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FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of August 2006
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Commission File Number 001-32748
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CORRIENTE RESOURCES INC.
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(Translation of registrant's name into English)
520 - 800 West Pender Street, Vancouver, British Columbia, CANADA V6C 2V6
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(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.
Form 20-F Form 40-F X
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Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1):_____
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7):_____
Indicate by check mark whether by furnishing the information contained
in this Form, the registrant is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes No X
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If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-____________
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DOCUMENTS INCLUDED AS PART OF THIS REPORT
Document
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1. Management's discussion and analysis of financial condition and
results of operations for the quarter ended June 30, 2006.
2. Interim consolidated financial statements for the quarter ended
June 30, 2006.
3. Certification of Interim Filings - CEO
4. Certification of Interim Filings - CFO
DOCUMENT 1
MANAGEMENT'S DISCUSSION & ANALYSIS
(Expressed in Canadian dollars unless otherwise noted)
August 10, 2006
Management's Discussion and Analysis supplements, but does not form part of,
the unaudited consolidated financial statements of the company and the notes
thereto for the fiscal period ended June 30, 2006. Consequently, the following
discussion and analysis of the financial condition and results of operations
for Corriente Resources Inc. should be read in conjunction with the unaudited
consolidated financial statements for the period ended June 30, 2006 and
related notes therein, which have been prepared in accordance with Canadian
generally accepted accounting principles, consistently applied.
Additional information regarding the company, including its Annual Information
Form, can be found on SEDAR at www.sedar.com.
Forward-Looking Statements
Certain statements contained in the following Management's Discussion and
Analysis (MD&A) and elsewhere constitute forward-looking statements. Such
forward-looking statements involve a number of known and unknown risks,
uncertainties and other factors which may cause the actual results or
performance of achievements of the company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date the
statements were made, and readers are advised to consider such forward-looking
statements in light of the risks set forth below.
Corporate Governance
Management of the company is responsible for the preparation and presentation
of the unaudited interim and audited annual consolidated financial statements
and notes thereto, MD&A and other information contained therein. Additionally,
it is Management's responsibility to ensure the company complies with the laws
and regulations applicable to its activities.
The company's Management is accountable to the Board of Directors (Directors),
each member of which is elected annually by the shareholders of the company.
The Directors are responsible for reviewing and approving the annual audited
consolidated financial statements and the MD&A. Responsibility for the review
and approval of the company's quarterly unaudited interim consolidated
financial statements and MD&A is delegated by the Directors to the Audit
Committee, which is comprised of three directors, all of whom are independent
of Management. Additionally, the Audit Committee pre-approves audit and
non-audit services provided by the company's auditors.
The auditors are appointed annually by the shareholders to conduct an audit of
the consolidated financial statements in accordance with generally accepted
auditing standards. The external auditors have complete access to the Audit
Committee to discuss audit, financial reporting and related matters resulting
from the annual audit as well as assist the members of the Audit Committee in
discharging their corporate governance responsibilities.
The disclosure of Corriente's corporate governance policies is contained in the
company's Information Circular prepared for the May 2006 Annual General Meeting
and which is available for review at www.sedar.com. The disclosure statement
has been prepared by the company's Corporate Governance Committee and approved
by the Directors.
Page 1 of 14
Disclosure Controls
Corriente has daily, weekly, monthly and annual processes that, when considered
in the aggregate and in conjunction with current internal controls, are
considered to be effective disclosure controls. In addition, Corriente has
created a Corporate Disclosure Committee, comprised of the Chief Executive
Officer, Senior Vice-President, and Chief Financial Officer. This Committee
supplements these periodic processes.
Disclosure Controls and Procedures have been developed to ensure that material
information relating to Corriente and its subsidiaries is made known to
Management by others within those entities, particularly within a period in
which a disclosure report is being prepared. These involve:
o identification of all continuous disclosure requirements under
securities laws, rules and policies applicable to Corriente.
o identification of the individuals responsible for preparing
reportable information and individuals, whether internal or external,
responsible for reviewing reports or portions of reports to verify
disclosure made with respect to their areas of responsibility or
expertise.
o establishment of timetables for the preparation and adequate review
of reportable information.
o procedures for obtaining "sign-off" on disclosure of reportable
information and receipt of written consents from all experts whose
reports are included or referred to in any disclosure.
o procedures for the identification and timely reporting to the
Committee of information which may constitute material information or
which may constitute a material change to previously disclosed
material information, including the identification of individuals who
are likely to learn first about events outside the control of
Corriente that may give rise to material information.
o procedures for the identification and reporting to the Audit
Committee of the Board of Directors of any fraud, whether or not
material, that involves management or other employees who have a
significant role in Corriente's internal controls.
o ensuring the procedures are followed with respect to the release of
each disclosure made in writing and for the review of any disclosure
made orally.
o ongoing evaluation of Corriente's disclosure controls and procedures.
Corriente and its subsidiaries are relatively small in size and operate in a
very integrated management environment. That is, senior management is in
constant contact with many of Corriente's staff, suppliers, regulators and the
like on an ongoing and detailed basis. This allows one or more of senior
management to be in a position where they are more likely to be aware (than
not) of material events or information. While senior management may not be
aware of all things at all times, it believes that the probability of a
material event or material information being missed or not disclosed on a
timely basis is very small.
Page 2 of 14
As new Canadian accounting standards are released, the Chief Financial Officer
undertakes a review and evaluation to determine if it is applicable. If there
is any uncertainty in its applicability, Corriente solicits the input of its
external auditor. If the new standard is applicable to Corriente, it is then
analyzed and summarized in a manner that effectively documents and evaluates
the impact on Corriente, and to determine the immediate action, if any,
Corriente would need to undertake in order to comply with the new standard.
Quarterly, the documented standards are reviewed, and updated as required, to
ensure that a standard is still applicable, and that Corriente remains in
compliance.
Through implementation of the above, senior management believes that the
company's disclosure controls are sufficient while being practical for a
company of its size.
General
Corriente is a Canadian-based junior resource company engaged in the
exploration and development of copper-gold resource properties located
primarily in the Corriente Copper Belt in Ecuador. Under various agreements
signed with certain subsidiaries of BHP Billiton LLC ("BHP Billiton"), the
company has earned a 100% interest in certain of BHP Billiton's resource
properties located in the Rio Zamora copper porphyry district (Corriente Copper
Belt), in Ecuador. This required the issue of shares to BHP Billiton and the
expenditure of exploration funds under the terms of these agreements.
Additionally, these concessions are subject to a 2% Net Smelter Royalty ("NSR")
payable to BHP Billiton, though the company has the right to reduce the NSR to
1% for the Mirador, Panantza and San Carlos resource properties upon the
payment of US$2 million to BHP Billiton for each such property.
Corriente is moving towards construction of a starter operation at its Mirador
copper-gold operation. Management believes that Mirador is one of the few new,
sizeable copper projects in the world available for near-term production.
Corriente controls a 100% interest in over 60,000 hectares located within the
Corriente Copper Belt, Ecuador. The Belt currently contains three copper and
copper-gold porphyry deposits: Mirador, Panantza and San Carlos, as well as the
Mirador Norte prospect currently under development. Additional exploration
activities will be ongoing, as six additional copper and copper-gold
exploration targets have been identified in the Corriente Copper Belt to date.
The company's executive head office is located in Vancouver, Canada while its
Ecuador operations are run from its subsidiary office located in Quito,
Ecuador. With the exception of short-term operational requirements for the
subsidiaries, funds have been maintained and controlled in Vancouver, both in
Canadian and U.S. dollars. In addition to its core staff, the company engages
consultants as necessary, to provide geological, mine development and
pre-construction consulting, design and other services. Overhead costs and
efficiencies in Ecuador continue to compare favourably with other South
American exploration areas.
Listing on the American Stock Exchange
The company's shares began trading on the American Stock Exchange on Thursday,
April 6, 2006. As a result, the company now trades on the Toronto Stock
Exchange and the American Stock Exchange
Page 3 of 14
Board of Directors
In the second quarter of 2006, Leonard Harris retired from the Board of
Directors. The company wishes to thank Mr. Harris for his service and
expertise.
During the second quarter of 2006, the Directors engaged an independent
recruiting firm to identify and select potential candidates to join the
company's Board of Directors.
