are not incorporated in the data set.
-12-
Samples which had previously been fire-assayed were included in segments for
rerun. It was not expected that there would be a significant change in these
results, but they serve as an excellent check on the multi-acid digestion
technique. Samples which returned a below detection limit result (<1 g/t Ag)
with multi-acid digestion are ignored, because the aqua-regia technique is
considered more accurate at these grades.
Results
For the drill samples submitted, there is a significant increase in the
contained silver results using multi-acid digestion for oxidized material, with
a more moderate increase for material categorized as mixed or sulfide. The most
dramatic increases in silver grade were found in various peripheral zones that
surround the main deposit, but the improvement in silver grades throughout the
resource will increase the overall resource. The samples analyzed by fire-assay
show excellent agreement with the multi-acid results, which provides confidence
in the multi-acid technique for Dolores ores. See "Mineral Resource and Mineral
Reserve Estimates" below.
Mineral Resource and Mineral Reserve Estimates
On August 19, 2002, PAH presented its initial report entitled "Audit of
Resources at the Dolores Gold-Silver Project, Chihuahua, Mexico". This initial
report was subsequently re-written to comply with the requirements of NI 43-101.
This AIF incorporates by reference the PAH Report dated December 2, 2002. There
are no mineral reserve estimates at this stage. The measured, indicated and
inferred resources for the Dolores Property, at cut-off grades of 0.3, 0.5, 0.6,
0.7, 1.0, 1.5, 2.0 and 3.0 gpt Au Eq are taken from the PAH Report and shown in
the following table. This resource estimation is based on construction of
geological and computer block models, and variographic analysis. The Metric
System is used in this analysis. Tonnes are stated as metric tonnes of 1,000 kg.
Gold and silver grades are reported in grams per tonne (gpt). All resources are
calculated in accordance with NI 43-101.
Measured, Indicated and Inferred Resources
- -----------------------------------------------------------------------------------------------------------------
Dolores Project, PAH Measured Resource
- -----------------------------------------------------------------------------------------------------------------
Cutoff TONNES GOLD GOLD SILVER SILVER Aueq grade Aueq
gpt Aueq (1000's) gpt Au Ounces gpt Ag Ounces gpt Aueq Ounces
- -----------------------------------------------------------------------------------------------------------------
3.0 2,960 3.743 356,300 183.5 17,467,200 6.802 647,400
2.0 5,337 2.706 464,400 135.6 23,269,600 4.966 852,200
1.5 7,986 2.138 549,000 109.0 27,973,500 3.954 1,015,200
1.0 12,147 1.649 643,900 85.0 33,191,400 3.066 1,197,100
0.7 16,415 1.344 709,500 69.8 36,859,600 2.508 1,323,900
0.6 18,614 1.230 736,100 64.0 38,298,300 2.297 1,374,500
0.5 21,487 1.107 764,500 57.8 39,960,100 2.071 1,430,500
0.3 29,980 0.857 826,300 45.0 43,384,100 1.607 1,549,400
- -----------------------------------------------------------------------------------------------------------------
-13-
- -----------------------------------------------------------------------------------------------------------------
Dolores Project, PAH Indicated Resource
- -----------------------------------------------------------------------------------------------------------------
Cutoff TONNES GOLD GOLD SILVER SILVER Aueq grade Aueq
gpt Aueq (1000's) gpt Au Ounces gpt Ag Ounces gpt Aueq Ounces
- -----------------------------------------------------------------------------------------------------------------
3.0 3,897 3.202 401,200 196.9 24,669,300 6.484 812,300
2.0 7,512 2.277 549,800 144.3 34,838,100 4.681 1,130,400
1.5 11,043 1.853 657,800 116.8 41,455,500 3.799 1,348,700
1.0 15,994 1.481 761,300 94.1 48,405,500 3.050 1,568,100
0.7 21,189 1.227 835,600 78.2 53,303,100 2.531 1,723,900
0.6 24,363 1.113 872,000 70.9 55,509,000 2.294 1,797,100
0.5 28,598 0.993 912,700 63.1 58,041,100 2.045 1,880,100
0.3 41,524 0.750 1,001,900 47.7 63,645,700 1.545 2,062,700
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Dolores Project, PAH Measured + Indicated Resource
- -----------------------------------------------------------------------------------------------------------------
Cutoff TONNES GOLD GOLD SILVER SILVER Aueq grade Aueq
gpt Aueq (1000's) gpt Au Ounces gpt Ag Ounces gpt Aueq Ounces
- -----------------------------------------------------------------------------------------------------------------
3.0 6,857 3.436 757,400 191.1 42,136,400 6.622 1,459,700
2.0 12,849 2.455 1,014,200 140.7 58,107,600 4.799 1,982,600
1.5 19,029 1.973 1,206,800 113.5 69,429,000 3.864 2,364,000
1.0 28,141 1.553 1,405,200 90.2 81,596,900 3.056 2,765,200
0.7 37,604 1.278 1,545,100 74.6 90,162,700 2.521 3,047,800
0.6 42,977 1.164 1,608,100 67.9 93,807,200 2.296 3,171,600
0.5 50,085 1.042 1,677,300 60.9 98,001,100 2.056 3,310,600
0.3 71,504 0.795 1,828,200 46.6 107,029,800 1.571 3,612,000
- -----------------------------------------------------------------------------------------------------------------
Dolores Project, Inferred Resource
- -----------------------------------------------------------------------------------------------------------------
Cutoff TONNES GOLD GOLD SILVER SILVER Aueq grade Aueq
gpt Aueq (1000's) gpt Au Ounces gpt Ag Ounces gpt Aueq Ounces
- -----------------------------------------------------------------------------------------------------------------
3.0 2,986 3.546 340,400 185.9 17,845,400 6.644 637,800
2.0 5,939 2.421 462,200 136.2 26,004,100 4.691 895,600
1.5 9,114 1.934 566,700 107.5 31,505,600 3.726 1,091,800
1.0 12,707 1.581 646,000 88.8 36,288,200 3.062 1,250,800
0.7 18,416 1.225 725,400 70.4 41,695,900 2.399 1,420,400
0.6 22,457 1.070 772,300 61.6 44,464,600 2.096 1,513,400
0.5 28,051 0.919 828,400 52.8 47,661,100 1.799 1,622,800
0.3 44,017 0.668 945,800 38.1 53,980,700 1.304 1,845,500
- -----------------------------------------------------------------------------------------------------------------
* Note: this geological resource has been estimated in accordance with the
Canadian Institute of Mining and Metallurgy guidelines, which are different from
the guidelines set forth in Guide 7 under Item 802 of Regulation S-K. See
"Glossary."
The resources in the preceding table do not account for the material mined in
the past. Historic production from the project area is reported as 371,771 tons
(337,233 tonnes) at an average grade of 0.286 opt (9.8 gpt) gold and 16.26 opt
(563 gpt) silver. Of this total, the Company estimates that about 80 % is within
the area where resources have been estimated. PAH, in the PAH Report, concludes
that 270,000 tonnes should be subtracted from the resource estimate at the
average grade of the current resource estimate.
-14-
A revised resource model will be completed, incorporating all the drill results
from the on going drilling program, commenced in June 2002, when all infill
holes are completed and assays are final.
NORTHERN SONORA PROPERTY
The information provided hereunder has been prepared by or under the supervision
of Mark H. Bailey, M.Sc., P.Geo., President of the Company and a "qualified
person" as defined in NI 43-101. The properties described below are not
considered material to the Company due to the current book value of the
properties. The Company does, however, consider these properties to be worthy of
future exploration expenditures and has been conducting, and will continue to
conduct, exploration work on each of the following properties.
Description and Location
The Northern Sonora Property is located in the northern part of Sonora State,
Mexico. The Northern Sonora Property consists of the nine exploration
concessions described below, comprising a total of approximately 16,591
hectares.
Northern Sonora Property Concessions
- --------------------------------------------------------------------------------
Concession Name Title No. Area (hectares) Expiry Date
- --------------------------------------------------------------------------------
Abe 216305 996 April 29, 2052
Oro Fino 215622 649 March 3, 2052
La Pistola 213748 1,698 June 13, 2002*
La Gloria 214344 1,087 September 26, 2002*
Los Adobes 218455 6,173 November 3, 2052
El Ruido 218448 3,788 November 3, 2052
El Callejon 211609 14 June 15, 2006
El Callejon 2 211623 20 June 22, 2006
El Manzanal 213593 220 May 16, 2007
- --------------------------------------------------------------------------------
Total Area 14,645
*Filed for conversion to exploitation, awaiting new title
Approximately three areas of mineralization in separate geographic zones occur
within the Northern Sonora Property: 1) the La Bolsa Property, in the northwest
corner of the Northern Sonora concession block; 2) the El Malacate Caldera
related gold mineralized area, in the central part of the concession block; and
3) base metal mineralization related to porphyry systems, in the eastern portion
of the concession block, including the El Fierro and La Recompensa mineralized
systems.
The Company has obtained all required permits to conduct exploration drilling on
the La Bolsa and El Malacate projects through the next several exploration
programs. The Northern Sonora Property is not subject to any environmental
liabilities.
Climate, Accessibility, Local Resource Infrastructure and Physiography
The climate in the area is high desert, semi-arid with average annual
precipitation of approximately 20 cm. Most of the precipitation falls during the
wet season lasting from July to mid September. Temperatures range from 5 degrees
Celsius in winter to 48 degrees Celsius in summer. Exploration can be undertaken
throughout the year.
The local economy is supported mainly by cattle ranching, with the nearby city
of Nogales, Mexico (population exceeding 1 million), providing most of the
economy for the region. Skilled and unskilled labour is abundantly
-15-
available from nearby Nogales. Water for drilling is available from local
sources including ponds and water wells. Surface rights to all known
mineralization, areas suitable for potential waste disposal, tailings, storage,
heap leach pads and plant sites are held under agreements by the Company.
Site topography is characterized by low to moderately rugged terrain with
elevations ranging from 1,000 to 1,800 metres above sea level.
[OBJECT OMITTED]
Figure 4: Northern Sonora Properties
Nature of Transport
The project area is serviced by narrow, winding, dirt roads from Nogales. A
network of roads to provide access for drilling has been established on several
of the more advanced prospects located on the Northern Sonora Property. Modern
services are available at Nogales, within 30 kilometres of most of the
prospects.
Sampling and Integrity of Samples
We have taken more than 5,000 surface samples over the project area since 1994,
drilled 72 holes at La Bolsa and nine holes at El Malacate, and completed
extensive geological mapping and airborne geophysical surveys over the entire
claim block. All assays were completed by either Bonder-Clegg or Chemex under
the same quality assurance as those for the Dolores Property.
-16-
La Bolsa Property: Location and Access
The La Bolsa Property is located on the Abe concession in the northern part of
Sonora State, Mexico, approximately 30 kilometres west of the Mexican city of
Nogales, and 97 kilometres SSW of Tucson, Arizona. The property is best accessed
from Tucson, by taking Highway I-19 approximately 110 kilometres south to
Nogales. Access to the property from Nogales is by four wheel drive vehicle by a
combination of paved and dirt roads.
History of Property
There is no known written information pertaining to the La Bolsa Property
although historic pits, shafts, adits and exploratory trenches occur within the
property. The greatest concentration of these are found on top of, and on the
east flank of the main mineralized hill where an access tunnel, several shafts,
and over half a dozen surface pits were dug to exploit high grade (to 0.48 opt
gold and 8.3 opt silver) carbonate-rich breccias and veining.
Ownership
The La Bolsa Property was staked on behalf of Minera by a registered mineral
surveyor and Minera is the registered owner of all the exploration concessions.
Other than as imposed under Mexican mining law, the property is not subject to
any underlying royalties or title encumbrances.
Although the Company is the registered owner of the mineral rights to the La
Bolsa Property, the surface rights to much of the Abe Concession are owned by
Roberto Pierson Suarez ("Pierson"). Terms for an exploration and exploitation
surface rights agreement with Pierson (the "Pierson Agreement") were accepted
during the third quarter of 1997, and a final agreement was executed and filed
with the appropriate Mexican authorities on October 13, 1997.
The Pierson Agreement has a term of 20 years and is renewable for an additional
20 years. Under the agreement, the Company is to pay Pierson annual rent of
US$20,000, increasing by 10% per year, and an additional annual fee of US$200
for each Pierson-owned hectare that the Company actually encumbers as part of
its mining operations for activities such as building roads.
The Pierson Agreement required the Company to pay a lump sum of US$94,400 upon
execution of the agreement. This amount has been paid. This amount represents
the sum of: 1) rent for activities prior to August 1996 of US$22,400 (the
Company did not conduct activities on this property between August 1996 and
October 1997); 2) rent for the first year of the lease term (October 13, 1997
through October 12, 1998) of US$38,000, which included a one-time signing bonus
of US$10,000; and 3) rent for the second year of the lease term of US$34,000.
These annual rental fees are calculated based on the assumption that the Company
will encumber 40 hectares of Pierson-owned property during the first year of the
lease term, and 60 hectares during the second year. The Company paid the annual
rent and disturbance fee during the period from 1999 to 2002. The Company will
continue to hold this property and advance it to a feasibility study as market
conditions allow. In addition, the Pierson Agreement provides that the Company
is to pay Pierson a one-time fee of US$500,000 for each mine that the Company
puts into production on a Pierson-owned property.
Geology and Mineralization
The geological setting of the La Bolsa Property consists of Tertiary volcanic
and sedimentary units shown to overlie or intrude Cretaceous and Jurassic
sedimentary and volcanic rocks consisting of interbedded siltstone, sandstone,
conglomerate, limestone, and rhyolite flows and tuffs.
Several Tertiary volcanic and volcaniclastic rock types have been identified on
the property. Volcaniclastic and tuff beds are correlated to the lowermost units
of the Tertiary Montana Peak Formation in the Oro Blanco Mining District of
Arizona, located to the immediate north.
The La Bolsa Property contains an inferred resource of 8.3 million tons grading
0.025 oz/t gold and 0.254 opt silver. Mineralization and alteration is
characterized by intense silicification, sericitization and quartz-calcite or
quartz-adularia stockwork veining and brecciation hosted by volcaniclastic
sediments and intermediate volcanic flows intruded by felsic dikes and plugs.
Quartz-calcite veins up to 4.56 metres in width have been noted at the surface
-17-
although most of the quartz-veining occurs as stockworks. Pink replacement
textures have been described as potassic alteration or adularization but no
pattern has been defined. The presence of pyrite is suggested by iron-oxide
pseudomorphs and hematite and limonite along fractures. Carbonate veins and
breccia zones are found throughout the mineralized La Bolsa Property.
Exploration Activity
The La Bolsa mineralized system was discovered and staked in 1994 by Company
personnel while exploring the Hill of Gold prospect in the Oro Blanco Mining
District (Arizona) adjacent to the international boundary. Further prospecting,
mapping and rock geochemical sampling (1,200 samples) outlined a coincident
gold-silver anomaly which extends for about 800 metres and averages about 120
metres in width. Approximately 994 metres of surface trench rock sampling by the
Company produced significant values, including 125 metres averaging 1.10 g/t
gold in Trench 95-1 and 152 metres averaging 1.10 g/t gold along sample line
1000S. During late 1995 and early 1996, 42 reverse circulation drill holes
totalling 4,835 metres and 7 HQ/NQ diamond drill holes totalling 614.5 metres
were completed.
