UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[ ] Registration Statement pursuant to Section 12(b) or (g) of the
Securities Exchange Act of 1934
or
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2002
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
Commission file number: 0-30464
IMA EXPLORATION INC.
(Exact name of Registrant as specified in its charter)
IMA EXPLORATION INC.
(Translation of Registrant's name into English)
BRITISH COLUMBIA
(Jurisdiction of incorporation or organization)
#709 - 837 WEST HASTINGS STREET, VANCOUVER, BRITISH COLUMBIA, V6C 3N6
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
NONE
Securities registered or to be registered pursuant to Section 12(g) of the Act.
COMMON SHARES, NO PAR VALUE
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
NOT APPLICABLE
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of December 31, 2002.
26,550,606 COMMON SHARES AS OF DECEMBER 31, 2002
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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.
Yes X No
--------- ---------
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 X Item 18
--------- ----------
1
GENERAL INFORMATION:
UNLESS OTHERWISE INDICATED, ALL REFERENCES HEREIN ARE TO CANADIAN DOLLARS.
GLOSSARY OF TERMS
GENERAL TERMS
ARGILLIC ALTERATION: Development of secondary clay minerals by
weathering or hydrothermal activity.
BRECCIA: A rock containing generally angular fragments
of itself or some other rock.
CATEO: In Argentina, a cateo is an exploration
concession granted for a period of up to
1,100 days. In areas where field work seasons
are limited, only the available field season
will be considered in determining the 1,100
days. A cateo gives the holder the exclusive
right to explore the area, subject to certain
pre-existing rights of owners of mines within
the area and abutting owners of cateos.
Through the process of exploration, the owner
of the cateo may make and file
"manifestations" of discovery (see below) and
petition the mining authority for the
granting of mines (see below). A cateo may be
up to 10,000 hectares in size. A single legal
person may not hold more than 20 cateos or
200,000 hectares of cateos in any one
province. When the cateo is officially
granted, a one time payment of about US $0.35
( Pesos $0.80 ) per hectare is required.
CLASTIC: Rock components consisting of fragments
derived by mechanical erosion of pre-existing
rocks.
COLOR ANOMALY: An atypical or unusual color pattern visible
on air photos or satellite images of rock
outcrop areas, often caused by hydrothermal
alteration.
G/T: grams per tonne
HYDROTHERMAL ALTERATION: Those chemical and mineral changes resulting
from the interaction of hot water solutions
with pre-existing solid mineral phases.
Ignimbrite: Pumice-dominated pyroclastic flow deposits
with subordinate ash.
INTRUSIVE ROCKS: A body of rock, that while fluid, penetrated
into or between other rocks, but solidified
before reaching the surface.
KM: Kilometer
M: Meter
MAFIC: Dark colored, generally iron or magnesium
rich, rock or mineral.
MANIFESTATIONS: In Argentina, manifestations or "manifest-
aciones" of discovery are official notices
filed with the mining authority indicating
that the person filing (who must be the owner
of the cateo in an area covered by a cateo)
has made a discovery. The filing and
acceptance by the mining authority of such a
notice, constitutes the first step in
converting a discovery to a mine (see below).
A manifestation of discovery may cover one or
more claims in the case of either a vein or
disseminated deposit. The size of the
manifestations and the annual payments
required of the owner is the same as those
for a mine.
MINE: In Argentina, a mine or "mina" is a real
property interest. It is a right of
exploration granted on a permanent basis
after the completion of an official
2
survey for as long as the right is diligently
utilized and semi-annual payments of US$17.50
(Pesos $40) per claim are made. A mine may
consist of one or several claims or
"pertinencias". In the case of vein deposits,
each claim is a maximum of 200 by 300 meters
or six hectares; for disseminated deposits,
each claim is up to one square kilometer or
100 hectares.
PORPHYRY: An igneous rock containing mineral crystals
that are visibly larger than other crystals
of the same or different composition.
PPB: parts per billion
PPM: parts per million
SATELLITE IMAGERY: Maps or images produced from data collected
by satellite displaying wavelength and
intensity variations of visible and infrared
radiation reflected from the Earth's surface.
SCREE: A slope of loose rock debris at the base of a
steep incline or cliff.
SEDIMENTARY ROCKS: Descriptive term for a rock formed of
sediment, namely solid material both mineral
and organic, deposited from suspension in a
liquid.
STREAM SEDIMENT SAMPLE: A sample of fine sediment derived from the
mechanical action of the stream.
SKARN A style of alteration characterized by iron
and magnesium bearing aluminosilicate
materials such as garnet and diopside.
SUBVOLCANIC: An intrusive body emplaced close to the
earth's surface within a volcano.
SULFIDE: A compound of sulfur combined with one or
more metallic or semi-metallic elements.
VEINS: An occurrence of minerals, having been
intruded into another rock, forming tabular
shaped bodies.
ELEMENTS:
AG: Silver
AS: Arsenic
AU: Gold
BA: Barium
CO: Cobalt
CU: Copper
MO: Molybdenum
PB: Lead
SB: Antimony
ZN: Zinc
3
MINERALS:
BIOTITE: An iron and magnesium bearing mica mineral.
CARBONATE: A mineral containing the radical CO3.
CHALCOPYRITE: A sulfide mineral containing copper and iron.
DIOPSIDE: A magnesium rich pyroxene mineral.
FELDSPAR: An aluminosilicate with variable amounts of
potassium, sodium and calcium.
GYPSUM: A calcium sulphate mineral, a common mineral
of evaporates.
HEMATITE: An iron oxide mineral.
HORNBLENDE: A complex hydrated aluminosilicate of
magnesium, iron and sodium.
MAGNETITE: A magnetic iron oxide mineral.
MICA: A mineral with a strongly defined platey
structure.
PLAGIOCLASE: A calcium-rich feldspar mineral.
PYRITE: An iron sulfide mineral.
PYROXENE: An aluminosilicate of magnesium and iron.
PYRRHOTITE: A magnetic sulfide of iron.
ROCK TYPES:
ANDESITE: A volcanic rock with the principal minerals
being plagioclase.
CONGLOMERATE: A clastic sedimentary rock containing rounded
fragments of gravel or pebble size.
DACITE: A volcanic or shallow intrusive rock with the
principal minerals being plagioclase, quartz
and one or more mafic constituents.
DIORITE: An intrusive rock composed essentially of
sodic plagioclase, hornblende, biotite, or
pyroxene.
LIMESTONE: A sedimentary rock consisting chiefly of
calcium carbonate.
SANDSTONE: A clastic sedimentary rock composed largely
of sand-sized grains, principally quartz.
SHALE: A clastic sedimentary rock derived from very
fine-grained sediment (mud).
SILTSTONE: A clastic sedimentary rock similar to shale
except comprised of slightly coarser material
(silt).
TUFF: A rock formed of compacted volcanic
fragments, generally smaller than 4mm in
diameter.
4
PART I
ITEM 1. DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.
--------------------------------------------------------------------------------
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
--------------------------------------------------------------------------------
Not applicable.
ITEM 3. KEY INFORMATION.
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SELECTED FINANCIAL DATA
The selected financial data of IMA Exploration Inc. (the "Company") for the
years ended December 31, 2002, 2001 and 2000 was derived from the consolidated
financial statements of the Company which have been audited by
PricewaterhouseCoopers LLP, independent Chartered Accountants, as indicated in
their report which is included elsewhere in this annual report. The selected
financial data set forth for the years ended December 31, 1999 and 1998 are
derived from the Company's audited consolidated financial statements, not
included herein.
The information in the following table was extracted from the more detailed
consolidated financial statements and related notes included herein and should
be read in conjunction with such financial statements and with the information
appearing under the heading "Item 5. Operating and Financial Review and
Prospects".
Reference is made to Note 10 of the consolidated financial statements of the
Company included herein for a discussion of the material measurement differences
between Canadian Generally Accepted Accounting Principles ("Canadian GAAP") and
United States Generally Accepted Accounting Principles ("U.S. GAAP"), and their
effect on the Company's financial statements.
To date, the Company has not generated sufficient cashflow from operations to
fund ongoing operational requirements and cash commitments. The Company has
financed its operations principally through the sale of its equity securities.
The Company considers that it has adequate resources to maintain its operations
and will require additional financing for planned exploration and property
acquisitions for the remainder of 2003. See "Item 5. Operating and Financial
Review and Prospects".
CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CDN$ IN 000, EXCEPT PER SHARE DATA)
-----------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
Revenue $0 $0 $0 $0 $0
General Corporate
Expenditures (1,278) (836) (1,066) (941) (862)
General Exploration
Expenditures (180) (110) (137) (160) (157)
Foreign Exchange Gain (8) 17 (9) (25) 42
(Loss)
5
-----------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
Interest and
Miscellaneous Income 27 97 157 47 97
Provision for
Marketable Securities - (22) (179) (417) -
Gain (Loss) on Sale of
Marketable Securities - (7) - (162) 53
Write-off of Mineral
Properties - (21) (790) (99) (96)
Gain on Exchange of
Minas Barbados - - - - 2,107
Equity Interests in
Affiliated Companies - - - - (683)
Net Income (Loss) (1,440) (882) (2,024) (1,746) 499
Earnings (Loss) per
Share
Basic (0.06) (0.06) (0.17) (0.23) 0.12
Diluted (0.06) (0.06) (0.17) (0.23) 0.11
Weighted Average
Number of Shares
Outstanding 23,188 15,104 11,939 7,567 4,157
Working Capital 1,431 733 1,435 1,261 1,660
(Deficiency)
Capital Assets 46 57 74 90 89
Mineral Properties 5,848 4,581 3,282 2,083 714
Long-Term Debt - - - - -
Total Assets 7,432 5,487 4,980 3,602 2,729
Net Assets -
Shareholder's
Equity 7,324 5,372 4,790 3,434 2,628
ADJUSTED TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Under U.S. GAAP the following financial information would be adjusted from
Canadian GAAP (references are made to Note 10 of the accompanying consolidated
audited financial statements):
6
(CDN$ IN 000, EXCEPT PER SHARE DATA)
2002 2001 2000 1999 1998
CONSOLIDATED STATEMENT
OF OPERATIONS
Earnings (Loss) for
the year under
Canadian GAAP $(1,440) $(882) $(2,054) $(1,746) $499
Mineral property and
deferred exploration
costs for the year (1,267) (1,321) (1,989) (786) (224)
Mineral property and
deferred exploration
costs acquired from
acquisition of IMPSA - - - (682) -
Mineral property and
deferred exploration
costs written off
during the year which
would have been
expensed in the year
incurred - 22 790 99 96
Mineral property and
deferred exploration
costs disposed of
during the year which
would have been
expensed in the year
incurred - - - - 2,933
Stock-based
compensation (102) - - - -
Earnings (Loss) for
the year under US GAAP
before comprehensive
income adjustments $(2,809) $(2,181) $(3,224) $(3,115) $3,305
7
2002 2001 2000 1999 1998
Unrealized gains on
available-for-sale
securities 55 - - (82) 82
-----------------------------------------------------------------------------
Comprehensive
Income (Loss) $(2,754) $(2,181) $(3,224) $(3,197) $3,387
=============================================================================
Earnings (Loss) per
share under US GAAP $(0.12) $(0.14) $(0.26) $(0.36) $0.80
=============================================================================
Diluted Earnings
(Loss) per share under
US GAAP $(0.12) $(0.14) $(0.26) $(0.36) $0.79
=============================================================================
2002 2001 2000 1999 1998
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Balance per Canadian
GAAP $7,324 $5,372 $4,790 $3,435 $2,628
Mineral property and
deferred exploration
costs expensed (5,848) (4,581) (3,282) (2,083) (714)
Unrealized gains on
available-for-sale
securities - - - - 82
Accumulated other
comprehensive income 54 - - - -
----------------------------------------------------------------------------
Balance per US
GAAP $1,530 $790 $1,508 $1,352 $1,996
============================================================================
MINERAL PROPERTIES AND
RELATED DEFERRED COSTS
Balance per Canadian
GAAP $5,848 $4,581 $3,282 $2,083 $714
Mineral Property
exploration costs and
expenses per US GAAP $(5,848) $(4,581) $(3,282) $(2,083) $(714)
-----------------------------------------------------------------------------
BALANCE PER US
GAAP $- $- $- $- $-
=============================================================================
8
2002 2001 2000 1999 1998
CONSOLIDATED
STATEMENTS OF CASH
FLOWS
OPERATING ACTIVITIES
Cash (used) provided
per Canadian GAAP $(1,306) $(898) $(987) $(1,567) $(867)
Mineral property and
exploration
expenditures (1,267) (1,321) (1,989) (786) (224)
Mineral property and
exploration
expenditures - IMPSA - - - (650) -
Cash used per US GAAP $(2,573) $(2,219) $(2,976) $(3,003) $(1,091)
INVESTING ACTIVITIES
Cash used per Canadian
GAAP $(1,278) $(1,312) $(2,004) $(373) $(396)
Mineral property and
exploration
expenditures 1,267 1,321 1,989 786 224
Mineral property and
exploration
expenditures - IMPSA - - - 650 -
-----------------------------------------------------------------------------
Cash provided (used)
per US GAAP $(11) $9 $(15) $1,063 $(172)
=============================================================================
FINANCING ACTIVITIES
Cash provided per
Canadian and US GAAP $3,264 $1,463 $3,380 $2,553 $1,741
=============================================================================
See Note 10 of the Company's consolidated financial statements.
9
EXCHANGE RATE HISTORY
The noon rate of exchange on May 12, 2003, reported by the United States Federal
Reserve Bank of New York for the conversion of Canadian dollars into United
States dollars was CDN$1.3885 (US$0.7202 = CDN$1.00).
The following table sets forth high and low exchange rates for one Canadian
dollar expressed in terms of one U.S. dollar for the six-month period ended
April 30, 2003.
MONTH HIGH LOW
November 2002 .6362 .6241
December 2002 .6362 .6267
January 2003 .6289 .6200
February 2003 .6295 .6217
March 2003 .6325 .6266
April 2003 .6397 .6252
The following table sets forth the average exchange rate for one Canadian dollar
expressed in terms of one U.S. dollar for the past five fiscal years.
PERIOD AVERAGE
January 1, 1998 - December 31, 1998 0.6940
January 1, 1999 - December 31, 1999 0.6731
January 1, 2000 - December 31, 2000 0.6746
January 1, 2001 - December 31, 2001 0.6456
January 1, 2002 - December 31, 2002 0.6368
Exchange rates are based upon the noon buying rate in New York City for cable
transfers in foreign currencies as certified for customs purposes by the Federal
Reserve Bank of New York.
RISK FACTORS
Due to the nature of the Company's business and the present stage of exploration
on its mineral resource properties, the following risk factors apply to the
Company's operations:
LIQUIDITY AND CASH FLOW: To date the Company has not generated any revenues from
operations to fund ongoing operational requirements and cash commitments. The
Company has financed its operations principally through the sale of its equity
securities, and the disposition of its interest in Minas Argentinas SA and the
sale of Viceroy Resource Corporation Common Shares. As at April 30, 2003, the
Company had working capital of approximately $4,000,000. See "Item 5. Operating
and Financial Review and Prospects - Liquidity and Capital Resources". The
Company believes is does have adequate resources to maintain its ongoing
operations and will require additional financing for planned exploration and
property acquisitions for the remainder of fiscal 2003. See "Item 5. Operating
and Financial Review and Prospects".
EXPLORATION STAGE COMPANY: An investment in a natural resources company involves
a high degree of risk. The degree of risk increases substantially where the
Company's properties are in the exploration stage.
10
ADDITIONAL FINANCING: The Company presently has sufficient financial resources
to meet property commitments on its existing property holdings. The Company at
present does not, however, have sufficient funds to conduct exploration programs
on all these properties and will need to obtain additional financing or find
joint venture partners in order to initiate any such programs.
On April 3, 2003, the Company announced a $2.61 million dollar financing,
subject to regulatory approval. The proceeds from the financing will be used for
projects in South America and for working capital. The financing was completed
on April 28, 2003 and will not provide adequate funds to meet all of the
Company's operating and planned exploration costs proposed for the remaider of
the year.
There is no assurance that the Company will be successful in obtaining
additional financing or negotiating agreements with potential joint venture
partners. The failure to obtain such financing or complete joint venture
arrangements could result in the loss or substantial dilution of the Company's
interests (as existing or as proposed to be acquired) in its properties as
disclosed herein. The Company's business strategy contemplates investments in
joint ventures to fund exploration activities on the Company's properties. Joint
ventures may involve significant risks and the Company may lose any investment
it makes in a joint venture, including the Company's interest in any properties
it contributes. Except for the agreement between the Company and Barrick Gold
Corporation (See "Item 4. Information on the Company - Properties, Plants and
Equipment - Principal Properties - Argentinean Properties - Property Agreements
and Exploration Activities - Barrick Agreement"), the Company does not have any
definitive commitment or agreement concerning any material investment, strategic
alliance or related effort, on any of the Company's properties. Any investments,
strategic alliances or related efforts are accompanied by risks such as:
i) the difficulty of identifying appropriate joint venture
partners or opportunities;
ii) the time the Company's senior management must spend
negotiating agreements and monitoring joint venture
activities;
iii) the possibility that the Company may not be able to reach
agreement on definitive agreements, with potential joint
venture partners;
iv) potential regulatory issues applicable to the mineral
exploration business;
v) the investment of the Company's capital or properties and the
loss of control over the return of the Company's capital or
assets;
vi) the inability of management to capitalize on the growth
opportunities presented by joint ventures; and
vii) the insolvency of any joint venture partner.
There are no assurances that the Company would be successful in overcoming these
risks or any other problems encountered with joint ventures, strategic alliances
or related efforts.
EXPLORATION RISKS: Mineral exploration is highly speculative in nature, involves
many risks and frequently is nonproductive. There can be no assurance that the
Company's efforts to identify reserves will be successful. Moreover, substantial
expenditures are required to establish reserves through drilling, to determine
metallurgical processes to extract the metal from the ore and to construct
mining and processing facilities. During the time required to establish
reserves, determine suitable metallurgical processes and construct such mining
and processing facilities, the economic feasibility of production may change
because of fluctuating prices. The Company would like to establish reserves but
does not intend to construct or operate a mine.
PROJECT DELAY: The Company's minerals business is subject to the risk of
unanticipated delays in permitting its projects. Such delays may be caused by
fluctuations in commodity prices, mining risks, difficulty in arranging needed
financing, unanticipated permitting requirements or legal obstruction in the
permitting process by project opponents.
11
In addition to adding to project capital costs (and possibly operating costs),
such delays, if protracted, could result in a write-off of all or a portion of
the carrying value of the delayed project.
TITLE TO PROPERTIES: The validity of mining claims, which constitute a
significant portion of the Company's undeveloped property holdings, is often
uncertain and may be contested. Although the Company has attempted to acquire
satisfactory title to its undeveloped properties, the Company, in accordance
with mining industry practice, does not intend to obtain title opinions until a
decision is made to develop a property, with the attendant risk that some
titles, particularly titles to undeveloped properties, may be subject to contest
by other parties. As of April 30, 2003, the Company has not lost title to any of
its properties, nor is it contesting any challenges to its ownership.
PRICE FLUCTUATIONS AND SHARE PRICE VOLATILITY: In recent years, the securities
markets in Canada have experienced a high level of price and volume volatility,
and the market price of securities of many companies, particularly junior
mineral exploration companies, like the Company, have experienced wide
fluctuations which have not necessarily been related to the operating
performance, underlying asset values or prospects of such companies. In
particular, the per share price of the Company's common shares fluctuated from a
high of $0.94 to a low of $0.34 during the 12-month period ending December 31,
2002. There can be no assurance that continual fluctuations in price will not
occur.
OPERATING HAZARDS AND RISKS: Mining operations involve 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 for
metals, any of which could result in damage to or destruction of mines and other
producing facilities, damage to life and property, environmental damage and
possible legal liability for any or all damage. Although the Company maintains
liability insurance in an amount which it considers adequate, the nature of
these risks is such that liabilities could exceed policy limits, in which event
the Company could incur significant costs that could have a materially adverse
effect upon its financial condition.
INSURABLE RISKS AND LIMITATIONS OF INSURANCE: The Company maintains a Total
Office Policy in Canadian dollars on its principal offices. Generally, the Total
Office Policy provides a 90% coverage on office contents, up to $128,000, with a
$500 deductible. In addition, the policy provides general liability coverage of
up to $5,000,000 for personal injury, per occurrence, and $2,000,000 for legal
liability for any one premises, with a $500 deductible. The Company also has
insurance coverage of up to $5,000,000 for non-owned automobile liability.
The Company maintains a Foreign Commercial General Liability policy in U.S.
dollars which provides a US$5,000,000 coverage for bodily injury or property
damage per occurrence and coverage up to US$5,000,000 per offense for personal
injury or advertising injury (libel, slander, etc.). The policy has a general
aggregate limit for all claims during each consecutive policy period, except for
those resulting from product hazards or completed operations hazards, of
US$5,000,000. The policy has a US$5,000,000 aggregate limit for each consecutive
policy period, for bodily injury or property damage liability arising out of
completed operations and products. In addition, the Foreign Commercial General
Liability policy provides for coverage of up to US$10,000 in medical expenses,
per person, with a US$10,000 limit per accident, and up to US$100,000 for each
occurrence of tenants' fire legal liability. The policy does not apply to injury
or damages occurring within Canada, the United States (including its territories
and possessions), Puerto Rico, any countries or territories against which the
United States has an embargo, sanction or ban in effect, territorial waters of
any of the foregoing, the Gulf of Mexico, or international waters or airspace
when an injury or damage occurs in the course of travel or transportation to any
country or place included in the foregoing. The policy also does not cover
asbestos related claims or liability for bodily injury or property damages
arising out of the discharge, dispersal, release or escape of smoke, vapors,
soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials
or other irritants, contaminants or pollutants into or upon land, the
atmosphere, or any water-course or body of water. The policy also contains a
professional liability exclusion which applies to bodily injury or property
damage arising out of defects in maps, plans, designs or specifications
prepared, acquired or used by the Company or arising out of any act of
negligence, error, mistake or omission in rendering or failing to render
professional consulting or engineering services, whether performed by the
Company or other for whom the Company is responsible.
The Company maintains a Foreign Commercial Automobile Liability Insurance policy
on owned, leased, hired and non-owned automobiles with the following liability
limitations:
12
$5,000,000 bodily injury liability for each person.
$5,000,000 bodily injury liability for each occurrence.
$5,000,000 property damage liability for each occurrence.
$10,000 medical expense coverage, per person.
$10,000 medical expense coverage, per accident.
The foregoing descriptions of the Company's insurance policies do not purport to
be complete and does not cover all of the exclusions to such policies.
MANAGEMENT: The Company is dependent on the services of Joseph Grosso, the
President and a director of the Company, Gerald G. Carlson, the Chairman of the
Company's Board of Directors, and William Lee, the Company's Chief Financial
Officer. The loss of any of these people could have an adverse affect on the
Company. Joseph Grosso provides his services to the Company through Oxbow
International Marketing Corp. ("Oxbow"). Gerald G. Carlson provides his services
to the Company through KGE Management Ltd. All of the Company's other officers
and directors are employed directly by the Company. The Company has entered into
consulting agreements with Oxbow and KGE Management Ltd. The Company has entered
into an employment agreement with William Lee. See "Item 6. Directors, Senior
Management and Employees" and "Item 7. Major Shareholders and Related Party
Transactions". The Company does not maintain "key-man" insurance in respect of
any of its principals.