Stock Options
At its May 25, 2006 Annual General Meeting, the company sought and obtained
approval to amend the company's stock option plan to change the number of
shares that may be reserved for issue under it to a rolling maximum of 10% of
the number of common shares actually outstanding immediately prior to the grant
of any particular option. This amendment has also been approved by the Toronto
Stock Exchange (TSX).
The following summarizes the stock options granted to date in 2006:
Exercise
Date of grant Date of expiry Price Recipient Vested Not yet
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vested at
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June 30, 2006
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January 2, 2006 January 2, 2009 $ 4.50 Director 25,000 Nil
February 3, 2006 February 3, 2011 5.25 Head office management 25,000 375,000
May 22, 2006 May 22, 2011 5.50 Other Nil 60,000
June 1, 2006 June 1, 2011 5.35 Other Nil 85,000
June 1, 2006 June 1, 2011 5.35 Directors Nil 125,000
Effective February 1, 2006 the stock option vesting policies of the Board of
Directors include expiry dates five years from the date of grant, with the
following provisions:
o Senior management's new option grants vest on the basis of 1/16th of
the total each quarter (from grant date), with such vesting being
accelerated based on the attainment of clearly identified milestones.
o Non-management directors' new option grants vest on the basis of
1/16th of the total each quarter from the grant date.
o All other options grants vest on the basis of 50% of the total
granted after 12 months from the grant date, 75% of the total granted
after 18 months from the grant date and 100% of the total granted
after 24 months from the grant date.
Mirador Project
Corriente is moving towards construction of a starter mining operation at its
Mirador copper-gold operation, which is believed to be one of the few new,
sizeable copper projects available for near-term production.
Page 4 of 14
Environmental Impact Assessment
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Corriente announced on May 4, 2006 that the Mirador copper project
Environmental Impact Assessment (EIA) was approved by the Ecuadorian Ministry
of Energy and Mining (MEM).
The Sub-Secretary of the MEM, Mr. Carlos Muirriagi, was quoted as stating
"Ecuador is extremely pleased about the EIA approval and our commitment is to
help mining companies like Corriente that are making it possible in the near
future for Ecuador to become a metal mining country".
The EIA covered both the environmental aspects of proposed mining operations in
Mirador and community and social plans associated with the same project. During
the lengthy preparation of the EIA, the company worked closely with the MEM to
ensure that the report met all required government guidelines and regulations.
The Mirador EIA is one of the most comprehensive documents on social and
environmental issues ever submitted to the Mines Ministry in Ecuador. The
submission of the EIA and subsequent approval followed an extensive
consultation process with local communities, that was carried out in late
November and early December 2005.
Engineering and Procurement
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In March 2006, the company's wholly owned subsidiary, Ecuacorriente S.A. signed
a Letter of Award with SNC-Lavalin Chile S.A. (SNC-Chile), a member of the
SNC-Lavalin Group of Companies of Canada, for full Engineering and Procurement
Services for the start-up and expansion of the Mirador mine (Mirador Project).
SNC-Lavalin Chile's experienced engineering group has extensive mine design and
construction experience in South America, while overall, SNC-Lavalin is one of
the leading groups of engineering and construction companies in the world.
Additionally, Ecuacorriente S.A. engaged SNC-Lavalin Engineers & Constructors,
Inc. (SNC-Canada) to prepare an updated feasibility study for the Mirador
Project, which will incorporate the results of work done by SNC-Chile, the
company and/or its consultants.
SNC-Lavalin (TSX: SNC) is one of the leading groups of engineering and
construction companies in the world, a global leader in the ownership of
infrastructure, and in operations and maintenance services. The SNC-Lavalin
companies have offices across Canada and in 30 other countries around the world
and are currently working in some 100 countries.
Power
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In March 2006, the company announced that it signed a Letter of Intent (LOI)
with Hidroabanico S.A. to supply the 28.5 MW power needs of proposed mining
operations at the Mirador copper-gold project. The terms outlined in the LOI
propose a 10 year Power Purchase Agreement (PPA) with a proposed rate of
$0.05/kWh. The Hidroabanico facility has already been completed to a 15 MW
stage and an expansion is under way to its planned final size of 37.5 MW, with
completion slated for December 2006. The Hidroabanico facility is a
run-of-river design and provides "green" energy that qualifies for the carbon
credit program. The energy will be delivered through a dedicated line to the
mine, which will cost in the order of $US10 Million to construct and will be
included in the capital cost estimate for Mirador. As part of the LOI,
Hidroabanico will have the first right of opportunity to provide energy needs
for the planned 25,000 tpd to 50,000 tpd expansion at Mirador. A due diligence
review is presently underway at the site, which will be followed by final
negotiation of the PPA.
Page 5 of 14
Since 1999, Ecuador has had a competitive wholesale electrical market operated
by Centro Nacional de Control de Energia (CENACE). The country's energy needs
are currently supplied by a combination of hydro and thermal suppliers, but
most new energy sources in Ecuador are hydro (such as the 230 MW San Francisco
Project currently under construction south of Quito). As part of the government
plan to grow energy supplies in Ecuador, a total of 146 new hydro projects over
1 MW have been identified which will provide potential new capacity of over
20,000 MW to the Ecuador energy market.
As a PPA with Hidroabanico will meet the energy needs at Mirador, Corriente is
planning no further development work at the Sabanilla run-of-river project.
Options for moving the Sabanilla project forward with local operators as a spot
power producer continue to be under review.
Personnel
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During the second quarter of 2006, Corriente added two new senior management
staff to its Ecuador operating group, focused on the development and operations
of the company's Mirador copper-gold project.
Joining as General Manager in charge of the entire Mirador project is John
Malysa, B.S., MBA, who most recently was in Venezuela with Evan Energy and
Carbones de la Guajira. His experience includes over 25 years in project
development, construction and mine operations, including extensive Latin
assignments. Mr. Malysa has a special interest in community engagement and
views the Mirador project as a unique opportunity to grow substantial assets
over the next ten years for the benefit of both Corriente shareholders and the
local communities.
In addition, Warren McLean joined the Ecuador operating group as
Vice-President, Finance and Administration. Most recently with AEC Ecuador
(recently sold by Encana to Andes Petroleum) as Commercial Manager for the
Ecuador Region, he has 30 years experience in finance, taxation, financial
reporting, IT and procurement. Mr. McLean is a Chartered Accountant and
Certified Fraud Examiner, and has worked the last six years in Ecuador.
Exploration
Mirador Norte
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Assays have been received from the most recent program of drilling at Mirador
Norte, a newly discovered zone of porphyry copper mineralization located
approximately 3 km northwest of the planned Mirador open pit. Drilling
successfully outlined an approximately 1200 X 300 X 250 metre contiguous zone
of copper mineralization above a 0.4% copper cutoff. This body is exposed at
the surface but open for expansion at depth and to the south. The data is
presently being reviewed by Mine Development Associates of Reno, Nevada in
preparation of a formal mineral resource assessment, which has been initiated.
The latest round of drilling at Mirador Norte comprised 39 holes totaling 6780
metres of core and supplements the previous drilling of 29 holes totaling 6825
metres. All new holes with assays above the 0.4% cutoff are detailed on the
company's web site, where a map of the drilling can also be found. The longest
hole drilled at Mirador Norte to date is MN65, which is located in the middle
of the deposit and over 420 metres in length. Hole MN65 has an intersection of
350 metres @ 0.52% Cu and 0.08 g/t Au.
Page 6 of 14
Panantza/San Carlos
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Concurrent with the handoff of the Mirador project from development to
construction, the company started diamond drilling on the Panantza project as
planned, prior to the end of June. This drilling is part of a larger project
designed to incorporate the Panantza and San Carlos concessions into a new
large copper development opportunity with aggregate inferred resources of 1.05
Billion tonnes at a grade of 0.63% copper. As these two mineralized centres are
only four kilometres apart, the plan is to provide a single processing facility
for both open pits.
This first phase of drilling is the start of a planned two-year program to
complete a feasibility study at Panantza and San Carlos. This first phase of
work involves the drilling of 35 holes totaling 9500 metres with the purposes
of expanding the Panantza portion of the project which is presently not
constrained on the south and to define a new resource figure. This core will
also supply the samples necessary for additional metallurgical studies.