In mid-1996, the Company retained Mine Development Associates ("MDA") to
undertake an independent preliminary resource estimate for the La Bolsa
Property, and Hazen Research Inc. ("Hazen") to conduct preliminary bottle-roll
cyanide leach metallurgical test work on mineralized drill cuttings. MDA
reported gold mineralized material of 122,600 equivalent ounces of gold (i.e.
4,087,000 tons at .030 opt using .01 cut-off) including modest silver credits.
Hazen reported that the results from eight samples leached over a period of 72
hours had recoveries ranging from 57% to 95%, while four samples (including a
split of the 57%/72 hr. sample) leached for 96 hours had extraction rates in the
80.6% to 86.0% range. Silver recoveries were reported to be relatively high,
with low reagent consumption, suggesting amenability of the samples to heap
leach extraction techniques.
The Company completed the first phase exploration drilling program on the La
Bolsa Property in 1996 with the resultant discovery and independent mineralized
deposit estimation of up to 122,000 ounces gold equivalent. Mineralization is
open down dip to the east and along strike both north and south with excellent
potential to expand this resource. The Company received ecological permitting to
drill an additional 150 holes on this property. Access road preparation and
drill pad construction commenced upon approval of the permit. A second phase
drilling program began in May 1998 and was completed in August 1998. Results
from this drilling included 26 mineralized holes from the 28 holes drilled to
extend the La Bolsa Property. A revised resource estimate utilizing polygonal
methods tabulated 8.3 million tons, grading .025 opt gold and .254 opt silver,
containing 208,000 ounces gold and 2.1 million ounces silver, at a .01 opt
cut-off grade. Mineralization remains open to the south and east and additional
drilling will be required to advance the present deposit to a reserve.
Work Program
The work proposal for the La Bolsa Property calls for detailed ground geophysics
in the deposit area to continue tracing the known mineralization along strike
and to depth. Continued surface sampling, a 50 hole drilling program including
diamond and reverse circulation drilling, bulk density tests, metallurgical
testwork, engineering studies, and economic studies were all proposed for the
property. Allowance was made for geological mapping of the property as well as
for prospecting and geochemical sampling of potential target areas.
Detailed exploration is required at the La Bolsa Property to bring the project
to the pre-feasibility stage. This will entail infill, diamond and reverse
circulation drilling, and surface channel sampling to enable upgrading of
resources to the measured or indicated category of pre-feasibility purposes.
Systematic check assays, bulk density testing, geostatistical analysis of the
assay database, preliminary mining studies, ongoing metallurgical testwork, and
economic evaluations will be required and have been provided for in the
proposal.
Additional work on the resource area was suspended over the last several years
pending an increase in gold prices or a substantial cash influx. As a result in
the recent increase in gold prices and the Company's financing activities, an
exploration program is planned for 2003 to advance the La Bolsa property to a
feasibility study. The drilling program budgeted for 2003 includes 25 core holes
for 4000 metres, 45 RC holes for 5000 metres and a total budget of US$1,265,000.
Exploration continues on other portions of the Northern Sonora Property and work
completed in
-18-
2002 included initial drilling (nine RC holes) on the El Malacate prospect.
Exploration budgets are proposed for the El Malacate , La Dura and Alcaparroso
properties for 2003.
Estimated Costs - La Bolsa Property
--------------------------------------------------------------------
Item Amount
--------------------------------------------------------------------
Personnel costs US$155,000
Support costs US$25,000
Contract costs (Met & Eng. Studies) US$150,000
Reverse circulation drilling (7,000 m) US$280,000
Diamond Core holes (4,000 m) US$360,000
Trenching/drill roads US$20,000
Assays US$100,000
Property holding costs US$75,000
--------------------
Subtotal US$1,165,000
Additional cost contingency factor US$100,000
--------------------------------------------------------------------
Total US$1,265,000
El Malacate Recon: Description and Location
Following the initial success on the La Bolsa discovery, the Company staked
eight additional concessions expanding the Northern Sonora Property to its
present size. Work on these additional concessions during the period from 1996
through 2001 included regional and detailed geologic mapping, extensive
geochemical sampling programs, and an airborne geophysical survey. This
comprehensive exploration effort resulted in the discovery of eight additional
gold-silver mineralized systems and two porphyry copper related base metal
systems.
The El Malacate Property is located in the central portion of the Northern
Sonora Property, Sonora State, Mexico, approximately 20 kilometres west of the
Mexican city of Nogales and 97 kilometres SSW of Tucson, Arizona. The property
is best accessed from Tucson, by taking Highway I-19 approximately 110
kilometres south to the border crossing in Nogales. The property is
approximately 10 to 20 kilometres west of Nogales, Mexico and is accessed by
four wheel drive vehicle by a combination of paved and dirt roads.
History of Property
Portions of the Los Adobes and El Ruido concessions have been outlined
(approximately 35 square kilometres) and were incorporated into a joint venture
agreement with Placer Exploration Mexico Ltd. ("Placer"), a subsidiary of Placer
Dome, dated December 21, 2001. This area, which comprises six separate target
areas, is referred to as the El Malacate Property. No evidence of any historical
activity is apparent and the six target areas were discovered by Company
geologists over the past several years. Under the Placer option agreement,
Placer had the right to earn a 51% interest in the property by spending
US$4,500,000 over a four year period and paying the Company US$500,000 prior to
the third anniversary of the agreement. Placer could have acquired a 70%
interest in the property upon completion of a bankable feasibility study prior
to the sixth anniversary of the agreement and construction of a mine on the
property. During 2002, Placer Dome reimbursed $521,043 (US$327,714) to the
Company for exploration activities in 2002, including completion of nine widely
spaced RC drill holes. Subsequent to completing the initial drilling program,
Placer notified the Company that it was terminating the option agreement.
Consequently, the property has reverted to the Company.
Ownership
The concessions were staked on behalf of, and are 100% controlled by Minera.
Surface rights to the area belong to various ranchers. An agreement (the "Milner
Agreement") was signed in May 2000 with Fred Milner ("Milner"),
-19-
covering the area of his Los Adobes Ranch that encompasses 7,492 hectares and
includes the El Malacate, La Matanza, La Dura, La Verde, El Tapon, and Picacho
Alto prospects. The agreement provides for surface rights for exploration,
development, and mining within his property, in return for an annual payment of
US$10,000, compensation of US$350,000 for the first mine to go into production
on his property and US$250,000 for any other mines that go into production on
his property. A second surface rights agreement was completed for the remaining
area encompassing the El Malacate Property. This agreement, referred to as the
Maldanado property agreement, is similar to the Milner Agreement, with the
initial annual rental payment of $5,000 having been made in 2001, but with the
exception that there is no lump sum payment for the construction of a mine.
Geology and Mineralization
The geologic setting of the Northern Sonora Property consists of Tertiary
intermediate to felsic flows and tuffs overlying a diverse package of
conglomerate, sandstone, siltstone, and thinly layered limestones with
interspersed intermediate volcanic flows and tuffs. The entire area is believed
underlain by Mesozoic metavolcanic and metasedimentary units. The structural
regime is dominated by an older series of northeast trending structures cut by a
later series of northwest trending horsts and grabens. Gold mineralization is
localized at the edges of several circular features, which are interpreted as
related to Tertiary volcanism. There is an earlier mineralizing event, primarily
containing silver with accessory base metals and gold, which is emplaced along
the older set of northeast trending structures.
The most advanced prospect is El Malacate, where three separate zones of
epithermal gold mineralization are encountered at surface over an area in excess
of 10 square kilometres (see Figure 5). Mineralization is localized within
volcaniclastics and sediments adjacent to a series of circular structures
related to volcanism and subsequent hydrothermal activity. Northeast of El
Malacate are the Matanza and Cerro Palomino systems, which have a similar
geologic setting in another set of circular structures. The Cerro Palomino
system includes strong areas of mineralization in association with hot-spring
terraces across a strikelength that exceeds two kilometres and 200 metres of
width. These zones were discovered in December 2000 and early 2001, and work has
been ongoing.
Other mineralized systems nearby include the La Dura, Real Viejo, Santa Juliana,
La Verde, El Tapon, and Picacho Alto prospects which are dominantly
silver-lead-zinc +/-gold systems. These are confined to ENE trending structural
zones occurring within Jurassic to Cretaceous felsic volcanics. These systems
vary in size from 500 to 2,000 metres strike length and veins within them
contain silver grades up to 1,865.2 grams per tonne (54.4 opt).
The El Fiero and La Recompensa targets are large porphyry related base-metal
(Cu-Mo-Zn-Pb) targets located in the eastern portion of the claim block.
Alteration covers four square kilometres and is comprised of strong iron oxides,
sericitic and argillic alteration, and scattered quartz tourmaline stockworks in
Jurassic to Cretaceous felsic volcanics. Intruding the project area are a series
of rhyolite, granodiorite, and diorite dikes and plugs. Approximately 190
samples have been collected yielding values up to 38,000 ppm Cu, 370 ppm Mo, 400
ppm Pb, and 500 ppm Zn.
-20-
[OBJECT OMITTED]
Figure 5: El Malacate Property Geology and Mineralization
Exploration Activity
Between April and October 1996, the Company contracted Altar Resources (an
independent consulting firm located in Tucson, Arizona) to produce a
reconnaissance geological map of the Northern Sonora Property and to sample
possible mineralized areas. The area examined covered approximately 110 square
kilometres, and 126 rock samples were collected. Six of the samples contained
between 1.0 and 7.0 g/t gold, while 76 samples (60% of total) were anomalous in
one or more elements.
Additional geological mapping and geochemical sampling has been completed over
an area exceeding 150 square kilometres to the east of the La Bolsa Property.
Eight major areas of anomalous gold mineralization were identified and are being
evaluated through comprehensive exploration programs. Exploration is being
expanded to include completion of additional drilling programs leading to a
pre-feasibility decision.
Results from a helicopter-borne magnetic, radiometric and electromagnetic
survey, including colour aerial photography, covering more than 90,000 hectares
of the combined La Reserva/El Correo, Northern Sonora and Oro Blanco Properties,
were evaluated during 1998. The purpose of this survey was to assist with
mapping lithology, structure, alteration and potential mineralized zones. The
Company also evaluated the results of a detailed ground geophysics study,
including magnetic and VLF electromagnetic surveys, and an induced polarization
/ resistivity survey for the combined purposes of drill target definition and as
an orientation survey for the La Bolsa and La Reserva/El Correo Properties.
Work in 2001 focused on additional geologic mapping and sampling of the El
Malacate Property. Sixteen square kilometres of surface mapping was completed,
and approximately eight zones of potentially significant gold mineralization
were delineated. Over 3,500 surface rock chip samples were collected, the
majority of which are gold mineralized.
-21-
Nearby historic mining activity, with the most extensive workings found in areas
of previous silver mining including those at La Dura Mine, Real Viejo Mine,
Santa Juliana Mine, and La Recompensa Mine. Hundreds of smaller workings have
also been encountered throughout the property. There are no historic records in
regard to these workings and only the La Recompensa Mine has been recorded on
existing maps. These areas lie outside of the El Malacate joint venture with
Placer, and the Company will continue to advance these on its own.
Work Program
The information in the following table is a summary of the estimated costs for
the proposed work program for the El Malacate Property, for the period January
through December 31, 2003: During the period from December 2001 through December
2002, Placer Dome reimbursed the Company $521,043 (US$327,714) for exploration,
including drilling of nine reverse-circulation holes, assays, property payments
and all field work undertaken as part of the option agreement. Subsequent to
completing the initial drilling program, Placer Dome notified the Company that
it was terminating the option agreement and would not fund any further
exploration work on the El Malacate Property.
Estimated Costs - El Malacate Property
--------------------------------------------------------------------
Item Amount
--------------------------------------------------------------------
Personnel costs US$95,000
Support costs US$25,000
Contract costs
Reverse circulation drilling (3,200 m) US$150,000
Trenching/drill roads US$20,000
Assays US$40,000
Property holding costs US$75,000
--------------------
Subtotal US$405,000
Additional cost contingency factor US$40,000
--------------------------------------------------------------------
Total US$445,000
OTHER PROPERTIES
The Company has interests in other mineral properties in Mexico covering more
than 24,000 hectares. The following summaries briefly describe two of the
Company's Mexican properties in which the Company has an interest. The
properties described below have not been advanced sufficiently to have a
material impact on the Company's portfolio of properties.
La Reserva/El Correo Property
The La Reserva/El Correo Property forms a contiguous block of claims and
comprises the southern half of the Northern Sonora Property in the state of
Sonora, Mexico. The claims are centred at approximate coordinates 30 degrees, 50
minutes north latitude, 111 degrees, 10 minutes west longitude, located
immediately south of the United States border. The centre of the property lies
about 25 kilometres southwest of the border city of Nogales and 120 kilometres
SSW of Tucson, Arizona. The property is accessible by four wheel drive vehicle
from Nogales by proceeding south on Highway 15 for 15 kilometres, then west for
about 8 kilometres along a partly paved two lane road and then by a network of
good to very rough gravel roads to various locations in the sector. The city of
Nogales has all modern conveniences and a potential work force. Exploration and
mining equipment and supplies can be imported to Nogales from nearby Tucson.
-22-
The La Reserva/El Correo Property consists of the five exploration concessions
(recently reduced in area) described below in the following table, comprising a
total of approximately 23,561 hectares:
La Reserva/El Correo Property Concessions
- --------------------------------------------------------------------------------
Concession Name Title No. Area (hectares) Expiry Date
- --------------------------------------------------------------------------------
La Reserva Fraccion I 202980 16,105 April 2, 2002*
La Reserva Fraccion II 202981 .01 April 2, 2002*
El Correo 202982 6,650 April 2, 2002*
Cadena de Oro 205198 366 July 7, 2003
El Durazno 212967 440 February 19, 2007
- --------------------------------------------------------------------------------
Total Area 23,561
* Filed for conversion to exploitation, awaiting new titles
San Antonio Property
The San Antonio Property is located some 120 km SSE of the city of Zacatecas,
Mexico, in the municipality of Villa Hidalgo, Zacatecas. The project lies close
(12 km northwest) to the historic mining district of Pinos, that from 1894 to
1934 produced approximately 200,000 oz gold and 5 M oz silver from veins and
mantos within Cretaceous limestone sequences.
The San Antonio Property consists of eight concessions totalling some 817
hectares. The La Laguna concession was bid on and awarded to Minera during the
course of the year 2000. The concessions are detailed in the following table:
San Antonio Property Concessions
- --------------------------------------------------------------------------------
Concession Name Title No. Area (hectares) Expiry Date
- --------------------------------------------------------------------------------
Gran Maria 1 208071 251.36 August 25, 2004
Gran Maria 1 Fraccion I 208072 32.30 August 25, 2004
Gran Maria Fraccion III 208073 17.83 August 25, 2004
Gran Maria 2 208181 44.35 August 31, 2004
Gran Maria 5 207501 48.24 June 24, 2004
Gran Maria 6 210695 108.00 November 17, 2005
La Laguna 213046 314.79 March 1, 2007
La Laguna Fraccion A 213046 0.34 March 1, 2007
- --------------------------------------------------------------------------------
Total Area 817.21
Other Interests In Properties
The Company also has interests in the Gutsy/Buckskin Mountain Properties,
Nevada, U.S.A., the Clear Property, Nevada, U.S.A., the Dottie Property, Nevada,
U.S.A., the Oro Blanco Property, Arizona, U.S.A. and the Dubuisson Property, Val
d'Or, Quebec. The Company's interest in the Dubuisson Property consists only of
a 2% net royalty interest.