DEPENDENCE UPON OTHERS: The success of the Company's operations will depend upon
numerous factors, many of which are beyond the Company's control, including (i)
the ability of the Company to enter into strategic alliances through a
combination of one or more joint ventures, mergers or acquisition transactions,
(ii) the ability to discover and produce minerals; (iii) the ability to attract
and retain additional key personnel in investor relations, marketing, technical
support, and finance; and (iv) the ability and the operating resources to
develop and maintain the properties held by the Company. These and other factors
will require the use of outside suppliers as well as the talents and efforts of
the Company. There can be no assurance of success with any or all of these
factors on which the Company's operations will depend.
CONFLICTS OF INTEREST: All of the Company's directors are also directors,
officers or shareholders of other companies. Such associations may give rise to
conflicts of interest from time to time. Such a conflict poses the risk that the
Company may enter into a transaction on terms which could place the Company in a
worse position than if no conflict existed. 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 many have in any
project or opportunity of the Company. However, each director has a similar
obligation to other companies for which such director serves as an officer or
director. The Company has no specific internal policy governing conflicts of
interest. See "Item 6. Directors, Senior Management and Employees - Conflict of
Interest".
FOREIGN COUNTRIES AND REGULATORY REQUIREMENTS: Certain of the projects in which
the Company has an interest are located in Argentina and Peru. Mineral
exploration and mining activities in Argentina and Peru 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
conditions are beyond the control of the Company and may adversely affect its
business. The Company does not maintain and does not intend to purchase
political risk insurance. Operations may be affected in varying degrees by
government regulations with respect to restrictions on production, price
controls, export controls, income taxes, expropriations of property,
environmental legislation and mine safety. See "Item 4. Information on the
Company - Business Overview - Government Regulations on the Company's
Business.". The status of Argentina and Peru as developing countries may make it
more difficult for the Company to obtain any required exploration financing for
its projects. The effect of all of these factors cannot be accurately predicted.
Both the Argentine and Peruvian economies have experienced recessions in recent
years and there can be no assurance that their economies will recover from such
recessions.
As a result of the Provincial and Municipal elections in Peru to be held in
November 2002 and the substantial investment required to advance the Rio
Tabaconas project through the next exploration stage, in June 2002 the Company
announced its intention to take a more measured approach to exploration on the
Rio Tabaconas project to ensure that all local cultural, developmental and
environmental concerns in the region have been addressed which may pertain to
mining activities. See "Item 4. Information on the Company - Principal
Properties - Peruvian
13
Properties." The Company intends to conduct further exploration only after an
agreement with the local community of Tamborapa has been finalized. Aided by
several Peruvian Social-Economic consultants, a draft Company-Community plan has
been prepared and the Company intends to present the plan for discussion with
the community leaders, government officials and other interested party leaders
in the second quarter of 2003. See "Item 4. Information on the Company -
Business Overview - Government Regulations on the Company's Business."
In addition, Argentina has recently experienced economic and political
instability. An economic crisis has developed since December 2001. As a result,
Argentina has defaulted on its loans and is working with the International
Monetary Fund on a bail-out loan agreement. The Company maintains the majority
of its funds in Canada and only forwards sufficient funds to meet current
obligations and overhead in Argentina. The Company does not believe that any
current currency restrictions which may be imposed in Argentina will have any
immediate impact on the Company's exploration activities.
CURRENCY FLUCTUATIONS: The Company's operations in Argentina, Peru and Canada
make it subject to foreign currency fluctuations and such fluctuation may
adversely affect the Company's financial position and results. The Company's
property, option and mining expenses are generally denominated in U.S. dollars.
As such, the Company's principal foreign exchange exposure is related to the
conversion of the Canadian dollar into U.S. dollars. The Canadian dollar varies
under market conditions. In recent years, the Canadian dollar has experienced a
devaluation against the U.S. dollar, which requires the Company to spend more
Canadian dollars on its projects. Continued devaluation of the Canadian dollar
against the U.S. dollar could materially and adversely affect the Company's
operations and financial position. The Company's foreign subsidiaries comprise a
direct and integral extension of the Company's operations. These subsidiaries
are also entirely reliant upon the Company to provide financing in order for
them to continue their activities. Consequently, the functional currency of
these subsidiaries is considered by management to be the Canadian dollar and
accordingly exchange gains and losses are included in net income. Management
does not believe the Company is subject to material exchange rate exposure from
any fluctuation of the Argentine or Peruvian currencies. The Company does not
engage in hedging activities. See "Item 5. Operating and Financial Review and
Prospects".
ENVIRONMENTAL REGULATIONS: The Company's operations are subject to environmental
regulations promulgated by government agencies from time to time. Environmental
legislation 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
the imposition of fines and penalties. At present, the Company does not believe
that compliance with environmental legislation and regulations will have a
material affect on the Company's operations; however, any changes in
environmental legislation or regulations, or in the Company's business, may
cause compliance with such legislation and/or regulation to have a material
impact on the Company's operations. 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. The Company intends to ensure that it
complies fully with all environmental regulations relating to its operations in
Argentina and Peru.
NO DIVIDENDS: The Company has not paid out any cash dividends to date and has no
plans to do so in the immediate future.
PENNY STOCK REGULATION: The SEC has adopted rules that regulate broker-dealer
practices in connection with transactions in "penny stocks". Generally, penny
stocks are equity securities with a price of less than US$5.00 (other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ system). If the Company's shares are traded for less than US$5 per share,
as they currently are, the shares will be subject to the SEC's penny stock rules
unless (1) the Company's net tangible assets exceed US$5,000,000 during the
Company's first three years of continuous operations or US$2,000,000 after the
Company's first three years of continuous operations; or (2) the Company has had
average revenue of at least US$6,000,000 for the last three years. The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document prescribed by the SEC that provides information about penny stocks and
the nature and level of risks in the penny stock market. The broker-dealer also
must provide the customer with
14
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules require that prior to a transaction
in a penny stock not otherwise exempt from those rules, the broker-dealer must
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction. These requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. As long as the Company's common shares are subject to the
penny stock rules, the holders of common shares may find it difficult to sell
the common shares of the Company.
ENFORCEMENT OF LEGAL PROCESS: Service of process upon individuals or firms that
are not resident in the United States may be difficult to obtain within the
United States. All of the members of the Board of Directors and senior
management of the Company reside outside the United States. Furthermore, since
all of the Company's assets are located outside the United States, any judgment
obtained in the United States against the Company or such persons may not be
collectible within the United States.
ITEM 4. INFORMATION ON THE COMPANY.
--------------------------------------------------------------------------------
HISTORY AND DEVELOPMENT OF THE COMPANY
Since April 3, 1996, the Company has been engaged, through its subsidiaries, in
the acquisition and exploration of mineral properties, with a primary focus in
Argentina and Peru. The Company was incorporated under the COMPANY ACT (British
Columbia, Canada) (the "Company Act") on September 17, 1979, as Gold Star
Resources Ltd. On May 1, 1990, the Company filed an Altered Memorandum to
reflect its name change to EEC Marketing Corp. On January 13, 1992, the Company
filed an Altered Memorandum to reflect its name change to Amera Industries Corp.
From its date of inception to January 31, 1992, the Company was inactive.
Between January 31, 1992 and August 31, 1994, the Company was involved in the
eyewear and optical products industry. Subsequently, the Company again became
inactive and began seeking a new business opportunity. The Company filed another
Altered Memorandum on February 9, 1995 to reflect its name change to
International Amera Industries Corp. On February 20, 1996, the Company filed an
Altered Memorandum, changing its name to IMA Resource Corporation, and became
engaged in the acquisition and exploration of mineral properties.
In September of 1995 the Company formed IMPSA Resources Corporation ("IMPSA") in
order to pursue opportunities in Peru. At that time, exploration efforts by
other companies in Peru were beginning in earnest. Management believed Peru was
a favorable country for mineral exploration due to the country's geology and
strong mining culture. In addition, management believed that Peru was
under-explored.
Management believed that the amount of capital necessary to fully exploit
opportunities in Peru was greater than what the Company sought to invest. Since
the Company had an ongoing exploration program in Argentina, the Company
initially limited the funding of its Peruvian projects to $250,000. The Company
established IMPSA and used the Company's $250,000 capital contribution to
establish an infrastructure and initiate property reviews. A number of
consultants were retained and detailed property assessments were initiated. The
Company determined that in order to further develop IMPSA, additional funding
would be required.
The Company initially received 500,000 common shares, or 30.76%, of the then
issued and outstanding common shares of IMPSA, for its $250,000 capital
contribution. As a result of issuing 375,000 shares to IMPSA's management and
key employees, and the completion of two private placements resulting in the
issuance of a total of 1,528,000 common shares of IMPSA, the Company's initial
investment in IMPSA was diluted to 20.76%. However, in order to assure the
Company an ongoing interest in the assets of IMPSA, the Company retained a 20%
participating interest in IMPSA (BVI) and retained the right to maintain a 20%
ownership interest in IMPSA. During fiscal 1998, the Company increased its
investment in IMPSA by purchasing 990,963 shares, which increased the Company's
percentage ownership of IMPSA from 20.76% to 43.81%. In January 1999, the
Company acquired an additional 6,500,000 common shares of IMPSA, increasing its
equity interest from 43.81% to 80.69%. During 2001, the Company completed the
reorganization of its corporate structure to continue the funding of the
Company's Peruvian exploration activities. On August 20, 2001, the Company
entered into an agreement with IMPSA, its 80.69% subsidiary, to acquire IMPSA's
80% interest in IMPSA (BVI) and IMPSA's advances to IMPSA (BVI), of
approximately US$1.536 million, in exchange for $850,000 plus a 2% fee on any
net revenue or proceeds from the
15
disposition of certain properties held by IMPSA (BVI). See "Item 4. Information
on the Company - Organizational Structure." The fee is limited to a maximum of
$1.4 million. This transaction was approved by IMPSA's shareholders on September
4, 2001. IMPSA used the cash proceeds to retire its debt to the Company. Rio
Tabaconas (formerly known as Tamborapa), IMPSA's principal property, is for the
most part an early stage exploration property and involves a high degree of
risk.
On April 3, 1996, the Company acquired IMA Holdings Corp. ("IHC"), a British
Columbia company. The acquisition of IHC by the Company resulted in the former
shareholders of IHC acquiring control of the Company. At the time of the
acquisition, the Company had two common directors with IHC. Generally accepted
accounting principles required the transaction to be treated for accounting
purposes as a reverse-takeover. In accounting for this transaction:
(i) IHC was deemed to be the purchaser and parent company for
accounting purposes. Accordingly, its net assets are included in
the Company's consolidated balance sheet at their historical book
value; and
(ii) control of the net assets and business of the Company was acquired
effective April 3, 1996. The transaction was accounted for as a
purchase of the assets and liabilities of the Company by IHC at
their fair values.
IHC's primary asset was a 50% joint venture interest in Minas Argentinas
(Barbados) Inc. ("Minas Barbados"). Oro Belle Resources Corporation ("Oro
Belle"), a third party, held the remaining 50% interest in Minas Barbados. The
sole asset of Minas Barbados is its 100% interest in Minas Argentinas S.A.
("MASA"). MASA is an Argentine company whose main activity is exploration of
mineral properties in Argentina. During 1998, the Company held discussions with
Oro Belle and its majority shareholder, Viceroy, to restructure the arrangement
and facilitate the funding of future financial requirements of MASA.
In May 1998, the Company entered into an arrangement (the "Plan of Arrangement")
with Viceroy Resource Corporation ("Viceroy") whereby the Company agreed to
exchange its 50% interest in Minas Barbados for 2,200,000 common shares of
Viceroy (the "Viceroy Shares"), at a price of $2.25 per Viceroy Share (being the
market value of the Viceroy Shares on the date of the transaction), a 1% net
smelter returns royalty interest (the "MASA NSR") in the mineral property
interests held by MASA, and the extinguishment of all debts owing by the Company
to MASA. No value was ascribed to the MASA NSR for the purpose of calculating
the total consideration received at the date of exchange.
The Company also restructured its share capital to facilitate the distribution
of 1,540,000 Viceroy Common Shares to the Company's shareholders. The
transaction was accomplished as follows:
i) each issued and outstanding common share of the Company was
exchanged for one Class A common share and one Class B preferred
share (the "Preferred Shares") of the Company;
ii) the holders of the Preferred Shares received 1,540,000 Viceroy
Common Shares, directly from Viceroy, in exchange for all of the
Preferred Shares;
iii) the Company relinquished its ownership interest in Minas Barbados
to Viceroy in exchange for the Preferred Shares, the MASA NSR, the
extinguishment of all debts to MASA and 660,000 Viceroy Shares. The
Preferred Shares were then canceled by the Company; and
iv) all options and warrants to purchase common shares of the Company
became exercisable to purchase Class A common shares on the same
basis as the common shares.
The transaction became effective July 7, 1998, upon filing an Altered
Memorandum, and the Company changed its name to IMA Exploration Inc. As a result
of the transaction, the Company consolidated its share capital on the basis of
four old shares for one new share.
On June 30, 1999, the shareholders of the Company passed a Special Resolution
approving a redesignation of the Class A Common Shares to common shares.
16
In August 1999, the Company completed a private placement with Barrick Gold
Corporation ("Barrick") and issued 1.5 million units at a price of $1.00 per
unit. Each unit consists of one common share in the capital stock of the Company
and one non-transferable share purchase warrant, entitling Barrick to purchase
an additional common share for a period of one year at a price of $1.50 per
share. On April 19, 2001, Barrick exercised warrants at $1.50 to purchase an
additional 350,000 shares of the Company for total proceeds of $525,000. The
funds were spent on the drilling program on the Potrerillos property. On August
16, 2001, Barrick exercised their remaining warrants to buy 1,150,000 common
shares of the Company for a total proceeds of $1,725,000. The proceeds were
spent on further exploration of the Company's properties in the Valle del Cura
region of Argentina from October 2000 to March 2001. As a result of the
exercise, Barrick became the Company's largest shareholder. See "Item 7. Major
Shareholders and Related Party Transactions".
Of the proceeds from the Barrick private placement, the Company agreed to spend,
by August 2000, a minimum of $1,125,000 on its Valle del Cura properties in
Northwestern Argentina. As of December 31, 2002, the Company spent $2,073,114 on
its Valle del Cura properties, satisfying the aforementioned agreement. See
"Item 4. Information on the Company - Properties, Plants and Equipment -
Principal Properties".
As part of a financing and option agreement dated August 17, 1999 between the
Company and Barrick, the Company granted Barrick an option to earn an interest
in EITHER the Rio de las Taguas or Potrerillos properties in the Valle del Cura
region. Barrick may earn a 50% interest in the selected property by paying the
Company US$250,000 and expending US$3 million in exploration on the selected
property within five years of making the US$250,000 payment. Once Barrick has
earned its 50% interest, the selected property will be operated as a joint
venture, with Barrick as the operator. In addition, Barrick shall have the
option to earn an additional 25% interest, for a total of 75%, by agreeing to
provide financing for the Company's share of the costs to bring the selected
property into production. See this "Item 4. Information on the Company -
Properties, Plants and Equipment - Principal Properties - Argentinean Properties
- Property Agreements and Exploration Activities - Barrick Agreement".
As a result of Barrick exercising all the 1,500,000 warrants, the selection
period was automatically extended for an additional twelve calendar months to
November 30, 2001. As of March 23, 2001, the Company further extended the
selection period to November 30, 2002. Subsequent to the year end, Barrick and
the Company agreed to extend the Selection Notice Period in the Option Agreement
from November 30, 2002 to December 30, 2003 to allow Barrick's technical team to
review additional properties of the Company. In return for the extension Barrick
paid US$65,000 which will be used to make payments to maintain the option
properties in good standing.
Throughout the 2002 fiscal year exploration on the Potrerillos and Rio de las
Taguas properties was on hold pending resumption of exploration and development
activities at the nearby Pascua-Lama and Veladero deposits by Barrick.
The current office and principal address of the Company is located at #709 - 837
Hastings Street, Vancouver, British Columbia, V6C 3N6. The Company's telephone
number is (604) 687-1828.
NATURE OF THE COMPANY'S OPERATIONS AND PRINCIPAL ACTIVITIES
The Company has made additions to mineral properties and deferred costs of
$1,266,555, $1,320,777 and $1,989,049 and capital assets of $11,201, $8,012 and
$15,321 for the fiscal years ended December 31, 2002, 2001, and 2000,
respectively. For the three months ended March 31, 2003, the Company has made
additions to mineral properties and deferred costs of approximately $610,000 and
no additions to capital assets.
During the fiscal year ended December 31, 2002 the Company did not terminate any
option agreements on properties and mineral claims. During the fiscal years
ended December 31, 2001 and 2000, the Company terminated option agreements on
properties and mineral claims resulting in the write-off of mineral properties
and deferred costs in the amounts of $21,483 and $789,953, respectively.
During the nine month period from March 31, 2003 to December 31, 2003, the
Company has no planned exploration expenditures in Argentina for the Valle del
Cura region, the Gualcamayo region, or the NW San Juan region. The Company plans
to expend US$500,000 in Argentina on surface work at the Navidad project, an
additional US$1,500,000 on drill programs at the Navidad project and US$593,000
on the Rio Tabaconas project (formerly known as Tamborapa project) in Peru
during the nine month period from March 31, 2003 to December 31, 2003. In
17
addition, minimum property payments of approximately US $225,000 are required to
maintain all of the existing property holdings.
As a result of the Provincial and Municipal elections in Peru to be held in
November 2002 and the substantial investment required to advance the Rio
Tabaconas project through the next exploration stage, in June 2002 the Company
announced its intention to take a more measured approach to exploration on the
Rio Tabaconas project to ensure that all local cultural, developmental and
environmental concerns in the region have been addressed which may pertain to
mining activities. See "Item 4. Information on the Company - Principal
Properties - Peruvian Properties." The Company intends to conduct further
exploration only after an agreement with the local community of Tamborapa has
been finalize. Aided by several Peruvian Social-Economic consultants, a draft
Company-Community plan has been prepared and the Company intends to present the
plan for discussion with the community leaders, government officials and other
interested party leaders in the second quarter of 2003. See "Item 5. Operating
and Financial Review and Prospects".
For the Company's other Argentinean properties, where no expenditures are
planned, it is the Company's intention to seek joint venture partners to provide
funding for further work on any or all of those properties. On March 6, 2003,
the Company entered into an agreement granting Amera Resources Corporation, a
private company which has a common director with the Company ("Amera"), an
Option to earn 51% undivided interest on Arturo's Property (Mogotes). Amera can
earn its interest in the property by issuing 1,650,000 common shares to the
Company and incurring US$1,250,000 of expenditures (including work programs and
underlying option payments), over a period of five years. See "Item 4.
Information on the Company - Principal Properties - Argentinean Properties -
Property Agreements and Exploration Activities - Arturo's Property (Mogotes)"
and "Item. 7 Major Shareholders and Related Party Transactions - Related Party
Transactions."
As of April 30, 2003, the Company does not have sufficient working capital to
fund all of its planned exploration work and property commitments and meet all
of its ongoing overhead obligations. The Company will continue to rely on
successfully completing additional equity financing and/or conducting joint
venture arrangements to conduct further exploration on its properties. There can
be no assurance that the Company will be successful in obtaining the required
financing or negotiating joint venture agreements. The failure to obtain such
financing or joint venture agreements could result in the loss of, or
substantial dilution of the Company's interest in its properties.
BUSINESS OVERVIEW
The Company is a natural resource company engaged in the business of acquisition
and exploration of mineral properties in South America, principally in Argentina
and Peru. The Company's strategy and primary corporate objective is to acquire
property for the purpose of mineral exploration and exploitation in known mining
areas adjacent to, or in close proximity to, known major discoveries. The
Company, therefore, expects these properties to command higher acquisition,
maintenance, and vendor participation fees, where these higher fees are deemed
reasonable to attempt to reduce the overall risks associated with mineral
exploration. In the event the Company discovers mineralization capable of
economic production, the Company intends to seek a joint venture partner and/or
to sell all or a portion of the Company's interest in the subject property to
finance the development of such property. The secondary corporate objective is
to identify new frontiers through the evaluation of available historic and
satellite data and acquire large parcels of land in undeveloped regions with the
potential to host mineral deposits. There are no assurances that the Company's
strategies will achieve the desired results and the Company may acquire
interests in properties at higher prices, due to the properties' proximities to
other discoveries, and may have to write-off all or a portion of the value of
such properties if they prove uneconomic. At present, the Company has no
producing properties and, consequently, has no current operating income or cash
flow. As of the date of this annual report, the Company is an exploration stage
company and has not generated any revenues. There is no assurance that a
commercially viable mineral deposit exists on any of the Company's properties.
Further exploration will be required before a final evaluation as to the
economic and legal feasibility of any of the Company's properties is determined.
Due to the seasonality of field work in the high Andes, the timing for the Valle
del Cura work is generally restricted to the period from October to April, while
the Patagonia region is accessablefrom September to June, and work on Rio
Tabaconas, the Peruvian property, can be carried out year round but is generally
more effective in the drier season from May to December.
18
During the year ended December 31, 2002, the Company significantly increased its
focus on activities in the Patagonia region of Argentina carrying out an
extensive exploration program in the Chubut Province and acquiring five new gold
and silver projects. Additionally the Company has evaluated a number of projects
available for option ranging from grass roots projects to advanced projects
including those with resources. The Peruvian property payments will be made to
keep the Company's property holding in good standing.
With respect to properties located in the Valle del Cura region of Argentina,
the Company does not intend to conduct any further exploration on these
properties unless Barrick exercises its option to earn a 50% interest in EITHER
the Rio de las Taguas or Potrerillos properties. If it decides to exercise this
option, Barrick must select a property by December 30, 2003. Once Barrick has
earned its 50% interest, the property will be operated as a joint venture with
Barrick as the operator and each party paying its proportionate share of
expenses, subject to normal dilution and non-consent provisions. See "Item 4.
Information on the Company - Principal Properties - Argentinean Properties -
Property Agreements and Exploration Activities - Barrick Agreement". All other
Argentine property exploration, if any, will be at a minimum.
GOVERNMENT REGULATIONS ON THE COMPANY'S BUSINESS
THE REPUBLIC OF PERU
GENERAL INFORMATION
Peru covers an area of approximately 1,290,000 square kilometers on the western
coast of South America. The country has a population of approximately 27 million
people. Lima is the capital and principal city of Peru with a population of
approximately 8 million people. Peru is attempting to recover from an extended
period of political instability and economic hardship.
Any changes in regulations or shifts in political conditions are beyond the
control of the Company and may adversely affect the Company's business. The
Company's operations may be affected in varying degrees by government
regulations with respect to restrictions on production, price controls, export
controls, income taxes, expropriations of property, environmental legislation
and mine safety. Peru's status as a developing country may make it more
difficult for the Company to obtain financing for any required exploration on
the Company's Peruvian projects. The effect of all of these factors cannot be
accurately predicted.
GOVERNMENT ORGANIZATION
Peru is a democratic republic governed by an elected government which is headed
by a president who serves a five-year term and who, under the new Constitution,
is eligible to run for one consecutive second term. The new Constitution was
approved by national referendum held on October 31, 1993, and also provides for
a one-chamber legislative body or Congress.
On June 3, 2001, Alejandro Toledo was elected the Peruvian President and sworn
in on July 28, 2001, after a tumultuous ten year reign by Alberto Fujimori,
whose resignation was prompted by corruption and scandal in the Peruvian
government. Since he took office as Peru's first democratic president of Indian
blood, Mr. Toledo's popularity has plunged. The leading Lima magazine CARETAS
reported that Mr. Toledo's approval rating in a national public-opinion survey
fell by more than one-half in the first six months of his presidency to 27%,
while his disapproval rating soared to 65%. The decline in Mr. Toledo's
popularity among the Peruvian people is reported to be caused by his failure to
fulfill campaign promises and to chart a clear policy course. After four years
of little or no growth in employment, Peruvians are impatient for the jobs Mr.