Tundayme/Piedra Liza
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As announced on August 9, 2006 Corriente has completed an initial review of its
Ecuador copper-gold concession package and has identified two concessions
totaling 6,600 hectares containing gold targets that are not part of the
current copper development program within the Corriente Copper Belt. One of the
concessions, the Tundayme concession, is immediately adjacent to Corriente's
Mirador copper deposit land holdings and is approximately 15 km from Aurelian
Resources Inc.'s newly discovered Fruta del Norte gold zone. The Tundayme
concession has approximately 8 km of north-south trending structures that
extend along strike to the Mirador project. This 8 km trend is oriented in the
same direction as the Fruta del Norte mineralized trend and parts have had
preliminary prospecting and soil sampling done by Corriente. Further work is
required to follow-up anomalous gold soil and rock samples from that initial
work. The second concession is approximately 50 km southwest of Mirador and is
called the Piedra Liza concession. Within the Piedra Liza concession, four
clusters of anomalous gold soil samples occur over a six kilometer trend that
is on-strike and north of the Nambija area which has produced over three
million ounces of gold by local estimates.
Corriente is a copper development company and remains focused on moving its
Mirador copper-gold project into production, along with development of the
large Panatza/San Carlos copper complex in the north of the Corriente Copper
Belt. The Tundayme and Piedra Liza gold concessions are not part of Corriente's
copper production growth plans.
Financial Results of Operations
All of the financial information referenced below has been prepared in
accordance with Canadian generally accepted accounting principles, applied on a
consistent basis.
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Financial Data for Last Eight Quarters
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Three months ended Jun-06 Mar-06 Dec-05 Sep-05 Jun-05 Mar-05 Dec-04 Sep-04
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Total revenues (000's) $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
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(Earnings) loss before $ (227) $ 188 $ 3,272 $ 1,404 $ 378 $ (1,710) $ (429) $ 425
extraordinary items
(000's)
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Net (earnings) loss $ (227) $ 188 $ 3,272 $ 1,404 $ 378 $ (1,710) $ (429) $ 425
(000's)
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(Earnings) loss per $ 0.00 $ 0.00 $ 0.07 $ 0.03 $ 0.01 $ (0.04) $ (0.01) $ 0.01
share
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Page 7 of 14
The company's operations during the period ended June 30, 2006 produced net
earnings of $39,693 or $0.00 per share compared to net earnings of $1,331,905
or $0.03 per share in the first six months of 2005. During the three month
period ended June 30, 2006, the company's operations produced net earnings of
$227,367 or $0.00 per share compared to a net loss of $377,771 or $0.01 for the
same period in 2005. As the company has not owned any revenue-producing
resource properties, no mining revenues have been recorded to date. The net
earnings in the first six months of 2006 and 2005 were due to the receipt and
sale of marketable securities received on the sale of a subsidiary company and
cash received for a non-core capital asset that were both previously written
off.
Deferred mineral property development expenditures made on the company's target
projects within the Corriente Copper Belt for the period totalled $7,577,191
versus $5,065,467 during the same period in 2005, reflecting the company's
significant activities in furthering development of the Mirador starter mine.
These activities included costs incurred towards hiring engineering and
construction personnel for the continuing development of the Mirador project
infrastructure. Deferred mineral property development and exploration
expenditures in the three months ended June 30, 2006 were $4,734,888, compared
to $2,742,331 in the same period in 2005.
Deferred power project expenditures made by the company pursuant to its JV
contributions for development of the Sabanilla Power Project totalled $Nil in
the first six months of 2006 (2005 - $958,103). As disclosed above, the company
is proceeding towards agreement on a PPA with Hidroabanico, and consequently,
has written the costs of Sabanilla down to $Nil and is exploring its options
for Sabanilla. Deferred power project expenditures on the Sabanilla Power
Project totalled $Nil for the second quarter of 2006 (2005 - $482,167).
Administration expenses increased in the first half of 2006 to $1,336,294 from
$765,662 in 2005. The increase from 2005 is primarily due to an increase in
management fees, wages and benefits to $426,423 (2005 - $206,302), legal and
accounting costs increased to $269,758 (2005 - $41,802), regulatory fees to
$189,842 (2005 - $39,245), and consulting fees of $33,615 were incurred (2005 -
$Nil). The higher administrative costs reflected increased directors' and
management fees, costs associated with the company's application and listing on
the American Stock Exchange in April 2006, increased sustaining fees based on
the company's higher market capitalization, and the utilization of a consulting
firm for the purposes of investigative due diligence. Office and related costs
increased from $111,462 in the first six months of 2006 from $83,252 in the
same period of 2005. Travel costs increased from $38,535 in the first six
months of 2005 to $47,595 in the same period of 2006, due to increased activity
related to the pursuit and closing of the May 2006 financing.
Decreased costs included stock-based compensation decreasing from $215,356 for
the first half of 2005 to $114,391 in the same period for 2006. This is a
result of the company's new option vesting policy initiated in 2006, which
dictates that options vest over specified periods. Stock-based compensation
expense is determined based on estimated fair value using the Black-Scholes
Option Pricing Model at the time of grant, the expense of which is recognized
on a straight-line basis over the basis over the vesting period of the
respective options and grants.
Overall, total administration costs have increased by approximately $448,000 to
$878,431 in the second quarter of 2006 compared with $430,598 in the same
quarter in 2005. Administration costs have increased because of the company's
growth and increased activity.
Page 8 of 14
Due to the company's higher average cash balance on hand during the first half
of 2006, interest income increased significantly to $1,020,518 from $124,347
for 2005. In the second quarter of 2006, interest income was $753,238 compared
to $53,267 in the second quarter of 2005. General exploration increased to
$35,921 in the first half of 2006 from $8,372 in the first half of 2005.
As the company has not had any revenue-producing resource properties, no mining
revenues have been recorded to date. The significant net income generated in
the first quarter of 2005 and second quarter of 2006 was due to interest income
and proceeds from marketable securities sold, which had been received from the
sale of the company's Argentine and Bolivian assets written off in prior years.
The gain on the sale of marketable securities increased from $265,318 in the
six-month period ended June 30, 2005 to $336,253 in the same period in 2006.
- ------------------------------------------------
Financial Data for Last Three Fiscal Years |
- ------------------------------------------------
- -----------------------------------------------|--------------|-------------|--------------
Fiscal year ended | Dec 31-05 | Dec 31-04 | Dec 31-03
- -----------------------------------------------|--------------|-------------|--------------
Total revenues (000's) | $ 0 | $ 0 | $ 0
- -----------------------------------------------|--------------|-------------|--------------
Loss before extraordinary items (000's) | $ 3,344 | $ 714 | $ 682
- -----------------------------------------------|--------------|-------------|--------------
Net loss (000's) | $ 3,344 | $ 714 | $ 682
- -----------------------------------------------|--------------|-------------|--------------
Basic and diluted loss per share | $ 0.07 | $ 0.02 | $ 0.02
- -----------------------------------------------|--------------|-------------|--------------
Cash and cash equivalents (000's) | $ 32,441 | $ 12,603 | $ 18,688
- -----------------------------------------------|--------------|-------------|--------------
Total assets (000's) | $ 67,100 | $ 40,502 | $ 35,948
- -----------------------------------------------|--------------|-------------|--------------
Total long-term financial liabilities (000's) | $ 0 | $ 0 | $ 0
- -----------------------------------------------|--------------|-------------|--------------
Total shareholders' equity (000's) | $ 66,124 | $ 39,755 | $ 35,527
- -----------------------------------------------|--------------|-------------|--------------
Cash dividends declared per share | $ 0.00 | $ 0.00 | $ 0.00
- -------------------------------------------------------------------------------------------
Related Party Transactions
Included in management fees, wages and benefits and in mineral properties and
investor relations are expenditures of $Nil during the first half of 2006 (2005
- - $48,599) in respect of administrative services provided by a company
affiliated with an employed officer. At June 30, 2006, $Nil (2005 - $11,207)
was due to this company affiliated with an employed officer.
Also included in management fees, wages and benefits are directors fees of
$134,130 (2005 - $26,400) for the period ended June 30, 2006, including a
retirement payment of $25,000. Effective January 1, 2006 directors fees were
adjusted to reflect market conditions.
Critical Accounting Policies
The details of the company's significant accounting policies are presented in
note 2 of the company's audited consolidated financial statements which can be
found at www.sedar.com. The following policies are considered by management to
be essential to understanding the processes and reasoning that go into the
preparation of the company's financial statements and the uncertainties that
could have a bearing on its financial results.