-23-
Gutsy/Buckskin Mountain Properties, Nevada, U.S.A.
The Gutsy/Buckskin Mountain Properties consist of 82 claims located 29
kilometres south of the town of Carlin in sections 8, 16, 18, 4, 20, T32N, and
R53E of Elko County, Nevada, approximately 9,000 feet northwest of Newmont
Mining Corporation's Rain gold mine. Access to the property is by a combination
of paved and gravel roads. The Gutsy Property consists of 62 mining claims which
were optioned by the Company under the NMP/Hecla Agreement described above. The
Buckskin Mountain Property consists of 20 mining claims which were the subject
of an option agreement dated November 15, 1994 (the "Bailey Associates Option
Agreement") between the Company and Bailey and Associates, a company controlled
by Mark Bailey, the President and Chief Executive Officer of the Company. Bailey
and Associates has transferred title of the Buckskin Mountain Property to the
Company pursuant to the Bailey Associates Option Agreement, and the Company is
required to pay the annual claim maintenance fees to keep the claims in good
standing.
Under the Bailey Associates Option Agreement, the Company was required to make
staged annual payments to Bailey Associates totalling US $100,000. The payments
were made on November 15 of each of the years 1994 through 2000, as follows:
1994 - US $10,000; 1995 - US $7,500; 1996 - US $10,000; 1997 - US $15,000; 1998
- - US $20,000; 1999 - US $20,000; and 2000 - US $17,500. As of December 31, 2000,
the Company has made all required payments totalling US $100,000 to Bailey
Associates pursuant to the terms of this agreement.
The properties lie within the Carlin gold belt. Exploration on the
Gutsy/Buckskin Mountain Properties has included geological mapping, geochemical
sampling and one reverse circulation drill hole by a previous owner in 1985.
Exploration by Santa Fe Pacific Gold Corporation ("Santa Fe") has included
additional mapping, sampling, geophysical surveys and the drilling of three deep
reverse circulation holes.
Results from geological mapping and geochemical sampling on these properties
have defined and prioritized several drill targets. The Company continues to
seek a partner to advance this project, and will drill test these targets in
2003, with or without a partner.
Gold mineralization within the Carlin trend is sediment hosted and structurally
controlled. Mineralization in the nearby Rain mine is hosted by clastic
sedimentary rocks of the Mississippian age lower Webb Formation, near the
unconformable contact with the underlying Devonian age Devils Gate Limestone. A
major northwest-striking structural zone controls the location of mineralization
within these overlap assemblage rocks of the Antler Sequence. The Gutsy prospect
lies along the trend between the Rain deposit and the other main deposits
defining the Carlin trend.
Clear Property, Nevada, U.S.A.
The Clear Property consists of three groups of unpatented mining claims,
totalling 94 claims located in Pershing County, Nevada. Access to the property
is by an upgraded paved and gravel road approximately 14 miles south of
Winnemucca, Nevada. Of the claims, 17 are optioned by the Company under the
NMP/Hecla Agreement, 40 were staked by the Company and 37 were acquired by the
Company from Cominco. In addition, in 1998 the Company entered into a lease
agreement to acquire mineral rights situated near the Clear property by making
annual advance minimum royalty payments over 15 years and by incurring
exploration expenditures of US $150,000 by April 1, 2001. As at December 31,
2002, annual royalty payments of US $80,000 had been paid. The Company has the
right to terminate the lease agreement on thirty days written notice to the
owner.
Previous exploration work on the Clear Property has delineated a small reserve
of 20,000 tons with an average grade of .189 opt gold. Geological mapping,
geochemical sampling and drilling programs were completed between the period
1986 through 1990. During 1996 a mapping, sampling and geophysical survey was
completed by Cominco Ltd. of the claims previously held by it.
The claim block is underlain by Cambrian Harmony Formation, Ordovician Valmy
Formation in thrust contact and over limited exposures of Pennsylvanian Havallah
Formation and Cretaceous diorite and felsic intrusives. The main mineralizing
controls on the property are a series of N30E trending thrust sheets and NW
trending range front normal faults. Extensive jasperoid with gold mineralization
has been the focus of previous exploration efforts.
-24-
The Clear Property represents a partially explored prospect with strongly
mineralized but narrow gold values. Further geologic, geochemical and drilling
is recommended to complete evaluation of this property. Results from geological
mapping and geochemical sampling on this property, as well as from a geophysical
survey, have defined and prioritized drill targets. The Company commenced
drilling on this property in November 1997. Results identified widespread gold
mineralization, including 30 metres averaging .86g/t, and 7.6 metres averaging
1.9g/t gold. The Company expended the required $100,000 and received title to
the Clear Property from Hecla.
Dottie Property, Nevada, U.S.A.
The Dottie claim block is located at the south end of the Bull Run Mountains of
Elko County. Access from Elko is along State Highway 225 for 28 miles to State
Highway 226, then approximately 30 miles to the Spanish (Ellison) Ranch turnoff.
A gravel road passes through the ranch compound and continues some four miles to
the claims. The Property consists of 24 mining claims and was optioned by the
Company under the NMP/Hecla Agreement.
In 1998, the Company entered into an agreement to acquire mineral rights
adjacent to the Dottie property by making annual minimum advance payments of US
$10,000 beginning September 1, 2000. The vendor retains a 2% NSR on minerals
produced from the 25 claims covered by the agreement. The Company has the right
to terminate the agreement at any time provided that if termination occurs after
July 15 of any year, the Company is obliged to pay any State and Federal fees
due by August 31 of that year.
The Dottie Property was discovered in 1982 and throughout the 1980s mapping,
sampling and drilling work was undertaken on the property. The property covers a
series of Oligocene to Miocene lithic tuffs, volcaniclastics, ash flows and
andesite flows capped by siliceous sinter. Previous drill results have
discovered gold anomalous sinters and high angle silicified zones.
The initial drilling program on this property was completed during the first
quarter of 1998. Results from first phase drilling intercepted favorable geology
and structures with anomalous gold values. The Company expended the required US
$100,000 and has applied for title from Hecla. Results from geological mapping
and geochemical sampling on this property have defined and prioritized drill
targets.
The Company has prepared an exploration budget for 2003 for the Gutsy/Buckskin,
Clear and Dottie properties in Nevada. The following table lists the expected
costs for the proposed drilling programs on these three prospects in 2003.
Drilling will include 2500 metres of RC and 500 metres of core on the Clear
property and 2500 metres of core on the Gutsy/Buckskin property and 2000 metres
on the Dotie property.
Estimated Costs - Nevada Properties (Gutsy/Buckskin, Clear and Dottie)
--------------------------------------------------------------------
Item Amount
--------------------------------------------------------------------
Personnel costs US$95,000
Support costs US$20,000
Contract costs
Reverse circulation drilling (2,500 m) US$100,000
Diamond Core drilling (5000 m) US$450,000
Trenching/drill roads US$20,000
Assays (2,500) US$50,000
Property holding costs US$70,000
--------------------
Subtotal US$805,000
Additional cost contingency factor US$70,000
--------------------------------------------------------------------
Total US$875,000
-25-
NUMBER OF EMPLOYEES
As at December 31, 2002, the Company had a total of 20 employees and consultants
working for the Company. None of the Company's employees belong to a union or
are subject to a collective agreement. The Company considers its employee
relations to be good.
BANKRUPTCY, RECEIVERSHIP OR OTHER SIMILAR PROCEEDINGS
There have been no bankruptcy, receivership or other similar proceedings against
the Company or any of its subsidiaries within the three most recently completed
financial years or the current financial year.
COMPETITION
The Company competes with other mining companies for the acquisition of mineral
claims, permits, concessions and other mineral interests as well as for the
recruitment and retention of qualified employees. There is significant
competition for the limited number of gold acquisition opportunities and, as a
result, the Company may be unable to acquire attractive gold mining properties
on terms it considers acceptable.
RISK FACTORS
The Company's securities should be considered a highly speculative investment
and investors should carefully consider the following information about these
risks, together with other information contained herein. If any of the following
risks actually occur, our business, results of operations and financial
condition could suffer significantly.
Risks of Exploration and Development
All of the properties in which the Company has an interest or the right to earn
an interest, except for the Dubuisson Property, which has been disposed of by
the Company save for a 2% NSR on the property (see "Narrative Description of the
Business - Overview"), are in the exploration stages only and are without a
known body of commercial ore. As an exploration company, the Company has a
history of losses. The level of profitability of the Company in future years
will depend to a great degree on precious and base metal prices and whether any
of the Company's exploration stage properties can be brought into production.
The exploration for and development of mineral deposits involves significant
risks, which even a combination of careful evaluation, experience and knowledge
may not eliminate.
Development of the Company's properties will only follow upon obtaining
satisfactory results. Mineral exploration and development involves a high degree
of risk and few properties which are explored are ultimately developed into
producing mines. There is no assurance that the Company's exploration and
development activities will result in any discoveries of commercial bodies of
ore. The long-term profitability of the Company's operations will be in part
directly related to the cost and success of its exploration programs, which may
be affected by a number of factors.
Substantial expenditures are required to establish reserves through drilling, to
develop processes to extract the resources and, in the case of new properties,
to develop the extraction and processing facilities and infrastructure at any
site chosen for extraction. Although substantial benefits may be derived from
the discovery of a major deposit, no assurance can be given that resources will
be discovered in sufficient quantities to justify commercial operations or that
the funds required for development can be obtained on a timely basis.
It is impossible to ensure that the current and future exploration programs and
or feasibility studies on the Company's existing mineral properties will
establish reserves. Whether an ore body or a tailings deposit will be
commercially viable depends on a number of factors, some of which are: the
particular attributes of the deposit, such as size, grade and proximity to
infrastructure; metal prices, which cannot be predicted and which have been
highly volatile in the past; mining, processing and transportation costs;
perceived levels of political risk and the willingness of lenders and investors
to provide project financing; and governmental regulations, including, without
limitation, regulations relating to prices, taxes, royalties, land tenure, land
use, importing and exporting materials, foreign exchange, environmental
protection and reclamation and closure obligations. The effect of these factors
cannot be accurately predicted, but the combination of these factors may cause a
mineral deposit that has been mined
-26-
profitably in the past, to become unprofitable. The Company is subject to the
risks normally encountered in the mining industry, such as unusual or unexpected
geological formations as well as political and economic risks associated with
developing nations. The Company may be subject to liability for pollution or
against other hazards against which it cannot insure or against which it may
elect not to insure.
The development of mineral properties is affected by many factors, some of which
are: the cost of operations; variations in the grade of ore; fluctuations in
metal markets; costs of extraction and processing equipment; and government
regulations, including without limitation, regulations relating to royalties,
allowable production, importing and exporting of minerals, foreign exchange and
environmental protection. Depending on the price of minerals, the Company may
determine that it is impractical to commence or, if commenced, continue
commercial production.
Operating Hazards and Risks
Mineral exploration involves many risks which even a combination of experience,
knowledge and careful evaluation may not be able to overcome. Operations in
which the Company has a direct or indirect interest will be subject to all the
hazards and risks normally incidental to exploration, development and production
of resources, any of which could result in work stoppages, damage to property
and possible environmental damage. The Company currently maintains the following
insurance coverages against operating hazards: (a) foreign liability coverage
for Minera, and Minera Dolores in the amount of US$2,000,000 per
occurrence/US$8,000,000 aggregate (deductible of $2,500 per occurrence); and (b)
commercial package insurance including US$2,000,000 comprehensive general
liability insurance for the Company's Canadian and U.S. operations (US$2,500
deductible and subject to a health hazard exclusion and a pollution exclusion),
and US$97,500 (US$1,000 deductible) insurance for the Company's office contents
located at its Reno, Nevada office. The Company may become subject to liability
for pollution, cave-ins or hazards against which it cannot insure or against
which it may elect not to insure. The payment of such liabilities may have a
material, adverse effect on the Company's financial position.
Fluctuating Prices
The Company's revenues, if any, are expected to be in large part derived from
the extraction and sale of precious and base metals such as gold and silver. The
price of those commodities has fluctuated widely, particularly in recent years,
and is affected by numerous factors beyond the Company's control including
international, economic and political trends, expectations of inflation,
currency exchange fluctuations, interest rates, global or regional consumptive
patterns, speculative activities and increased production due to new extraction
developments and improved extraction and production methods. The effect of these
factors on the price of base and precious metals, and, therefore, the economic
viability of any of the Company's exploration projects, cannot accurately be
predicted.
Environmental Factors
All phases of the Company's operations are subject to environmental regulation
in the various jurisdictions in which it operates. Environmental legislation is
evolving in a manner which will require stricter standards and enforcement,
increased fines and penalties for non-compliance, more stringent environmental
assessments of proposed projects and a heightened degree of responsibility for
companies and their officers, directors and employees. There is no assurance
that changes in environmental regulation, if any, will not adversely affect the
Company's operations.
Competition
The resource industry is intensely competitive in all of its phases, and the
Company competes with many companies possessing greater financial resources and
technical facilities than itself. Competition could adversely affect the
Company's ability to acquire suitable producing properties or prospects for
exploration in the future.
Inability to Meet Cost Contribution Requirements
The Company may, in the future, be unable to meet its share of costs incurred
under agreements to which it is a party and the Company may as a result be
subject to loss of its rights to acquire interests in the properties subject to
such agreements.
-27-
Potential Defects in Title to Properties
In those jurisdictions where the Company has property interests, the Company
makes a search of mining records in accordance with mining industry practices to
confirm that it has acquired satisfactory title to its properties but does not
obtain title insurance with respect to such properties. The possibility exists
that title to one or more of its properties, particularly title to undeveloped
properties, might be defective because of errors or omissions in the chain of
title, including defects in conveyances and defects in locating or maintaining
such claims, or concessions. The ownership and validity of unpatented mining
claims and concessions are often uncertain and may be contested. The Company is
not aware of challenges to the location or area of any of its mining concessions
and unpatented mining claims. There is, however, no guarantee that title to the
Company's claims and concessions will not be challenged or impugned in the
future.
Political and Economic Instability
Most of the Company's exploration and development activities occur in Mexico
and, as such, the Company may be affected by possible political or economic
instability in this country. The risks include, but are not limited to,
terrorism, military repression, extreme fluctuations in currency exchange rates
and high rates of inflation. Changes in resource development or investment
policies or shifts in political attitude in Mexico, or in the U.S.A. or Canada
(where the Company has secondary property interests) may adversely affect the
Company's business. Operations may be affected in varying degrees by government
regulations with respect to restrictions on production, price controls, export
controls, income taxes, expropriation of property, maintenance of claims,
environmental legislation, land use, land claims of local people, water use and
mine safety. The effect of these factors cannot be accurately predicted.