Toledo promised to create. Nevertheless Tthe economy continues to develop
favourably. The gross domestic product (GDP) advanced almost 4% in 2002.
Stronger mining has compensated for lower growth rates in virtually all other
sectors. The only sector apart from mining that experienced an improvement was
fishing. Mr. Toledo has a better image abroad than at home. A team headed by
Javier Perez de Cuellar, a Peruvian former UN secretary-general, has raised US$1
billion in foreign aid to finance Mr. Toledo's job creation program. Peru has
agreed on terms with the International Monetary Fund ("IMF") for a new loan, and
there are signs that the economy is at last reviving.
19
TERRORISM
Peru has been the subject of terrorism by the Sendero Luminoso, a Maoist group
intent on creating a socialist government, and the Tupac Amaru Revolutionary
Movement (the "MRTA"). In recent years both groups have been active. In 1997,
the Sendero Luminoso was implicated in a car-bombing. In 1996-1997, more than
400 people were killed when the MRTA attacked the Japanese embassy in Peru. The
Company may not be able to continue its operations in Peru if the terrorism
continues. The Company cannot predict if, or when, the terrorist activities will
cease. The Company may not be able to find suitable labor for its Peruvian
projects, may have difficulty in obtaining financing for its Peruvian projects,
and may not be able to continue its activities if the terrorism continues.
MINING INDUSTRY
Peru has a lengthy history of mining which predates the Spanish conquistadors.
Although political unrest and instability have slowed the development of some of
Peru's ore bodies in recent years, mining continues to be an important
contributor to the national economy and exploration by foreign companies is
accelerating due to the abundance of mineral sources. Peru is already a
substantial producer of at least six metals and may have unexplored and
unexploited reserves in these and other metals. Peru ranks among the top 20 gold
producing nations, and the newly expanded Yanacocha mine is Latin America's
largest single gold producer and Antamina is the world's largest zinc and copper
mine.
MINERAL CONCESSIONS IN PERU
Under Peruvian law, the right to explore for and exploit minerals is granted by
way of concessions. A Peruvian mining concession is a property-related right,
distinct and independent from the ownership of land on which it is located, even
when both belong to the same person. The rights granted by a mining concession
are defensible against third parties, transferable, chargeable and, in general,
may be the subject of any transaction or contract. The basic unit for newly
claimed mining concessions is 1,000 hectares and existing concessions of greater
than 1,000 hectares will be reduced to that amount. Otherwise, concessions can
only be divided by percentage parts or shares. Buildings and other permanent
structures used in a mining operation are considered real property and as an
accessory to the concession on which they are situated.
The concession holder must pay an annual rental of US$3.00 per hectare (except
for the year of acquisition, as this rental is paid as part of the concession
application fee). The concession holder must sustain a minimum level of annual
commercial production of greater than US$100 per hectare in gross sales within
six years of the grant of the concession or, if the concession has not been put
into production within that period, from the seventh year, a penalty is due of
US$6.00 per hectare per year in addition to the annual rental. The concession
will terminate if the annual rental is not paid for two consecutive or
alternative years. The term of a concession is indefinite provided it is
properly maintained by payment of rental duties.
The Constitution of Peru provides that foreign people or countries cannot
acquire or own a land title or mining right, directly or indirectly, if such
land title or mining right is located within 50 kilometers of Peru's borders.
The government of Peru is permitted to grant an exemption by publishing an
official statement declaring a public necessity, called a Decreto Supremo. The
Decreto Supremo must be signed by the President of Peru and the Presidential
Cabinet, called the Consejo de Ministros.
The Company's Rio Tabaconas project was declared a public necessity, in benefit
of Minera IMP Peru S.A. on June 1, 1998, by Decreto Supremo No. 020-98-EM.
Pursuant to Decreto Supremo No. 020-98-EM, Minera IMP Peru S.A. was authorized
to own the mining rights inside of the project. Decreto Supremo No. 020-98-EM
was signed by the then President of Peru, Mr. Alberto Fujimori and his
Presidential Cabinet.
REGULATORY ENVIRONMENT
Imports to and exports from Peru are not subject to restrictions and exports are
not taxed. Import taxes are imposed on an ad valorem basis at rates that, as of
March 31, 2003, ranged between 15% to 25%. Import duties and other
20
taxes on imports must be paid in Peruvian currency at the exchange (sole) rate
ruling on the date of payment.
Goods with an FOB value greater than US$2,000, whether new or used, and
vehicles, regardless of value, are subject to a system of import supervision.
Consequently, before shipment, importers must obtain in the port of origin a
certificate of inspection issued by an authorized supervisory enterprise
specifying the value of the goods in accordance with the custom valuation rules.
In general terms, it is possible to import all kinds of new or used goods,
except fireworks, which are prohibited.
Many commercial activities performed by private companies are subject to some
government inspection or control, including mining, which requires prior
government permission, licensing or concession, and compliance with special
registration procedures of the Department of Energy and Mines.
ARGENTINA
The Company has interests in various properties located in Argentina. Mineral
exploration and mining activities in Argentina may be affected in varying
degrees by political instability and government regulations relating to the
mining industry. Mineral companies are subject to both the Argentinean Mineral
Code and the Environmental Protection Mining Code. As of the date of this annual
report, management believes the Company is in material compliance with both the
Argentinean Mineral Code and the Environmental Protection Mining Code.
POLITICAL ENVIRONMENT
Carlos Menem was the President of Argentina from 1989 to December 1999. In
October 1999, Fernando de la Rua was elected to succeed Mr. Menem. Mr. de la Rua
took office in December of 1999, pledging to focus on Argentina's economic
problems. President de la Rua was unsuccessful and resigned on December 20, 2001
amidst economic and social upheaval. On January 1, 2002, the Argentine congress
elected Eduardo Duhalde, former vice president during the Menem government and
subsequently governor of the Buenos Aires Province (which accounts for more than
one third of Argentina's economy), to serve as president for the remaining two
years of Mr. de la Rua's term. Former president de la Rua was affiliated with
the Radical Party and the center left coalition ("FREPASO").
With the resignation of Mr. de la Rua, the reign of FREPASO came to an end, and
Mr. Duhalde, who is affiliated with the Peronist party, took over the control of
the country amid severe divisions among party leaders. The presidential
elections held on April 27th did not define the next Argentina president, on May
the 18th the population will go to vote again to chose among the two candidates
who obtained the highest number of votes: former president Carlos Menem and
Nestor. Kirchner governor of Santa Cruz Province.
If current popularity trends persist, the presidential poll is likely to be
decided in a second round and a future president will only be able to govern on
the ground of carefully crafted coalitions. This will render the implementation
of long-term economic reforms and a strengthening of weakened political
institutions - both key ingredients to a sustainable economic recovery in 2003 -
extremely difficult.
ECONOMY
Argentina is currently in a period of economic crisis due largely to poor
monetary policies and large amounts of debt. In 1991, then economic minister,
Domingo Cavallo, decided to tie the Argentine Peso to the U.S. dollar, with a
one-for-one exchange rate in order to combat hyperinflation and restore
confidence in the Argentine economy. When economic stability returned to
Argentina, the Argentine government did not respond by devaluing the Argentine
Peso. The failure of the government to devalue the peso left Argentine exports
more expensive than those of other South American countries, like Brazil. By
linking the peso to the dollar, Argentina adopted a currency whose exchange rate
bore little relation to its own economic conditions, and the Argentine
Government failed to respond to changing economic conditions by changing its
monetary policy. After ten years of sustaining the exchange rate, the country
has lost competitiveness in the international markets.
Argentina also faces large amounts of internal and external debt. Deficits have
been financed with external debt, which is currently close to US$150 billion,
and internal public debt, whereby the rate of interest paid reached almost
21
25% in real terms. Much of the internal debt has been due to overspending by the
two dozen Argentine provinces. In December of 2001 the I.M.F. refused to
disburse US$1.3 billion in aid for the month, and strikes, widespread street
protests and rioting ensued. On December 20, 2001, President Fernando de la Rua
resigned and was replaced on January 1, 2002 by Eduardo Duhalde. Several days
after Mr. Duhalde became president, the government devalued the peso and the
Argentine currency was allowed to float freely for the first time in a decade.
The consequence has been social upheaval. Unemployment rose 20% after Mr. de la
Rua's resignation, and in April 2002, all banking and foreign exchange activity
was suspended. Mr. Duhalde announced that the Argentine financial system was at
risk of collapse. Mr. Duhalde would like to diversify Argentina's foreign ties,
and in particular to revise those with Brazil, its chief partner with Mercosur.
Brazil has quickly responded. In addition to lobbying for international help for
Argentina, it has promised to take more imports, especially of cars. Due to its
large debt problems, Argentina needs help from the IMF. The United States
Government has asked Mr. Duhalde to develop a coherent economic plan. Above all,
that means tackling the ghastly problems of Argentina's banks, which have become
the target of increasing violent protests. Mr. Duhalde inherited restrictions on
bank transactions and withdrawals, which halted a bank run but are strangling
the economy. His government's handling of the devaluation of the peso, and its
adoption of a dual exchange rate, have also created problems. On April 26, 2002,
President Duhalde appointed free market economist, Roberto Lavagna, as his new
economy minister. Mr. Lavagna's main task will be to convince the IMF to restart
a lending program to Argentina, by pushing ahead with economic reforms which
must include spending cuts by the country's provinces and legal reforms aimed at
restoring investor confidence.
The Central Bank has managed to maintain the peso relatively stable since June
by intervening in the market. Following appreciations of 1.9% and 2.9%
respectively in July and August, the currency depreciated 2.9% in September amid
Brazil election jitters. In October, the peso experienced its highest monthly
appreciation this year, strengthening 6.0% to the US$ in nominal terms. In the
first week of March 2003, the currency appreciated to close at 3.00 pesos to the
US$.
Any changes in regulations or shifts in political conditions are beyond the
control of the Company and may adversely affect the Company's business. The
Company's operations may be affected in varying degrees by government
regulations with respect to restrictions on production, price controls, export
controls, income taxes, expropriations of property, environmental legislation
and mine safety. Argentina's status as a developing country may make it more
difficult for the Company to obtain financing for any required exploration on
the Company's Argentine projects. The effect of all of these factors cannot be
accurately predicted.
MINING LAW IN ARGENTINA
In IM-11/19 ARGENTINA; ECONOMIC TRENDS-NOV. 1999, the author stated:
Although some ambiguities in its interpretation have emerged,
the 1993 Argentine Mining Code has created a favorable
investment climate in the sector. An influx of foreign
capital is bringing major copper and gold mines on line in
Catamarca and Santa Cruz provinces, as well as smaller
projects elsewhere.
(Source: U.S. Department of Commerce - National Trade Data Bank, IM-11/19
ARGENTINA; ECONOMIC TRENDS-NOV. 1999).
The right to explore a property (a "cateo") and the right to exploit (a "mina")
are granted by administrative or judicial authorities via concessions. Foreign
individuals and corporations may apply for and hold cateos and minas, at the
same level as local investors without differences of any nature. Cateos and
minas are freely transferable upon registration with the Provincial Mining
Registry where title to the cateo or mina was first registered. Upon the grant
of a legal concession of a cateo or a mine, parties have the right to explore
the land or to own the mine and the resources extracted therefrom.
22
REGULATORY ENVIRONMENT
The present government is deeply committed to opening up the economy, and there
has been significant progress in reducing import duties and export taxes. For
decades local industry has been protected, and the transition to greater
international competitiveness will take some time.
Importers and exporters must be registered with Customs. Except for a very
limited list of items requiring the previous approval of the authorities, there
are no import restrictions. Import of pharmaceuticals, drugs, foodstuffs,
defense material, and some other items require the approval of the applicable
government authority. Import duties are being progressively reduced in
accordance with the free enterprise and free-trade policy being implemented by
the government in order to achieve greater international competitiveness. To
illustrate, duties currently range between zero and 20 percent. Restrictions on
exports are not generally imposed.
ORGANIZATIONAL STRUCTURE
The Company has one direct wholly-owned subsidiary, IMA Holdings Corp. ("IHC"),
a British Columbia company and one 80% owned subsidiary, IMPSA Resources (BVI)
Inc. ("IMPSA (BVI)"), a British Virgin Islands company. IHC has one direct
wholly-owned subsidiary, Inversiones Mineras Argentinas Inc., a Barbados company
("IMA Barbados"), one direct 80.69% owned subsidiary, IMPSA Resources
Corporation ("IMPSA"), a private British Columbia company, and holds a direct
20% interest in IMPSA Resources (BVI) Inc. ("IMPSA (BVI)"), a British Virgin
Islands company. IMA Barbados has one direct wholly-owned subsidiary,
Inversiones Mineras Argentinas S.A. ("IMA Argentinas"), an Argentine company.
IMPSA (BVI) has one wholly-owned subsidiary, Minera Imp-Peru S.A. ("IMPSA
Peru"), a Peruvian company.
The Company's current corporate structure is depicted as follows:
================================
| IMA EXPLORATION INC. |
------------------------| |--------
| | ("IMA") | |
| ================================ | 100%
| |
| ================================
| -------------------------------------| IMA HOLDINGS CORP. |
| | | ("IHC") |
| | ================================
80% | | 20% 80.69% | | 100%
| | | |
=============================== ====================== =========================
| IMPSA RESOURCES | | IMPSA RESOURCES | | INVERSIONES MINERAS |
| (BVI) INC. | | CORPORATION | | ARGENTINAS INC. |
| ("IMPSA (BVI)") | | ("IMPSA") | | ("IMA Barbados") |
=============================== ====================== =========================
100% | | 100%
| |
| |
=============================== ================================
| MINERA IMP - PERU S.A. | | INVERSIONES MINERAS |
| ("IMPSA Peru") | | ARGENTINAS S.A. |
| | | ("IMA Argentinas") |
=============================== ================================
| |
| |
| |
=============================== ================================
| PERUVIAN PROPERTIES | | VARIOUS ARGENTINE |
| | | PROPERTIES |
=============================== ================================
Unless otherwise indicated herein, the term "Company" means collectively the
Company and its subsidiaries.
23
PROPERTIES, PLANTS AND EQUIPMENT
PRINCIPAL PROPERTIES
The Company has for the past year increased its focus on Argentina property
interest, as a result of this focus on the Chubut region of Argentina, the
Company has discovered what management believes to be a major new
silver-copper-lead mineralized system at it's Navidad project. All of the
Company's current Peruvian properties will be maintained in good standing for
the coming year, however, no work or investement will be undertaken until such
time as the social risk is deemed to be reasonable. The Company will not make
any decisions on the Rio de las Taguas and Protrerillos properties in the Valle
de Cura region, Argentina until December 30, 2003, at which time Barrick must
decide if it will exercise its option to acquire a 50% interest in one of the
two properties. See "Principal Properties - Argentinean Properties - Property
Agreements and Exploration Activities - Barrick Agreement" below. The Company
signed a letter of Intent on March 6, 2003 with Amera, pursuant to which Amera
may earn an undivided 51% interest (subject to regulatory approval) in the
Arturo Property (Mogotes). See "Item 4. Information on the Company - History and
Development of the Company - Nature of the Company's Operations and Principal
Activities," "Item 4. Information on the Company - Principal Properties -
Argentinean Properties - Property Agreements and Exploration Activities -
Arturo's Property (Mogotes)" and "Item. 7 Major Shareholders and Related Party
Transactions - Related Party Transactions." The remaining properties are grass
roots properties on which additional exploration may or may not be carried out
in 2003.
ARGENTINEAN PROPERTIES
The Company controls 100% of Inversiones Mineras Argentinas S.A. which presently
has a portfolio of five groups of properties covering 217,444 hectares (537,297
acres) in the San Juan and Chubut Province.
During the fiscal years ending December 31, 2002, 2001 and 2000 the Company had
capitalized and expensed costs on its Argentine properties as follows:
FISCAL YEAR ENDING AMOUNT CAPITALIZED AGGREGATE AMOUNT EXPENSED
IN FISCAL YEAR
December 31, 2000 $2,240,829 $775,470
December 31, 2001 $2,777,458 $ 21,483
December 31, 2002 $3,181,277 $ -
These expenditures were for the initial acquisition of properties, exploration
costs, associated costs, and for the preliminary evaluation of selected
properties.
The properties owned or optioned by IMA Argentinas cover a variety of districts
and geography in San Juan and Chubut Provinces, Argentina.
PROPERTY AGREEMENTS AND EXPLORATION ACTIVITIES
NAVIDAD PROPERTY
On February 3, 2003 IMA Exploration announced the discovery of high-grade
silver-lead-copper mineralization at its 100% owned 10,000 hectare (24,700
acres) Navidad Property in north central Chubut, Argentina. The mineralization
had been discovered by prospecting on December 10, 2002 and was a brand new
discovery as there were no recorded occurrences of silver mineralization in the
area. This was surprising due to the fact that high-grade,
structurally-controlled mineralization, and the moderate-grade replacement style
mineralization with abundant visible lead and copper mineralization outcrops and
subcrops over a strike length of thousands of meters. There was no evidence of
prior prospecting or sampling activity anywhere despite the area being
inhabited. Furthermore a fence line passes
24
[Argentina Property Map]
25
through the central part of the outcropping high-grade mineralization and blocks
of rock containing obvious green copper oxides had been used to prop up fence
posts.
By the time of the original announcement IMA had collected 92 rocks samples at
Navidad of which the results for 49 were tabulated in a press release on
February 3rd, 2003. As of March 31, 2003, 257 rocks samples, 378 soil samples
and 55 stream silts samples had been collected from the 10 by 10 km area during
35 man days of geological work. In addition to the sampling mentioned above,
detailed and property scale geological mapping, preliminary petrographic, and
environmental base line studies have been undertaken. The following description
is based on results of that work. Understandably, no drilling or mechanized
trenching have yet been carried out due to the very short exploration history.
Navidad is located roughly midway between the small towns of Gastre and Gan Gan
in the treeless semi-arid central part of the province at an elevation of about
1,200 meters. The climate is cool temperate, quite dry and is characteristically
windy. The administrative unit is the Department of Gastre, which is one of the
largest and least populated departments in the province. Basic services and fuel
are available in the above mentioned towns. Locally, the main economic
activities are sheep ranching and government. From Navidad it is 400 kilometers
to the east, the majority on gravel roads to Rawson the provincial capital near
the Atlantic coast, or 335 km to Puerto Madryn a port city with shipping
facilities. The nearest railhead is to the northwest 200 km at Ingenerio
Jacobacci in the province of Rio Negro. A major high voltage power line passes
approximately 45km to the south of Navidad connecting a hydroelectric dam at
Futaleufu with an aluminum smelter at Puerto Madryn.
The only significant history of metallic mineral production in the Department of
Gastre, and in fact in the north-central part of the province came from the Mina
Angela located some 30km northeast of Gastre. It produced over one million tons
of polymetallic (gold-silver-copper-lead zinc) ore from a series of epithermal
veins during intermittent periods between 1920 and 1992. This mine was the first
and only mine to be properly closed in Argentina all others having been simply
abandoned. Former employees of this operation still live in the towns of Gastre
and Gan Gan.
Geologically, Navidad lies in a series of mixed calcareous sediments and
intermediate volcanic rocks mapped by government geologists as the Canadon
Asfalto Formation of Upper Jurassic age. Mineralization found to date is hosted
by what is interpreted as a sedimentary breccia containing clasts of sedimentary
and volcanic origin. That breccia is intercalated with finer grained more
tuffaceous equivalents and also limestones of apparently marine origin. These
rocks have been intruded by intermediate (latite to dacite) igneous rocks which
are fine grained and have features suggesting they were both intrusive and
extrusive. In other words, they are interpreted to have reached the earth's
surface in a marine environment and contributed to the clasts in the breccia.
Intercalated with the breccia unit are thin but extensive beds of siliceous and
calcareous rocks that are often laminated. These beds are interpreted as
exhalite units and are anomalous in silver, copper, lead, zinc and arsenic.
Their presence suggests that the hydrothermal system responsible for the Navidad
vented to the surface into a marine basin.
Economically important mineralization occurs in at least two forms. The first
being structural zones ranging in width from 0.2 to about 5.0 meters and
probably averaging approximately 1 metre in width. These structures are steeply
dipping and form a sub-parallel series of strongly mineralized zones that are
hosted within a felsic unit which is interpreted as a flow dome. Within a zone
of 110 by 160 meters a cumulative strike length of 402m of outcropping
structures of this type have been mapped from which 43 continuous chip samples
have been collected that have a length weighted average grade of 6,537 grams per
tonne (g/t) silver (191 ounces per ton), 4.51% copper, and 14.07% lead. The
geological potential for the extension of this type of mineralization is
excellent because work to date has been hindered by thin soil cover.
Petrographic studies have shown that the major ore minerals in this style of
mineralization are argentite-acanthite (Ag2S), galena (PbS), chalcocite (Cu2S),
and lesser copper-silver-lead chlorides and oxides. The high silver content of
the primary minerals, the absence of pyrite or iron oxides, and the presence of
oxide copper minerals at surface suggest that strong leaching and supergene
enrichment have not occurred.
A second type of mineralization exists within the breccia unit described above
and comprises disseminated galena and barite in the matrix that is interpreted
to have replaced the matrix of the breccia when it was unconsolidated, shortly
after the time of deposition. Rarely, fragments of massive galena are found
suggesting that massive sulphides may have been broken up and resedimented as
clasts within the breccia. Mapping of mineralized portions of the breccia to
date has indicated a cumulative 3.2 kilometre strike length this style from
which 41 samples have been collected that average 158 g/t silver (4.61 oz/t) and
8.98% lead. Petrographic work indicates that the replacement-
26
style mineralization is comprised almost entirely of silver-bearing galena
(PbS); no discrete silver minerals were identified.
Recently a potential third type of mineralization has been recognized that
shares characteristics of the above two styles. It is a breccia similar to that
noted above but with copper oxides. Its presence appears to be restricted to the
near the margins of felsic volcanic units. In terms of grade, it contains silver
values intermediate to those noted above typically hundreds to a few thousand
grams per tonne of silver as well as significant amounts of both lead and copper
- the later is absent in the typical replacement style mineralization.
It is worth noting that ALS-Chemex has been the primary assay laboratory for all
of the above work, but that a extensive check assay program initiated early in
the project history in which to date 31 samples have been assayed by the
secondary assay laboratory, Alex Stewart (assayers) Argentina S.A. of Mendoza
which is part of an international organization serving the mineral industry in
environmental, exploration, and production analytical work and has extensive
experience in umpire assays and mineral concentrate analysis. Results of these
check assays indicate very good concurrence of the two laboratories.
Preliminary soil sampling has been conducted over a strike length of 5.0km along
north-south oriented lines spaced at 200m intervals with samples collected at
50m intervals. Outside of the previously reported Navidad Hill bonanza-grade
zone, soil sampling has identified a highly anomalous area of 1,200 metres by
approximately 500 metres with values consistently greater than 2 g/t silver.
These high silver values in soil samples correlate very well with anomalous
copper (>50 ppm Cu) values and reflect the high silver-copper values in the
bonanza-grade silver-copper-lead mineralization at Navidad Hill. These results
indicate an excellent potential for the discovery of new zones of bonanza-grade
silver mineralization similar to those previously reported.
Extending to the northeast and southwest from the 1,200 x 500 metre
silver-copper anomaly, highly anomalous lead values, consistently greater than
500 ppm, occur naturally in soils and define a trend that correlates with, and
potentially expands, the known replacement style silver-lead mineralization.
Within this area of high lead values there are numerous additional soil samples
with high silver and copper values, including values up to 531 g/t silver (15.61
oz/t) and 574 ppm copper. One area, 1,200m to the northwest of Navidad Hill
stands out due to its high silver and lead values in soil. This area has yet to
be prospected, but has values of up to 18.3 ppm silver and 5,800 ppm lead in
soils over an area of 300 by 600m.