Resource Properties
The company capitalizes all costs related to investments in mineral property
interests on a property-by-property basis. Such costs include mineral property
acquisition costs and exploration expenditures, including interest on any
required guarantee. Costs are deferred until such time as the extent of
mineralization has been determined and mineral property interests are either
developed, the property sold or the company's mineral rights allowed to lapse.
Page 9 of 14
All deferred mineral property expenditures are reviewed, on a
property-by-property basis, to consider whether there are any conditions that
may indicate impairment. When the carrying value of a property exceeds its net
recoverable amount that may be estimated by quantifiable evidence of an
economic geological resource or reserve or the company's assessment of its
ability to sell the property for an amount less than the deferred costs,
provision is made for the impairment in value and the property is written down
to the estimated fair value.
The amounts shown for acquisition costs and deferred exploration expenditures
represent costs incurred to date and do not necessarily reflect present or
future values. These costs are depleted over the useful lives of the properties
upon commencement of commercial production or written off if the properties are
abandoned, become impaired or the claims allowed to lapse.
Stock-based Compensation
Management is required to make significant estimates about future volatility
and the period in which stock options will be exercised. The selection of the
estimated volatility figure, and the estimate of the period in which an option
will be exercised will have a significant impact on the costs recognized for
stock based compensation. The estimates concerning volatility are made with
reference to historical volatility, which is not necessarily an accurate
indicator of volatility which will be experienced in the future. Management
assumes that stock options will remain unexercised until near their expiry date
because historical experience supports this assumption. However, the exercise
of options may occur at times different than those estimated, or options may
expire unexercised. For options which vest over future periods, management
makes an estimate of the percentage of options which are expected to be
forfeited prior to vesting based on historical experience, which may not be an
accurate indicator of future results. No adjustment is made for actual
experience, except for options which vest at specific dates over time, where
management updates its estimate of the number of unexercised options which are
expected to vest in the future. Such fair value is estimated using the
Black-Scholes Option Pricing Model, the assumptions of which can be found in
Note 6 c) of the company's unaudited interim consolidated financial statements
for the period ended June 30, 2006.
Liquidity and Capital Resources
Working capital as at June 30, 2006 was $140,355,373, compared to $8,444,969 at
June 30, 2005. The increase is primarily due to the completion of a short-form
prospectus offering on December 29, 2005 that raised net proceeds of
$27,853,364 on the issuance of 7,605,000 common shares and later another
short-form prospectus offering that closed on May 25, 2006 raising net proceeds
of $117,735,560 on the issuance of 19,231,000 common shares. In the first half
of 2006, the company also received proceeds of $1,991,300 from the exercise of
1,555,000 stock options (2005 - $213,850 from the exercise of 235,000 options).
In the second quarter of 2006, the company received proceeds of $1,202,300 from
the exercise of 865,000 stock options (2005 - $213,850 from the exercise of
235,000 options). There were no share purchase warrants outstanding nor
exercised in the first six months of 2006 (2005 - $200,000 proceeds on the
exercise of 250,000 warrants). The main uses of cash during the first six
months of 2006 were expenditures associated with the exploration and
development of the Corriente Copper Belt of $7,577,191 (2005 - $5,065,467).
During the second quarter of 2006, $4,734,888 (2005 - $2,742,331) was spent on
the exploration and development of the Corriente Copper Belt. As at June 30,
2006, the company had 74,537,393 (fully diluted - 76,532,393) common shares
issued and outstanding versus 45,906,393 (fully diluted - 48,161,393) as at
June 30, 2005.
Page 10 of 14
Historically, the company's capital requirements have been met by equity
subscriptions. While the company's current working capital is considered
sufficient to meet the company's administrative overhead for the next several
years, substantial capital is required to complete the company's mine. Actual
funding requirements may vary from those planned due to a number of factors,
including the progress of exploration and project development activity and
foreign exchange fluctuations.
Risk Factors
Companies operating in the mining industry face many and varied kinds of risks.
While risk management cannot eliminate the impact of all potential risks, the
company strives to manage such risks to the extent possible and practical.
Following are the risk factors which the company's management believes are most
important in the context of the company's business. It should be noted that
this list is not exhaustive and that other risk factors may apply. An
investment in the company may not be suitable for all investors.
Foreign Country and Political Risk
- ----------------------------------
The resource properties on which the company is actively pursuing its
exploration and development activities are all located in Ecuador, South
America. As a result, the company is subject to certain risks, including
currency fluctuations and possible political or economic instability in
Ecuador, which may result in the impairment or loss of mineral concessions or
other mineral rights. Also, mineral exploration and mining activities may be
affected in varying degrees by political instability and government regulations
relating to the mining industry. Any changes in regulations or shifts in
political attitudes are beyond the control of the company and may adversely
affect its business. Exploration may be affected in varying degrees by
government regulations with respect to restrictions on future exploitation and
production, price controls, export controls, foreign exchange controls, income
taxes, expropriation of property, environmental legislation and mine and/or
site safety. While Management believes that the current political climate in
Ecuador is stable, there can be no certainty that this will continue going
forward. To alleviate such risk, the company funds its Ecuador operations on an
as-needed basis and works closely with federal and territorial governments and
community groups. The company does not presently maintain political risk
insurance for its foreign exploration and development projects.
Exploration and Mining Risks
- ----------------------------
The business of exploring for minerals and mining involves a high degree of
risk. Due in some cases to factors that cannot be foreseen, only a small
proportion of the properties that are explored are ultimately developed into
producing mines. At present, only the company's Mirador project property has
proven or probable reserves while any planned exploration programs for the
company's other properties are exploratory searches for proven or probable
reserves. The mining areas presently being assessed by the company may not
contain economically recoverable volumes of minerals or metals. The operations
of the company may be disrupted by a variety of risks and hazards which are
beyond the control of the company, including labour disruptions, the inability
to obtain suitable or adequate machinery, equipment or labour and other risks
involved in the conduct of exploration programs. Once economically recoverable
volumes of minerals are found, substantial expenditures are required to
establish reserves through drilling, to develop metallurgical processes, to
develop the mining and processing facilities and infrastructure at any site
chosen for mining. Although substantial benefits may be derived from the
discovery of a major mineralised deposit, no assurance can be given that
minerals will be discovered in sufficient quantities or having sufficient grade
to justify commercial operations or that funds required for development can be
obtained on a timely basis. The economics of developing copper, gold and other
mineral properties is affected by many factors including the cost of
operations, variations of the grade of ore mined, fluctuations
Page 11 of 14
in the price of minerals produced, costs of processing equipment and such other
factors as government regulations, including regulations relating to
environmental protection. In addition, the grade of mineralization ultimately
mined may differ from that indicated by drilling results and such differences
could be material. Depending on the price of copper or other minerals produced,
which have fluctuated widely in the past, the company may determine that it is
impractical to commence or continue commercial production.
Financing Risks
- ---------------
The company has limited financial resources, has no source of operating cash
flow and has no assurance that additional funding will be available to it for
further exploration and development of its projects. Further exploration and
development of one or more of the company's properties will be dependent upon
the company's ability to obtain financing through joint venturing, equity or
debt financing or other means, and although the company has been successful in
the past in obtaining financing through the sale of equity securities, there
can be no assurance that the company will be able to obtain adequate financing
in the future or that the terms of such financing will be favourable. Failure
to obtain such additional financing could result in delay or indefinite
postponement of further exploration and development of its projects.
Limited Experience with Development-Stage Mining Operations
- -----------------------------------------------------------
The company has no previous experience in placing resource properties into
production and its ability to do so will be dependent upon using the services
of appropriately experienced personnel or entering into agreements with other
major resource companies that can provide such expertise. There can be no
assurance that the company will have available to it the necessary expertise
when and if it places its resource properties into production.
Estimates of Mineral Resources and Production Risks
- ---------------------------------------------------
The Mineral Resource estimates disclosed by the company are estimates only, and
no assurance can be given that any proven or probable reserves will be
discovered or that any particular level of recovery of minerals will in fact be
realized or that an identified reserve or resource will ever qualify as a
commercially mineable (or viable) deposit which can be legally and economically
exploited. In addition, the grade of mineralization which may ultimately be
mined may differ from that indicated by drilling results and such differences
could be material. Production can be affected by such factors as permitting
regulations and requirements, weather, environmental factors, unforeseen
technical difficulties, unusual or unexpected geological formations and work
interruptions. Consequently, the company's estimated Mineral Resources should
not be interpreted as assurances or evidence of commercial viability or
potential or of the profitability of any future operations.