Financing Risks
The Company's current operations, other than the royalty interest in the
Dubuisson Property, have not generated any cash flow. Any work on the Company's
principal properties may require additional equity financing. If the Company
seeks additional equity financing, the issuance of additional shares will dilute
the interests of the Company's current shareholders. Although the Company has
successfully raised funds in recent years through share and warrant issuances,
there is no assurance that additional funding will be available to allow the
Company to fulfil its obligations on existing exploration properties. Failure to
obtain such additional financing could result in delay or indefinite
postponement of further exploration and the possible, partial or total loss of
the Company's potential interest in certain properties.
No Known Reserves; Uncertainty of Mineral Resource Estimates
The Company has no mineral producing properties at this time. Only those mineral
deposits that the Company can economically and legally extract or produce, based
on a comprehensive evaluation of cost, grade, recovery and other factors, are
considered "resources" or "reserves." The Company has not defined or delineated
any proven or probable reserves on any of its properties. Although the
mineralized material and mineralized deposit estimates included herein have been
carefully prepared by the Company, or, in some instances have been prepared,
reviewed or verified by independent mining experts, these amounts are estimates
only and no assurance can be given that any particular level of recovery of
gold, silver or other minerals from mineralized material will in fact be
realized or that an identified mineralized deposit will ever qualify as a
commercially mineable (or viable) reserve.
Although the Company has assessed the mineral resource estimates presented
herein and believes that the methods used to estimate such mineral resources are
appropriate, such figures are estimates. As well, estimates of mineral resources
are inherently imprecise and depend to some extent on statistical inferences
drawn from limited drilling, which may prove unreliable. Furthermore, no
assurances can be given that the indicated level of recovery of minerals will be
realized. Fluctuations in the market prices of minerals may render reserves and
deposits containing relatively lower grades of mineralization uneconomic.
Moreover, short-term operating factors relating to mineral resources, such as
the need for orderly development of the deposits or the processing of new or
different grades, may cause mining operations to be unprofitable in any
particular period. Material changes in mineralized material, grades or recovery
rates may affect the economic viability of projects.
-28-
Conflicts of Interest
Certain officers and directors of the Company may be or become associated with
other natural resource companies that acquire interests in mineral properties.
Mark H. Bailey, President, Chief Executive Officer and a director of the
Company, is President of Mark H. Bailey & Associates LLC ("Bailey Associates"),
Consulting Geologists, located in Reno, Nevada and is a director of other
publicly listed natural resource companies. Bailey Associates' clients do not
directly compete with the Company for properties, financing, equipment, or
personnel. Any conflicts which may arise will be dealt with as disclosed below.
Tench C. Page, Vice President, Exploration, of the Company, is a principal of
Sierra Timber and Gold Corp. ("Sierra Timber"), a provider of geological
consulting services, located in Reno, Nevada. Sierra Timber's clients do not
directly compete with the Company for properties, financing, equipment, or
personnel. There are currently no conflicts of interest between Mr. Page serving
as Vice President, Exploration, of the Company while continuing to act as
principal of Sierra Timber. Any conflicts which may arise, will be dealt with as
disclosed below.
Paul C. MacNeill, Corporate Secretary and a director of the Company, is a
securities lawyer, with other clients involved in mineral exploration and
development, and is a director and officer of other publicly listed natural
resource companies. None of Mr. MacNeill's exploration and development clients
compete directly with the Company for properties, financing, equipment, or
personnel. Any conflicts which may arise, will be dealt with as disclosed below.
Such associations may give rise to conflicts of interest from time to time. The
directors of the Company are required by law to act honestly and in good faith
with a view to the best interest of the Company and to disclose any interest
which they may have in any project or opportunity of the Company. If a conflict
of interest arises at a meeting of the board of directors, any director in a
conflict will disclose his interest and abstain from voting on such matter. In
determining whether or not the Company will participate in any project or
opportunity, the director will primarily consider the degree of risk to which
the Company may be exposed and its financial position at that time.
Dependence on Key Management Employees
The nature of the Company's business, its ability to continue its exploration
and development activities and to thereby develop a competitive edge in its
marketplace depends, in large part, on its ability to attract and maintain
qualified key management personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will be able to attract and
retain such personnel. The Company's development to date has depended, and in
the future will continue to depend, on the efforts of its key management
figures, such as Mark H. Bailey. Loss of Mark H. Bailey could have a material
adverse effect on the Company. The Company does not maintain key-man life
insurance on any of its key management employees.
Dependence on Consultants and Engineers
The Company has relied and may continue to rely upon consultants, engineers and
others for exploration expertise and intends to rely on consultants for
development, construction and operating expertise. Substantial expenditures are
required to construct mines, to establish ore reserves through drilling, to
carry out environmental and social impact assessments, to develop metallurgical
processes to extract the metal from the ore and, in the case of new properties,
to develop the exploration infrastructure at any site chosen for exploration. No
assurance can be given that minerals will be extracted or discovered in
sufficient quantities to justify commercial operations or that funds required
for development can be obtained on a timely basis.
Compliance with Environmental and Government Regulation
Operations of the Company require permits from various foreign, federal, state,
provincial and local governmental authorities and may be governed by laws and
regulations governing prospecting, development, mining production, exports,
taxes, labour standards, occupational health, waste disposal, toxic substances,
land use, environmental protection, mine safety and other matters. Companies
engaged in the development and operation of mines and related facilities
generally experience increased costs as a result of the need to comply with
applicable laws, regulations and permits. Permits and studies may be necessary
prior to operation of the exploration properties in
-29-
which the Company has interests and there can be no guarantee that the Company
will be able to obtain or maintain all necessary permits that may be required to
commence construction or operation of mining facilities at these properties on
terms which enable operations to be conducted at economically justifiable costs.
To the best of the Company's knowledge, the Company is in compliance with all
material current laws and regulations which currently apply to its activities.
There can be no assurance, however, that all permits which the Company may
require for its future operations will be obtainable on reasonable terms or that
such laws and regulations would not have an adverse effect on any mining project
which the Company might undertake.
Failure to comply with applicable laws, regulations and permitting requirements
may result in enforcement actions thereunder, including orders issued by
regulatory or judicial authorities causing operations to cease or be curtailed
and may include corrective measures requiring capital expenditures, installation
of additional equipment or remedial actions. Violators may be required to
compensate those suffering loss or damage by reason of their mining activities
and may be fined if convicted of an offence under such legislation.
Amendments to current laws, regulations, and permits governing operations and
activities of mining companies or more stringent implementation thereof could
require increases in capital expenditures, production costs, reduction in levels
of production of future mining operations, or require delays in development or
abandonment of new mining properties.
The Company's mining operations may be subject to foreign, federal, state,
provincial and local laws and regulations governing the protection of the
environment, including laws and regulations relating to air and water quality,
mine reclamation, waste disposal, and the protection of endangered or threatened
species. The Company's mining activities may be subject to foreign, federal,
state, provincial and local laws and regulations for protection of surface and
ground water.
If the Company undertakes new mining activities in other provinces, states or
foreign countries, or significantly expands its existing mining operations, the
Company may be required to obtain pre-construction environmental and land use
review and to comply with permitting, control and mitigation requirements of the
jurisdiction in which such operations are to be located. Compliance with new
requirements could impose costs on the Company in the future, the materiality of
which cannot reasonably be predicted at this time.
Dilution
The Company has a number of outstanding share purchase warrants and stock
options. If and when these are exercised, the issued and outstanding capital of
the Company may be substantially increased, thus diluting shareholder interests
in the Company.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth and summarizes certain of the Company and the
Company's subsidiaries financial information on a consolidated basis for the
last three fiscal years, prepared in accordance with Canadian generally accepted
accounting principles ("Canadian GAAP"). Canadian GAAP, as applied to the
Company, materially differs from United States generally accepted accounting
principles ("U.S. GAAP"), as set forth in Note 10 to the Consolidated Financial
Statements of the Company. This financial information is derived from, should be
read in conjunction with and is qualified in its entirety by reference to the
Company's consolidated financial statements, including the notes thereto, and
Management's Discussion and Analysis of Results of Operations and Financial
Condition. The Company's Consolidated Financial Statements for the years ended
December 31, 2002, 2001 and 2000 have been audited by BDO Dunwoody LLP.
-30-
Selected Consolidated Financial Information
- -----------------------------------------------------------------------------------------------------------------
All in Canadian $ in thousands except Loss per 12 Months Ended 12 Months Ended 12 Months Ended
Share and Common Shares issued Dec. 31, 2002 Dec. 31, 2001 Dec. 31, 2000
- -----------------------------------------------------------------------------------------------------------------
Operating Revenues - - -
Working Capital 9,141 534 873
Interest Income 182 17 27
Loss from Operations (2,886) (1,302) (1,192)
Net Loss (2,754) (1,282) (1,132)
Loss per Share - Basic and Diluted (0.11) (0.07) (0.07)
Total Assets 45,900 30,835 30,264
Net Assets 45,004 30,720 30,039
Total Liabilities 896 115 225
Share Capital 56,793 42,013 38,930
Common Shares Issued 28,411,737 20,233,250 17,031,527
Dividends Declared - - -
- -----------------------------------------------------------------------------------------------------------------
The following table sets forth and summarizes selected consolidated financial
information of the Company for the last eight financial quarters, prepared in
accordance with Canadian GAAP. Canadian GAAP, as applied to the Company,
materially differs from U.S. GAAP, as set forth in Note 10 to the Consolidated
Financial Statements of the Company. This financial information is derived from,
should be read in conjunction with and is qualified in its entirety by reference
to the respective quarterly and annual consolidated financial statements,
including the notes thereto, and Management's Discussion and Analysis of Results
of Operations and Financial Condition pertaining to the eight financial
quarters.
Selected Consolidated Financial Information
- ---------------------------------------------------------------------------------------------------------------------------
All in Canadian December September June 30, March 31, December September June 30, March 31,
$ in 1,000's 31, 2002 30, 2002 2002 2002 31, 2001 30, 2001 2001 2001
except Loss per
Share and Common
Shares Issued
- ---------------------------------------------------------------------------------------------------------------------------
Operating - - - - - - - -
Revenues
Working capital 9,141 9,411 10,694 976 $534 $953 $117 $659
Interest Income 46 89 46 1 4 3 3 7
Loss from (1,313) (433) (820) (320)
Operations (570) (194) (339) (199)
Net Loss (1,285) (302) (836) (331) (554) (198) (355) (175)
Loss per Share - (0.05) (0.01) (0.04) (0.02) (0.03) (0.01) (0.02) (0.01)
Basic and
Diluted
Total Assets 45,900 43,780 42,723 31,670 30,835 31,204 29,933 30,255
Net Assets 45,004 42,874 42,317 31,410 30,720 31,115 29,810 30,165
Total Liabilities 896 906 406 260 115 89 123 (90)
Share Capital 56,793 54,710 53,851 43,034 42,013 41,855 40,352 40,352
Common Shares 28,411,737 26,985,149 26,299,740 20,931,305 20,233,250 20,083,250 18,681,170 18,681,170
Issued
Dividends Declared - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
-31-
Dividend Record and Policy
We have not paid any dividends since incorporation. We intend to retain earnings
to finance the growth and development of our business and do not intend to pay
dividends on our common shares in the immediate future. The payment of dividends
in future will depend, among other factors, on our earnings, capital
requirements, and operating and financial condition.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Reference is made to the section entitled "Management's Discussion and Analysis
of Operating Results" set out at pages 11 to 12 of the Company's 2002 Annual
Report, which has been previously SEDAR-filed and is incorporated by reference
in this AIF.
MARKET FOR SECURITIES
The Company's common shares are listed and posted for trading on the TSX under
the stock symbol "MFL", and on the AMEX under the symbol "MFN".
DIRECTORS AND OFFICERS
The following table sets forth the name, municipality of residence, position
held with the Company, office, principal occupation and number of shares owned
by each of the directors and executive officers of the Company. The statement as
to the Common Shares beneficially owned, directly or indirectly, or over which
control or direction is exercised by the directors and executive officers
hereinafter named is in each instance based upon information furnished by the
person concerned and is as at April 15, 2003. Each director is elected by the
shareholders at the annual general meeting and holds office until our first
annual general meeting following the director's election or appointment. Each
officer holds office at the pleasure of our board of directors.
Directors and Officers
- ----------------------------------------------------------------------------------------------------------------------
Number of Common Shares
Beneficially Owned,
Directly or Indirectly or
Name and Municipality of Position with the Over Which Control or
Residence Company Principal Occupation Direction is Exercised
- ----------------------------------------------------------------------------------------------------------------------
Mark H. Bailey President, Chief Executive President and Chief 235,700
Bellingham, Washington, Officer and Director Executive Officer of the
U.S.A. Company
- ----------------------------------------------------------------------------------------------------------------------
Paul C. MacNeill Director and Corporate Barrister and Solicitor 396,100
West Vancouver, British Secretary
Columbia
- ----------------------------------------------------------------------------------------------------------------------
James M. Dawson(1) Director President, Dawson 5,000
Richmond, British Columbia Geological Consulting
Ltd., a geological
consulting company
- ----------------------------------------------------------------------------------------------------------------------
H. Leo King(1) Director President, International 10,000
Vancouver, British Columbia Barytex Resources Ltd., a
mining company
- ----------------------------------------------------------------------------------------------------------------------
-32-
- ----------------------------------------------------------------------------------------------------------------------
Number of Common Shares
Beneficially Owned,
Directly or Indirectly or
Name and Municipality of Position with the Over Which Control or
Residence Company Principal Occupation Direction is Exercised
- ----------------------------------------------------------------------------------------------------------------------
Robert Leclerc(1) Director Business Consultant 96,000
Laughlin, Nevada U.S.A.
- ----------------------------------------------------------------------------------------------------------------------
Tench C. Page Vice-President, Exploration Vice-President, 299,000
Reno, Nevada Exploration of the Company
U.S.A.
- ----------------------------------------------------------------------------------------------------------------------
Jon Morda Chief Financial Officer Chief Financial Officer of 1,200
Toronto, Ontario the Company
- ----------------------------------------------------------------------------------------------------------------------
(1) Member of the Audit Committee.
Each of the foregoing individuals has been engaged in the principal occupation
set forth opposite his or her name during the past five years except for: Paul
C. MacNeill who, prior to November 2002, was a partner with the Vancouver law
firm of Campney & Murphy, Barristers & Solicitors; H. Leo King who, prior to
2001, was the General Manager for International Barytex Resources Ltd., a mining
company; Robert Leclerc who, prior to February 2003 was the President and CEO of
Echo Bay Mines Ltd., a mining company; and Jon N. Morda, who prior to April
2002, was the Vice-President and Chief Financial Officer of Geomaque
Explorations Ltd., a mining company.
Shareholdings of Directors and Officers
To the best of our knowledge as at April 15, 2003, our directors and officers,
as a group, beneficially owned, directly or indirectly, or exercised control
over 1,043,000 common shares (not including common shares issuable upon the
exercise of stock options) representing 3.34% of our then outstanding common
shares.