Ongoing work at Navidad includes detailed mapping and sampling, infill soil
sampling, geophysical surveys including induced polarization and gravimetrics
with the goal of defining drill targets. It is anticipated that this work will
be completed during the Patagonian Fall (approximately June) and that drilling
will commence in the Patagonian Spring (approximately September) of 2003.
IMA ARGENTINAS GROUP 3 PROPERTIES (LAGUNA DEL TOROS, EVELINA-LAS BAYAS,
VICTORIA, COSTA, LAGO PICO, CORCOVADO, LOMA ALTA, RUTA 17, PENASCUDO)
In early 2001, IMA acquired, by staking, a 100% interest in four cateos
totalling 4,200 hectares (10,377 acres) in western Chubut Province, Patagonia,
named the Los Toros property. In October, 2001, IMA then acquired, also by
staking, a 100% interest in the 3,450.3 hectare (8,522 acres) Evelina (Las
Bayas) Property, which consists of one cateo. Both cateos have been granted to
the Company as of December 31, 2002. During 2002 the Company expanded its land
portfolio in Chubut by staking the following mining rights: Toros II, 3,000
hectares (7,410 acres); Victoria 5,400 hectares (13,338 acres); Victoria I,
1,800 hectares (4,446 acres); Victoria II , 6,509 hectares (16,077 acres);
Victoria III, 750 hectares (1,852 acres); Victoria 4, 739.35 hectares (11,706
acres); Victoria 5, 932.44 hectares (14,653 acres); Costa 4,660.5 hectares
(11,511 acres); Costa I, 3,285 hectares (8,114 acres); Costa II, 6,467 hectares
(15,973 acres); Lago Pico, 10,000 hectares (24,700 acres); Corcovado, 10,000
hectares (24,700 acres); Loma Alta 10,000 hectares (24,700 acres); and Ruta 17,
4180 hectares (10,325 acres). The Company also applied for and was granted,
seven vacant minas: Alberto, 1,100 hectares (2,717 acres); Rolando, 1,300
hectares (3,211 acres); Cecilia, 1,400 hectares (3,458 acres); Pedro, 1,300
hectares (3,211 acres); Fernando, 1,300 hectares (3,211 acres); Ivan, 1,300
hectares (3,211 acres); and Daniel, 1,300 hectares (3,211 acres). All of these
Chubut properties are in the exploration stage.
27
The Patagonia region of Argentina has long been recognized as a highly
prospective setting for low sulphidation epithermal gold mineralization. The
discovery and delineation of Brancote's Esquel deposit and Anglo Gold's Cerro
Vanguardia deposit have demonstrated the potential for significant gold deposits
in this region. Worldwide, this deposit type has produced numerous low cost and
highly profitable mines, including El Penon in Chile, Hishikari in Japan, and
Creede and Round Mountain in the United States, making it a much sought after
style of mineralization. Preliminary reconnaissance geological mapping and rock
sampling in mid-2002 indicates that Laguna del Toros, covers a number of
mineralized epithermal quartz veins. The largest occurrence, the Morgul vein,
outcrops discontinuously for over one kilometre, with widths of up to 20 meters
of quartz vein material. The presence of anomalous gold values together with
strongly anomalous silver, arsenic and mercury values suggests that the exposed
vein could represent the upper portion of a more strongly mineralized gold
system at depth.
LAS BAYAS/VICTORIA PROPERTY
LOCATION AND ACCESS
The Las Bayas property is located in west central Chubut Province, Argentina, 40
kilometres north of the town of Alto Rio Senguer and 200 kilometres northwest of
the port of Comodoro Rivadavia . Elevations on the property are modest at
between 675 and 800m. A local road provides easy access to the central portions
of the property from highway 40 which passes through the eastern extremity of
the property.
EXPLORATION HISTORY
Preliminary reconnaissance geological mapping and rock sampling in 2001
indicated that host strata at Las Bayas is cut by a series of subparallel
epithermal quartz veins exposed over a minimum one kilometre strike length.
Subsequent surface work in 2002 included over 700 rock chip samples and 1,200
soil samples which defined a 4 kilometre by 1.5 kilometre area of outcropping
low-sulphidation epithermal quartz veins. Geochemistry indicated potentially
economic gold and silver values and anomalous arsenic, antimony, and mercury.
Results of the 2002 surface work led to a 1,953 metre diamond drill campaign in
February, 2003. This program tested approximately 900 linear metres of the total
15,000 linear metres of quartz veins mapped on the property.
GEOLOGY AND MINERALIZATION
An impressive amount of outcropping quartz veins and subcropping quartz float is
present at Mincor, Eagle, and Owl hills in the west-central portion of the Las
Bayas property. These three hills define a north-northeast trending zone of
intense quartz veining over 4 kilometres long and up to 1.5 kilometres wide.
Vein orientations are dominantly parallel with this trend, and most veins dip
moderately to steeply to the east. Samples of vein material have returned values
of <0.05 to 25.8 g/t gold and <0.05 to 32.7 g/t silver although grades are more
commonly in the 0.5 to 3.0 g/t Au range.
Individual veins are generally 1 to 22 metres wide and are comprised of white,
fine-grained quartz with white chalcedony, minor limonite, and variable
percentages of carbonate. Wall rock fragments are common within veins and are
generally silicified and argillically altered. Petrographic work shows textures
and alteration indicative of a low-sulphidation epithermal environment that
spans the crustiform-colloform and crystalline superzones. Quartz +/- carbonate
breccias are common as is bladed quartz possibly indicating replacement of
carbonate.
In addition to the larger veins, minor quartz stockworking is present peripheral
to veins, as is argillic alteration. One zone of strong argillic alteration and
silicification has been noted distal to known veins, and returned grades of 0.8
g/t gold. This may show potential for significant gold present in the absence of
larger veins and therefore suggests possible bulk tonnage potential.
VICTORIA EXTENSION
The Victoria claims represent a large addition to the Las Bayas property and
were staked based on interpretation of Landsat images which show a potential
extension of the Las Bayas epithermal system exposed in two "windows" through
the Cretaceous cover rocks. Initial prospecting of the southernmost "window" has
uncovered significant
28
quartz veining and has returned sample values from <0.05 to 1.2 g/t gold. If
this interpreted alteration is shown to be contiguous with the Las Bayas system,
the overall system will have a strike length in excess of 10 kilometres. In
addition to these zones, two reconnaissance prospecting samples were taken which
returned values of 0.8 and 1.4 g/t gold from quartz/chalcedony material within a
zone of argillic alteration adjacent to highway 40 and over 17 km along strike
from the Las Bayas veining. Although this ground is presently at a very
`grassroots' stage of development, management believes that it is highly
prospective for additional gold discoveries.
2003 DRILL PROGRAM
The Company completed a 19 hole, 1,953 metre diamond drill program on the Las
Bayas project on March 3, 2003. Eighteen of the 19 drill holes completed
intersected the targeted low-sulphidation quartz veins; these intersections
ranged in width from 0.4 to 22.1 metres of vein material. This drilling tested
approximately 900 metres of the mapped 15,000 metre strike length of veins
exposed at Las Bayas Hill. Highlight of the drill results are as follows:
-----------------------------------------------------------------------------------------------------
DDH Length (m) Gold (g/t) Silver (g/t) Gold Equivalent (g/t)
(Au+Ag/70)
-----------------------------------------------------------------------------------------------------
LB03-01 5.1 0.96 36.9 1.48
-----------------------------------------------------------------------------------------------------
including 1.3 2.62 33.0 3.09
-----------------------------------------------------------------------------------------------------
LB03-05 5.0 0.73 51.5 1.47
-----------------------------------------------------------------------------------------------------
including 2.0 1.48 101.9 2.93
-----------------------------------------------------------------------------------------------------
LB03-07 0.7 1.02 n/a n/a
-----------------------------------------------------------------------------------------------------
At present, no further work is planned for the Las Bayas project. Due to the
large size of the mineralized system exposed at Las Bayas, the Company's
geologists feel that significant exploration potential remains at the project.
LAGUNA DE LOS TOROS PROPERTY
The Laguna de los Toros property includes significant low sulphidation
epithermal quartz veins in several separate, yet related, showings. Mineralized
structures include the Morgul vein, a north-south striking, east dipping quartz
vein which, although offset by a fault, is exposed intermittently over 1.9
kilometers.
LOCATION AND ACCESS
The Laguna de los Toros property is located in west-central Chubut,
approximately 55 kilometres south of G. Costa. Elevation and topographic relief
are moderate, and work is possible year round. Access to the property is easy as
highway 40 passes through it's southern portions and local roads can be used to
access much of the rest of the property.
GEOLOGY AND MINERALIZATION
The main mineralized structure on the Laguna de los Toros property is the Morgul
vein. This vein is divided into the Morgul North (700m known strike) and Morgul
South (1,200m known strike) by a fault which offsets the vein approximately
600m. The Morgul structure is comprised of several individual 1-3 metre veins
within a 15-20 metre wide zone of silicification. Gold and silver grades from
the Morgul vein are generally low (from <0.05 to 0.95 g/t Au and<0.05 to 83 g/t
Ag), however highly anomalous arsenic and mercury values (As to 5,330 ppm, Hg to
>20,000 ppb) indicate possible precious metals elsewhere in the system. Grab
samples of smaller structures peripheral to the Morgul vein and in the Morgul
south central and east areas have returned more encouraging values of 7.6 g/t
gold and 452 g/t silver supporting the idea that bonanza-grade ore shoots may be
present within the Morgul structure.
Petrographic work on samples of the Morgul vein show textures typical of the low
temperature epithermal environment, likely intermediate between the chalcedonic
and cristiform-colloform superzones. Fluid inclusion size and shape, in
conjunction with microcrystalline quartz textures indicate probable deposition
at temperature less than 180(0) C. This evidence supports the likelihood of
increasing gold and silver grades 50 to 150 metres below the present level of
exposure.
29
FUTURE WORK
All reasonable surface work has been completed at the Los Toros project. A 1,200
to 2,000 metre drill program has been proposed as the next logical phase of
exploration. At this time it is uncertain whether the Company will undertake
this program or seek a partner on the project.
ARTURO'S PROPERTY (Mogotes)
The Arturo (Mogote) property consists of one cateo and three discoveries of
8,009 hectares (19,790 acres) located in the Departament Iglesia, Macho Muerto
zone, in the San Juan Province close to the northern border with La Rioja
Province, approximately 300 kilometers northwest of the city of San Juan, and
bordering Chile. The property is underlain by basement rocks of the Permian age
Choiyoi Group, which are faulted against and overlain by Tertiary age volcanic
rocks. Under an option agreement dated June 7, 2000, as amended August 3, 2000,
and September 1, 2000, the Company may acquire a 100% interest in the property
by making cash payments totaling $280,000. As of December 31, 2002, the Company
has paid $24,100. Subsequent payments are $15,000 on June 6, 2003, $20,000 on
December 6, 2003; $20,000 on June 6, 2004, $80,000 on December 6, 2004(when the
option is exercised); and $110,000 on June 6, 2005. The balance to $280,000
($10,900) have been written off by the effect of the "pesifications" of debts in
Argentina (debt obligation are paid in pesos instead of the original dollars at
a rate of exchange which is no longer peso 1/ $ but a much higher average value
of peso 3.5/ $). The vendors will have the right to receive a royalty of 0.5%
NSR, up to a maximum of $500,000.
A brief geological reconnaissance took place in March-April 2000, during which
21 rock and talus samples were collected. Gold values ranged from nil to 0.13
g/t, with most of the anomalous samples coming from zones argillic and/or
ferruginous alteration.
In November-December 2000, a reconnaissance geological and geochemical sampling
program was carried out over the property. This work outlined an area measuring
approximately 3 kilometers E-W near the northern property boundary which
returned a high proportion of anomalous copper and gold results in both rock and
stream sediment samples.
On March 5, 2001, the Company entered into a letter agreement and granted Rio
Tinto Mining and Exploration Limited, Sucursal Argentina ("Rio Tinto") an
exclusive option exercisable at the sole discretion of Rio Tinto to acquire a
70% interest in the property. In order for Rio Tinto to earn a 51% interest in
the property, Rio Tinto must complete work expenditures totaling US$1.85 million
no later than the third anniversary of the date of the letter agreement (March
5, 2004) and to elect to earn a further 19% interest (for a total of 70%), Rio
Tinto must fund a further US$7.0 million in work expenditures by March 5, 2009.
The initial option was granted based on Rio Tinto providing a firm commitment to
spend US$100,000 on exploration expenditures by June 30, 2002 and making a
payment of US$25,000 (paid) on or before June 30, 2001. In December, 2001 Rio
Tinto elected not to proceed with the IMA-Rio Tinto joint venture as a result of
budgetary constraints. Subsequent to termination of the IMA-Rio Tinto joint
venture, a number of mining companies have expressed an interest in the Mogote
Property. Management continues to view the Mogote Property as having potential
for the discovery of a gold-copper porphyry deposit.
During January 2003 the Company carried out a four week detailed surface
exploration program to establish drill targets for a Phase I drill program. The
results significantly expanded the gold-copper exploration potential of the
project. The Company signed a letter of Intent on March 6, 2003 with Amera to
earn a undivided 51 % interest (subject to regulatory approval) to further
explore the Arturo Property (Mogotes). See "Item. 7 Major Shareholders and
Related Party Transactions - Related Party Transactions." To earn a 51 %
interest in the property, Amera must issue 1,650,000 common shares to the
Company and incur US $1.25 million of expenditures, including work programs and
underlying option payments, all over five years.
LIRIO GROUP 1 PROPERTIES (Despoblados, Quebrada del Durazno, Sierra Pescado I,
Sierra Pescado II, Sierra Yanso)
The Lirio Group 1 Properties consist of five cateos, totaling 22,557 hectares
(55,738 acres), four of which are located in the Gualcamayo region of
northeastern San Juan Province, while the fifth (Despoblados) is located in the
Valle del Cura region of northwestern San Juan Province. An option to acquire a
100% interest in the Group 1 Properties was granted by Lirfer S.A and has been
executed by Inversiones Mineras Argentinas S.A., for the aggregate sum of
30
US$75,000. For each of the five cateos advanced up to exploitation, Mineras
Argentinas S.A., will pay US$800,000 after completion of a positive feasibility
study.
Four of the Lirio Group 1 properties are located in the Gualcamayo region, one
of the main regions of gold production in the Pre-Cordillera of Argentina, while
the fifth property (Despoblados) is located in the Valle del Cura region.
Initial examination of the Sierra Pescado I and II properties, including
prospecting and geochemical sampling was carried out in late 1999. The results
from the initial examination indicate the presence of skarn-style alteration
associated with anomalous gold values (range from nil to 0.19 g/t). Based on the
results of the initial examination, management believes the Lirio Group 1
properties located in the Gualcamayo region cover geological environments
favorable for the occurrence of gold and copper-gold skarn or carbonate
replacement mineralization. Year-round exploration work on these properties is
possible as they are located in low-level elevation areas.
LIRIO GROUP 2 PROPERTIES (Potrerillos, Ortiguita, Gollete)
The Lirio Group 2 Properties consist of three cateos, totaling 17,600 hectares
(43,489 acres), in the Valle del Cura region of northwestern San Juan Province.
An option to acquire a 100% interest in the Group 2 Properties was granted by
Lirfer S.A., pursuant to an agreement dated November 19, 1998, as amended on
April 23, 2001 and December 26, 2001, July and December 2002 for the aggregate
sum of US$580,000, of which US$275,000 has been paid, with four more payments to
be made, on July 30, 2003 US$15,000; on December 3, 2003 US$50,000; on December
30, 2004 US$70,000; and on December 30, 2005 US$170,000. For each of the three
cateos advanced up to exploitation, IMA Argentinas will pay US$1,000,000 after
completion of a positive feasibility study. The option expires December 30,
2005. The Potrerillos property is the subject of the agreement between the
Company and Barrick, as more fully described below.
On the Potrerillos property of 4,000 hectares (9,837 acres), Coast Mountain
Geological Ltd. ("CMG") conducted a reconnaissance geological mapping and
sampling program in early 1999. The geological mapping indicates that Tertiary
age volcanic rocks occur over much of the property. A total of 83 rock samples
were collected for geochemical analysis, and 26 of these were also submitted for
Portable Infrared Mineral Analyzer ("PIMA") analysis to identify the alteration
mineralogy. Anomalous gold values (nil to 0.23 g/t) along with scattered
anomalous basemetal, silver and arsenic values were returned, mainly from the
central northwest portion of the property. The PIMA study showed that four
samples from the same area contain alunite, a key indicator mineral for high
level epithermal gold mineralization. The Company commenced a Phase I program of
detailed geochemical sampling and geological mapping in late 1999.
The Phase I program identified three targets for detailed follow-up work. The
Panorama Zone in the central part of the property has returned grab samples
assaying from nil to 0.63 g/t Au and from 1 g/t to 276 g/t Ag from a
north-trending zone of quartz veining and silicification which has been traced
for approximately 1 kilometer along strike. The Fabriana Extension zone, located
on the western portion of the property, consists of a large area (800 meters x
300 meters) of altered volcanic rocks with grab samples returning strongly
anomalous values in arsenic and scattered anomalous gold values. The Narelle
Zone, on the northeastern part of the property, is a large (1.5 x 1 kilometer)
zone of strongly silicified felsic volcanics with variably anomalous mercury and
gold values.
In February 2000, a Phase II program consisting of ground geophysics, detailed
geochemical sampling and geological mapping was commenced on the Fabriana
Extension zone. The geophysical surveys outlined an east-west trending
resistivity anomaly at least 500 meters in length which underlies felsic
volcanic breccias with strong alunite alteration, strongly anomalous arsenic,
and erratic anomalous gold values. In April-May 2000, a reverse-circulation
drilling program was completed over the Fabriana Extension target. Nine holes
totaling 1,785 meters were completed. Samples were collected at 1.5 meter
intervals, and sent to ALS-Chemex Laboratories in Mendoza for analysis for gold
by fire assay; silver, copper, lead, zinc, arsenic and antimony by atomic
absorption; and mercury by cold vapor analysis. Blank samples were inserted into
the assay stream for control purposes. Sample rejects are stored in the
ALS-Chemex facility in Mendoza, while reference rock chips of each 1.5 meter
interval are stored in the Company's facility in San Juan.
Six of the holes were sited to test a resistivity feature defined by ground
geophysical surveys. The anomaly trends east-west, and was interpreted to
underlie surface outcrops of felsic breccias containing abundant alunite
alteration and anomalous arsenic and lead values. The drilling intersected
shallow dipping Tertiary volcanics consisting of a
31
felsic sequence up to 40 meters thick of breccias and interbedded flows
overlying several hundred meters of porphyritic andesites. Within the andesites,
a number of narrow intervals with anomalous gold values were intersected,
associated with (i) quartz veining or (ii) clay-altered fault zones. The
mineralized quartz-veined intervals are generally associated with strongly
anomalous mercury values. Three additional holes were drilled to the south of
the resistivity anomaly on targets defined by surface geological mapping and
induced polarization surveying. All holes drilled into the andesite succession,
and encountered several clay altered fault zones and alunite veining. These
zones returned variably anomalous arsenic values, but only background gold. The
results confirm the existence of a high sulphidation-style alteration system.
Management believes further work is necessary to better characterize the
alteration encountered in the drilling as well as additional geophysical
modeling of the induced polarization and CSAMT results.
Between November 2000 and February 2001, the Company carried out further
exploration on the Potrerillos property consisting of bulldozer trenching,
geological mapping, and rock chip and talus fines goechemical sampling. This
work concentrated on the Narelle zone, with some additional work on the Panorama
zone. Both of these targets were first identified during the 1999-2000 season.
At Narelle, seven bulldozer trenches totaling approximately 1,750 meters were
excavated. Talus fines geochemical sampling (113 samples) and rock geochemical
sampling (50 samples) was conducted to better define the extent and strength of
the gold-mercury anomaly detected in the previous season. Gold values in the
talus fines ranged from <0.01 g/t to 0.37 g/t, with mercury ranging from <0.02
ppm to 68.4 ppm. Gold values in the rock sampling ranged from <0.01 g/t to 0.02
g/t, with mercury ranging from <0.02 ppm to 10.8 ppm. The high values in both
sample media concentrate in an area approximately 200 meters in diameter in the
same location as the anomalous results from the 1999 - 2000 program. The
mineralization, hosted by rhyolitic pyroclasitic rocks, may be related to
intersecting NE and NNW-trending structures.
At Panorama, 15 rock samples were collected from the northern continuation of
the zone from the area sampled in the 1999 - 2000 season through to the northern
property boundary. Five of the fifteen samples are strongly anomalous to very
high gold and/or silver values, with the overall range in gold values being from
<0.01 g/t to 15.4 g/t and in silver from 0.1 g/t to 2,900 g/t. Elevated mercury
values ranging from <0.02 ppm to 4.93 ppm are also present. The sample returning
the highest gold and silver values is a chip sample from a 0.6 meter wide E-W
trending quartz vein.
The Gollete property of 10,000 hectares (24,596 acres) is located approximately
30 kilometers southeast of Veladero, and covers a number of color anomalies
interpreted from satellite imagery. Also defined on the satellite images, and on
a recent Argentinean government geological map covering the area, is a 100
kilometer long northwest-trending structure which passes through both the Pascua
and Veladero properties and Gollete. In early 1999,CMG carried out
reconnaissance sampling of the western part of the property. Due to the presence
of widespread alluvial cover, most of the 42 rock samples collected for
geochemical analysis were of float material, with 24 also being submitted for
PIMA analysis. Gold values range from nil to 0.17 g/t. In early 2000, the
Company carried out further reconnaissance work at Gollete consisting of
geological mapping and the collection of 43 rock geochemical and 22 stream
sediment geochemical samples. Most of these samples were collected from the
northwestern sector of the property where the anomalous results generated by CMG
were located. This area is referred to as the Condor zone, and is visible on
satellite images as a color anomaly approximately 1.5 kilometers long at
elevations between 4,500 and 5,000 meters. Both the rock and stream sediment
sampling in the Condor area generated strongly anomalous arsenic results,
without accompanying anomalous gold or silver values. No further work is
currently planned.
The Ortiguita property of 3,600 hectares (8,896 acres) is located approximately
35 kilometers east-north-east of Veladero. In early 2001, a short reconnaissance
program was carried out, mainly directed at checking several color anomalies
visible on satellite imagery. Eight rock and four stream sediment samples were
collected; none returned anomalous values in gold or silver. The satellite
features appear to be related to outcrop patterns in unmineralized volcanic
rocks. No further work is planned for the property.
GARCIA PROPERTIES (Cerro la Sal, Portezuelo de Agua Negra, Filo de las Sopenas,
Rio de las Taguas, Arroyo Cajon de la Brea, El Toro, Paso de Soberado,
Chinguillos, Veladero, Portezuelo Tortolas, Cerro del Salado, Las Flechas South
1-3).
32
The Company owns a 100% interest in the Garcia Properties which are composed of
fourteen cateos, totaling 47,160 hectares (116,485 acres), in various locations
in San Juan Province. The properties were acquired pursuant to an agreement
dated June 11, 1996, signed by IMA Argentinas, Oscar Garcia, Hugo C. Soria, Yali
Calendaria Sagua, Ramon Olmedo, Gustavo A. Castillo and Ingrid Soria for the
aggregate sum of US$100,000. The agreement was amended on December 15, 1998, to
reduce the total payment to US$87,000, which has been paid in full.
The 14 Garcia properties, totaling 47,160 hectares (116,557 acres), cover a
number of geological environments in northwestern San Juan province. A brief
reconnaissance evaluation of the Cerro la Sal and Chinguillos properties was
conducted in 1997. In early 2002, CMG carried out a reconnaissance geological
mapping and geochemical sampling program on the Rio de las Taguas property. With
more detailed follow up work in both the 2001-2002 and 2000-2001 field seasons.