Base Metals Prices
- ------------------
The principal activity of the company is the exploration and development of
copper-gold resource properties. The mineral exploration and development
industry in general is intensely competitive and there is no assurance that,
even if commercial quantities of proven and probable reserves are discovered, a
profitable market may exist for the sale of the same. Factors beyond the
control of the company may affect the marketability of any substances
discovered. Base metals prices have fluctuated widely, particularly in recent
years. The feasible development of such properties is highly dependent upon the
price of copper and, to a lesser extent, gold. A sustained and substantial
decline in commodity copper prices could result in the write-down, termination
of exploration and development work or loss of its interests in identified
resource properties.
Page 12 of 14
Competition
- -----------
The company competes with many companies that have substantially greater
financial and technical resources than the company for the acquisition of
mineral properties as well as for the recruitment and retention of qualified
employees.
Environmental and other Regulatory Requirements
- -----------------------------------------------
The activities of the company are subject to environmental regulations
promulgated by government agencies from time to time. Environmental legislation
generally provides for restrictions and prohibitions on spills, releases or
emissions of various substances produced in association with certain mining
industry operations, such as seepage from tailings disposal areas, which would
result in environmental pollution. A breach of such legislation may result in
imposition of fines and penalties. In addition, certain types of operations
require the submission and approval of environmental impact assessments.
Environmental legislation is evolving in a manner which means stricter
standards, and enforcement, fines and penalties for non-compliance are more
stringent. Environmental assessments of proposed projects carry a heightened
degree of responsibility for companies and directors, officers and employees.
The cost of compliance with changes in governmental regulations has a potential
to reduce the profitability of operations.
Companies engaged in exploration activities generally experience increased
costs and delays as a result of the need to comply with applicable laws,
regulations and permits. There can be no assurance that all permits which the
company may require for exploration and development of its properties will be
obtainable on reasonable terms or on a timely basis, or that such laws and
regulations would not have an adverse effect on any project that the company
may undertake.
The company believes it is in substantial compliance with all material laws and
regulations which currently apply to its activities. However, there may be
unforeseen environmental liabilities resulting from exploration and/or mining
activities and these may be costly to remedy. 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. Parties engaged in exploration operations may
be required to compensate those suffering loss or damage by reason of the
exploration activities and may have civil or criminal fines or penalties
imposed for violations of applicable laws or regulations and, in particular,
environmental laws.
Amendments to current laws, regulations and permits governing operations and
activities of exploration companies, or more stringent implementation thereof,
could have a material adverse impact on the company and cause increases in
expenditures and costs or require abandonment or delays in developing new
mining properties.
Corriente's policy is to abide by the regulations and requirements of Ecuador,
Canada and the World Bank.
Title Matters
- -------------
Title to and the area of mining concessions may be disputed. Although the
company has taken steps to verify the title to mineral properties in which it
has an interest in accordance with industry standards for the current stage of
exploration of such properties, these procedures do not guarantee the company's
title. Property title may be subject to unregistered prior agreements or
transfers and title may be affected by undetected defects.
Page 13 of 14
Repatriation of Earnings
- ------------------------
Currently there are no restrictions on the repatriation from Ecuador of
earnings to foreign entities. However, there can be no assurance that
restrictions on repatriation of earnings from Ecuador will not be imposed in
the future.
Dependence On Key Personnel
- ---------------------------
The company's development to date has largely depended on, and in the future
will continue to depend on, the efforts of key management. Loss of any of these
people could have a material adverse effect on the company and its business.
The company has not obtained and does not intend to obtain key-person insurance
in respect of any directors or other of its employees.
Share Price Fluctuations
- ------------------------
In recent years, the securities markets have experienced a high level of price
and volume volatility, and the market price of securities of many companies,
particularly those considered development-stage companies such as the company,
have experienced wide fluctuations in price which have not necessarily been
related to the underlying asset values or prospects of such companies. Price
fluctuations will continue to occur in the future.
No Dividends
- ------------
Investors cannot expect to receive a dividend on their investment in the
company in the foreseeable future, if ever. Investors should not expect to
receive any return on their investment in the company's securities other than
possible capital gains.
Outlook
Engineering studies and development and pre-construction work necessary to
build and commission an initial 25,000 tonnes/day mine on the Mirador property
continued during the second quarter of 2006. This starter mine is expected to
serve as the base for the phased development of the company's resource
properties located in the Corriente Copper Belt in southern Ecuador. During the
second quarter, an equity financing was completed for net proceeds of $118
million, to be allocated to the equity portion of the Mirador funding
requirements. Debt financing discussions for the Mirador project are taking
place with a variety of non-equity funding sources.
Approval of the Mirador project's EIA by the government of Ecuador was granted
during the second quarter and efforts are now focused on securing a power
contract for the project and finalizing a choice of port options for the
shipment of copper concentrate from the Mirador project.
A third Mirador Norte drilling program was completed during the period and the
data is currently under review by Mine Development Associates (Reno, NV) in
order to prepare a resource estimate for the Mirador Norte project. Drilling
has also commenced on Corriente's Panantza project (45 km to the north of the
Mirador project). The objective of this drilling program is to provide
additional data regarding the deposit to allow for a major upgrade to
Corriente's existing resource estimate.
Corriente controls a 100% interest in over 60,000 hectares located within the
Corriente Copper Belt in Ecuador. This includes three copper and copper-gold
porphyry deposits, called Mirador, Panantza and San Carlos. Measured and
indicated copper resources at a 0.40% cutoff at Mirador is 438 million tonnes
at 0.61% Cu and 0.19 g/t Au, while inferred resources at Panantza, San Carlos
and Mirador (excluding Mirador Norte) at a 0.40% cutoff are 395 million tonnes
at 0.67% Cu and 0.08 g/t Au, 657 million tonnes at 0.61% Cu, and 235 million
tonnes at 0.52% Cu and 0.17 g/t Au, respectively.
Page 14 of 14
DOCUMENT 2
Corriente Resources Inc.
(A Development Stage Enterprise)
Interim Consolidated Financial Statements
June 30, 2006
(Unaudited)
CORRIENTE RESOURCES INC. GRAPHIC OMITTED]
August 10, 2006
Message to Shareholders
Approval of our Environmental Impact Assessment for the Mirador project and the
successful closing of a $125 Million equity issue were the highlights of the
second quarter of 2006 for the Company. Achievement of these two significant
milestones has allowed Corriente to stay on track for a Mirador project
construction decision later in 2006. Detailed design and engineering studies
under the direction of SNC-Lavalin continued during the quarter and are designed
to provide the necessary detailed inputs for the Mirador project execution plan,
which is currently being finalized. Additionally, Corriente is progressing well
in the areas of project staffing, power, port facilities and (non-equity)
project financing.
Drilling was completed during the second quarter on Mirador Norte. The results
are being reviewed by Mine Development Associates of Reno, Nevada with the
intention of producing a resource assessment for the Mirador Norte project in
the next few months. Mirador Norte is less than 3 km from Mirador and has the
potential to contribute significantly to the Mirador mine's planning
alternatives and related cash flows.
Drilling has also commenced on Corriente's Panantza project (45 km to the north
of the Mirador project). The objective of this drilling program is to provide
additional data regarding the deposit to allow for a major upgrade to
Corriente's existing resource estimate. Following completion of additional
drilling at its San Carlos project (in close proximity to the Panantza project),
Corriente plans to subject the resources for these two projects to a feasibility
study to justify the development of a second major copper mining and
concentrator operation in the northern part of the Corriente Copper Belt.
The copper market continues to show strength and prices remain well above
decades long averages and also well above current elevated copper production
costs. We believe that this higher priced copper environment will be difficult
to change in the short term as new sources of copper, which have long
development lead times, will require such commodity pricing in order to be
feasibly developed.
Against these promising backdrops, Corriente expects to have one of the few new
copper projects to be commissioned worldwide in the next 2 to 3 years, along
with a substantial pipeline of new resources under development.
On behalf of the Board,
Kenneth R. Shannon
Chief Executive Officer
Corriente Resources Inc.