Committees of the Board of Directors
The Company's board of directors has only one committee - an Audit Committee
(currently comprised of directors Robert Leclerc, James Martin Dawson and H. Leo
King). The members of the Audit Committee do not have any fixed terms for
holding their positions and are appointed and replaced from time to time by
resolution of the directors. Their appointments are not subject to any specific
terms of reference.
The Audit Committee meets with the President and Chief Executive Officer and the
Chief Financial Officer of the Company and the independent auditors to review
and inquire into matters affecting financial reporting matters, the system of
internal accounting and financial controls and procedures and the audit
procedures and audit plans. The Audit Committee also recommends to the Board of
Directors the auditors to be appointed. In addition, this Committee reviews and
recommends to the Board for approval the annual financial statements, the
Management Discussion and Analysis, and certain other documents required by
regulatory authorities. The Audit Committee is mandated to meet, and also to
consult the auditors, in the absence of management.
Corporate Cease Trade Orders or Bankruptcies
To the best of the Company's knowledge, no director or officer of the Company,
or shareholder holding a sufficient number of securities of the Company to
affect materially the control of the Company, or within the 10 years before the
date of this AIF, has been a director or officer of any other issuer that, while
that person was acting in that capacity, was the subject of a cease trade or
similar order, or an order that denied the other issuer access to any exemptions
under Canadian securities legislation, for a period of more than 30 consecutive
days, or became bankrupt, made a proposal under any legislation relating to
bankruptcy or insolvency or was subject to or instituted
-33-
any proceedings, arrangement or compromise with creditors or had a receiver,
manager or trustee appointed to hold its assets.
Penalties or Sanctions
To the best knowledge of the Company, no penalties or sanctions have been
imposed on a director or officer of the issuer, or a shareholder holding a
sufficient number of securities of the Company to affect control of the Company,
in relation to Canadian securities legislation or by a Canadian securities
regulatory authority, or by a court or regulatory body that would likely be
considered important to a reasonable investor in making an investment decision.
Personal Bankruptcies
To the best knowledge of the Company, no director or officer of the Company, or
a shareholder holding a sufficient number of securities of the Company to
materially affect the control of the Company, or a personal holding company of
any such persons, has, within the 10 years before the date of this AIF, become
bankrupt, made a proposal under any legislation relating to bankruptcy or
insolvency, or was subject to or instituted any proceedings, arrangement or
compromise with creditors, or had a receiver, receiver manager or trustee
appointed to hold the assets of the director or officer.
Conflicts of Interest
To the best knowledge of the Company, no director or officer of the Company, or
a shareholder holding a sufficient number of securities of the Company to
materially affect the control of the Company, or a personal holding company of
any such persons, has, within the 10 years before the date of this AIF, become
bankrupt, made a proposal under any legislation relating to bankruptcy or
insolvency, or was subject to or instituted any proceedings, arrangement or
compromise with creditors, or had a receiver, receiver manager or trustee
appointed to hold the assets of the director or officer.
To the best of the Company's knowledge, and other than as disclosed herein,
there are no known existing or potential conflicts of interest among the
Company, its directors, officers or other members of management of the Company,
except that certain of the directors, officers, and other members of management
serve as directors, officers, promoters and members of management of other
public companies and therefore it is possible that a conflict may arise between
their duties as a director, officer, or member of management of the Company and
their duties as a director, officer, promoter or member of management of such
other companies.
The directors and officers of the Company are aware of the existence of laws
governing accountability of directors and officers for corporate opportunity and
requiring disclosures by directors of conflicts of interest and the Company will
rely upon such laws in respect of any directors' and officers' conflicts of
interest or in respect of any breaches of duty by any of its directors or
officers. All such conflicts will be disclosed by such directors or officers in
accordance with the Business Corporations Act (Ontario) and they will govern
themselves in respect thereof to the best of their ability in accordance with
the obligations imposed upon them by law.
ADDITIONAL INFORMATION
When the securities of the Company are in the course of a distribution pursuant
to a preliminary short form prospectus, or a short form prospectus, copies of
the following documents may be obtained upon request from our Corporate
Secretary, Paul C. MacNeill:
(1) the Company's AIF, together with one copy of any document, or the pertinent
pages of any document, incorporated by reference in the AIF;
(2) the comparative financial statements of the Company for our most recently
completed financial year for which financial statements have been filed
together with the accompanying auditor's report and one copy of the most
recent interim financial statements of the Company that have been filed, if
any, for any period after the end of its most recently completed financial
year;
-34-
(3) one copy of the Company's Management Proxy Circular in respect of our most
recent annual meeting of shareholders that involved the election of
directors or one copy of any annual filing prepared instead of that
information circular, as appropriate; and
(4) one copy of any other documents that are incorporated by reference into the
preliminary short form prospectus or the short form prospectus and are not
required to be provided under paragraphs (1), (2) or (3) above.
At any other time, one copy of any documents referred to at paragraphs (1) to
(4) above, provided that the Company may require the payment of a reasonable
charge if the request is made by a person or company who is not a security
holder of the Company.
Additional information including directors' and officers' remuneration and
indebtedness, principal holders of our securities, options to purchase
securities and interests of insiders in material transactions, if applicable, is
contained in the Company's Management Proxy Circular for the annual general
meeting to be held on June 10, 2003. Additional financial information is
provided in the Company's comparative financial statements and notes thereto for
the year ended December 31, 2002.
-35-
CRITICAL ACCOUNTING POLICIES
The following are considered to be the critical accounting policies of our
Company:
Mineral Properties and Deferred Exploration Costs
We are in the exploration stage in respect of its mineral properties. Under
Canadian generally accepted accounting principles ("GAAP"), acquisition,
exploration and development costs relating to mineral properties are deferred
until such time as mineral properties are brought into commercial production, at
which time they will be amortized over the estimated life of the property on a
unit of production basis using proven and probable reserves. Revenue incidental
to exploration and development activities, including the proceeds on sales of
partial properties, is credited against the cost of properties. Aggregate costs
related to abandoned properties are charged to operations at the time of any
abandonment or when it has been determined that there is evidence of a permanent
impairment. During the year ended December 31, 2002, we wrote-off $766,055 (2001
- - $502,535; 2000 - $208,824) of mineral properties and deferred exploration
costs related to inactive properties and abandoned claims in the United States
and Mexico.
Where we have entered into option agreements for the acquisition of an interest
in mineral properties which provides for periodic payments, such amounts unpaid
are not recorded as a liability since they are payable entirely at our option.
Canadian GAAP followed in the preparation of our consolidated financial
statements differs from United States GAAP in regard to the accounting for
mineral exploration expenditures. Under US GAAP all mineral exploration
expenditures incurred by our Company to date would be charged to our Statement
of Loss and Deficit as incurred. The effect of such a GAAP difference is set out
in Note 10 to our 2002 consolidated financial statements.
Estimates and Assumptions
The preparation of financial statements in conformity with Canadian and US
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Stock Based Compensation
Effective January 1, 2002, the Company adopted new recommendations under
Canadian GAAP relating to stock-based compensation and other stock-based
payments. The new Canadian standard requires either the recognition of
compensation expense for grants of stock, stock options and other equity
instruments to employees, based on the fair value of the instrument at the grant
date, or alternatively, the disclosure of pro forma net earnings and earnings
per share data, as if stock-based compensation had been recognized in earnings.
We have chosen not to use the fair value method to account for stock-based
employee compensation plans, but to disclose pro forma information in our
consolidated financial statements for options granted to employees after January
1, 2002 as outlined in Note 9 to our 2002 consolidated financial statements.
Consequently, we record no compensation expense when options are granted to
employees.
We adopted the fair value method of accounting for stock-based compensation
awards granted to non-employees. Accordingly, compensation expense calculated
using a Black-Scholes option pricing model is charged to the Consolidated
Statements of Loss and Deficit or capitalized in Mineral Properties and Deferred
Exploration Costs, depending on the nature of the award.
The adoption of new Canadian GAAP recommendations effective January 1, 2002 for
stock options granted after that date impacts the comparability of the 2002
consolidated financials against prior year comparative financial statements when
no recognition of stock option compensation under Canadian GAAP was done. As the
current Canadian GAAP standard is largely the same as US accounting rules
previously in existence, the GAAP difference in regard to stock option
compensation has been eliminated in 2002. To assess the impact of stock option
compensation on the years ended December 31, 2001 and 2000, we refer you to Note
10 of our 2002 consolidated financial statements which discusses and quantifies
the effect of this GAAP difference on our 2001 and 2000 fiscal years.
CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report ("Date of
Evaluation"), an evaluation was carried out under the supervision of and with
the participation of the Company's management, including the Chief Executive
Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a - 15(c) and Rule 15d
- - 15(c) of the Securities Exchange Act of 1934, as amended). Based on that
evaluation the CEO and the CFO have concluded that the Company's disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in U.S. Securities and Exchange
Commission rules and forms.
There have been no significant changes in our internal controls or other
factors, which could significantly affect internal controls subsequent to the
date of the evaluation. Therefore, no corrective actions were taken.
NON-AUDIT SERVICES
Since the enactment of the Sarbanes-Oxley Act of 2002, all non-audit services,
performed by the Company's auditor, for the fiscal year ended December 31, 2002,
have been approved by the Audit Committee of the Company. The aggregate fees
billed by the Company's auditor for all non-audit services rendered during the
year ended December 31, 2002 was Cdn$2,912, 10.8% of the total fees paid to the
auditor. Professional services provided include miscellaneous discussions with
management concerning implementation of new stock option compensation accounting
rules under Canadian generally accepted accounting principles, the registration
of the Company's common stock on the American Stock Exchange and in connection
with the private placement completed by the Company in 2002.
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
Undertaking
The Registrant undertakes to make available, in person or by telephone,
representatives to respond to inquiries made by the Securities and Exchange
Commission ("SEC") staff, and to furnish promptly, when requested to do so by
the SEC staff, information relating to: the securities registered pursuant to
Form 40-F; the securities in relation to which the obligation to file an annual
report on Form 40-F arises; or transactions in said securities.
Consent to Service of Process
Consent to Service of Process on Form F-X in connection with the Common Shares
has been previously filed with the SEC.
EXHIBITS
The following exhibits are filed as part of this report:
Exhibit No. Description
1. The audited consolidated financial statements of the
Registrant, are exhibits to and form a part of this Annual
Report, and include the following:
Auditors' Report on Consolidated Financial Statements, dated
February 28, 2003
Consolidated Balance Sheets as at December 31, 2002 and
2001;
Consolidated Statements of Loss and Deficit for the years
ended December 31, 2002, 2001 and 2000;
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000;
Consolidated Statements of Mineral Properties and Deferred
Exploration Costs for the years ended December 31, 2002,
2001 and 2000;
Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements (which include a
reconciliation with United States generally accepted
accounting principles).
2. Management Discussion and Analysis of Financial Conditions
and Results of Operations
3. Consent of BDO Dunwoody LLP. dated April 28, 2003
4. Consent of Mark H. Bailey dated May 5, 2003
5. Consent of Pincock Allen & Holt dated May 5, 2003
6. Consent of George A. Armbrust dated May 5, 2003
7. Consent of Robert L. Sandefur dated May 5, 2003
Signatures
Pursuant to the requirements of the Exchange Act, the Registrant certifies that
it meets all of the requirements for filing on Form 40-F and has duly caused
this annual report to be signed on its behalf by the undersigned, thereto duly
authorized.
MINEFINDERS CORPORATION LTD.
- ----------------------------
Registrant
By /s/"Mark H. Bailey"
--------------------------------
Mark H. Bailey, CEO and Director
Date: May 6, 2003
CERTIFICATION
I, Mark H. Bailey, President, Chief Executive Officer and Director certify that:
1. I have reviewed this annual report on Form 40-F of Minefinders Corporation
Ltd. (the "Registrant");
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 6, 2003
/s/"Mark H. Bailey"
--------------------
Mark H. Bailey
President, Chief Executive Officer and Director
CERTIFICATION
I, Jon N. Morda, Chief Financial Officer certify that:
1. I have reviewed this annual report on Form 40-F of Minefinders Corporation
Ltd. (the "Registrant");
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 6, 2003
/s/"Jon N. Morda"
-----------------
Jon N. Morda
Chief Financial Officer
EXHIBIT 1
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the years ended December 31, 2002 and 2001
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the years ended December 31, 2002 and 2001
Contents
- --------------------------------------------------------------------------------
Auditors' Report 2
Consolidated Financial Statements
Balance Sheets 3
Statements of Loss and Deficit 4
Statements of Cash Flows 5
Statements of Mineral Properties and Deferred Exploration Costs 6
Summary of Significant Accounting Policies 7 - 9
Notes to the Financial Statements 10 - 22
[logo] BDO Dunwoody LLP 600 Park Place
Chartered Accountants 666 Burrard Street
Vancouver, BC, Canada V6C 2X8
Telephone: (604) 688-5421
Telefax: (604) 688-5132
E-mail: vancouver@bdo.ca
www.bdo.ca
- --------------------------------------------------------------------------------
Auditors' Report
- --------------------------------------------------------------------------------
To the Shareholders of
Minefinders Corporation Ltd.
We have audited the Consolidated Balance Sheets of Minefinders Corporation Ltd.
(an Exploration Stage Company) as at December 31, 2002 and 2001 and the
Consolidated Statements of Loss and Deficit, Cash Flows and Mineral Properties
and Deferred Exploration Costs for each of the years in the three-year period
ended December 31, 2002. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2002
and 2001 and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2002 in accordance with
Canadian generally accepted accounting principles.
/s/ BDO Dunwoody LLP
Chartered Accountants
Vancouver, Canada
February 28, 2003
2
- --------------------------------------------------------------------------------
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
December 31 2002 2001
- --------------------------------------------------------------------------------
Assets
Current
Cash $ 2,231,785 $ 475,136
Short-term investments (Note 2) 7,140,489 -
Receivables 535,752 133,651
Prepaid expenses 128,749 40,838
---------------------------------
10,036,775 649,625
Mineral properties and deferred exploration
costs (Note 3) 35,731,966 30,110,724
Capital assets (Note 4) 130,876 74,660
---------------------------------
$ 45,899,617 $ 30,835,009
- --------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Liabilities
Current
Accounts payable and accrued liabilities $ 896,188 $ 115,107
---------------------------------
Shareholders' equity
Capital stock (Note 5) 56,792,773 42,013,404
Contributed surplus (Note 9) 2,258,100 -
Deficit (14,047,444) (11,293,502)
---------------------------------
45,003,429 30,719,902
---------------------------------
$ 45,899,617 $ 30,835,009
- --------------------------------------------------------------------------------
Approved by the Board of Directors:
/s/ James M Dawson Director
--------------------
/s/ Paul C. MacNeill Director
--------------------
The accompanying summary of significant accounting policies and notes are an
integral part of these consolidated financial statements.