In early 2001, a brief field program was conducted on the Paso de Soberado
property. As of the date of this annual report, the Company has not conducted
any ground work on the remaining 10 properties.
The Cerro la Sal property consists of 4,864 hectares (12,021 acres) and is
located 25 kilometers west of the city of San Juan. The main geological feature
is a Miocene age dacitic intrusive which cuts Miocene and Devonian age
sedimentary rocks. The five rock samples collected did not return any anomalous
values. A study of the satellite imagery covering the property has been
recommended to provide a guide for any further field work.
The Chinguillos property consists of 3,610 hectares (10,911 acres) and is
located in the Gualcamayo region, approximately 215 kilometers north of the city
of San Juan. In the southwestern part of the property, strong argillic
alteration is developed in parts of a dacite intrusive. Thin carbonate veins
occur within the alteration zone, and samples of the vein material are strongly
anomalous in copper, arsenic, nickel and cobalt. Gold values range from nil to
0.04 g/t. Management believes these results, combined with the presence of the
strong argillic alteration, were very encouraging. Additional follow-up mapping
and sampling are recommended; however, no funds have been allocated for this
work in the next 12 months.
The Paso del Soberado property of 873 hectares (2,157 acres) located
approximately 20 kilometers north-northeast of Veladero was examined in early
2001 and 25 rock and stream sediment geochemical samples collected. Three of the
rock samples returned anomalous gold values ranging from 0.26 to 0.51 g/t. All
of the anomalous samples are of float material, with two of the three shedding
from a NE-trending breccia zone containing quartz and alunite. Additional work
to determine the extent of the mineralized breccia zonewill be undertaken in the
future.
The Rio de las Taguas property consists of 1,820 hectares (4,497 acres) and is
located in the Valle del Cura region. A preliminary study of satellite images
covering the region shows the presence of a number of color anomalies on the
property, along with the presence of a strong southeasterly-trending structure.
The initial reconnaissance work, carried out by CMG, targeted on these features
and returned a number of anomalous gold values (ranging from nil to 0.33 g/t)
from 79 rock samples, generally associated with elevated arsenic values. The
highest rock values for both gold and arsenic cluster in the southwestern part
of the property along a northeast facing ridge.
The Company commenced a program of geochemical sampling and geological mapping
in late 1999. Three target zones were identified by this program. The Ridge Zone
is a 350 meter long northeast-trending zone of strongly clay-altered volcanics
with grab samples returning anomalous values in gold and arsenic. The Central
Breccia Zone covers an area of silicification, quartz veining and brecciation
measuring approximately 400 meters by 300 meters, while the Valley Shear is a
linear, southeast-trending overburden covered valley which parallels the trend
of the mineralized Pascua Fault.
A Phase II program consisting of gridding, ground geophysics, detailed
geological mapping, PIMA sampling and geochemical sampling over the three target
areas was carried out in early 2001. This work identified the Ridge Zone as the
highest priority target. Further geophysical work consisting of induced
polarization surveying was completed in April 2000 and outlined a large (600 x
300 meters) chargeability zone under scree cover adjacent to the Ridge Zone.
In November 2000, a program of road construction and bulldozer trenching was
carried out on the Ridge Zone to provide better access and rock exposure for
detailed geological mapping and rock sampling. Approximately 3.5 kilometers of
road were constructed, of which approximately 500 meters was in bedrock.
33
Mapping and sampling of the new exposures and surrounding area were completed in
late 2000. The geologic mapping showed the area to consist of a lower andesitic
volcanic unit overlain by dacitic to rhyolitic pyroclastics. Alteration exposed
in the road cuts is mainly sericite-clay ranging from weak to moderate in
intensity. The strongest alteration effects appear to be associated with local
structures of limited extent.
The geochemical sampling consisted of 140 rock samples and eight talus fines
samples. The results confirmed low order anomalies in a number of elements, most
notably gold and arsenic. Gold values in rock range from <0.01 g/t to 0.09 g/t,
and in talus fines from 0.01 g/t to 0.4 g/t. Silver values in rock range from
<0.1 g/t to 3.8 g/t, and in talus fines from 0.2 g/t to 0.4 g/t. Arsenic values
in rock range from <5 ppm to 622 ppm, and in talus fines from 52 ppm to 120 ppm.
BARRICK AGREEMENT (Rio de las Taguas, Potrerillos)
Under a financing and option agreement dated August 17, 1999, Barrick subscribed
to a private placement of 1.5 million units at a price of $1.00 per unit. Each
unit consists of one common share of the capital stock of the Company and one
non-transferable share purchase warrant, entitling Barrick to purchase an
additional common share for a period of one year at a price of $1.50 per share.
The shares issued were subject to a 12-month hold which expired August 17, 2000.
Of the proceeds from this private placement, the Company agreed to spend a
minimum of $1,125,000 on its Valle del Cura properties in northwestern Argentina
before August 17, 2000. The Company has made the required expenditures on the
Valle del Cura properties in accordance with the Barrick Agreement.
As part the August 17, 1999 agreement, the Company granted Barrick an option to
earn an interest in EITHER the Rio de las Taguas or Potrerillos properties in
the Valle del Cura region. This option gives Barrick the opportunity to earn a
50% interest in the selected property by paying the Company US$250,000 and
expending US$3 million in exploration on the selected property within five years
of making the US$250,000 payment. The agreement prescribes a fourteen month
period during which Barrick may exercise its option and make the property
selection. If Barrick exercises all of the share purchase warrants, this period
is automatically extended for an additional twelve months.
On April 19, 2000, Barrick exercised warrants at $1.50 to purchase an additional
350,000 shares of the Company for total proceeds of $525,000. The funds were
spent on the drill program on the Potrerillos property. On August 16, 2000,
Barrick exercised its remaining warrants to buy 1,150,000 common shares of the
Company for total proceeds of $1,725,000. Part of the proceeds were used to fund
the Company's exploration program in the Valle del Cura region of Argentina from
October 2000 to March 2001.
As a result of Barrick exercising all 1,500,000 warrants, the selection period
was automatically extended for an additional twelve calendar months to November
30, 2001. During March 2002, the Company further extended the selection period
to November 30, 2002 which was extended further by mutual consent to allow
Barrick's technical team to review additional properties of the Company.
Subsequent to the year end, Barrick and the Company agreed to extend the
Selection Notice Period in the Option Agreement from November 30, 2002 to
December 30, 2003. In return for the extension Barrick paid US $65,000 which
will be used to make payments to maintain the option properties in good
standing.
Further exploration on the Potrerillos and Rio de las Taguas properties is on
hold pending resumption of exploration and development activities at the nearby
Pascua-Lama and Veladero deposits by Barrick.
If Barrick elects to exercise its option and once Barrick has earned its 50%
interest, the property will be operated as a joint venture with Barrick as the
operator and each party paying its proportionate share of expenses, subject to
normal dilution and non-consent provisions. If either party is diluted down to a
20% interest, that interest will be converted to a 5% net smelter royalty.
Barrick will have the right to earn an additional 25% interest, for a total of
75%, by agreeing within two years of vesting its 50% interest to provide
financing necessary to bring the property into commercial production.
In addition, Barrick shall have the option to purchase a 100% interest in the
selected property from the Company for US$2 million and a 5% net smelter return
production royalty. Unless the parties agree otherwise, this option may be
exercised by Barrick only after Barrick has completed US$3 million in
exploration expenditures on the selected property without making a discovery of
ore in commercial quantities.
34
ARASENA PROPERTIES (Guardia Vieja, Arroyo de los Difuntos)
The Arasena Properties are composed of two cateos, totaling 6,532 hectares
(16,141 acres) located in central western San Juan Province. The Company owns a
100% interest in the properties which were acquired pursuant to an agreement
dated September 3, 1996 for the aggregate sum of US$6,500. The contract was
signed by IMA Argentinas and Modesto Arasena.
The Guardia Vieja property, located 150 kilometers northwest of San Juan city,
has not been visited to date, but initial evaluation of satellite imagery
indicates the presence of a color anomaly associated with a linear structure
that cuts across the property in a northeast-southwest direction.
The Arroyo de los Difuntos property, located 140 kilometers southwest of the
city of San Juan, in the Cordillera Principal, was visited by Apex Geoscience
Ltd. ("Apex") in March 1997. Apex reported localized zones of hydrothermal
alteration, and anomalous lead, nickel, cadmium, manganese, barium and vanadium
in rock grab samples. No further work is planned on this property.
RONCHIETTO PROPERTY (Banitos)
The Ronchietto property consists of one cateo, totaling 5,230 hectares (12,923
acres), in the Valle del Cura region of northwestern San Juan Province,
immediately northeast of the Jaguelito property. The Company acquired a 100%
interest in the Ronchietto property from V. Ronchietto pursuant to a purchase
agreement dated March 26, 1999, as amended on March 30, 2000, for the aggregate
sum of US$60,000, payable over 30 months, in twenty-one installments consisting
of an initial payment of US$5,000 (paid); two intermediate installments totaling
US$15,000 (paid), and 18 consecutive monthly payments of US$2,222 beginning May
5, 2000. As of December 31, 2001, these monthly payments were paid in full. In
the event of exploitation of the property, the purchase is subject to a royalty
of US$960,000 paid in eight installments.
The property covers a portion of a large, color anomaly visible on satellite
images. In early 2002, CMG carried out a reconnaissance geological mapping and
sampling program. This work indicated that much of the property is underlain by
Tertiary age volcanic and sedimentary rocks which overlie gently dipping Permian
age sedimentary rocks of the Choiyoi Group. Most of the 29 rock samples
collected were of float material, and returned weakly anomalous gold values
ranging from nil to a maximum of 0.04 g/t. During late 1999 and early 2000, the
Company carried out a reconnaissance program of geological mapping and
geochemical sampling over the Banitos property. The mapping indicated that the
property is underlain by Tertiary age volcanics and sediments, including a thick
gypsum unit which gives rise to a strong satellite color anomaly. The gypsum is
of sedimentary origin and not associated with hydrothermal alteration. The
geochemical sampling returned some moderately anomalous values in arsenic and
silver from samples taken near the southeastern boundary of the property. No
immediate follow-up work is planned.
IMA ARGENTINAS GROUP 2 PROPERTIES (Pelambres 2)
This cateo, totaling 345 hectares (852 acres) was staked to cover extensions of
prospective rocks onto open ground. No work is currently planned on these
properties.
PERUVIAN PROPERTIES
RIO TABACONAS PROPERTY
The following discussion on the Rio Tabaconas property is based upon the
"Geological Report on the Phase 2A Pre-Drilling Surface Exploration Program, Rio
Tabaconas Gold Project" prepared by Mr. George Sivertz, Professional Geologist,
OreQuest Consultants Ltd., dated May 31, 2002.
35
[Peru Property Map 1]
36
[Peru Property Map 2]
37
PROPERTY DESCRIPTION, LOCATION, AND ACCESS
The 9,000 hectare (22,230 acres) Rio Tabaconas property is located in
northwestern Peru, approximately 35 kilometers south of the southernmost tip of
Ecuador in the District of Tabaconas, Province of San Ignacio, Department of
Cajamarca. The Company has an option to purchase three claims covering a 2,890
hectare (7,138 acres) area within the central part of the property and holds
100% ownership, with no outstanding royalties, on the remainder of the property.
The Rio Tabaconas property is located 760 kilometers NNW of Lima in the District
of Tabaconas, Province of San Ignacio in the northern part of the Department of
Cajamarca, Peru. The Peru Ecuador border is located approximately 35 kilometers
to the north of the property. The town of Tamborapa is situated in the west
central part of the property.
Access to the property is by road from the city of Chiclayo, an approximately 12
hour trip. The central part of the property is reached by means of a rough road
leading northeast up the Quebrada Las Minas from the town of Tamborapa. The
upper section of the Quebrada Las Minas and the lower, cultivated sections of
the adjacent ridges can be reached using the local farmers' footpaths.
OWNERSHIP
Pursuant to an agreement between IMPSA Peru and Sociedad Minera de
Responsabilidad Limitada Don Alberto, JJ De Piura and Sociedad Minera de
Responsabilidad Limitada Nova JJ de Piura dated January 24, 1997, as amended on
January 31, 2000, August 22, 2000 April 24, 2001, and December 23, 2002, IMPSA
Peru acquired an option from J and J Madueno Bustamante to purchase a 100%
interest in three concessions totalling 2,890 hectares (7,138 acres) in the
Cajamarca Department of San Ignacio Province in northern Peru. In addition,
IMPSA Peru owns nine claims totalling 5,400 hectares (13,338 acres), which
surround and overlie the optioned concessions. An additional 2,700 hectares
(6,669 acres) are expected to be added during 2003 Collectively these are known
as the Rio Tabaconas project. The terms of the option agreement require an
aggregate sum of US$1,500,000 payable over seven years and an exploration
program totalling US$525,000 over three years. On June 28, 2002, the Company
suspended further exploration activities at the Rio Tabaconas project. This
decision was made in response to the local community expressing its concerns
with mineral exploration activites. The Company has deferred any further
exploration until an agreement with the local community has been finalized. As a
result the Company declared force majeure, as allowed under the option
agreement. Accordingly, the Company and the optionor have revised the timing of
the remaining US $1,340,000 option payments.
Of the total option payments US$160,000 has been paid. The remaining payments
and due dates are: US$25,000 on July 30, 2003, US$100,000 on December 20, 2003,
US$200,000 on December 20, 2004 and US$1,015,000 on August 20, 2005 (this final
payment is to be made if the commercial exploitation of the property has
commenced). Alternatively, in the event commercial exploitation of the
production does not occur, the payments are to be made in four installments of
US$200,000 commencing August 20, 2005 and subsequent installments on December 30
of each following year, with a final installment of US$215,000 due December 31,
2009. In the event that commercial production commences during this period, the
full remaining balance is due within 20 days of production start-up.
The exploration program requires work expenditures totaling US$525,000 to be
completed as follows: US$75,000 by October 24, 2001, US$150,000 by October 24,
2002, and US$300,000 by October 24, 2002. As at December 31, 2002, approximately
$1,966,404 has been spent on work expenditures. The Company is making progress
towards the finalization of an agreement with the local community and expects
exploration activities to resume in fiscal 2003 with Phase 2B of the drill.
Subject to securing sufficient financing, the Company intends to spend
approximately $1,144,500 for this property during 2003, of which approximately
$890,000 is for a Phase 2B 3,000 meter drill program and $187,500 is for making
option payments due in July and December 2003. A balance of $67,500 will be used
to pay government charges (known as "canons") for the right to do exploration
work. These charges are the Company's responsibility and are not credited to
option payments or exploration program requirements.
38
CLIMATE, INFRASTRUCTURE AND PHYSIOGRAPHY
The Rio Tabaconas property lies on the east side of the Sierra Occidental of the
Andes at elevations of between 1,000 and 2,400 meters, in an area of rugged
terrain characterized by deeply incised valleys separated by narrow ridges.
Exploration in this part of Peru can be conducted year-round.
The Province of San Ignacio and the Peruvian government are currently engaged in
the construction of a road to link the town of San Ignacio with Tamborapa
village. The road is being extended from a point on the present road network
west of San Ignacio; the planned route crosses the divide at the headwaters of
Quebrada Las Minas at an elevation of 2,300 meters and descends along a series
of switchback curves into the lower Las Minas valley.
The village of Tamborapa offers basic services including lodging and meals and
is the logical base for exploration efforts on the property.
HISTORY
Evidence of historic mining at Tabaconas includes previously known and newly
discovered workings throughout the Cerro Tablon and Cerro Las Minas areas, as
well as place names with reference to mining in the current nomenclature, such
as Cerro Las Minas and Quebrada Las Minas.
Mine workings at Tabaconas are believed to be on the order of 100 to 150 years
old and include adits, cuts and ventilation shafts on several locations on Cerro
Tablon and Cerro Las Minas. In the valleys, large cylindrical stones used to
crush raw ore in an arrastra or `patio' mill are known. There is no evidence of
recent hard rock mining on the property, but small placer operations can be
found along the Tabaconas River and in the lower sections of its larger
tributaries.
The first modern examination of what is now the Tabaconas property was conducted
in the late 1980s when a government-funded Peruvian-German consortium re-opened
the old mine workings on Cerro Tablon and carried out experimental geochemical
and geological studies in the mine area. The Company acquired the property in
January 1997. Since that time, the property has been briefly examined and
sampled by a number of companies at the Company's invitation.
GEOLOGICAL SETTING
The Rio Tabaconas property is underlain by Paleozoic to Cretaceous sedimentary
and volcanic rocks, which are capped in the area north of Tabaconas by a
sequence of Middle Tertiary volcanic and volcaniclastic rocks belonging to the
Namballe Formation.
Rocks exposed at the Tabaconas property are dominated by volcanic flows, tuffs,
and coarse pyroclastic rocks assigned to the Oyotun Formation, of Jurassic age.
This formation also includes tuffaceous sedimentary rocks and volcanic sediments
with intercalated limestone in the higher parts of the volcanic sequence.
Erosional windows of Ordovician metasedimentary rocks of the Salas Group occur
in the Oyotun cover at Tamborapa and to the north and south. In a large area
10-15 kilometers north of Tamborapa, the Oyotun rocks are overlain by
pyroclastic volcanics, tuffaceous sandstones, and volcanic conglomerates of the
Mid-Tertiary Namballe Formation, which may be stratigraphically equivalent to
the Porculla Volcanics in the western part of the map-area.
Plutonic rocks of Cretaceous-Tertiary age intrude all the supracrustal rocks in
the region except for the youngest Tertiary volcanic sequences. The dominant
intrusive type in the area of the Tamborapa property is porphyritic granite of
the Paltashaco pluton.
The Rio Tabaconas property lies within the Cajamarca copper-gold metallogenic
belt, which extends from Michiquillay, near the city of Cajamarca, northwards
into Ecuador. This belt is defined by a number of important gold and copper-gold
deposits hosted by Tertiary volcanic and intrusive rocks and Mesozoic
sedimentary rocks. Two of the most significant deposits in the belt are
Yanacocha and La Granja. Other important deposits in the belt include the
Michiquillay, Tantahuatay, Cerro Corona, Canariaco, Pena Verde, and Lanchipampa
porphyry systems and the La Zanja, Jehuamarca and Las Huaquillas volcanic or
sedimentary-hosted gold and polymetallic deposits. The deposits
39
in the belt are typically of Tertiary age and genetically linked to heat engines
or convective hydrothermal systems associated with Tertiary intrusive and
volcanic centers.
EXPLORATION
Work conducted on the Rio Tabaconas property by the Company began with brief
examinations in 1997 and 1999. In mid-2000, the Company carried out a four week
exploration program at Rio Tabaconas at a cost of approximately $40,000.
Highlights included:
o Discovery of a field of massive sulphide boulder field in the valley of
Quebrada Las Minas downslope from Cerro Tablon. Grab sampling of 22 of
the boulders (size ranges up to 500 tonnes) returned an average gold
grade of 9.3 g/t.
o Identification of in-situ mineralization upslope from the boulders at
Cerro Tablon. Chip samples of massive, semi-massive and stockwork
sulfide mineralization were collected from subcrops and outcrops at
Tablon and Tablon West and returned an average grade of 5.6 g/t gold
from 122 samples. Soil sampling of adjoining areas upslope and to the
north of the sulfide outcrops returned strongly anomalous gold in soil
results.
o At Cerro Las Minas, altered volcanic and sedimentary rocks, dykes and
breccias were found in a roughly circular zone approximately 800 meters
in diameter, possibly representing a partially-eroded volcanic complex.
Rock and soil sampling defined a coherent Au-Ag-Pb-Zn-As anomalous zone
approximately 600 meters long and 100 - 200 meters wide in the core of
the target. On the north and south flanks of the large alteration zone
are narrow, high-grade vein structures which were mined on a small
scale.
o Regional geological mapping and stream sediment geochemical sampling
over much of the 90 square kilometer (22,230 acres) property identified
three areas of iron (magnetite) skarn, and several anomalous gold and
indicator element anomalies in stream sediments.
In November 2000, a helicopter-borne electromagnetic ("EM") and magnetic survey
was flown at a cost of approximately $93,000. The magnetic results provide a
structural framework for the whole property, and showed the presence of a number
of well-defined ENE-trending magnetic features. The ENE structural trend is an
important element at some large mineral deposits in northern Peru, including
Yanacocha, Antamina and Magistral.
The EM results, while restricted by steep topography in some areas, detected
anomalies immediately south of known mineralization at Tablon, in an area of
overburden, as well as in a major north-south trending drainage located 2.5
kilometers west of Tablon. The latter EM anomaly (known as "Anomaly A") appears
to have a north-south orientation and lies on the west flank of a magnetic high.
In July, 2001 a pre-drilling surface exploration program was conducted on the
Tablon and Tablon West zones at a cost of approximately $25,000. Sixty-two soil
samples were taken from the La Union zone, directly east of the Tablon zone in
the "B" soil horizon (residual soils), with several values in the range of 2 to
18 g/t gold. These exploration results extended the strike length of the Tablon
gold target to 600 meters.
In September, 2001, a 33 hole, 1,600-meter diamond drill programwas undertaken.
The drill program tested three areas (Tablon, Tablon West and La Union Ridge) on
Cerro Tablon. Other exploration conducted before, during, and after the drill
program included grid-based soil sampling and geological mapping on the
southwest side of Cerro Tablon, sampling of Adit 1 in the main Tablon area,
trenching and geological mapping at Tablon West, geological mapping and panel
sampling in the West Breccia Zone on Cerro Las Minas, and soil sampling,
trenching and geological mapping at the Peak Zone on Cerro Las Minas.
The most recently completed work program was conducted from February to March of
2002. The program incorporated IP-resistivity and magnetometer surveys, detailed
geological and structural mapping, and rock, soil, and stream sediment
geochemical sampling. The results of this program allowed for the delineation of
the present 3000 metre drill plan.
40
MINERALIZATION AND PROPERTY GEOLOGY
Several distinct styles of intrusive-related gold mineralization are present in
fifteen named zones at the Rio Tabaconas property. Known mineralization at Cerro
Tablon consists of gold-rich massive sulphide bodies
(pyrrhotite-pyrite-sphalerite-galena-chalcopyrite) which replace limestone and
occur as stratabound, fault-related, and intrusive contact-related bodies. In
addition to these carbonate-replacement bodies, Cerro Tablon also hosts
potential for structurally-controlled mineralization at the North and La Union
Zones. On Cerro Las Minas, bulk-tonnage, disseminated gold mineralization is
associated with strong to intense phyllic alteration at the West Breccia and
Peak Zones, while high-grade (up to 62.9 g/t Au) lode-gold occurs within quartz
vein/shear zones at Minas Sur and La Catedral. Elsewhere on the property,
anomalous rock, soil, and silt samples demonstrate potential for additional
discoveries.
Stratified rocks exposed at Cerro Tablon include, from oldest to youngest,
footwall andesite, massive limestone, bedded limestone, and tuffaceous
siltstone; all of which are assigned to the Jurassic Oyotun Formation. These
units are cut by two related intrusive phases: feldspar-hornblende porphyry and
intrusive breccia.
On Cerro Las Minas, three stratified rock units and five intrusive rock units
have been identified. Stratified rocks include, from oldest to youngest,
quartzite breccia, lithic tuff, and pebble to cobble conglomerate. The Cerro Las
Minas intrusive complex hosts disseminated mineralization and includes three
related phases: fine-grained felsic intrusion, flow-banded felsic intrusion, and
intrusive breccia. Other intrusive rocks exposed on Cerro Las Minas include
quartz-feldspar porphyry dykes and larger bodies of diorite to quartz diorite.