(a development stage enterprise)
Consolidated Balance Sheets
- -----------------------------------------------------------------------------------------------------------
(expressed in Canadian dollars)
June 30, December 31,
2006 2005
(Unaudited) (Audited)
----------------------------------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 140,092,509 $ 32,440,690
Accounts receivable and prepaid expenses 732,985 187,746
----------------------------------------------------------------------------------------------------------
140,825,494 32,628,436
Mineral properties (note 3) 41,841,643 34,205,955
Property, plant and equipment (note 4) 437,283 265,617
Other assets (note 5) 3,370,409 -
----------------------------------------------------------------------------------------------------------
$ 186,474,829 $ 67,100,008
==========================================================================================================
Liabilities
Current liabilities
Accounts payable and accrued liabilities (note 7) $ 470,121 $ 976,244
----------------------------------------------------------------------------------------------------------
Shareholders' Equity
Share capital (note 6 (b)) 233,079,485 112,367,655
Options (note 6 (c)) 1,751,669 2,622,248
Contributed surplus 930,660 930,660
Deficit accumulated during the exploration stage (49,757,106) (49,796,799)
----------------------------------------------------------------------------------------------------------
186,004,708 66,123,764
----------------------------------------------------------------------------------------------------------
$ 186,474,829 $ 67,100,008
==========================================================================================================
Approved by the Board of Directors
"David G. Unruh" Director "Richard P. Clark" Director
- ----------------------- -------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
Corriente Resources Inc.
(a development stage enterprise)
Consolidated Statements of Changes in Shareholders' Equity
For the six months ended June 30, 2006 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
(expressed in Canadian dollars)
Common Shares Estimated Fair Value
------------------------- ----------------------- Deficit
accumulated
Share during the Total
Share Purchase Contributed exploration Shareholders'
Number Capital Options Warrants Surplus stage Equity
- ------------------------------------ ------------ ------------ ------------ ---------- ------------ -------------- --------------
Since inception:
Common shares issued for cash, net
of issue costs 24,169,872 $ 52,994,066 $ - $ - $ - $ - $ 52,994,066
Common shares issued for mineral
properties and settlement of debt 6,621,477 6,554,554 - - - - 6,554,554
Net fair value of warrants issued - - - 501,051 676,407 - 1,177,458
Stock based compensation expense
on unexercised vested options - - 644,665 - - - 644,665
Net losses since inception - - - - - (45,056,506) (45,056,506)
- ------------------------------------ ------------ ------------ ------------ ---------- ------------ -------------- --------------
Balance at December 31, 2002 30,791,349 59,548,620 644,665 501,051 676,407 (45,056,506) 16,314,237
- ------------------------------------ ------------ ------------ ------------ ---------- ------------ -------------- --------------
Common shares issued for cash
pursuant to private placements,
net of issue costs 7,750,000 15,959,370 - - - - 15,959,370
Common shares issued for cash
pursuant to exercise of warrants 2,239,946 2,380,513 - - - - 2,380,513
Common shares issued for cash
pursuant to exercise of options 575,000 463,250 - - - - 463,250
Common shares issued for mineral
property interests 250,000 232,500 - - - - 232,500
Fair value of warrants issued
(note 5 (d)) - - - 96,455 - - 96,455
Fair value of options exercised
(note 5 (c)) - 286,608 (286,608) - - - -
Fair value of warrants exercised
(note 5 (d)) - 170,326 - (170,326) - - -
Fair value of warrants expired
(note 5 (d)) - - - (254,253) 254,253 - -
Stock based compensation expense
on unexercised vested options - - 762,558 - - - 762,558
Net loss for the year ended
December 31, 2003 - - - - - (682,092) (682,092)
- ------------------------------------ ------------ ------------ ------------ ---------- ------------ -------------- --------------
Balance at December 31, 2003 41,606,295 79,041,187 1,120,614 172,927 930,660 (45,738,598) 35,526,790
- ------------------------------------ ------------ ------------ ------------ ---------- ------------ -------------- --------------
Common shares issued for cash
pursuant to exercise of warrants 3,500,098 3,928,512 - - - - 3,928,512
Common shares issued for cash
pursuant to exercise of options 315,000 304,350 - - - - 304,350
Fair value of options exercised
(note 5 (c)) - 174,876 (174,876) - - - -
Fair value of warrants exercised
(note 5 (d)) - 76,472 - (76,472) - - -
Stock based compensation expense
on unexercised vested options - - 709,424 - - - 709,424
Net loss for the year ended
December 31, 2004 - - - - - (714,062) (714,062)
- ------------------------------------ ------------ ------------ ------------ ---------- ------------ -------------- --------------
Balance at December 31, 2004 45,421,393 83,525,397 1,655,163 96,455 930,660 (46,452,660) 39,755,015
- ------------------------------------ ------------ ------------ ------------ ---------- ------------ -------------- --------------
The accompanying notes are an integral part of these consolidated
financial statements.
Corriente Resources Inc.
(a development stage enterprise)
Consolidated Statements of Changes in Shareholders' Equity
For the six months ended June 30, 2006 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
(expressed in Canadian dollars)
Common Shares Estimated Fair Value
------------------------- ----------------------- Deficit
accumulated
Share during the Total
Share Purchase Contributed exploration Shareholders'
Number Capital Options Warrants Surplus stage Equity
- ------------------------------------ ------------ ------------ ------------ ---------- ------------ -------------- --------------
Balance at December 31, 2004 45,421,393 83,525,397 1,655,163 96,455 930,660 (46,452,660) 39,755,015
- ------------------------------------ ------------ ------------ ------------ ---------- ------------ -------------- --------------
Common shares issued for cash
pursuant to private placements,
net of issue costs 7,605,000 27,853,364 - - - - 27,853,364
Common shares issued for cash
pursuant to exercise of options 475,000 435,250 - - - - 435,250
Common shares issued for cash
pursuant to exercise of warrants 250,000 200,000 - - - - 200,000
Fair value of options exercised
(note 5 (c)) - 257,189 (257,189) - - - -
Fair value of warrants exercised
(note 5 (d)) - 96,455 - (96,455) - - -
Stock based compensation expense
on unexercised vested options
(note 5 ( c)) - - 1,224,274 - - - 1,224,274
Net loss for the year ended
December 31, 2005 - - - - - (3,344,139) (3,344,139)
- ------------------------------------ ------------ ------------ ------------ ---------- ------------ -------------- --------------
Balance at December 31, 2005 53,751,393 112,367,655 2,622,248 - 930,660 (49,796,799) 66,123,764
- ------------------------------------ ------------ ------------ ------------ ---------- ------------ -------------- --------------
Common shares issued for cash
pursuant to private placements,
net of issue costs 19,231,000 117,735,560 - - - - 117,735,560
Common shares issued for cash
pursuant to exercise of options 1,555,000 1,991,300 - - - - 1,991,300
Fair value of options exercised
(note 5 (c)) - 984,970 (984,970) - - - -
Stock based compensation expense
on unexercised vested options
(note 5 ( c)) - - 114,391 - - - 114,391
Net gain for the period ended June
30, 2006 - - - - - 39,693 39,693
- ------------------------------------ ------------ ------------ ------------ ---------- ------------ -------------- --------------
Balance at June 30, 2006 74,537,393 $233,079,485 $ 1,751,6$9 $ - $ 930,660 $ (49,757,106) $ 186,004,708
==================================== ============ ============ ============ ========== ============ ============== ==============
Corriente Resources Inc.