3
- --------------------------------------------------------------------------------
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Consolidated Statements of Loss and Deficit
(Expressed in Canadian Dollars)
For the years ended December 31 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
Administrative costs
Accounting and auditing $ 126,565 $ 75,583 $ 47,363
Amortization 5,202 1,482 1,844
Consulting (Note 9) 815,449 178,392 178,048
Corporate relations 409,256 60,703 181,916
Legal 310,189 179,732 189,705
Office services and expenses 244,565 164,647 234,643
Shareholder reports and filing fees 92,790 88,621 127,068
Travel 116,031 49,841 22,655
-------------------------------------------------------
2,120,047 799,001 983,242
Other operating items
Write-off of mineral properties and deferred
exploration costs 766,055 502,535 208,824
-------------------------------------------------------
Loss from operations (2,886,102) (1,301,536) (1,192,066)
Investment and other items
Foreign exchange (loss) gain (52,671) 2,217 48,182
Gain (loss) on sale of assets 3,031 - (670)
Interest income 181,800 16,855 26,605
Loss on investment - - (13,762)
-------------------------------------------------------
Net loss for the year (2,753,942) (1,282,464) (1,131,711)
Deficit, beginning of year (11,293,502) (10,011,038) (8,879,327)
-------------------------------------------------------
Deficit, end of year $ (14,047,444) $ (11,293,502) $ (10,011,038)
- --------------------------------------------------------------------------------------------------------------
Loss per share - basic and diluted $ (0.11) $ (0.07) $ (0.07)
- --------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 25,280,665 19,129,452 16,547,997
- --------------------------------------------------------------------------------------------------------------
The accompanying summary of significant accounting policies and notes are an
integral part of these consolidated financial statements.
4
- --------------------------------------------------------------------------------
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
For the years ended December 31 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net loss for the year $ (2,753,942) $ (1,282,464) $ (1,131,711)
Items not involving cash
Amortization 5,202 1,482 1,844
Loss (gain) on sale of asset (3,031) - 670
Write-off of mineral properties and
deferred exploration costs 766,055 502,535 208,824
Loss on investment - - 13,762
Stock option compensation (Note 9) 572,662 - -
Common shares issued for expenses - - 50,000
Net change in non-cash working
capital balances
Receivables (402,101) (3,047) 316,686
Prepaid expenses (87,911) (37,400) 16,265
Accounts payable and accrued liabilities 126,081 (110,186) 114,359
-------------------------------------------------------
(1,776,985) (929,080) (409,301)
-------------------------------------------------------
Cash flows from investing activities
Mineral properties and exploration costs (4,006,210) (1,522,696) (1,989,194)
Purchase of capital assets (105,708) (1,077) (16,493)
Proceeds from disposal of capital assets 6,672 - -
Purchase of short-term investments (7,140,489) - -
Investment and advances - - (400)
-------------------------------------------------------
(11,245,735) (1,523,773) (2,006,087)
-------------------------------------------------------
Cash flows from financing activities
Net proceeds on issuance of common shares
and subscriptions received 14,779,369 1,963,798 1,824,607
-------------------------------------------------------
Increase (decrease) in cash 1,756,649 (489,055) (590,781)
Cash, beginning of year 475,136 964,191 1,554,972
-------------------------------------------------------
Cash, end of year $ 2,231,785 $ 475,136 $ 964,191
- --------------------------------------------------------------------------------------------------------------
Supplemental Information
Interest and taxes paid $ - $ - $ -
Non-cash investing and financing activities:
Amortization of capital assets included in
deferred exploration costs $ 40,649 $ 22,868 $ 30,943
Stock option compensation (Note 9) $ 2,258,100 $ - $ -
Issuance of common shares for expenses $ - $ - $ 50,000
Issuance of common shares for share
issuance costs $ - $ 50,000 $ -
- --------------------------------------------------------------------------------------------------------------
The accompanying summary of significant accounting policies and notes are an
integral part of these consolidated financial statements.
5
- --------------------------------------------------------------------------------
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Consolidated Statements of Mineral Properties
and Deferred Exploration Costs
(Expressed in Canadian Dollars)
For the years ended December 31 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
Mineral properties $ 203,373 $ 194,615 $ 255,590
-------------------------------------------------------
Deferred exploration costs
Assaying 370,050 96,969 125,005
Amortization 40,649 22,868 30,943
Communication and delivery 64,005 58,626 55,471
Drilling and trenching 2,266,690 - 269,547
Environmental 985 13,053 13,151
Geophysical surveying and mapping 65,563 12,785 754
Legal: mineral properties 28,297 8,714 2,288
Licenses and recording fees 612,517 453,390 363,743
Metallurgical 3,850 - 27,371
Engineering/prefeasibility study 20,958 4,057 -
Road building 55,405 12,197 7,595
Supplies 132,940 40,323 32,333
Technical and professional services 1,217,346 581,694 677,260
Other non-cash professional services (Note 9) 1,685,438 - -
Travel 140,274 46,273 159,086
-------------------------------------------------------
6,704,967 1,350,949 1,764,547
-------------------------------------------------------
Gross mineral properties and deferred exploration
costs 6,908,340 1,545,564 2,020,137
Less: costs paid by joint venturer (521,043) - -
-------------------------------------------------------
Mineral properties and deferred exploration
costs during the year 6,387,297 1,545,564 2,020,137
Balance, beginning of year 30,110,724 29,067,695 27,256,382
Less: Write-off of mineral properties
and deferred exploration costs (Note 3) (766,055) (502,535) (208,824)
-------------------------------------------------------
Balance, end of year (Note 3) $ 35,731,966 $ 30,110,724 $ 29,067,695
- --------------------------------------------------------------------------------------------------------------
The accompanying summary of significant accounting policies and notes are an
integral part of these consolidated financial statements.
6
- --------------------------------------------------------------------------------
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Summary of Significant Accounting Policies
(Expressed in Canadian Dollars)
December 31, 2002 and 2001
- --------------------------------------------------------------------------------
Basis of Consolidation
These consolidated financial statements are prepared in accordance with Canadian
generally accepted accounting principles and include the accounts of the Company
and its wholly-owned subsidiaries, Minera Minefinders S.A. de C.V. and Compania
Minera Dolores S.A. de C.V. (in Mexico) and Minefinders (U.S.A.) Inc. (in the
United States). All intercompany transactions and balances are eliminated on
consolidation.
Short-term Investment
Short-term investment is recorded at cost, which approximates its fair market
value, plus accrued interest earned in the period.
Mineral Properties
The Company is in the exploration stage in respect of its mineral properties.
Acquisition, exploration and development costs relating to mineral properties
are deferred until such time as mineral properties are brought into commercial
production, at which time they will be amortized over the estimated life of the
property on a unit of production basis using proven and probable reserves.
Revenue incidental to exploration and development activities, including the
proceeds on sales of partial properties, is credited against the cost of
properties. Aggregate costs related to abandoned properties are charged to
operations at the time of any abandonment or when it has been determined that
there is evidence of a permanent impairment. During the year ended December 31,
2002, the Company wrote-off $766,055 (2001 - $502,535; 2000 - $208,824) of
mineral properties and deferred exploration costs related to inactive properties
and abandoned claims in the United States and Mexico.
Where the Company has entered into option agreements for the acquisition of an
interest in mineral properties which provides for periodic payments, such
amounts unpaid are not recorded as a liability since they are payable entirely
at the Company's option.
Capital Assets
Capital assets are carried at cost. Amortization is provided on a
declining-balance basis at the rate of 30% per annum for vehicles and 20% per
annum for other capital assets.
Foreign Exchange Translation
The Company conducts the majority of its business in Mexico and the U.S.A.
through its subsidiaries in U.S. dollars. The Company uses the temporal method
of currency translation for translating the Company's foreign operations into
Canadian dollars. Under this method, monetary assets and liabilities have been
converted at the exchange rate prevailing at the balance sheet date. Income and
expenses are translated at historical rates. Non-monetary assets, liabilities
and equity are translated at historical rates. Gains and losses on foreign
exchange are included in the Statements of Loss and Deficit for the year.
7
- --------------------------------------------------------------------------------
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Summary of Significant Accounting Policies
(Expressed in Canadian Dollars)
December 31, 2002 and 2001
- --------------------------------------------------------------------------------
Foreign Exchange Translation - Continued
Exchange rates between the U.S. dollar, the Mexican peso and the Canadian dollar
for the periods reported on in these financial statements are as follows:
2002 2001 2000
--------------------------------------------
US Dollar
Year end 0.6370 0.6285 0.6669
Average 0.6343 0.6456 0.6569
Mexican Peso
Year end 6.135 5.744 6.158
Average 6.596 6.018 6.127
Future Income Taxes
Income and resource taxes are accounted for by the liability method. Under this
method, income and resource taxes reflect the deferral of such taxes to future
years. The deferral is a result of temporary differences which arise when
certain costs, principally amortization and deferred exploration, are claimed
for tax purposes in different time periods than the related amounts are
amortized in the accounts.
Loss Per Share
During the year ended December 31, 2002, the Company adopted the "Treasury Stock
Method" to calculate loss per common share. Under this method, the basic loss
per share is calculated based on the weighted average aggregate number of common
shares outstanding during each period. The diluted loss per share assumes that
the outstanding stock options and share purchase warrants had been exercised at
the beginning of the period. The adoption of this policy had no material effect
on prior year figures.
Common equivalent shares (consisting of shares issuable on exercise of stock
options and warrants) totalling 3,232,605 (2001 - 5,191,092; 2000 - 3,722,908)
were not included in the computation of diluted earnings per share because the
effect was anti-dilutive.
Financial Instruments
The Company's financial assets and liabilities consist of cash, short-term
investments, receivables and accounts payable and accrued liabilities. Except as
otherwise noted, it is management's opinion that the Company is not exposed to
significant interest or credit risks arising from these financial instruments.
The fair values of the financial instruments approximate their carrying values
due to the short-term maturities of these instruments.
8
- --------------------------------------------------------------------------------
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Summary of Significant Accounting Policies
(Expressed in Canadian Dollars)
December 31, 2002 and 2001
- --------------------------------------------------------------------------------
Financial Instruments - Continued
Financial assets and liabilities denominated in currencies other than the
Canadian dollar are as follows:
2002 2001
Financial Financial Financial Financial
Assets Liabilities Assets Liabilities
-----------------------------------------------------
US dollar $ 1,428,044 $ 691,498 $ 81,365 $ 45,469
Mexican peso 269,529 83,853 144,108 44,819
-----------------------------------------------------
$ 1,697,573 $ 775,351 $ 225,473 $ 90,288
-----------------------------------------------------
Estimates and Assumptions
The preparation of financial statements in conformity with Canadian generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Segmented Information
The Company has determined that it has one business segment, the exploration and
development of mineral properties. Information by geographical area is as
disclosed in Notes 3 and 4.
Stock Options
Effective January 1, 2002, the Company adopted the recommendations of CICA
Handbook Section 3870, Stock-based compensation and other stock-based payments.
The standard requires either the recognition of compensation expense for grants
of stock, stock options and other equity instruments to employees, based on the
fair value of the instrument at the grant date, or alternatively, the disclosure
of pro forma net earnings and earnings per share data, as if stock-based
compensation had been recognized in earnings. The Company has chosen not to use
the fair value method to account for stock-based employee compensation plans,
but to disclose pro forma information for options granted to employees after
January 1, 2002 as outlined in Note 9. Consequently, the Company records no
compensation expense when options are granted to employees.
The Company adopted the fair value method of accounting for stock-based
compensation awards granted to non-employees. Accordingly, compensation expense
calculated using a Black-Scholes option pricing model are charged to the
Consolidated Statements of Loss and Deficit or capitalized in Mineral Properties
and Deferred Exploration Costs, depending on the nature of the award.
9
- --------------------------------------------------------------------------------
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
December 31, 2002 and 2001
- --------------------------------------------------------------------------------
1. Nature of Business
The Company was organized on February 4, 1975 under the laws of the
Province of Ontario and is engaged in the business of exploring for
precious and base metal properties in North America and Mexico. At December
31, 2002 and 2001, the Company was considered an exploration stage company.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. The Company
has not yet determined whether its properties contain mineral reserves that
are economically recoverable. The continuation of the Company and the
recoverability of the amount shown for mineral properties and deferred
exploration costs is dependent upon the continuing financial support of
shareholders or other investors and obtaining long-term financing to
complete exploration and development, the existence of economically
recoverable reserves, confirmation of the Company's interest in the
underlying mineral claims and upon future profitable production. Subsequent
to year end, the Company received proceeds (net of commissions) of
approximately $17 million from a brokered placement of common shares for
additional exploration work (Note 7).
- --------------------------------------------------------------------------------
2. Short-term Investments
The balance consists of the principal and accrued interest of a redeemable
term deposit maturing on April 2, 2003. Interest income is earned at prime
less 1.65% per annum.
- --------------------------------------------------------------------------------
3. Mineral Properties and Deferred Exploration Costs
Deferred
Mineral Exploration
Properties Costs 2002 2001
-----------------------------------------------------------------------
Mexico
Dolores Property $ 10,626,973 $ 18,150,056 $ 28,777,029 $ 23,220,731
Northern Sonora 270,790 2,825,319 3,096,109 2,972,384
La Reserva/El Correo 77,961 1,876,907 1,954,868 1,757,805
Other 76,967 713,895 790,862 591,648
-----------------------------------------------------------------------
11,052,691 23,566,177 34,618,868 28,542,568
-----------------------------------------------------------------------
United States
Oro Blanco - - - 594,854
Nevada Properties 288,682 824,416 1,113,098 973,302
-----------------------------------------------------------------------
288,682 824,416 1,113,098 1,568,156
-----------------------------------------------------------------------
$ 11,341,373 $ 24,390,593 $ 35,731,966 $ 30,110,724
-----------------------------------------------------------------------
10
- --------------------------------------------------------------------------------
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
December 31, 2002 and 2001
- --------------------------------------------------------------------------------
3. Mineral Properties and Deferred Exploration Costs - Continued
Mineral properties and related deferred exploration costs consist of the
following:
Mexican Properties
Dolores Property
The Dolores property consists of nine claims totaling 27,700 hectares in
the Madera Mining District, in the state of Chihuahua. The Company has a
100% interest in two claims totaling 25,780 hectares and can acquire a 100%
interest in the remaining seven claims by bringing the property into
production or by making further payments of approximately US$550,000
payable in quarterly instalments of US$25,000. The property is also subject
to underlying net smelter return ("NSR") royalties totaling 3.25% on gold
and 2% on silver.
Northern Sonora Properties
The Company has a 100% interest in the mineral rights on the Northern
Sonora Properties, which consist of nine claims totaling 16,591 hectares in
the State of Sonora. The Company is required to make annual rent payments
to the landowners of approximately US$25,000, which have been paid for
2002, 2001 and 2000. Should a mine be put in production on the properties,
a one-time payment of US$500,000 is due to one landowner. Another landowner
is to be paid US$350,000 for the first mine put into production on his
property and US$250,000 is to be paid for any additional mines put into
production.
On December 21, 2001, the Company entered into a letter of agreement with
Placer Dome Exploration Inc. ("Placer") to further explore and develop the
El Malacate project in Northern Sonora. Under the agreement, Placer had the
right to earn a 51% beneficial interest in the property over a four-year
period for cash payments and exploration expenditures. Placer held the
right to terminate the agreement at any time after the first US$250,000 is
spent. Placer reimbursed costs in the amount of $521,043 in 2002 (2001 -
$Nil) to the Company pursuant to the joint venture agreement. In June 2002,
Placer terminated the agreement without earning an interest in the project.
La Reserva/El Correo
In 2001, the Company acquired mining rights on the property from the owner.