CERRO TABLON MINERALIZATION
There are seven named targets at Cerro Tablon, six of which have been classified
as drill-ready. These are, in order of importance: the Tablon Main, Tablon West,
Tablon South, Tablon Southwest Extension, La Union, North, and Sphalerite Creek
Zones. Gold-rich massive sulphide boulders (22 samples average 9.3 g/t Gold)
derived from the Tablon Main and West zones now lie at the base of Cerro Tablon
in Quebrada de las Minas. It was these boulders which originally drew the
attention of IMA geologists and led to the discovery of outcropping
mineralization on Cerro Tablon.
TABLON MAIN ZONE
The Tablon Main Zone is comprised of numerous outcropping massive sulphide
bodies and was the primary focus of the 2001 drill program. The Tablon Main Zone
is important to the Tabaconas property not only for its significant
intersections and high gold grades, but also as a model for mineralization that
may be present at the Tablon South, Tablon West, and Tablon Southwest Extension
Zones.
Mineralization at the Tablon Main Zone consists of massive to semi-massive,
fine- to medium-grained pyrrhotite, pyrite, sphalerite, galena, and
chalcopyrite. Gold grades commonly range from several grams per tonne to
approximately 30 g/t with rare intervals returning up to 118 g/t Au. Sulphide
bodies are generally massive to semi-massive and often include sulphide veinlet
or "stringer" zones below the massive sulphide body. Visible gold has been noted
within veinlet-style mineralization. Massive sulphides (mantos) at the
limestone/footwall andesite contact are commonly several metres thick (up to
7m). Fault related and intrusive contact related mineralization is quite
variable in size and morphology; drillhole intersections range up to 16.4
metres. Significant intersections from the 2001 drill program include:
--------------------------------------------------------------------------------
DDH FROM (m) TO (m) LENGTH (m) GOLD (g/t)
--------------------------------------------------------------------------------
RT01-06 9.07 30.48 21.41 3.10
--------------------------------------------------------------------------------
RT01-07 10.08 30.00 19.92 2.41
--------------------------------------------------------------------------------
RT01-11 15.54 18.20 2.66 14.20
--------------------------------------------------------------------------------
RT01-13 13.41 38.83 25.42 8.78
--------------------------------------------------------------------------------
RT01-15 17.68 19.36 1.68 5.47
--------------------------------------------------------------------------------
RT01-16 16.17 20.07 3.9 13.18
--------------------------------------------------------------------------------
RT01-21 1.52 10.97 9.45 5.08
--------------------------------------------------------------------------------
41
--------------------------------------------------------------------------------
RT01-22 47.44 50.3 2.86 15.22
--------------------------------------------------------------------------------
RT01-29 34.85 51.25 16.4 17.99
--------------------------------------------------------------------------------
RT01-29 42 44.15 2.15 118.10
--------------------------------------------------------------------------------
TABLON WEST ZONE
Approximately 300 metres southwest of the Tablon Main Zone, massive sulphides
with significant gold grades outcrop at the Tablon West Zone. This zone was
drill-tested by holes RT01-23 to 27 during the 2001 drill program. The drilled
massive sulphides at Tablon West are hosted by the tuffaceous siltstone which
occurs stratigraphically above the more prospective limestone/footwall andesite
contact. This contact remains largely untested below the known mineralization.
Significant drill intersections at the Tablon West Zone include:
--------------------------------------------------------------------------------
DDH FROM (m) TO (m) LENGTH (m) GOLD (g/t)
--------------------------------------------------------------------------------
RT01-25 33.00 36.10 3.10 12.97
--------------------------------------------------------------------------------
RT01-26 0.00 6.00 6.00 6.95
--------------------------------------------------------------------------------
RT01-26 1.00 2.00 1.00 17.37
--------------------------------------------------------------------------------
RT01-27 9.76 12.00 2.24 1.49
--------------------------------------------------------------------------------
In addition to the drilled zone at Tablon West, a newly discovered sulphide body
is located approximately 150 metres to the southeast and is named the Cliff
Zone. This zone is situated approximately 60 metres stratigraphically below the
sulphides at Tablon West. Massive and semi-massive sulphides at the Cliff Zone
occur along an intrusive contact and grade up to 8.79 g/t over 2.0 metres. The
Cliff Zone is significant in that it shows the potential for additional
Tablon-style massive sulphide mineralization stratigraphically below Tablon
West.
TABLON SOUTH ZONE
The Tablon South Zone is located approximately 250 metres downslope (south) of
the Tablon Main Zone. This completely covered target is defined by a strong
chargeability anomaly and is interpreted to underlain by geology similar to that
which hosts the Tablon Main Zone.
TABLON SOUTHWEST EXTENSION
The Tablon Southwest Extension is a large area (~500m x 200-300m) to the
southwest of the Tablon West Zone and south of the Tablon Fault, which is
prospective for Tablon-style massive sulphide bodies. The area is capped by 20
to 40 metres of tuffaceous siltstone, which is underlain by the prospective
limestone and porphyritic intrusion. A large, strong chargeability anomaly
defines the extent of this area.
LA UNION
This target area is defined by a large, high-grade soil anomaly on the crest of
the La Union ridge (34 samples >1 g/t Au over a 875 x 150 metre area). It is
underlain by shallowly-dipping tuffaceous siltstone which has undergone strong
chloritization and epidotization. Along its margins the siltstone is underlain
by feldspar-hornblende porphyry, which is interpreted to have intruded through
the massive and bedded limestone. The La Union area is considered prospective
for tablon-style mineralization along the intrusion/siltstone or
intrusion/limestone contact and/or structurally-controlled mineralization along
an interpreted structure which extends from the North Zone, through La Union, to
the Catedral Zone on Cerro Las Minas.
NORTH ZONE
The North Zone is located approximately 300 metres northwest of the Main Zone
and is hosted within the footwall andesite unit. Consistently high silt sample
values (up to 5.58 g/t Au) in the drainage below the North Zone led to a
concerted mapping and sampling effort in this area. Geologic mapping located an
east-striking structure defined by a restricted zone of intense foliation, which
extends from the La Union area to the North Zone. Along this structure are
patchy zones of intense pyrophyllite+/-alunite+/-diaspore alteration and common
disseminated pyrite+/-specular hematite. At the North Zone, an exposure of
strong phyllic alteration with several percent disseminated pyrite was sampled
and
42
returned 6.12 g/t gold over 1.0 metres. A strong chargeability and resistivity
anomaly is coincident with this phyllic alteration at the North Zone.
SPHALERITE CREEK ZONE
The Sphalerite Creek Zone is hosted entirely within footwall andesite and is
defined by a chargeability anomaly coincident with a mapped fault structure and
a broad area of moderate alunite-pyrophyllite alteration. It is located
approximately 400 metres west of Tablon West, to the north of the Tablon Fault.
CERRO LAS MINAS TARGETS
The Cerro Las Minas area contains four known mineralized zones with significant
concentrations of gold. Three of the four zones (Peak Zone, West Breccia Zone,
and Minas Sur) have been mapped, sampled, and tested by geophysical surveys with
positive results. Styles of gold mineralization vary significantly between the
different zones on Cerro Las Minas (disseminated gold within phyllic alteration,
shear-zone hosted lode gold), but it is interpreted that all are related to a
single intrusion-related mineralizing event.
Geophysical results on Cerro Las Minas correlate extremely well with the known
mineralized zones and suggest that mineralization extends further than
previously known. The West Breccia and Peak zones are defined by high
chargeability responses and are connected by a zone of moderate chargeability.
The Minas Sur Zone occurs at the southeast end of a strong, linear chargeability
anomaly which extends at least 500 metres to the northwest and is open in that
direction.
MINAS SUR
Minas Sur consists of numerous old adits, open cuts, and trenches in an area
that is otherwise devoid of rock exposure. High grade gold (1.0 to 62.9 g/t Au)
is contained in a series of narrow veins and shears exposed in a zone
approximately 30 metres wide. One continuous, composite channel sample collected
across the zone, including both vein and wallrock material, returned an average
of 3.3 g/t Au over 25.5 metres. Mineralized structures are hosted by fine- to
medium-grained diorite, which in the vicinity of the structures generally
returns moderate gold grades (0.5 to 1 g/t Au). Mineralized structures consist
of 1 to 20 cm sheeted quartz veins within an overall zone of fracturing and
intense argillic alteration. Quartz vein material often exhibits coxcomb
textures and commonly contains open vugs. Sulphide minerals present include
arsenopyrite, pyrite, galena, chalcopyrite, and sphalerite; rarely comprising
more than a few percent of any vein.
Geophysical and gold-in-soil geochemical results have defined an anomaly more
than 500 metres long, trending west-northwest from the Minas Sur showing. This
large anomaly is a priority drill target.
PEAK ZONE
The Peak Zone is a large (350 x 350m) area of highly elevated gold-in-soil
values (28 samples over 1 g/t Au) with coincident anomalously high
chargeability. The area is primarily underlain by quartzite breccia and massive
to flow-banded intrusive. The area is interpreted to be cut by several north-
and northwest-trending faults. Several small zones of intense clay alteration
are exposed by old adits and open cuts, and anomalous (up to 600 ppb) gold
grades have been obtained from samples of this clay-altered material. It is
interpreted that the coincident geochemical and geophysical anomaly is due to a
recessively weathering mineralized zone which does not outcrop.
WEST BRECCIA ZONE
The West Breccia Zone is a large (~200 x 400m) area of strong to intense phyllic
alteration with correlative zones of disseminated gold mineralization (1-4 g/t
Au in 2.0 and 3.0 metre chip and panel samples) and strong chargeability
responses. Phyllic alteration and mineralization is most intense within the
intrusive breccia and flow-banded felsic intrusive rocks concentrated along the
margins and roof of the Cerro Las Minas intrusion. Selective sampling has shown
that gold is evenly disseminated within this mineralized zone.
43
LA CATEDRAL
A series of small adits driven on narrow veins/shear zones is present to the
northwest of Cerro Las Minas. These veins are similar in character and grade to
those at Minas Sur, early stage sampling has returned grades from 1.0 to 29.3
g/t gold.
OTHER TARGETS
In addition to the relatively advanced Cerro Tablon and Cerro Las Minas targets,
there are a number of developing targets elsewhere on the Rio Tabaconas
property. These include the Vega and Anomaly A areas which have seen limited
rock, soil, and stream sediment sampling as well as two short IP/resistivity
geophysical lines over Anomaly A.
In the Vega area, NW of Cerro Tablon, rock and soil sampling has identified
three gold anomalies, two of which are centered on small mine workings. Rock
samples have returned values of nil to 6.0 g/t gold over 2.1 metres and nil to
6.5 g/t Au from grab samples.
At Anomaly A, the geophysical survey defined a 100-150m wide, north-south
trending zone of very low resistivity and correlative high chargeability. This
geophysical response is interpreted to be caused by a unit of strongly foliated,
pyritic, metasedimentary rocks exposed in the bottom of the valley.
Elsewhere on the property, large areas remain completely untested. Approximately
25 square kilometres on the east and northern margins of the property have yet
to receive reconnaissance-level prospecting or stream sediment sampling.
Although these areas are some of the most remote on the property, they remain
prospective for mineralization similar to that exposed on Cerro Tablon and Cerro
Las Minas.
SAMPLING, SECURITY AND ANALYSIS
Geochemical samples collected at the Tabaconas project consist of core, rock
(chips and channels, modified panel, grab or float) and soil. Following
geotechnical and geological logging, all core recovered during the course of the
Phase One drill program was split, with one-half sent for geochemical analysis
and the other half stored in wooden core boxes stored in a secure location in
Tamborapa village. Core samples were collected based on geologically significant
intervals, marked by changes in lithology, alteration, and mineralization.
All samples collected for geochemical analyses at Rio Tabaconas were labelled,
bagged and sealed on the property, driven to Jaen and shipped by bus to Bondar
Clegg Canada Limited's ("Bonder Clegg") office in Lima, Peru for preparation.
Sample pulps were transported by Bondar Clegg to Vancouver for geochemical
analysis. A 30-gram split of all samples was analysed for gold by fire assay
with an atomic absorption finish ("FA/AA"). An additional 36 elements were
analysed by inductively coupled plasma ("ICP"). Samples with gold assays
exceeding AA detection limits were analysed by fire assay with a gravimetric
finish ("FA/Grav").
A program of check assays was conducted on a subset of core samples from the
Phase One drill program. The original assays were all done by FA/AA on a 30 gram
split, the overlimits were done by FA/Grav finish. The check assays comprised
three groups:
1. Eight of the highest Au value samples were re-analysed using
metallics screen analyses.
2. The remaining 21 samples with Au values over 10 g/t were
re-analysed by the same method as the original analysis
(FA/Grav), and
3. A randomly selected subset (10%) of samples in the 3 to 10 g/t
Au range was re-analysed by the same method as the original
analysis (FA/AA).
All check assays were done on a new split of the coarse rejects. The rejects,
which are stored in Bondar Clegg's preparation facility in Lima were shipped by
Bondar Clegg to their main lab in North Vancouver, British Columbia and then
forwarded to the ALS Chemex laboratory in North Vancouver, British Columbia.
44
The results of the check assays show some significant variations from the
original assays, with both appreciably higher and lower gold values obtained.
Most notably:
1. The sample with visible gold (sample 500974) in hole RT01-29
originally reported an assay of 118 g/t Au. The metallics
screen re-assay returned 185 g/t, confirming the presence of
coarse gold.
2. The high grade sample at the base of the sulfide intersection
in hole RT01-25 (sample 500868) originally assayed 33.3 g/t
Au. The metallics screen re-assay was 13.14 g/t.
3. Sample 500468 in hole RT01-16 originally returned an assay of
13.8 g/t gold; the re-assay by the same method yielded 85.45
g/t.
The following conclusions can be drawn:
1. Of the eight samples submitted for metallic screen analyses,
three contained gold grades significantly different from the
original FA/Grav analyses, the remaining 5 analyses were
within 10% of the original FA/Grav analyses.
2. Of the 21 high-grade samples re-analysed by FA/Grav, 10 of 21
samples were within 10% of the original assay and one was
within 5%.
3. Of the 7 randomly selected samples in the 3 to 10 g/t Au
range, 7 of the 8 samples showed >10% variation.
The variations in gold grades between the original and check assays are in large
part within acceptable limits; the wider variations are probably due to a
"nugget effect", since large gold particles have been observed in drill core at
Tablon. No formal studies have been conducted to determine the size range of
native gold particles in the mineralized zones of the property.
MINERAL RESOURCE AND MINERAL RESERVE ESTIMATES
The Company has not established any mineral resource or reserve estimates at
this stage of exploration of the Rio Tobaconas property.
MINING OPERATIONS
The Company has no development or producing properties.
EXPLORATION AND DEVELOPMENT
Exploration by the Company on the Rio Tabaconas property has revealed a number
of targets on both Cerro Tablon and Cerro Las Minas, only a few of which have
been drill tested.
PLANNED WORK
Upon finalizing a community acceptance of the Community Agreement, the Company
plans to proceed during 2003 with Phase 2B diamond drill program. This program
will include drilling of targets on Cerro Tablon, Cerro Las Minas and possibly
other areas of the property. A detailed, 3,000 metre drill plan has been drafted
based upon evaluation of geological, geochemical and geophysical information.
The program is expected to be completed approximately two to three months after
finalizing a Community Agreement, at an estimated cost of $890,000. Subsequent
to this drill program, and based upon the results of this program, the Company's
management will decide whether to:
(a) Raise funds to continue exploring and retain 100% property
ownership diluting the share capital base,
45
(b) Negotiate with a another mining company to take the property
to production with the Company retaining a carried interest,
or
(c) Terminate the program.
Subject to a successful drill program, a follow-up program would be considered
at which is expected to consist of the following:
o Cerro Tablon - to continue the diamond drilling to fully test
the target zone, plus extensions indicated by geology,
geochemistry and geophysics, for both bulk mineable open pit
and higher grade lode targets.
o Cerro Las Minas - drill testing target areas as defined by
geology, geochemistry and/or geophysics for bulk mineable open
pit gold targets with structurally controlled, higher grade
zones.
o "Anomaly A" - indicated depth of the airborne EM feature is
60-70 meters, located at the western contact of the Tablon
intrusive with sedimentary rocks. Anomaly definition by ground
geophysics (IP/Resistivity and Magnetometer) and drilling.
ALTO CHICAMA PROPERTIES
During 2002, the Company acquired, through staking, 8,000 hectares (19,760
acres) of mining property in the Alto Chicama area, La Libertad Department.
After a brief geological evaluation the Company has decided not to commit any
further work on the properties.
PRINCIPAL OFFICE
The Company's principal office is located at #709 - 837 Hastings Street,
Vancouver, British Columbia, V6C 3N6. The Company leases its office space from
Beauregard Holdings Corp. ("Beauregard"). See "Item. 7 Major Shareholders and
Related Party Transactions - Related Party Transactions". The Company commenced
occupation of the office premises in January 1999. The term of the lease was
originally for three years and has been extended for an additional two years,
with minimum lease payments of $25,000 per annum, plus operating costs. In
addition, the Company is responsible for all leasehold improvements. During the
fiscal year ended December 31, 2002, the Company paid rent in the amount of
$60,924 ( 2001 - $60,924; 2000 - $53,745 ). For the three month period ending on
March 31, 2003, the Company has paid rent in the amount of $15,230 (2001 -
$15,230; 2000 - $15,230).
The Company shares office facilities, capital assets and personnel with IMPSA.
During the fiscal year ended December 31, 2002, the Company charged IMPSA - $0
(2001 - $0; 2000 - $0; 1999 - $0; 1998 - $90,000) for its share of expenses and
has included the amount in interest and miscellaneous income. See "Item. 7 Major
Shareholders and Related Party Transactions - Related Party Transactions".
The Company on September 1, 2002 started to shares office facilities, capital
assets and personnel with Amera. During the fiscal year ended December 31, 2002,
the Company received $6,000 from Amera. See "Item. 7 Major Shareholders and
Related Party Transactions - Related Party Transactions." For the three month
period ending on March 31, 2003, the Company has received $6,000 from Amera.
OTHER ASSETS
INVESTMENT IN IMPSA
The Company directly owns 80% of the issued share capital of IMPSA (BVI) and
owns the remaining 20% through its wholly-owned subsidiary, IHC. IMPSA(BVI) has
one wholly-owned subsidiary, IMPSA Peru, which owns or has a right to own,
through an option agreement and staked claims, a total of 9,000 hectares (22,230
acres) of mining exploration properties. See "Item 4. Information on the
Company".
46
IMPSA has retained a number of professional advisers for the purpose of
identifying mineral properties of interest and conducting due diligence.
To date IMPSA has established a Peruvian subsidiary, IMPSA Peru, and has
conducted due diligence on a number of mineral properties. Current holdings
consist of one property in the department of Cajamarca. IMPSA Peru has been
focused in researching, evaluating and carrying out exploration on various
potential gold targets within the known mining districts. IMPSA Peru has entered
into option agreements to explore one mining property, and has staked a further
9 mining claims. As a result, IMPSA Peru holds an option to acquire or has
staked claims totaling 9,000 hectares which constitutes the Rio Tabaconas /
Gypsy property. See "Item 4. Information on the Company - Properties, Plants and
Equipment - Principal Properties - Peruvian Property".
VICEROY COMMON SHARES
In connection with the exchange of the Company's interest in Minas Barbados, the
Company received, net of the distribution to its shareholders, 660,000 Viceroy
Common Shares. As at December 31, 2002, the Company held 195,500 Viceroy Common
Shares with a quoted market value of $78,200.
The Company's principal business is the acquisition and exploration of mineral
properties in known mining areas adjacent to, or in close proximity to, known
major discoveries, with a focus in Argentina and Peru. As of the date of this
annual report, all of the Company's properties are without known reserves and
the Company's operations are exploratory in nature.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
--------------------------------------------------------------------------------
The following discussion of the results of operations of the Company for the
fiscal years ended December 31, 2002, 2001 and 2000 should be read in
conjunction with the consolidated financial statements of the Company and
related notes included therein.
CRITICAL ACCOUNTING POLICIES
Reference should be made to the Company's change in accounting and significant
accounting policies contained in note 2 and 3 of the consolidated financial
statements. These accounting policies can have a significant impact of the
financial performance and financial position of the Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with Canadian GAAP
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the period. Significant areas requiring the use of
management estimates relate to the determination of environmental obligations
and impairment of mineral properties and deferred costs. Actual results may
differ from these estimates.
MINERAL PROPERTIES AND DEFERRED COSTS
Consistent with the Company's accounting policy disclosed in Note 3 of the
consolidated financial statements, direct costs related to the acquisition and
exploration of mineral properties held or controlled by the Company have been
capitalized on an individual property basis. It is the Company's policy to
expense any exploration associated costs not related to specific projects or
properties. Management of the Company periodically reviews the recoverability of
the capitalized mineral properties. Management takes into consideration various
information including, but not limited to, results of exploration activities
conducted to date, estimated future metal prices, and reports and opinions of
outside geologists, mine engineers and consultants. When it is determined that a
project or property will be abandoned or its carrying value has been impaired, a
provision is made for any expected loss on the project or property.
47
RISK FACTORS
The Company's operations and results are subject to a number of different risks
at any given time. These factors, include but are not limited to disclosure
regarding exploration, additional financing, project delay, titles to
properties, price fluctuations and share price volatility, operating hazards,
insurable risks and limitations of insurance, management, foreign country and
regulatory requirements, currency fluctuations and environmental regulations
risks. See "Item 3. Key Information - Risk Factors."
The Company's consolidated financial statements are in Canadian dollars (CDN$)
and are prepared in accordance with Canadian GAAP, the application of which, in
the case of the Company, conforms in all material respects for the periods
presented with U.S. GAAP except for the measurement differences referred to in
Note 10 of the consolidated financial statements of the Company included herein.
The noon rate of exchange on May 12, 2003, reported by the United States Federal
Reserve Bank of New York for the conversion of Canadian dollars into United
States dollars was CDN$1.3885 (US$0.7202= CDN$1.00). The effects of inflation
and price changes have not had a material impact on the Company's income or net
sales revenues during the past three years.
The Company's consolidated financial statements were prepared on a going concern
basis which assumes that the Company will be able to realize assets and
discharge liabilities in the normal course of business.
The Company and its subsidiaries' functional currency is the Canadian dollar.
The majority of the Company's cash deposits and accounts are in Canadian funds.
The Canadian dollar varies under market conditions. In recent years, the
Canadian dollar has experienced a devaluation against the U.S. dollar, which
requires the Company to spend more Canadian dollars on its projects. Continued
devaluation of the Canadian dollar against the U.S. dollar, could materially and
adversely affect the Company's operations and financial position. See "Item 3.
Key Information - Risk Factors - Currency Fluctuation".
OVERVIEW
The Company is a natural resource company engaged in the business of acquisition
and exploration of mineral properties in South America, principally in Argentina
and Peru. At this stage the Company has no producing properties and,
consequently, has no current operating income or cash flow.
The Company's accounting policy is to defer all direct costs related to the
acquisition and exploration of mineral properties held or controlled by the
Company on an individual property basis until viability of a property is
determined. General exploration costs are expensed as incurred. When a property
is placed in commercial production, such deferred costs are depleted using the
units-of-production method. Management of the Company periodically reviews the
recoverability of the capitalized mineral properties. Management takes into
consideration various information including, but not limited to, results of
exploration activities conducted to date, estimated future metal prices, and
reports and opinions of outside geologists, mine engineers and consultants. When
it is determined that a project or property will be abandoned or its carrying
value has been impaired, a write down is taken for any expected loss on the
project or property. At December 31, 2002, the Company had capitalized
$3,181,277 (2001 - $2,777,458; 2000 - $2,240,829) on its Argentine properties
and $2,666,450 (2001 - $1,803,714; 2000 - $1,041,049) on the Peruvian
properties.