(a development stage enterprise)
Consolidated Statements of Loss and Deficit
For the six months ended June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
(expressed in Canadian dollars)
Three months ended June 30, Six months ended June 30,
2006 2005 2006 2005
- --------------------------------------------------------------------------------------------------------------------------------
Administration
Management fees, wages and benefits $ 210,228 $ 103,111 $ 426,423 $ 206,302
Legal and accounting 253,349 19,140 269,758 41,802
Regulatory fees 130,177 5,000 189,842 39,245
Corporate development and shareholder expenses 87,427 90,443 134,254 134,118
Stock-based compensation (note 6 (c)) 61,809 148,302 114,391 215,356
Office and related 65,573 42,445 111,462 83,252
Travel 30,746 18,300 47,595 38,535
Consultants 33,615 33,615
Depreciation 5,507 3,857 8,954 7,052
- --------------------------------------------------------------------------------------------------------------------------------
878,431 430,598 1,336,294 765,662
- --------------------------------------------------------------------------------------------------------------------------------
Other
Interest income (753,238) (53,267) (1,020,518) (124,347)
Gain on sale of marketable securities (note 9) (336,253) (336,253) (265,318)
Foreign exchange (gain) (33,006) (7,823) (55,137) (10,274)
General exploration 16,699 8,263 35,921 8,372
Gain on sale of assets (1,882,000)
Write-down of marketable securities 176,000
- --------------------------------------------------------------------------------------------------------------------------------
(1,105,798) (52,827) (1,375,987) (2,097,567)
- --------------------------------------------------------------------------------------------------------------------------------
Loss (earnings) for the period (227,367) 377,771 (39,693) (1,331,905)
Deficit - beginning of period 49,984,473 44,742,984 49,796,799 46,452,660
- --------------------------------------------------------------------------------------------------------------------------------
Deficit - end of period $ 49,757,106 $ 45,120,755 $ 49,757,106 $ 45,120,755
================================================================================================================================
Basic and diluted loss (earnings) per share $ (0.00) $ 0.01 $ 0.00 $ (0.03)
================================================================================================================================
Weighted average number of shares outstanding 58,639,879 46,134,726 58,382,283 45,539,625
================================================================================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
Corriente Resources Inc.
(an development stage enterprise)
Consolidated Statements of Cash Flows
For the six months ended June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
(expressed in Canadian dollars)
Three months ended June 30, Six months ended June 30,
2006 2005 2006 2005
- --------------------------------------------------------------------------------------------------------------------------------
Cash from (applied to) operating activities:
Earnings (loss) for the period 227,367 (377,771) 39,693 1,331,905
Items not affecting cash
Stock-based compensation 61,809 148,302 114,391 215,356
Depreciation 5,507 3,857 8,954 7,052
Shares received on sale of assets - - - (1,882,000)
Loss (gain) on sale of marketable securities - - - (265,318)
Write-down of marketable securities - - - 176,000
Changes in non-cash working capital
Accounts receivable and advances (509,328) 85,471 (545,238) (37,929)
Accounts payable and accrued liabilities (216,172) 145,719 (506,123) 43,799
- --------------------------------------------------------------------------------------------------------------------------------
(430,817) 5,578 (888,323) (411,135)
- --------------------------------------------------------------------------------------------------------------------------------
Investing activities
Mineral property costs (4,734,888) (2,742,331) (7,577,191) (5,065,467)
Deposit (3,370,409) - (3,370,409)
Payments to acquire property, plant and equipment (152,224) (54,434) (239,118) (63,017)
Deferred power project costs - (482,167) - (958,103)
Proceeds from sale of marketable securities - - - 819,318
- --------------------------------------------------------------------------------------------------------------------------------
(8,257,521) (3,278,932) (11,186,718) (5,267,269)
- --------------------------------------------------------------------------------------------------------------------------------
Financing activities
Proceeds from issuance of share capital, net of issue
costs 118,937,860 413,850 119,726,860 413,850
- --------------------------------------------------------------------------------------------------------------------------------
118,937,860 413,850 119,726,860 413,850
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 110,249,522 (2,859,504) 107,651,819 (5,264,554)
Cash and cash equivalents - beginning of period 29,842,987 10,197,777 32,440,690 12,602,827
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of period 140,092,509 7,338,273 140,092,509 7,338,273
================================================================================================================================
Supplemental cash flow information (note 9)
The accompanying notes are an integral part of these
consolidated financial statements.
Corriente Resources Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
(expressed in Canadian dollars)
1 Nature of operations
Corriente Resources Inc. and its subsidiaries (collectively, "Corriente"
or "the company") are engaged in the exploration and development of
mineral properties primarily in Ecuador, South America. The company
considers itself to be an exploration and development stage company.
The business of mining and exploring for minerals involves a high degree
of risk and there can be no assurance that current exploration and
development programs will result in profitable mining operations. The
recoverability of amounts shown for mineral properties is dependent upon
the discovery of economically recoverable reserves, the ability of the
company to obtain financing to complete their development and future
profitable operations or sale of the properties.
2 Significant accounting policies
Basis of presentation
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada. They do not
include all of the information and disclosures required by Canadian GAAP
for annual audited financial statements. In the opinion of management, all
adjustments considered necessary for fair presentation have been included
in these financial statements. The interim consolidated financial
statements should be read in conjunction with the company's audited
consolidated financial statements including the notes thereto for the year
ended December 31, 2005.
3 Mineral properties
Corriente Copper Belt, Ecuador
Under various agreements signed with certain Ecuadorian subsidiaries of
BHP Billiton LLC ("BHP Billiton"), the company has earned a 100% interest
in BHP Billiton's resource properties located in the Rio Zamora copper
porphyry district (Corriente Copper Belt), in Ecuador. This required the
issue of shares to BHP Billiton and the expenditure of exploration funds
under the terms of these agreements. Additionally, these resource
properties are subject to a 2% Net Smelter Royalty ("NSR") payable to BHP
Billiton, though the company has options to reduce the NSR to 1% for the
Mirador/Mirador Norte, Panantza and San Carlos resource properties upon
the payment of US$2 million to BHP Billiton for each such option
exercised.
1
Corriente Resources Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
(expressed in Canadian dollars)
Following is a summary of the company's deferred mineral property
expenditures.
Corriente Copper Belt Mirador/ Panantza / San Other Total
Mirador Norte Carlos (1)
- ----------------------------------------------------- ----------------- ---------------- ---------------- -----------------
Balance December 31, 2005 $ 28,683,887 $ 3,704,723 $ 1,817,345 $ 34,205,955
Option / acquisition payments 1,272,274 - - 1,272,274
Deferred exploration and development costs 6,042,355 308,378 12,681 6,363,414
- ----------------------------------------------------- ----------------- ---------------- ---------------- -----------------
Balance June 30, 2006 $ 35,998,516 $ 4,013,101 $ 1,830,026 $ 41,841,643
===================================================== ================= ================ ================ =================
(1) - comprised of the La Florida, San Luis, San Marcos, San Miguel, Sutzu
and Trinidad copper and copper-gold exploration targets in the Corriente
Copper Belt
4 Property, plant and equipment
Accumulated
Cost Depreciation Net
--------------------------------------------------------------------------------------------------------------------
Computer equipment $ 315,373 $ 173,751 $ 141,622
Vehicles 237,762 64,128 173,634
Office furniture and equipment 146,064 64,295 81,769
Field equipment 60,331 27,594 32,737
Communications equipment 18,284 10,763 7,521
--------------------------------------------------------------------------------------------------------------------
$ 777,814 $ 340,531 $ 437,283
====================================================================================================================
5 Other assets
As a requirement of the Ecuadorian Ministry of Energy and Mining (MEM) to
approve the Mirador mine development project's Environmental Impact
Assessment (EIA), the company was required to post a deposit in the amount
of $3,370,409 (USD $3,019,539), in order to provide a bank warranty in
favour of the MEM.
2
Corriente Resources Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
(expressed in Canadian dollars)
6 Share capital
a) Authorized
100,000,000 common shares without par value
b) Issued
See Consolidated Statements of Changes in Shareholders' Equity. On
May 25, 2006, the company completed a brokered private placement of
19,231,000 common shares at a price of $6.50 per share pursuant to
its short form prospectus dated May 8, 2006 to raise gross proceeds
of $125,001,500 before issue costs of $7,265,940.
c) Stock options
The company has in place an incentive stock option plan dated
November 1996, as amended (the "Option Plan") for directors,
officers, employees, and consultants to the company and its
subsidiaries. The Option Plan provides that the directors of the
company may grant options to purchase common shares on terms that
the directors may determine, within the limitations of the Option
Plan. The number of common shares available for the grant of options
under the Option Plan and all other share compensation arrangements
of the company is set at a rolling maximum number that shall not be
greater than 10% of the company's current outstanding share capital
at any given time. The exercise price of each option cannot be lower
than the market price of the shares at the date of grant of the
option. As at June 30, 2006, options to purchase a total of
1,995,000 shares were outstanding, 1,350,000 of which were
exercisable.