As a result, as of March 2001, the Company holds the title to these three
claims in the La Reserva/El Correo property and three additional claims
staked by the Company, for a total of 23,561 hectares. The original
agreement signed in 1996 for the La Reserva/El Correo Concessions was
accordingly terminated.
In 1998, the Company entered into surface rights agreements whereby it made
annual payments to certain landowners for access to the property that
formed part of the La Reserva/El Correo Property, to conduct exploration
and mining activities. The agreements can be terminated at the option of
the Company upon 30 days notice to the landowners. As of December 31, 2002,
the Company is current with its surface rights payments.
11
- --------------------------------------------------------------------------------
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
December 31, 2002 and 2001
- --------------------------------------------------------------------------------
3. Mineral Properties and Deferred Exploration Costs - Continued
Other Properties
The Company has title to eight additional claims in Zacatecas, Mexico.
United States Properties
Oro Blanco
The Oro Blanco property consists of 108 mining claims in Santa Cruz County,
Arizona. In 1997, the Company completed expenditures of US$200,000 and
acquired a 100% interest in 46 claims (subject to NSR royalties of 3%). The
Company has a 100% interest in the other 62 claims which do not have a NSR
royalty.
For the year ended December 31, 2002, the Company wrote-off 100% of the
cost of the mineral claims and deferred exploration costs of the Oro Blanco
property in the amount of $608,182.
Nevada Properties
The Company holds a 100% interest in the Clear, Dottie and Gutsy properties
(subject to NSR royalties of 3%).
The Washiki claim group and Cleo claims near the Clear property are 100%
owned by the Company with no royalties attached. In addition, in 1998 the
Company entered into a lease agreement to acquire mineral rights situated
near the Clear property by making annual advance minimum royalty payments
over 15 years and by incurring exploration expenditures of US$150,000 by
April 2001. At December 31, 2002, the Company is current with its advance
royalty payments. The Company has the right to terminate the lease
agreement on thirty days written notice to the owner.
The Company has also acquired the Buckskin Mountain property by making
certain payments totaling US$100,000 to a company controlled by an arm's
length consultant who, subsequent to the agreement date, became a director
of the Company. In 2000, the Company paid the final installment to the
director under the agreement.
For the year ended December 31, 2002, there was no write-off of any mineral
properties or deferred exploration costs of the Nevada properties. For the
year ended December 31, 2001, the Company wrote-off 20% of the cost of
mineral claims and 25% of deferred exploration costs totaling $332,583 in
respect of a reduction in the claim area on all US projects except the
Clear property.
12
- --------------------------------------------------------------------------------
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
December 31, 2002 and 2001
- --------------------------------------------------------------------------------
4. Capital Assets
2002 2001
---------------------------------------------------------------------------------
Accumulated Net Book Accumulated Net Book
Cost Amortization Value Cost Amortization Value
---------------------------------------------------------------------------------
Exploration
equipment $ 43,474 $ 28,837 $ 14,637 $ 42,809 $ 25,177 $ 17,632
Office furniture
and equipment 119,603 76,904 42,699 90,985 66,507 24,478
Vehicles 279,528 205,988 73,540 218,506 185,956 32,550
---------------------------------------------------------------------------------
$ 442,605 $ 311,729 $ 130,876 $352,300 $ 277,640 $ 74,660
---------------------------------------------------------------------------------
Capital assets of the Company are segmented by geographical area as
follows:
2002 2001
---------------------------------
Mexico $ 43,983 $ 34,115
United States 54,546 28,739
Canada 32,347 11,806
---------------------------------
$ 130,876 $ 74,660
---------------------------------
13
- --------------------------------------------------------------------------------
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
December 31, 2002 and 2001
- --------------------------------------------------------------------------------
5. Capital Stock
Authorized
Unlimited common shares, no par value
Issued
Common shares
Issued Amount
------------------------------------------
Balance, January 1, 2000 16,300,709 $ 38,174,999
Issued during the year:
For cash
Private placement (net of
issue costs of $17,563) 405,818 428,837
Exercise of stock options 285,000 276,250
For expenses 40,000 50,000
------------------------------------------
Balance, December 31, 2000 17,031,527 38,930,086
Issued during the year:
For cash
Private placement (net of
issue costs of $178,754) 3,051,723 2,910,818
Exercise of warrants 150,000 172,500
------------------------------------------
Balance, December 31, 2001 20,233,250 42,013,404
Issued during the year:
For cash
Private placement (net of
issue costs of $745,593) 4,400,000 9,374,407
Exercise of stock options 1,778,000 3,083,450
Exercise of warrants 2,000,487 2,321,512
------------------------------------------
Balance, December 31, 2002 28,411,737 $ 56,792,773
------------------------------------------
(a) In September 2000, the Company issued 405,818 units by way of a
private placement for gross proceeds of $446,400. Each unit consisted
of one common share and one-half of a warrant with one whole warrant
entitling the holder to purchase one common share at $1.35 per share
for a two-year period.
(b) In January 2001, the Company completed private placements to issue
1,599,643 units for total proceeds of $1,477,180 with each unit
consisting of one common share and one warrant entitling the holder to
purchase one common share at $1.00 and $1.15 for a two- year period.
In connection with this private placement, 50,000 common shares were
issued and $56,269 was paid in cash as a finder's fee. These finders
fees were recorded as a reduction to the gross proceeds on the private
placement. Net proceeds of $1,119,520 on 2001 private placements were
received by the Company during 2000.
14
- --------------------------------------------------------------------------------
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
December 31, 2002 and 2001
- --------------------------------------------------------------------------------
5. Capital Stock - Continued
During the remainder of 2001, the Company completed private placements
to issue a further 1,402,080 units for total proceeds of $1,612,392
with each unit consisting of one common share and one-half of a
warrant. Each whole warrant entitles the holder to purchase one common
share at $1.40 per share for a period of two years. Issuance costs
totaling $122,485 relating to the private placement were charged as a
reduction to the gross proceeds on the private placement.
(c) In December 2000, the Company issued 40,000 common shares in exchange
for consulting services. Total proceeds based on the trading price of
the common shares on the issuance date was $50,000
(d) In April 2002, the Company completed a brokered private placement to
issue 4,400,000 common shares for total proceeds of $10,120,000.
Related share issue costs of $745,593 were charged as a reduction to
the gross proceeds on the brokered private placement.
(e) Stock Options
In 2002, the shareholders approved a stock option plan ("the Plan")
for directors, officers employees and certain consultants. The number
of shares available for purchase pursuant to options under the Plan
cannot exceed 5,113,348. The term of options granted under the Plan
cannot exceed 5 years. The exercise price of each option is determined
by the Board of Directors at fair market value of the Company's shares
at the date of grant.
The following table summarizes the changes in stock options during the
years:
Number of Options Weighted Average
Exercise Price
------------------------------------------
Outstanding at January 1, 2000 2,412,500 $ 1.54
Granted 485,000 1.08
Exercised (285,000) 0.97
Cancelled (205,000) 1.32
------------------------------------------
Outstanding at December 31, 2000 2,407,500 1.54
Granted 430,000 1.50
------------------------------------------
Outstanding at December 31, 2001 2,837,500 1.53
Granted 1,820,000 5.10
Exercised (1,778,000) 1.73
------------------------------------------
Outstanding at December 31, 2002 2,879,500 $ 3.66
------------------------------------------
15
- --------------------------------------------------------------------------------
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
December 31, 2002 and 2001
- --------------------------------------------------------------------------------
5. Capital Stock - Continued
All options granted and outstanding during the years were fully
exercisable on the various grant dates except 50,000 options granted
in 2001 with an exercise price of $1.50 per share which vested on
January 6, 2002, and 20,000 options granted in 2002 with an exercise
price of $6.15 which vest in 5,000 option increments over a one-year
period.
At December 31, 2002, the following stock options were outstanding:
Number Exercise Price Expiry Date
-------------------------------------------------------
210,000 $1.40 July 16, 2003
302,500 $1.25 December 22, 2003
285,000 $1.10 June 19, 2005
45,000 $1.05 December 7, 2005
270,000 $1.50 November 7, 2006
727,000 $3.30 April 17, 2007
20,000 $6.15 July 15, 2007
1,020,000 $6.45 December 23, 2007
-----------
2,879,500
-----------
Subsequent to year-end December 31, 2002, 79,500 options were
exercised at a weighted average exercise price of $2.56 for gross
proceeds of $203,650 and 10,000 options with an exercise price of
$6.15 were cancelled due to termination of agreement.
(f) The following table summarizes whole warrant activities during the
years:
Weighted Average
Number Exercise Price
--------------------------------------------
Outstanding at January 1, 2000 1,112,499 $ 1.50
Issued 202,909 1.35
--------------------------------------------
Outstanding at December 31, 2000 1,315,408 1.48
Issued 2,300,682 1.18
Exercised (150,000) 1.15
Expired (1,112,499) 1.50
--------------------------------------------
Outstanding at December 31, 2001 2,353,591 1.20
Exercised (2,000,487) 1.16
--------------------------------------------
Outstanding at December 31, 2002 353,104 $ 1.40
--------------------------------------------
16
- --------------------------------------------------------------------------------
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
December 31, 2002 and 2001
- --------------------------------------------------------------------------------
5. Capital Stock - Continued
At December 31, 2002, the following share warrants were outstanding
and fully exercisable:
Number Exercise Price Expiry Date
-------------------------------------------------------------
133,895 $1.40 August 30, 2003
219,209 $1.40 September 26, 2003
---------
353,104
---------
Subsequent to December 31, 2002, 108,695 warrants were exercised for
gross proceeds of $152,173.
- --------------------------------------------------------------------------------
6. Related Party Transactions
Related party transactions not disclosed elsewhere in these consolidated
financial statements are as follows:
(a) The Company was charged for administrative and geological services by
a director and an officer as follows:
Year Amount
2002 $ 378,490
2001 $ 323,387
2000 $ 342,041
(b) Legal services are provided by a law firm in which one of the
directors of the Company was a partner. The cost of these services was
as follows:
Year Amount
2002 $ 350,211
2001 $ 139,985
2000 $ 84,503
Transactions with related parties were in the normal course of operations
and were measured at the exchange value (the amount of consideration
established and agreed to by the related parties).
17
- --------------------------------------------------------------------------------
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
December 31, 2002 and 2001
- --------------------------------------------------------------------------------
7. Subsequent Event
On February 10, 2003, the Company completed a brokered placement consisting
of 2,587,500 common shares at $7.00 per share for gross proceeds of
$18,112,500. A broker commission of 5.5%, amounted to approximately
$996,000, was payable on the gross proceeds.
- --------------------------------------------------------------------------------
8. Income Taxes
The tax effects of temporary differences that give rise to the Company's
deferred tax assets are as follows: 2002 2001
2002 2001
-----------------------------------
Tax loss carryforwards $ 5,914,000 $ 6,103,000
Capital assets 9,000 9,000
Mineral properties and deferred exploration costs (1,956,000) (1,383,000)
Undeducted financing costs 293,000 91,000
Valuation allowance (4,260,000) (4,820,000)
-----------------------------------
$ - $ -
-----------------------------------
The Company's deferred tax asset includes the tax effect of approximately
$293,000 (2001 - $91,000) related to deductions for share issue costs in
excess of amounts deducted for financial reporting purposes. Additionally,
the tax effect of tax loss carryforwards of approximately $632,000 has been
recognized to offset a future tax liability arising from the capitalization
of stock option compensation as deferred exploration costs during 2002. If
and when the valuation allowance related to these amounts is reversed, the
Company will recognize these amounts as adjustments to shareholders' equity
as opposed to a deferred income tax recovery in the Statements of Loss and
Deficit.
The provision for income taxes differs from the amount estimated using the
Canadian federal and provincial statutory income tax rates as follows:
2002 2001 2000
------------------------------------------------
Benefit at Canadian statutory rates $ (1,033,000) $ (572,000) $ (521,000)
Effect of difference in foreign tax rates 32,000 67,000 43,000
Non-deductible expenses 143,000 183,000 (4,000)
Undeducted stock option compensation 850,000 - -
Effect of tax rate changes on future income taxes 568,000 - -
(Decrease) increase in valuation allowance (560,000) 322,000 482,000
------------------------------------------------
$ - $ - $ -
------------------------------------------------
18
- --------------------------------------------------------------------------------
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
December 31, 2002 and 2001
- --------------------------------------------------------------------------------
8. Income Taxes - Continued
The Company evaluates its valuation allowance requirements based on
projected future operations. When circumstances change and this causes a
change in management's judgment about the recoverability of deferred tax
assets, the impact of the change on the valuation allowance is reflected in
current income.
The Company has approximately $18,800,000 (2001 - $14,000,000) of
undeducted exploration and development costs which are available for
deduction against future income for tax purposes. In addition, the Company
has non-capital losses of approximately $16,100,000 (2001 - $14,680,000)
expiring in various amounts from 2003 to 2022 and allowable capital losses
of approximately $216,000 (2001 - $216,000).
- --------------------------------------------------------------------------------
9. Stock-Based Compensation
The Company accounts for all stock-based compensation issued on or after
January 1, 2002 to non-employees and attributes no compensation expense to
stock-based awards granted to employees. On April 17, 2002 and July 15,
2002, the Company granted 780,000 stock options with an exercise price of
$3.30 and 20,000 stock options with an exercise price of $6.15,
respectively, to directors for director services and certain consultants.
On December 23, 2002 the Company granted 1,020,000 stock options at an
option price of $6.45 to directors for director services and certain
consultants. Compensation expense to non-employees is determined using the
Black-Scholes option pricing model. Weighted average assumptions used in
calculating compensation expense in respect of options granted to
consultants are as follows:
2002
-----------------
Risk-free rate 5%
Dividend yield nil
Volatility factor of the expected market price
of the Company's common shares 60%
Weighted average expected life of the options (months) 30
For the year ended December 31, 2002, the compensation costs for stock
options granted to non-employees which were expensed were $572,662 and
$1,685,438 was capitalized to mineral properties and deferred exploration
costs; the combined amount of $2,258,100 was credited to contributed
surplus.
19
- --------------------------------------------------------------------------------
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
December 31, 2002 and 2001
- --------------------------------------------------------------------------------
9. Stock-Based Compensation - Continued
The following is the pro-forma net loss of the Company with the fair value
applied to options issued to employees during the year:
2002
-------------------
Net loss for the year $(2,753,942)
Compensation expense relating to
the fair value of employee stock
options (1,168,072)
-------------------
Pro forma net loss for the year $(3,922,014)
-------------------
Pro forma net loss per common share
- basic and diluted $ (0.16)
-------------------
Weighted average assumptions used in calculating compensation expense in
respect of options granted to employees are the same as those used for
consultants.
- --------------------------------------------------------------------------------
10. United States Generally Accepted Accounting Principles
The consolidated financial statements of the Company have been prepared in
accordance with Canadian generally accepted accounting principles
("Canadian GAAP"). These principles differ in some respects from United
States generally accepted accounting principles ("US GAAP"). The effect of
such differences on the Company's consolidated financial statements is set
out below:
(a) Mineral Exploration Expenditures
Under Canadian GAAP expenditures on specific properties are
capitalized until such time as either economically unrecoverable
reserves are established or the properties are sold or abandoned. US
GAAP requires that mineral exploration expenditures be charged to the
Statement of Loss and Deficit in the period incurred. Accordingly, for
US GAAP, all mineral exploration expenditures incurred to date would
be charged to the Statement of Loss and Deficit.