To date the Company has financed its activities by the issue of common shares.
The Company completed three private placements during the year ended December
31, 1999. The first was a private placement of a total of 533,333 common shares
of the Company, at a price of $0.27 per share, for cash proceeds of $144,000.
The second was the private placement of 1,500,000 common shares at a price of
$1.00 per share and warrants to acquire an additional 1,500,000 common shares at
an exercise price of $1.50 per share with Barrick, for net cash proceeds of
$1,490,339. See "Item 4. Information on the Company - History and Development of
the Company". The third private placement was of 1,563,000 units, at a price of
$0.60 per unit, for net cash proceeds of $907,760. Each unit comprises one
common share of the Company and one non-transferable share purchase warrant.
Each warrant was exercisable to purchase an additional common share of the
Company, at a price of $0.75 per share, on or before September 15, 2002. During
the year ended December 31, 2001, 5,000 warrants were exercised for proceeds of
$3,750.
48
During the year ended December 31, 2000, the Company completed two private
placements. The first for 637,000 units, at a price of $0.60 per unit, for net
cash proceeds of $343,980, and the second for 1,397,167 units, at a price of
$0.60 per unit, for net cash proceeds of $773,327. Each unit comprises one
common share of the Company and one non-transferable share purchase warrant.
Each warrant related to the first private placement was exercisable to purchase
an additional common share of the Company, at a price of $0.75 per share, on or
before April 19, 2002. During the year ended December 31, 2001, the Company
received regulatory approval to extend the warrants from April 19, 2002 to April
19, 2005. As of December 31, 2002, all of the warrants from this first private
placement for the year ended December 31, 2001 remained outstanding. Each
warrant related to the second private placement was exercisable to purchase an
additional common share of the Company, at a price of $0.90 per share, on or
before March 16, 2002. During the year ended December 31, 2001, the Company
received regulatory approval to extend the warrants from March 16, 2002 to March
16, 2005. As of December 31, 2002, all of the warrants from this second private
placement for the year ended December 31, 2000 remained outstanding.
During the year ended December 31, 2001, the Company completed two private
placements of 3,000,0000 units, at a price of $0.26 per unit, for net cash
proceeds of $746,250, and 2,063,000 units, at a price of $0.38 per unit, for net
cash proceeds of $717,006. Each unit consists of one common share of the Company
and one half non-transferable share purchase warrant. Each whole warrant from
the placement of 3,000,000 units entitled the holder to purchase one common
share of the Company, at a price of $0.40, on or before July 3, 2002. In
addition to the 3,000,000 units, Agent's warrants to purchase 259,000 common
shares, for the exercise price of $0.35 per share, on or before July 3, 2002
were also issued. None of the $0.40 and $0.35 warrants were outstanding as of
December 31, 2002. Each whole warrant from the placement of 2,063,000 units
entitles the holder to purchase one common share of the Company, at a price of
$0.45, on or before March 31, 2003, and the Company also issued Agent's warrants
to purchase 206,300 common shares, for the exercise price of $0.45, on or before
March 31, 2003. As of Decemeber 31, 2002, 1,237,800 whole warrants with an
exercise price of $0.45 remained outstanding.
During the year ended December 31, 2002, the Company completed the following
four private placements:
i) 637,000 units at a price of $0.38 for cash proceeds of
$222,695, net of share issue costs of $19,365. Each unit
consisted of one common share of the Company and one warrant.
Two warrants entitled the holder to purchase an additional
common share for the exercise price of $0.45 on or before
March 31, 2003. In addition, agents warrants were issued to
purchase 63,700 common shares at a price of $0.45 on or before
March 31, 2003. Subsequent to December 31, 2002, the Company
issued 382,200 common shares on the exercise of warrants and
agents warrants for $171,990;
ii) 1,777,778 units at a price of $0.45 per unit for cash proceeds
of $686,132, net of share issue costs of $118,868. Each unit
consisted of one common share of the Company and one warrant.
Two warrants entitled the holder to purchase an additional
common share at a price of $0.54 per share on or before April
9, 2003. In addition, the Company issued 11,111 shares to the
agents, at a price of $0.45 per share. The agents also
received agents warrants to purchase 355,556 common shares at
a price of $0.54 per share on or before April 9, 2003.
During the year ended December 31, 2002, the Company issued
326,361 common shares on the exercise of 652,722 warrants for
$146,862. Subsequent to December 31, 2002 the Company issued
915,083 common shares on the exercise of warrants and agents
warrants for $494,145. The remaining warrants reserved
for3,001 common shares expired without exercise;
iii) 1,722,222 units at a price of $0.45 per unit, for cash
proceeds of $751,000, net of share issue costs of $24,000.
Each unit consisted of one common share of the Company and one
warrant. Each warrant entitles the holder to purchase an
additional common share of the Company at a price of $0.53 per
share on or before May 23, 2003 and $0.60 per share on or
before May 23, 2004. The agents also received agents warrants
to purchase 66,666 common shares at a price of $0.53 per share
on or before May 23, 2003. Certain directors have purchased
191,111 units. Subsequent to December 31, 2002 the Company
issued 111,111 common shares on the exercise of 100,000
warrants and 11,111 agents warrants for $58,889; and
49
iv) 1,554,915 units at a price of $0.47 for cash proceeds of
$698,987, net of share issue costs of $31,823. Each unit
consisted of one common share of the Company and one warrant.
Each warrant entitles the holder to purchase an additional
common share of the Company at a price of $0.55 per share on
or before September 27, 2003 and $0.60 on or before September
27, 2004. The agents also received agents warrants to purchase
37,496 common shares at a price of $0.50 per share on or
before September 27, 2003. Certain directors have purchased
325,000 units total benefit was $9,700. Subsequent to December
31, 2002 the Company issued 61,330 common shares on the
exercise of 60,000 warrants and 1,330 agents warrants for
$33,665.
Cash on hand at April 30, 2003 was approximately $4,000,000. During the nine
month period from March 31, 2003 to December 31, 2003, the Company has no
planned exploration expenditures in Argentina for the Valle del Cura region, the
Gualcamayo region, or the NW San Juan region. The Company plans to expend
US$500,000 in Argentina on surface work at the Navidad project, an additional
US$1,500,000 on drill programs at the Navidad project and US$593,000 on the Rio
Tabaconas project (formerly known as Tamborapa project) in Peru during the nine
month period from March 31, 2003 to December 31, 2003. In addition, minimum
property payments of approximately US $225,000 are required to maintain all of
the existing property holdings. See "Item 4. Information on the Company -
Business Overview - Nature of the Company's Operations and Principal
Activities".
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31,2001
The Company reported a consolidated loss of $1,440,106 ($0.06 per share) in
2002, an increase of $558,231 from the loss of $881,875 ($0.06 per share) in
2001. The increase in the loss experienced by the Company in 2002, compared to
2001, was due to a number of factors of which $512,591 can be attributed to
operating expenditures and $45,640 to non-operating items.
As a result of adopting the new section of the Canadian Institute of Chartered
Accountants' Handbook Section 3870 effective January 1, 2002 the Company has
recognized compensation expense of $128,260 for stock options granted to
consultants which is included in the increased operating expenditures.
As a result of extremely encouraging results from Phase I drilling in the fall
of 2001, the Company continued to focus its main exploration activities on the
Rio Tabaconas project in Peru for the first half of 2002 by carrying out
extensive pre-drill work to further define drill targets on the property's most
advanced gold zones, Tablon and Cerro Las Minas. As a result of the pre-drill
program the potential size of the mineralized zone was significantly expanded. A
substantial follow up Phase II drill program was developed to test the
identified drill targets. In order to obtain financing for the work the Company
proceeded with an extensive market awareness program and investor relations
campaign throughout North America and Europe with the assistance of several
consultants. During the first six months of 2002 the Company raised net equity
proceeds of $1,659,827 for further exploration and property payments in Peru and
Argentina and general working capital.
By the middle of the year the Company acquired an additional 8,000 ha (10,851.3
acres) in Northern Peru and increased its properties in the Patagonia region in
southern Argentina during the remainder of the year to a total of 91,423 ha
(124,007 acres) as compared to 7,650.3 ha (10,377 acres in 2001).
As a result of the Provincial and Municipal elections in Peru held in November
2002 and the substantial investment required to advance the Rio Tabaconas
project through the next exploration stage, in June 2002 the Company announced
its intention to take a more measured approach to exploration on the Rio
Tabaconas project to ensure that all local cultural, developmental and
environmental concerns in the region have been addressed . The Company intends
to conduct further exploration only after an agreement with the local community
of Tamborapa has been finalize. Aided by several Peruvian Social-Economic
consultants, a draft Company-Community plan has been prepared and the Company
intends to present the plan for discussion with the community leaders,
government officials and other interested party leaders in the second quarter of
2003. See "Item 4. Information on the Company - Business Overview - Government
Regulations on the Company's Business."
50
In the meantime, the Company devoted its attention to aggressively assessing its
grass roots properties, acquiring and advancing some of the exciting projects in
Argentina such as Las Bayas and lately the Navidad Silver project.
Through out the year exploration on the Potrerillos and Rio de las Taguas
properties was on hold pending a resumption of exploration and development
activities at the nearby Pascua-Lama and Veladero deposits by Barrick Gold
Corporation. The property option agreement due to expire on November 30, 2002,
was extended by mutual consent to allow Barrick's technical team to review
additional properties of the Company. Subsequent to the year end, Barrick and
the Company agreed to extend the Selection Notice Period in the option agreement
from November 30, 2002 to December 30, 2003. In return for the extension Barrick
paid US$65,000 which will be used to make payments to maintain the option
properties in good standing.
As a result of the above corporate activities there were increases in to the
following expenses: (i) Administration and management services - $4,218; (ii)
Bank charges and interest - $3,028; (iii) Corporate development and investor
relations - $161,175 of which $51,417 reflects the cost of full time investor
relations staff, $51,906 for investor relations consultant, $30,223 for various
media advertising and $25,323 for international and other conferences; ( iv)
General exploration - $70,446 as a result of an aggressive examination of
grassroots properties mainly in the Patagonia region; ( v ) Printing - $10,171
mainly for investor presentation material; ( vi) Professional fees - $67,776
which relates to the ongoing North America and European market awareness
program; ( vii ) Salaries and employee benefits - $998 reflects a slight
increase in administration wages and benefits cost; (viii) Stock based
compensation - $128,260 for stock options granted to consultants, as required by
the CICA Handbook Section 3870 effective January 1, 2002; ( ix ) Telephone and
utilities - $ 9,230 due to the increase in correspondence with Europe, North
America and South America; ( x ) Transfer agent and regulatory fees - $20,235 as
a result of the increase in equity financings; (xi) Travel and accommodation -
$42,745 mainly due to the European market awareness and investor relations
program and trips to Peru and Argentina for property negotiations.
The following expenses decreased for the year (i) Amortization and depreciation
- $1,885; and (ii) Office and sundry - $3,052 as a result of cost recovery from
a private company sharing office space; (iii) Rent, parking and storage - $754
as a result of cost recovery from a private company sharing office space;
During 2002 the Company did not write-off of mineral claims and deferred costs,
compared to a write off of $21,483 in 2001. The mineral claims written off
during 2001 were 100 % owned by the Company.
Interest and miscellaneous income reported for 2002 was $26,585 a decrease of
$70,695 from $97,280 reported in 2001 as a result of lower interest rates paid
on funds on deposit and no overhead charge for the exploration expenditures on
the Valle del Cura property allowed under the Barrick agreement.
During 2002, the Company did not dispose of any Viceroy common shares. The
Company sold 100,000 Viceroy shares in 2001 for cash proceeds of $16,966
resulting in a loss or $6,534. No provision was required for Marketable
Securities for the year ended 2002 as compared to $22,483 in 2001.
The Company's total assets increased from $5,487,374 at December 31, 2001 to
$7,432,489 at December 31, 2002. The increase is attributed to the equity
financing conducted by the Company through four private placements and exercise
of warrants and stock options issuing 7,958,387 common shares for proceeds of
$3,458,382 before deducting share issue costs of $194,056.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31,2000
The Company reported a consolidated loss of $881,875 ($0.06 per share) in 2001,
an decrease of $1,142,565 from the loss of $2,024,440 ($0.17 per share ) in
2000. The decrease in the loss experienced by the Company in 2001, compared to
2000, was due to an decrease in operating expenditures of $257,840 and
non-operating cost of $884,725.
During the year 2001, the Company focused its main exploration activities on the
Rio Tabaconas properties (formerly known as Tamborapa properties) in Peru. The
exploration activities consisted of a pre-drill program during July, followed by
a Phase One, 1,600 meter (30 hole) diamond drill program in September. The
Company also carried out a small exploration program in the Patagonia region by
staking a total of 7,650.3 ha (10,377 acres). The emphasis
51
from Argentina to Peru resulted in the Company reducing the amount of activities
in corporate development and investor relations and financing for the year.
As a result the following expenses decreased in 2001 as compared to 2000: (i)
Amortization and depreciation - $7,229 as a result of less additions to capital
assets; (ii) Corporate development and investor relations -$90,884 as a result
of a one time media promotion, $42,340 paid in the previous year and $7,300 due
to attending fewer conferences, $4,000 for reduced new release dissemination and
$37,244 to reflect a reduction in investor relations staff cost; (iii) General
exploration - $27,273 as a result of less general exploration work; (iv) Office
and sundry - $ 3,095; (v) Printing - $9,812; (vi) Professional fees -$ 135,808
of which $36,964 related to services provided in Argentina and $80,000 for a one
time cost paid in the previous year and $13,971 due to reduced legal fees; (vii)
Telephone and utilities - $9,667 as a result of less investor relations work;
(viii) Travel and accommodation - $6,798.
The following expenses increased during the year 2001 as compared to 2000: (i)
Administration and management services - $1,440 ; (ii) Bank charges and interest
- $ 386; (iii) Rent, parking and storage - $ 4,301 which reflects a full year as
compared to a partial year for the additional office space; (iv) Salaries and
employee benefits - $ 25,801 which reflects the cost of a full time
administrative assistant and a full year for actual remuneration and applicable
taxes which had been cut back in the prior year; (v) Transfer agent and
regulatory fees - $ 798.
During 2001 the Company wrote off $21,483 of mineral claims and deferred cost as
compared to $789,953 in 2000. The mineral claims were 100 % owned by the
Company.
Interest and miscellaneous income reported for 2001 was $97,280 a decrease of
$59,585 from $156,865 reported in 2000 as a result of lower interest rates paid
on less funds on deposit and lower overhead charge for the exploration
expenditures on the Valle del Cura property allowed under the Barrick agreement.
During 2001, the Company disposed of 100,000 Viceroy common shares for cash
proceeds of $16,966, reporting a loss of $6,534 as compared to a loss of Nil
reported in 2000. A provision for marketable securities for 2001 of $22,483 was
made as compared to $178,777 reported in 2000 due to fewer shares held at year
end.
The Company's total assets increased from $4,979,696 at December 31, 2000 to
$5,487,374 at December 31, 2001. The increase is attributed to the equity
financing conducted by the Company through two private placements issuing
5,063,000 common shares for proceeds of $1,563,940 with a net commission of
$100,684.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31,1999
The Company reported a consolidated loss of $2,024,440 ($0.17 per share ) in
2000, an increase of $278,683 from the loss of $1,745,757 ($0.23 per share) in
1999. The increase in the loss experienced by the Company in 2000, compared to
1999, was due to an increase in operating expenditures of $102,205 and
non-operating cost of $165,588.
As the Company began a drilling program in the middle of April 2000 on the Valle
del Cura region of Argentina, financed by Barrick, it also increased its
activities in seeking additional properties, corporate development and investor
relations, and financing. As the exploration season in Argentina came to an end
due to the onset of the winter season, the Company focused on its Tamborapa
property in northern Peru carrying out Phase I of the exploration program during
June and July 2000 and a helicopter-borne electromagnetic survey in November
2000. These activities resulted in an increase in the following expenses: (i)
Corporate development and investor relations - $84,214, $42,340 of which was for
media promotion, $4,000 for news release dissemination, $7,000 to reflect a full
year of investor relations staff cost and $30,000 for corporate development;
(ii) Professional fees - $ 82,414, $33,450 of which relates directly to the
filing cost of a registration statement and $36,964 related to services provided
in Argentina; (iii) Rent, parking and storage - $7,944 as a result of increase
in parking cost of $2,083 and additional office space expenses beginning in
August of $5,563; and (iv) Salaries and employee benefits - $33,410 , $11,000 of
which reflects the cost of a full time receptionist and $22,410 to reflect the
actual remuneration and applicable taxes which had been cutback in the prior
year.
The following expenses decreased in 2000 as compared to 1999: (i) Administration
and management services - $48,940 as a result of a one time director's fee of
$42,984 paid in the previous year and a reduction of $11,909 paid
52
to KGE Management Ltd, Gerald G. Carlson and an increase of $20,250 paid to
Nikolaos Cacos the Corporate Secretary; (ii) Bank Charges - $5,920 as a result
of fewer wire transfers ; (iii) General exploration - $ 23,188 due to more costs
being capitalized; (iv) Office and sundry - $432; (v) Printing - $4,260;
Telephone and utilities - $6,022 due to lower long distance rates and better use
of electronic mail; (iv) Transfer agent and regulatory fees - $3,897; and (v)
Travel and accommodations - $13,252 as a result of attending fewer trade shows
and trips to South America.
During 2000 the Company terminated option agreements on certain mineral claims
and accordingly wrote off $789,953 of mineral claims and deferred cost as
compared to $98,628 in 1999. The option agreements terminated include: the
Bosque Property (Pelambres); the Munoz Properties (Surena, Teatinos); the
Rodrigues/Garcia Properties (Calin 1-12); and the Ramos Property (Jaguelito).
Interest and miscellaneous income reported for 2000 was $156,865 an increase of
$109,634 from $47,231 reported in 1999 largely due to the overhead charge for
the exploration expenditures on the Valle del Cura property allowed under the
Barrick agreement.
During 2000, the Company did not dispose of any Viceroy common shares, reporting
no loss as compared to a loss of $161,859 reported in 1999. A provision for
marketable securities for 2000 of $178,777 was made, a decrease of $237,878 from
that reported in 1999 due to a more stable market condition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's total assets increased from $5,487,374 at December 31, 2001 to
$7,432,489 at December 31, 2002 primarily from the sale of equity for net
proceeds of $3,264,326 with a net commission of $194,056 from four private
placements which were announced on November 26, 2001, March 20, 2002, May 2,
2002 and September 23, 2002.
As at March 31, 2003, the Company had working capital of $1,592,081. For the
remaining nine months of fiscal 2003, the Company has budgeted no funds for its
remaining exploration commitment for the Valle del Cura region in Argentina, the
Gualcamayo region, and the NW San Juan region. The Company plans to expend
US$500,000 in Argentina on surface work at the Navidad project, an additional
US$1,500,000 on drill programs at the Navidad project and US$593,000 on the Rio
Tabaconas project (formerly known as Tamborapa project) in Peru during the nine
month period from March 31, 2003 to December 31, 2003. In addition, minimum
property payments of approximately US $225,000 are required to maintain all of
the existing property holdings.
The Company considers that it has adequate resources to maintain its ongoing
operations but currently does not have sufficient working capital to fund all of
its planned exploration work and property commitments. The Company will continue
to rely on successfully completing additional equity financing and/or conducting
joint venture arrangements to further exploration on its properties. There can
be no assurance that the Company will be successful in obtaining the required
financing or negotiating joint venture agreements. The failure to obtain such
financing or joint venture agreements could result in the loss of or substantial
dilution of the Company's interest in its properties.
The Company's management may elect to acquire new projects, at which time the
Company may require additional equity financing to fund overhead and maintain
its interests in current projects, or may decide to relinquish certain of its
properties. These decisions will be based on the results of ongoing exploration
programs and the response of equity markets to the Company's projects and
business plan.
The Company had a loss of $(1,440,106) for the year ended December 31, 2002
(2001 - ($881,875); 2000 - ($2,024,440)). The Company has made additions to
mineral properties and deferred costs of $1,266,555, $1,320,777 and $1,989,049
and capital assets of $11,201, $8,012 and $15,321 for the fiscal years ended
December 31, 2002, 2001, and 2000. For the three months ended March 31, 2003,
the Company has made additions to mineral properties and deferred costs of
approximately $613,656 and no additions to capital assets. The Company raised
$3,264,326 for the year ended December 31, 2002 (2001 - $1,463,256; 2000 -
$3,380,056 ) from equity financing with a net of $194,056 in share issuance cost
for the year ended December 31, 2002 (2001 - $100,684; 2000 - $103,194 ).
During the fiscal year ended December 31, 2002 the Company had not terminated
any option agreements on properties and mineral claims. During the fiscal years
ended December 31, 2001 and 2000, the Company terminated option agreements on
properties and mineral claims resulting in the write-off of mineral properties
and deferred costs
53
in the amounts of $21,483 for the year ended December 31, 2001 and $789,953 for
the year ended December 31, 2000.
The Company completed a private placement of 2,900,000 units at $0.90 per unit
for a total amount of $2.61 million. Each unit consists of one common share and
one half of one common share purchase warrant. Each full warrant will entitle
the holder thereof to purchase one additional common share in the capital of the
Company for one year at $1.10 per share. The funds will be used on its
properties in South American and general working capital.
The Company does not know of any trends, demand, commitments, events or
uncertainties that will result in, or that are reasonably likely to result in,
the Company's liquidity either materially increasing or decreasing at present or
in the foreseeable future. Material increases or decreases in the Company's
liquidity are substantially determined by the success or failure of the
Company's exploration programs or the acquisition of projects.
The Company does not now and does not expect to engage in currency hedging to
offset any risk of currency fluctuations.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
--------------------------------------------------------------------------------
DIRECTORS AND SENIOR MANAGEMENT
The name, positions held with the Company and principal occupation of each
director, officer and executive officer of the Company within the five years
preceding the date of this annual report are as follows:
---------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST PERIOD OF SERVICE AS A
NAME, AGE AND POSITION FIVE YEARS(1) DIRECTOR/OFFICER(2)
---------------------------------------------------------------------------------------------------------------------
GERALD G. CARLSON(4)- President and Director of Copper Chairman since February 15, 1999.
Chairman and Director Ridge Exploration Inc., a public
Age 57 British Columbia mineral exploration Director since February 15, 1999.
company from March 2002 to present.
President of Nevada Star Resources
Corp, from March 5,2002 to present.
President and CEO of LaTeko
Resources Ltd. from December 1996 to
February 2002.
---------------------------------------------------------------------------------------------------------------------
JOSEPH GROSSO - Director and officer of the Company President since February 1990.
President, Chief Executive Officer since February 1990. President of
and Director Oxbow International Marketing Corp., Chief Executive Officer since
Age 65 a private British Columbia company. February 1990.
Director since February 1990.
---------------------------------------------------------------------------------------------------------------------
WILLIAM LEE(3) - Chartered Accountant. CFO of the Vice-President since June 1996.
Vice-President, Company since June 1996. From
Chief Financial Officer and Director December 1994 to May 1996, Chief Financial Officer since June
Age 50 Independent Consultant. From July 1996.
1992 to November 1994, Chief
Financial Officer of Sanctuary Woods Director since June 1996.
Multimedia Corp., a public British
Columbia company.
---------------------------------------------------------------------------------------------------------------------
54
---------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST PERIOD OF SERVICE AS A
NAME, AGE AND POSITION FIVE YEARS(1) DIRECTOR/OFFICER(2)
---------------------------------------------------------------------------------------------------------------------
ROBERT BROWN(3) (4) - Professional Engineer. Presently Director since September 1996.
Director President and director of Findlay
Age 50 Minerals Ltd. a mineral exploration
company from July 1999 to present.