For the period ended June 30, 2006, the company recorded the
estimated fair value of the 50,000 (2005 - 100,000) options which
vested, as stock-based compensation expense of $114,391 (2005 -
$215,356). Stock-based compensation expense for options is
determined based on estimated fair values of the options at the time
of grant, the cost of which is recognized on a straight line basis
over the vesting period of the respective options and grants. The
fair value of the stock options is estimated using the Black-Scholes
Option Pricing Model with the following assumptions:
Risk-free interest rate 3.87 - 4.16%
Expected dividend yield -
Expected stock price volatility 66 - 67%
Expected option life in years 3
Option pricing models require the input of highly subjective
assumptions including the expected price volatility. Changes in the
subjective input assumptions can materially affect the fair value
estimate, and therefore the existing models do not necessarily
provide a reliable measure of the fair value of the company's stock
options. The fair value assigned to the stock options exercised is
credited to share capital.
During the six month period ended June 30, 2006, 1,555,000 stock
options were exercised for proceeds of $1,991,300.
3
Corriente Resources Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
June 30, 2006 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
(expressed in Canadian dollars)
Weighted
Exercise Assigned Average
Number of Price Fair Value Price
options $ Expiry dates $ $
--------------- ----------- ----------------------- ---------------- -------------
Options outstanding and
exercisable - December
31, 2005 2,855,000 2,622,248 1.89
--------------- ---------------- -------------
Exercised (25,000) 1.14 March 5, 2006 (15,903)
Exercised (605,000) 0.90 May 28, 2006 (265,880)
Exercised (480,000) 0.89 July 28, 2006 (224,802)
Exercised (155,000) 1.28 September 10, 2006 (101,652)
Exercised (100,000) 3.32 February 9, 2007 (158,389)
Exercised (30,000) 3.25 September 28, 2007 (47,629)
Exercised (160,000) 2.27 July 25, 2008 (170,715)
Granted and exercisable 25,000 4.50 January 23, 2009 52,582
Granted and exercisable 25,000(1) 5.25 February 3, 2011 61,809
--------------- ----------------
(1,505,000) (870,579)
--------------- ----------------
Options outstanding and
exercisable - June 30,
2006 1,350,000 1,751,669 2.71
--------------- ---------------- -------------
Granted but unexercisable 375,000(1) 5.25 February 3, 2011 927,137
Granted but unexercisable 60,000(2) 5.50 May 22, 2011 155,319
Granted but unexercisable 85,000(2) 5.35 June 1, 2011 214,325
Granted but unexercisable 125,000(3) 5.35 June 1, 2011 315,185
----------------- ------------------------------
Options outstanding - June
30, 2006 1,995,000 3,363,635 3.55
===================================================================================
(1) Options vest on the basis of 1/16th of the total each quarter from the
grant date, with such vesting being accelerated based on the attainment of
clearly identified milestones.
(2) Options vest on the basis of 50% of the total granted after 12 months
from the grant date, 75% of the total granted after 18 months from the
grant date and 100% of the total granted after 24 months from the grant
date
(3) Options vest on the basis of 1/16th of the total each quarter from the
grant date
4
Corriente Resources Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
June 30, 2006 (Unaudited)
- -------------------------------------------------------------------------------
(expressed in Canadian dollars)
The following table summarizes the stock options outstanding and
exercisable at June 30, 2006:
Exercise Options Remaining Options Remaining
prices outstanding and contractual life outstanding at contractual life
exercisable at (years) June 30, 2006 (years)
June 30, 2006
----------------- ---------------------- ------------------------- ---------------------- -------------------
$ 1.28 155,000 0.2 155,000 0.2
3.32 175,000 0.6 175,000 0.6
3.16 100,000 0.9 100,000 0.9
3.55 100,000 1.1 100,000 1.1
3.25 10,000 1.2 10,000 1.2
2.15 100,000 1.9 100,000 1.9
2.27 360,000 2.1 360,000 2.1
2.99 300,000 2.2 300,000 2.2
4.50 25,000 2.6 25,000 2.6
5.25 25,000 4.6 400,000 4.6
5.50 - - 85,000 4.9
5.35 - - 125,000 4.9
5.35 - - 60,000 4.9
----------------- ---------------------- ------------------------- ---------------------- -------------------
1,350,000 1.6 1,995,000 2.6
================= ====================== ========================= ====================== ===================
7 Related party transactions and balances
Included in management fees, wages and benefits are expenditures of $Nil
(2005 - $48,599) for the period ended June 30, 2006 in respect of
administrative and technical services provided by a company affiliated
with an employed officer. At June 30, 2006 $Nil (2005 - $11,207) was due
to this company affiliated with an employed officer. Also included in
management fees, wages and benefits are directors fees of $134,130 (2005 -
$26,400) for the period ended June 30, 2006.
8 Segmented information
The company operates within a single operating segment, which is mineral
exploration and development. The company's mineral property interests are
in Ecuador, South America, as set out in note 3. Geographic segmentation
of mineral properties, property, plant and equipment is as follows:
June 30, 2006 December 31, 2005
----------------------------------- -----------------------------------
Property, Property,
Mineral plant and Mineral plant and
properties equipment properties equipment
Canada $ - $ 73,941 $ - 48,128
Ecuador 41,841,643 363,342 34,205,955 217,489
-------------------------------------------------------------------------------------------
$ 41,841,643 $ 437,283 $ 34,205,955 265,617
===========================================================================================
5
Corriente Resources Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
June 30, 2006 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------
(expressed in Canadian dollars)
9 Supplemental cash flow information
Cash and cash equivalents comprise the following:
June 30, December 31,
2006 2005
------------------- -------------------
Cash on hand and balances with banks $ 1,103,803 $ (16,750)
Short-term investments 138,988,706 32,457,440
----------------------------------------
$ 140,092,509 $ 32,440,690
========================================
During the periods ended June 30, 2006 and 2005, the company conducted
non-cash operating, investing and financing activities as follows:
2006 2005
------------------- -------------------
Mineral properties - non-cash deferred exploration $ (58,498) $ (22,555)
------------------- -------------------
Marketable securities received from sale of subsidiary company $ - $ 1,882,000
------------------- -------------------
10 Financial instruments
The company does not use any derivative financial instruments.
At June 30, 2006 the carrying value of cash and cash equivalents,
short-term investments, accounts receivable, accounts payable and accrued
liabilities approximate their fair values based on the short-term nature
of the instruments.
As at June 30, 2006, the company held no marketable securities (2005
$1,706,000).
6
DOCUMENT 3
FORM 52-109F2 - CERTIFICATION OF INTERIM FILINGS
I, Kenneth R. Shannon, Chief Executive Officer of Corriente Resources Inc.,
certify that:
1. I have reviewed the interim filings (as this term is defined in
Multilateral Instrument 52-109 Certification of Disclosure in Issuers'
Annual and Interim Filings) of Corriente Resources Inc. (the "Issuer")
for the period ending June 30, 2006;
2. Based on my knowledge, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading
in light of the circumstances under which it was made, with respect to
the period covered by the interim filings; and
3. Based on my knowledge, the interim financial statements together with
the other financial information included in the interim filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the Issuer, as of the date and for the
periods presented in the interim filings;
4. The Issuer's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures for
the Issuer, and we have designed such disclosure controls and
procedures, or caused them to be designed under our supervision, to
provide reasonable assurance that material information relating to the
Issuer, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in
which the interim filings are being prepared.
Date: August 10, 2006
"Kenneth R. Shannon"
- --------------------------
Kenneth R. Shannon
Chief Executive Officer
DOCUMENT 4
I, Darryl F. Jones, Chief Financial Officer of Corriente Resources Inc.,
certify that:
1. I have reviewed the interim filings (as this term is defined in
Multilateral Instrument 52-109 Certification of Disclosure in Issuers'
Annual and Interim Filings) of Corriente Resources Inc. (the "Issuer")
for the period ending June 30, 2006;
2. Based on my knowledge, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading
in light of the circumstances under which it was made, with respect to
the period covered by the interim filings; and
3. Based on my knowledge, the interim financial statements together with
the other financial information included in the interim filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the Issuer, as of the date and for the
periods presented in the interim filings;
4. The Issuer's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures for
the Issuer, and we have designed such disclosure controls and
procedures, or caused them to be designed under our supervision, to
provide reasonable assurance that material information relating to the
Issuer, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in
which the interim filings are being prepared.
Date: August 10, 2006
"Darryl F. Jones"
- ---------------------------
Darryl F. Jones
Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CORRIENTE RESOURCES INC.
---------------------------------------
(Registrant)
Date: August 16, 2006 By: /S/ DARRYL F. JONES
---------------------- -----------------------------------
Name: Darryl F. Jones
Title: Chief Financial Officer