(b) Stock option compensation
Under Canadian GAAP, the Company has elected not to record
compensation costs for stock options granted to employees, but the
effect would be required to be disclosed in the notes relating
thereto. Compensation expenses are calculated using the fair value
method for stock-based compensation awards granted to non-employees
after January 1, 2002. The compensation costs are recognized
prospectively in the financial statements.
20
- --------------------------------------------------------------------------------
Minefinders Corporation Ltd.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
December 31, 2002 and 2001
- --------------------------------------------------------------------------------
10. United States Generally Accepted Accounting Principles - Continued
Under US GAAP, the Company applies Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees", and
related Interpretation No. 44 in accounting for all stock options
granted to employees and directors. Under APB 25, compensation expense
is only recognized for stock options granted with exercise prices
below the market price of the underlying common shares on the date of
grant. Stock options that have been modified to reduce the exercise
price are accounted for as variable.
Statement of Financial Accounting Standard ("SFAS") No. 123,
"Accounting for Stock-Based Compensation", requires the Company to
record compensation to "non-employees" using the fair value based
method prescribed therein similar to accounting principles now in
effect in Canadian GAAP. Compensation expense under US GAAP to
non-employees is determined using the Black-Scholes option pricing
model. For the year ended December 31, 2002, compensation expense
incurred under SFAS No. 123 and not recognized in Canadian GAAP was
$Nil (2001 - $133,796; 2000 - $179,000). Weighted average assumptions
used in calculating compensation expense in respect of options granted
to consultants in 2001 and 2000 are as follows:
2001 2000
--------------------------------
Risk-free interest rate 2.65% to 3.12% 5.95%
Dividend yield Nil% Nil%
Volatility factor of the expected market price
of the Company's common shares 80% 100%
Weighted- average expected life of the options
(months) 29 31
The impact of the above on the financial statements is as follows:
2002 2001 2000
------------------------------------------------------
Net loss per Canadian GAAP $ (2,753,942) $ (1,282,464) $ (1,131,711)
Adjustments related to:
Mineral exploration expenses (a) (5,621,242) (1,043,029) (1,811,313)
Stock option compensation (b) - (133,796) (179,000)
------------------------------------------------------
Net loss
per US GAAP $ (8,375,184) $ (2,459,289) $ (3,122,024)
------------------------------------------------------
Loss per share per US GAAP
Basic and diluted $ (0.33) $ (0.13) $ (0.19)
------------------------------------------------------
21
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Minefinders Corporation Ltd.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
December 31, 2002 and 2001
- --------------------------------------------------------------------------------
10. United States Generally Accepted Accounting Principles - Continued
2002 2001 2000
-----------------------------------------------------
Shareholders' equity per Canadian GAAP $ 45,003,429 $ 30,719,902 $ 30,038,568
Adjustments related to:
Mineral exploration expenses (a) (35,731,966) (30,110,724) (29,067,695)
-----------------------------------------------------
Shareholders' equity per US GAAP $ 9,271,463 $ 609,178 $ 970,873
-----------------------------------------------------
(c) New Accounting Pronouncements
Statement of Financial Accounting Standards No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities" ("SFAS 146")
provides guidance on the recognition and measurement of liabilities
for costs associated with exit or disposal activities. The provisions
of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002.
FIN 46, "Consolidation of Variable Interest Entities", clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements", to certain entities in which equity investors
do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from
other parties. FIN 46 is applicable immediately for variable interest
entities created after January 31, 2003. For variable interest
entities created prior to January 31, 2003, the provisions of FIN 46
are applicable no later than July 1, 2003.
The implementation of these new standards is not expected to have a
material effect on the Company's financial statements.
22
EXHIBIT 2
MANAGEMENT DISCUSSION AND ANALYSIS
For the year ended December 31, 2002 compared with the year ended December 31,
2001 and the year ended December 31, 2000.
Introduction
The following discussion and analysis of the operating results and financial
position of Minefinders Corporation Ltd (the "Company") should be read in
conjunction with the attached Consolidated Financial Statements of the Company
and related Notes which have been prepared in accordance with Canadian generally
accepted accounting principles (GAAP) (see Summary of Significant Accounting
Polices and Note 1: Basis of Presentation), which differ in certain material
respects from accounting principles generally accepted in the United States (US
GAAP). Differences between GAAP and US GAAP applicable to the Company are
described in Note 10 to the Consolidated Financial Statements. The Company's
accounting policies and estimates used in the preparation of these financial
statements are considered appropriate in the circumstances, but are subject to
judgements and uncertainties inherent in the financial reporting process. This
analysis may contain forward-looking statements about the Company's future
prospects, but the Company provides no assurances that actual results will meet
management's expectations. For thorough analysis of the risks and uncertainties
of the Company we refer you to its Annual Information Form.
The Company is primarily engaged in the finding, exploration and development of
mineral properties, primarily precious metals. The Company does not have revenue
except from interest earned on cash balances. It relies on equity financing to
fund exploration programs on its properties in Mexico and the United States and
corporate expenses. The general market for this activity, which includes related
investor interest and opportunities to obtain funding, improved substantially in
2002 as gold prices increased from $278 per ounce in January, 2002 to $347 per
ounce at the end of the year. The gold price had reached a low of $257 in March,
2001. It is not possible to forecast ongoing gold price trends or volatility
which may have an impact on the preparation of a feasibility study on a mineral
deposit or future results from operations.
Operating Activities
The Company recorded an overall net loss for 2002 of $2.8 million compared with
$1.3 million in 2001 and $1.1 million in 2000. Overall losses were affected by
higher administration costs and a write-off of mineral properties and related
exploration costs, partly offset by higher interest income earned on cash
balances.
Administration costs increased from $0.8 million in 2001 to $2.1 million in 2002
(2000 - $1.0 million) due to several factors, including increased corporate
relations expenditures to satisfy demands resulting from increased investor
interest, higher accounting and legal costs to assess and comply with increased
regulatory requirements, as well as increased compensation expenses of $572,662
recorded as a consequence of the adoption of a new accounting policy relating to
stock-based compensation. New accounting guidelines require that the Company
record as compensation the determined fair value of stock options issued to non-
employees during the period of the grant, with a corresponding credit to its
contributed surplus account. The value of the shareholders' equity account, on a
net basis will be unchanged. No cash is exchanged at the time of the grant. The
Company receives the full option price at such time, if any, that the stock
option is exercised. Management used a standard option pricing model, which
required it to make certain subjective assumptions as to future interest rates
and stock price volatility (Note 9 to the consolidated financial statements).
While management has used its best efforts to assess these future values, the
determined fair value of these options is highly subjective and meaningful only
if the input factors chosen are realized.
Interest income increased to $181,800 in 2002 (2001 - $16,855; 2000 - $26,605)
due to a higher treasury balance throughout most of 2002 from that of 2001.
Interest income in 2001 was lower than in 2000 due to a lower treasury balance.
The Company's financial instruments may include U.S. dollars and Mexican pesos.
Due to fluctuating exchange rates to the Canadian dollar for both of these
currencies, a foreign exchange loss of $52,671 was recorded in 2002, a decrease
of $54,888 from the foreign exchange gain of $2,217 recorded in 2001. A foreign
exchange gain of $48,182 was recorded in 2000 resulting from favorable currency
exchange rate fluctuations in that year. The Company does not engage in currency
hedging activities as exposures to rate adjustments and volatility are not
considered to have a material impact on the Company at this time.
In the course of reviewing its mineral properties accounts, the Company
determined that its Oro Blanco property in the United States would not be
allocated further funding, as its other properties have greater potential for
discovery of a significant mineral resource on a cost-effective basis. As a
result, the Company wrote off the balance of mineral property and deferred
exploration costs relating thereto, which significantly contributed to an
overall write-down of $766,055, compared with $502,535 in 2001 and $208,824 in
2000.
As the Company does not yet have any resource properties that qualify for
capitalization under U.S. GAAP, the primary effect of the U.S. GAAP
reconciliation is to increase the net loss and deficit for 2002, 2001 and 2000
by the amounts of the exploration expenses capitalized less write-offs under
Canadian GAAP in each of those years, and adjustments in 2001 and 2000 for
stock-based compensation. For the purposes of U.S. GAAP, these expenses have
been charged to the Statement of Loss and Deficit in the period incurred under
U.S. GAAP (Note 10 to the consolidated financial statements).
Capital Resources And Liquidity
The Company's financial condition improved significantly in 2002. As at December
31, 2002, the Company had working capital of $9.1 million an increase of $8.6
million from December 31, 2001, when it stood at $0.5 million. The most
significant component of working capital changes was the increase in cash and
short-term investments by $8.9 million over 2001. Receivables and payables both
increased from 2001 in response to increased exploration activities. Receivables
are mainly composed of sales tax refundables relating to sales tax charges on
exploration expenditures in Mexico.
Cash on hand at December 31, 2002 was $2.2 million, an increase of $1.7 million
from December 31, 2001 cash of $0.5 million. The Company also had short-term
investments on hand in the amount of $7.1 million. The increase in cash and
short-term investments resulted primarily from funds received from a brokered
placement of 4.4 million shares issued at $2.30 per share in April, 2002, for
net proceeds of $9.4 million. In addition, the Company received $3.1 million
upon the exercise of 1.8 million stock options, and $2.3 million upon the
exercise of 2.0 million share purchase warrants. In 2001, the Company received
$3.1 million (2000 - $0.8 million) from private placements of 3.1 million shares
and the exercise of 150,000 share purchase warrants.
Expenditures on the Company's mineral properties, particularly the Dolores
property in Chihuahua, Mexico, increased substantially in 2002, in an effort to
more fully delineate the extent of mineralization. Total expenditures incurred
were $6.9 million (2001 - $1.5 million; 2000 - $2.0 million), of which $0.5
million related to the El Malacate joint venture with Placer Dome and which were
recovered. Included in the 2002 expenditures were $1.7 million relating to the
value of stock-based compensation, and constituted a non-cash item (Note 9 to
the consolidated financial statements).
Outlook
In February, 2003 the Company completed a brokered placement of 2,587,500 common
shares at $7.00 per share, for gross proceeds of $18.1 million. A 5.5%
commission was paid.
The Company is adequately funded to carry out its planned exploration and
development programs for 2003. The Company has completed its current program of
delineation drilling on the Dolores deposit in Chihuahua, Mexico, with some
assays pending, and is continuing step-out drilling to seek out extensions to
known mineralization. The Company now plans to proceed to final feasibility,
which it anticipates will lead to financing and development of the Dolores
deposit. The Company will also continue exploration on several of its other
projects in 2003.
Risk And Uncertainties
Except for historical information contained in this discussion and analysis,
disclosure statements contained herein are forward-looking, as defined in the
United States Private Securities Litigation Reform Act of 1995. Forward looking
statements are subject to risks and uncertainties, which could cause actual
results to differ materially from those in such forward-looking statements. The
Company assumes no obligation to update its forward-looking statements to
reflect actual results, changes in assumptions or changes in other factors
affecting such statements.
The Company is a mineral exploration and development company and as such is
exposed to a number of risks and uncertainties that are common to other
companies in the same business. The Company's financial success is subject to,
among other things, fluctuations in metal prices and foreign exchange rates,
which may affect current or future operating results, and may affect the
economic value of its mineral resources. Its ability to obtain financing to
explore for mineral deposits and to continue and complete the development of
those properties it has
classified as assets is not assured, nor is there assurance that the expenditure
of funds will result in the discovery of an economic mineral deposit. The
Company has not prepared a feasibility study on any of its deposits to determine
if it hosts a mineral resource that can be economically developed and profitably
mined.
(Signed: Mark H. Bailey)
Mark H. Bailey
President and Chief Executive Officer
EXHIBIT 3
CONSENT OF
INDEPENDENT CHARTERED ACCOUNTANT
Minefinders Corporation Ltd.
Vancouver, Canada
We consent to the inclusion in this Annual Report on Form 40-F of our reports
dated February 28, 2003, relating to the consolidated financial statements of
Minefinders Corporation Ltd. for the year ended December 31, 2002.
We also consent to the incorporation by reference in the previously filed (March
18, 2003) open registration statement on Form S-8 of Minefinders Corporation
Ltd. of our reports dated February 28, 2003, relating to the consolidated
financial statements of Minefinders Corporation Ltd. appearing in the Company's
Annual Report on Form 40-F for the year ended December 31, 2002.
BDO Dunwoody LLP
BDO DUNWOODY LLP
Chartered Accountants
Vancouver, Canada
April 28, 2003
EXHIBIT 4
CONSENT OF MARK H. BAILEY
I hereby consent to the references to my name in the Company's Annual Report on
Form 40-F to be filed with the United States Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended.
/s/"Mark H. Bailey"
- -------------------
Mark H. Bailey
Vancouver, British Columbia, Canada
May 5, 2003
EXHIBIT 5
CONSENT OF PINCOCK ALLEN & HOLT
We refer to our report auditing the resources at the Dolores Gold-Silver Project
Chihuahua, Mexico, dated December 2, 2002, (the "Report").
We hereby consent to the filing, use, and incorporation by reference of, the
Report and the references to our name in the Minefinders Corporation Ltd. Annual
Report on Form 40-F to be filed with the United States Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended.
Sincerely,
Pincock Allen & Holt
/s/"Mark G. Stevens"
- --------------------
Mark G. Stevens
Lakewood, Colorado, USA
May 5, 2003
EXHIBIT 6
CONSENT OF GEORGE A. ARMBRUST
I refer to the report prepared by Pincock Allen & Holt which was prepared under
my direct supervision, regarding the audit of the resources at the Dolores
Gold-Silver Project Chihuahua, Mexico, dated December 2, 2002, (the "Report").
I consent to the filing, use and incorporation by reference of, the Report and
the references to my name in the Minefinders Corporation Ltd. Annual Report on
Form 40-F under the heading "Mineral Resource and Mineral Reserve Estimates" in
the Minefinders Corporation Ltd. Annual Information Form for the year ended
December 31, 2002, which is included as an exhibit in the Annual Report to be
filed with the United States Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.
/s/"George A. Armbrust"
- -----------------------
George A. Armbrust
Lakewood, Colorado, USA
May 5, 2003
EXHIBIT 7
CONSENT OF ROBERT L. SANDEFUR
I refer to the report prepared by Pincock Allen & Holt which was prepared under
my direct supervision, regarding the audit of the resources at the Dolores
Gold-Silver Project Chihuahua, Mexico, dated December 2, 2002, (the "Report").
I consent to the filing, use and incorporation by reference of, the Report and
the references to my name in the Minefinders Corporation Ltd. Annual Report on
Form 40-F under the heading "Mineral Resource and Mineral Reserve Estimates" in
the Minefinders Corporation Ltd. Annual Information Form for the year ended
December 31, 2002, which is included as an exhibit in the Annual Report to be
filed with the United States Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.
/s/"Robert L. Sandefur"
- -----------------------
Robert L. Sandefur
Lakewood, Colorado, USA
May 5, 2003