VP Exploration and director of Soho
Resources Corp., from May 1997 to
April 2002. Exploration Manager of
the Company from March 1996 to April
1997.
---------------------------------------------------------------------------------------------------------------------
NIKOLAOS CACOS - Corporate Secretary and
Corporate Secretary and Director Vice-President Investor Relations of Secretary since June 25, 1998.
Age 36 the Company since 1993. Director of Director since June 20, 2002
Info Touch Technologies, a
technology company, since August
1998. President and CEO of Gatco
Technology Corp. a capital pool
corporation, from May 2000 to Oct.
2001. President and director of
Amera Resources Corporation, a
private British Columbia company,
since April 2000.
---------------------------------------------------------------------------------------------------------------------
SEAN HURD(3) -
Director Investor relations manager for the Director since September 2001.
Age 36 Company from June 2002 to present
and director since September 2001.
Investor relations manager for
Mercury Scheduling Systems Inc. from
August 2001 to March 31, 2002.
Investor relations manager for the
Company from June 2000 to August
2001. Investor relations for Senate
Capital from February 1996 to May
2002.
---------------------------------------------------------------------------------------------------------------------
(1) Officers and Directors of the Company may also serve as directors of
other companies. See "Conflicts of Interests" below.
(2) All directorships were re-elected for a period of one year at the
Company's last annual general meeting held on June 20, 2002.
(3) Denotes members of the Audit Committee.
(4) Denotes members of the Remuneration Committee.
There are no known arrangements or understandings between any directors or
executive officers and any other persons pursuant to which the executive
officers or directors were selected.
CONFLICTS OF INTEREST
There are no existing or potential conflicts of interest among the Company, its
directors, officers or promoters as a result of their outside business interests
with the exception that certain of the Company's directors, officers and
promoters serve as directors, officers and promoters of other companies, and,
therefore, it is possible that a conflict may arise between their duties as a
director, officer or promoter of the Company and their duties as a director or
officer of such other companies.
55
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 Company Act and they will govern themselves in respect
thereof to the best of their ability in accordance with the obligations imposed
upon them by law.
All of the Company's directors are also directors, officers or shareholders of
other companies that are engaged in the business of acquiring, developing and
exploiting natural resource properties including properties in countries where
the Company is conducting its operations. Such associations may give rise to
conflicts of interest from time to time. Such a conflict poses the risk that the
Company may enter into a transaction on terms which place the Company in a worse
position than if no conflict existed. 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. However, each director has a similar obligation to
other companies for which such director serves as an officer or director. The
Company has no specific internal policy governing conflicts of interest.
The following table identifies the name of each director of the Company and any
company, which is a reporting issuer in Canada, and for which such director
currently serves as an officer or director:
NAME OF DIRECTOR NAME OF COMPANY POSITION TERM OF SERVICE
---------------- --------------- -------- ---------------
Gerald G. Carlson Copper Ridge Explorations President/Director Feb/99 to present
Nevada Star Resources Corp. President/Director Feb/02 to present
Dentonia Resources Ltd. Director Feb/94 to present
Fairfield Minerals Ltd. Director Jul/98 to present
Orphan Bay Resources Inc. Director Nov/00 to present
Finlay Minerals Ltd. President/Director July/99 to present
Robert Brown Soho Resources Corp Director Jan/82 to April/02
William Lee Hilton Petroleum Ltd. Director Sep/95 to present
QDM Ventures Ltd. Director May/00 to Sept/01
Silver Arrow Explorations Inc. Director Jan/01 to July /01
Aladdin Resource Corp. Director July/01 to Mar /03
Desert Holdings Inc. Director Oct/ 02 to Jan/03
Tinka Resources Limited Director Jan/03 to present
Joseph Grosso Mr. Grosso is not an officer or
director of any other public company.
Sean Hurd Mr. Hurd is not an officer or director
of any other public company.
COMPENSATION
During the fiscal year ended December 31, 2002, the directors and officers of
the Company, as a group, had received or charged the Company a total of $326,326
(2001 $326,707; 2000 - $367,142) for services rendered by the directors and
officers or companies owned by the individuals.
The Company is required, under applicable securities legislation in Canada, to
disclose to its shareholders details of compensation paid to its directors and
officers. The following fairly reflects all material information regarding
compensation paid by the Company to its directors and officers, which
information has been disclosed to the Company's shareholders in accordance with
applicable Canadian law.
56
EXECUTIVE COMPENSATION
"Named Executive Officers" means the Chief Executive Officer of the Company,
regardless of the amount of compensation of that individual, and each of the
Company's four most highly compensated executive officers, other than the Chief
Executive Officer, who were serving as executive officers at the end of the most
recent fiscal year. In addition, disclosure is also required for any individual
whose total salary and bonus during the most recent fiscal year was at least
$100,000, whether or not they were an executive officer at the end of the most
recent fiscal year.
The Company has two Named Executive Officers, Joseph Grosso and William Lee. The
following table sets forth all annual and long-term compensation awarded, paid
to or earned by the Company's Named Executive Officers during the financial
years ended December 31, 2002, 2001 and 2000.
------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
-------------------------------------
Awards Payouts
------------------------------------------------------------------------------------------------------------------
Name and Year Salary Bonus Other Securities Restricted LTIP All other
Principal ($) ($) Annual Under Shares or Payouts Compensa-
Position Compensa- Options Restricted ($) tion
tion Granted (#) Share Units
($) ($)
-------------------------------------------------------------------------------------------------------------------
Joseph Grosso, 2002 102,000 - - 500,000 - - -
President and 2001 102,000 300,000
Chief Executive 2000 102,000 148,029
Officer (1)
-------------------------------------------------------------------------------------------------------------------
William Lee, 2002 72,000 - - 150,000 - - -
Chief Financial 2001 72,000 100,000
Officer 2000 68,206 50,000
-------------------------------------------------------------------------------------------------------------------
(1) Pursuant to a contract for corporate and administrative services,
entered into July 1, 1996, between the Company and Oxbow International
Marketing Corp. ("Oxbow"), a private company owned by Joseph Grosso,
the Company has agreed to retain Oxbow at a monthly fee of $8,500 per
month. The contract expired June 30,1999 and has been renewed on an
annual basis and subsequent to December 31, 2002 a new contract was
finalized. The monthly compensation remained unchanged.
LONG TERM INCENTIVE PLAN AWARDS
Long Term Incentive Plan Awards ("LTIP") means any plan providing compensation
intended to serve as an incentive for performance to occur over a period longer
than one fiscal year whether performance is measured by reference to financial
performance of the Company or an affiliate of the Company, or the price of
shares of the Company but does not include option or stock appreciation rights
plans or plans for compensation through restricted shares or units. The Company
has not granted any LTIP's to the Named Executive Officers during the most
recently completed fiscal year.
OPTIONS AND STOCK APPRECIATION RIGHTS
Stock Appreciation Rights ("SAR's") means a right, granted by an issuer or any
of its subsidiaries as compensation for services rendered or in connection with
office or employment, to receive a payment of cash or an issue or transfer of
securities based wholly or in part on changes in the trading price of the shares
of the Company. No SAR's were granted to or exercised by the Named Executive
Officers or directors during the most recently completed fiscal year.
OPTION GRANTS
The following table sets forth information concerning stock options granted to
the Named Executive Officers during the most recently completed fiscal year:
57
------------------------------------------------------------------------------------------------------------------------
MARKET VALUE OF
SECURITIES % OF TOTAL SECURITIES
UNDER OPTIONS UNDERLYING
OPTIONS GRANTED TO EXERCISE OR OPTIONS ON DATE
GRANTED EMPLOYEES IN BASE PRICE OF GRANT
NAME (#) FISCAL YEAR(1) ($/SECURITY)(2) ($/SECURITY) EXPIRATION DATE
(a) (b) (c) (d) (e) (f)
------------------------------------------------------------------------------------------------------------------------
Joseph Grosso 200,000 19.70% 0.50 0.50 Sept. 23,2007
President
William Lee 50,000 4.76% 0.50 0.50 May 2, 2007
Chief Financial
Officer
-----------------------------------------------------------------------------------------------------------------------
(1) Percentage of all options granted in the period.
(2) The exercise price of the option is the market value of the common
shares of the Company on the date of grant. The exercise price may be
adjusted under certain circumstances, subject to regulatory acceptance.
AGGREGATED OPTION EXERCISES AND OPTION VALUES
The following table sets forth details of all exercises of stock options by the
Named Executive Officers during the most recently completed fiscal year and the
fiscal year-end value of unexercised options on an aggregated basis:
------------------------------------------------------------------------------------------------------------------
VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SECURITIES OPTIONS AT FISCAL OPTIONS
ACQUIRED ON AGGREGATE YEAR-END AT FISCAL YEAR-END(1)
EXERCISE VALUE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME (#) ($) (#) ($)
------------------------------------------------------------------------------------------------------------------
Joseph Grosso Nil Nil 500,000/Nil $55,000
------------------------------------------------------------------------------------------------------------------
William Lee Nil Nil 150,000/Nil $17,500
------------------------------------------------------------------------------------------------------------------
(1) Value of unexercised in-the-money options calculated using the closing
price of the shares of the Company on the TSX-V on December 31, 2002,
$0.55, less the exercise price per share of in-the-money stock options.
PENSION PLAN
The Company does not provide retirement benefits for directors or executive
officers.
AGREEMENTS RELATING TO TERMINATION OF EMPLOYMENT OR CHANGES IN RESPONSIBILITY
Except as described below, the Company does not have any employment or
consulting agreements that provide for any benefits upon termination of
employment. The Company has no plans or arrangements in respect of remuneration
received or that may be received by the Named Executive Officer in the Company's
most recently completed fiscal year or current fiscal year in respect of
compensating such officers in the event of termination of employment (as a
result of resignation, retirement, change of control, etc.) or a change in
responsibilities following a change of control, where the value of such
compensation exceeds $100,000 per Named Executive Officer.
Mr. Grosso's services are provided through a consulting agreement with Oxbow
International Marketing Corp. ("Oxbow") made as of July 1, 1999. The contract
calls for the monthly payment of $8,500 and a further contingent monthly payment
of $6,500, which amount is only payable on change of control or termination
without cause. Under the terms of the contract in the event that Oxbow's
services are terminated without cause or upon a change of control,
58
then a termination payment is due. The termination payment would include all
contingent amounts plus 3 years at $15,000 per month. The new consulting
agreement was approved by the Board of Directors excluding Mr. Joseph Grosso on
April 17, 2003.
COMPENSATION OF DIRECTORS
There are no arrangements under which directors were compensated by the Company
during the most recently completed financial year ended December 31, 2002, for
their services in their capacity as directors. The Company does have employment
agreements with certain directors. See "Compensation - Employment Contracts" and
"Item 7. Interest of Management in Certain Transactions".
The service of Robert Brown, in his capacity as consultant, is made available to
the Company by R.F.B. Geological Inc. ("RFB"), a private company owned by Robert
Brown, for cash on a per diem basis. For the last completed financial year
ending December 31, 2002 $1,276 (2001 - $1,850; 2000 - $1,140) was paid to RFB.
See "Item 7. Interest of Management in Certain Transactions".
The following table sets forth information concerning stock options granted to
directors who are not Named Executive Officers during the most recently
completed fiscal year:
------------------------------------------------------------------------------------------------------------------------
MARKET VALUE OF
% OF TOTAL SECURITIES
SECURITIES OPTIONS UNDERLYING
UNDER GRANTED TO EXERCISE OR OPTIONS ON DATE
OPTIONS EMPLOYEES IN BASE PRICE OF GRANT
NAME GRANTED (#) FISCAL YEAR(1) ($/SECURITY)(2) ($/SECURITY) EXPIRATION DATE
(a) (b) (c) (d) (e) (f)
------------------------------------------------------------------------------------------------------------------------
Sean Hurd 60,000 5.71% 0.50 0.50 May 2 , 2007
Nikolaos Cacos 20,000 1.90 % 0.50 0.50 May 2,2007
100,000 9.52 % 0.50 0.50 Sept. 23,2007
Robert Brown 50,000 4.76 % 0.50 0.50 Sept. 23,2007
------------------------------------------------------------------------------------------------------------------------
(1) Percentage of all options granted in the period.
(2) The exercise price of the option is the market value of the common
shares of the Company on the date of grant. The exercise price may be
adjusted under certain circumstances, subject to regulatory acceptance.
The following table sets forth details of all securities acquired, the aggregate
value realized and the fiscal year end number and value of unexercised
options/SARs held by current directors of the Company:
------------------------------------------------------------------------------------------------------------------
VALUE OF UNEXERCISED
SECURITIES AGGREGATE UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE FISCAL YEAR-END FISCAL YEAR-END(1)
EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME (#) ($) (#) ($)
------------------------------------------------------------------------------------------------------------------
Robert Brown 50,000 $21,500 50,000/Nil $2,500
Gerald G. Carlson Nil N/A 200,000/Nil $30,000
Nikolaos Cacos 100,000 $43,000 120,000/ Nil $6,000
Sean Hurd Nil N/A 60,000/ Nil $3,000
------------------------------------------------------------------------------------------------------------------
(1) Value of unexercised in-the-money options calculated using the closing
price of the shares of the Company on the TSX-V on December 31, 2002,
$0.55, less the exercise price per share of in-the-money stock options.
59
PROPOSED COMPENSATION
The Company has no bonus, profit sharing or similar plans in place pursuant to
which cash or non-cash compensation is proposed to be paid or distributed to the
Named Executive Officers in the current or subsequent fiscal years.
EMPLOYMENT CONTRACTS
By agreement dated January 1, 1996, and as amended July 22, 1996 and July 1,
1999, Joseph Grosso, an officer and director of the Company, is paid a salary of
$8,500 per month through Oxbow. Subsequent to the year end a new contract dated
as of July 1,1999 was approved by the Board. Under the terms of the contract, a
termination payment is due in the event that Oxbow's services are terminated
without cause or upon a change of control. The termination payment would include
all contingent amounts plus 3 years at $15,000 per month. This amendment was
approved on April 17, 2003 by the Board of Directors excluding Mr. Joseph
Grosso. During the fiscal year ended December 31, 2002, Oxbow was paid $102,000
( 2001 - $100,200; 2000 - $102,000 ). See "Item 7. Major Shareholders and
Related Party Transactions".
By agreement dated June 21, 1996, as amended December 10, 1996, William Lee, an
officer and director of the Company, is paid a salary of $6,000 per month.
During the fiscal year ended December 31, 2002, Mr. Lee was paid $72,000 ( 2001
- $72,000; 2000 -$68,206;). See "Item 7. Major Shareholders and Related Party
Transactions".
By agreement dated January 1, 1996, as amended December 10, 1996 and August 22,
2001, Nikolaos Cacos, an officer and director of the Company, is paid a retainer
of $5,500 per month. During the fiscal year ended December 31, 2002, Mr. Cacos
was paid $66,000 ( 2001 - $66,000; 2000 - $52,250). See "Item 7. Major
Shareholders and Related Party Transactions".
By agreement dated February 15, 2001, between the Company and KGE Management
Ltd. ("KGE Management"), Gerald G. Carlson, an officer and director of the
Company, was paid a consulting fee of $36,000 per year, plus $550 per day if
services are rendered for more than five days per month, through KGE Management
Ltd. During the fiscal year ended December 31, 2002, the Company paid $33,000
(2001-$33,000; 2000 - $34,749) to Mr. Carlson pursuant to the agreement between
the Company and KGE Management. The agreement expired January 14, 2001 and has
been renewed until June 18, 2003. By mutual agreement on October 3, 2002 the fee
was changed to $2,000 per month plus $550 per day if services are rendered for
more than four days per month. See "Item 7. Major Shareholders and Related Party
Transactions".
BOARD PRACTICES
REMUNERATION COMMITTEE
The board of directors of the Company has adopted procedures to ensure that all
employment, consulting or other compensation agreements between the Company and
any director or senior officer of the Company or between any associate or
affiliate of the Company and any director or senior officer are considered and
approved by the disinterested members of the board of directors or a committee
of independent directors.
Messrs. Carlson and Brown, members of the Board of Directors, and Mr. DeMare, an
independent advisor and a former director of the Company are members of the
Remunration Committee.
AUDIT COMMITTEE
The Company's Audit Committee must be comprised of at least three directors, the
majority of whom are not employees, control persons or members of the management
of the Company or any of its associates or affiliates. As of the date of this
report, Messrs. Lee, Brown and Heard are members of the Audit Committee. The
board of directors of the Company, after each annual shareholder' meeting must
appoint or re-appoint an audit committee.
The Audit Committee must review the annual financial statements of the Company
before they are approved by the board of directors of the Company. The board of
directors of the Company must review, and if considered
60
appropriate, approve the annual financial statements of the Company before
presentation to the shareholders of the Company. In addition, the Audit
Committee is responsible for:
- Retaining the external auditors and communicating to them that
they are ultimately accountable to the Committee and the Board
as the representatives of the shareholders;
- Reviewing the external audit plan and the results of the
audit, approves all audit engagement fees and terms and
pre-approves all non-audit services to be performed by the
external auditor;
- Reviewing the Company's financial statements and related
management's discussion and analysis of financial and
operating results; and
- Having direct communication channels with the Company's
auditors.
The Audit Committee's mandate requires that all of the members be financially
literate and at least one member have accounting or related financial management
expertise. The mandate of the Committee empowers it to retain legal, accounting
and other advisors.
EMPLOYEES
As of December 31, 2002, the Company had eight full-time employees and two
part-time employees in the area of management and administration compared with
seven full-time employees and one part-time employee in the area of management
and administration at December 31, 2001 and 2000. Exploration activities are
conducted by consultants, laborers and technicians hired for the duration of the
exploration program.
SHARE OWNERSHIP
As of April 30, 2002, the Company had 32,542,130 shares outstanding. The
following table sets forth details of all employee share ownership and includes
information regarding the date of expiration or any options or warrants held by
each employee; the exercise price of the particular option or warrant held; the
total number of options and warrants held by each employee; the total number of
shares held by each employee; and each employee's percentage of ownership:
----------------------------------------------------------------------------------------------------------------------
NAME DATE OF OPTION/ TOTAL TOTAL WARRANTS TOTAL SHARES PERCENTAGE
EXPIRATION OF WARRANT OPTIONS HELD(2) HELD OWNERSHIP(1)
OPTIONS/ EXERCISE HELD(2)
WARRANTS PRICE
----------------------------------------------------------------------------------------------------------------------
Joseph Grosso 7/19/06 $0.40 300,000 -0- 470,724 4.85 %
9/23/07 $0.50 200,000
5/23/03 $0.53 ($0.60) 161,111
(5/23/04) (3)
9/15/04 $0.75 172,400
9/27/03 $0.55 ($0.60) 150,000
(9/27/04) (4)
4/28/04 $1.10 125,000
----------------------------------------------------------------------------------------------------------------------
Gerald Carlson 7/19/06 $0.40 200,000 45,000 0.82 %
4/28/04 $1.10 22,500
----------------------------------------------------------------------------------------------------------------------
William Lee 7/19/06 $0.40 100,000 -0- 41,438 0.85%
5/02/07 $0.50 50,000
3/08/07 $0.84 50,000
5/23/03 $0.53 ($0.60) 25,000
(5/23/04) (3)
4/28/04 $1.10 10,000
----------------------------------------------------------------------------------------------------------------------
Robert Brown 9/23/07 $0.50 50,000 -0- -0- 0.15 %
----------------------------------------------------------------------------------------------------------------------
61
----------------------------------------------------------------------------------------------------------------------
NAME DATE OF OPTION/ TOTAL TOTAL WARRANTS TOTAL SHARES PERCENTAGE
EXPIRATION OF WARRANT OPTIONS HELD(2) HELD OWNERSHIP(1)
OPTIONS/ EXERCISE HELD(2)
WARRANTS PRICE
----------------------------------------------------------------------------------------------------------------------
Nikolaos Cacos 7/19/06 $0.40 37,500 -0- 32,151 0.32 %
5/2/07 $0.50 20,000
9/23/07 $0.50
4/28/04 $1.10 15,000
----------------------------------------------------------------------------------------------------------------------
Sean Hurd 7/19/06 $0.40 100,000 0.46 %
5/2/07 $0.50
4/28/04 $1.10 50,000
------------------====================================================================================================
Total Holdings 1,007,500 731,011 689,313 8.7%
by Directors and
Management
----------------------------------------------------------------------------------------------------------------------
(1) Where persons listed on this table have the right to obtain additional
shares of Common Stock through the exercise of options or warrants
within 60 days from April 30, 2003, these additional shares are deemed
to be outstanding for the purpose of computing the percentage of common
shares owned by such persons, but are not deemed to be outstanding for
the purpose of computing the percentage owned by any other person.
Based on 32,542,130 common shares outstanding as of April 30, 2003.
(2) All options and warrants listed are exercisable to acquire common
shares of the Company.
(3) Warrants may be exercised at an exercise price of $0.53 on or before
May 23, 2003 and thereafter at $0.60 on or before May 23, 2004.
(4) Warrants may be exercised at an exercise price of $0.55 on or before
September 27, 2003 and thereafter at $0.60 on or before September 27,
2004.
STOCK OPTION PLAN
As of April 30, 2003, the Company had granted a number of stock options, issued
a number of warrants and entered into a number of agreements pursuant to which
up to 10,849,650 common shares of the Company may be issued. The following is a
brief summary of these stock options, warrants and agreements.
STOCK OPTIONS
Stock Options to purchase securities from the Company are granted to directors
and employees of the Company on terms and conditions acceptable to the
regulatory authorities in Canada, notably the TSX-V. Stock options must be
approved by the Company's shareholders at an Annual General Meeting. The Company
has no formal written stock option plan.
Under the stock option program, stock options for up to 10% of the number of
issued and outstanding shares of common stock may be granted from time to time,
provided that stock options in favor of any one individual may not exceed 5% of
the issued and outstanding shares of common stock. No stock option granted under
the stock option program is transferable by the optionee other than by will or
the laws of descent and distribution, and each stock option is exercisable
during the lifetime of the optionee only by such optionee.
The exercise price of all stock options granted under the stock option program
must be at least equal to the fair market value of such shares of common stock
on the date of grant, and the maximum term of each stock option may not exceed
five years.
62
The exercise prices for stock options were determined in accordance with TSX-V
guidelines and reflect the average closing price of the Company's common stock
for the ten trading days on the TSX-V immediately preceding the date on which
the directors granted and publicly announced the stock options.
As of April 30, 2003, the Company had granted an aggregate of 2,352,000
non-transferable incentive stock options to the following persons:
MARKET VALUE ON
NATURE NUMBER EXERCISE EXPIRATION DATE OF GRANT
OPTIONEE OF OPTION(1) OF SHARES PRICE DATE OR REPRICING
N. Cacos Director 37,500 $0.40 July 19/06 $0.40
20,000 $0.50 May 2/07 $0.50
J. Grosso Director 300,000 $0.40 July 19/06 $0.40
200,000 $0.50 Sept. 23/07 $0.50
N. DeMare(2) Employee 12,500 $0.40 July 19/06 $0.40
50,000 $0.50 Sept. 23/07 $0.50
25,000 $0.84 Mar.7/08 $0.84
E. Grosso Employee 75,000 $0.40 July 19/06 $0.40
67,500 $0.50 Sept. 23/07 $0.50
A. Sanchez Employee 5,000 $0.40 July 19/06 $0.40
15,000 $0.84 Mar.7/08 $0.84
I. Chiarantano Employee 180,000 $0.40 July 19/06 $0.40
80,000 $0.50 May 2/07 $0.50
B. L. Moody Employee 6,250 $0.40 July 19/06 $0.40
A. Smith Employee 2,500 $0.40 July 19/06 $0.40
H. Lim Employee 4,400 $0.40 July 19/06 $0.40
W. Lee Director 100,000 $0.40 July 19/06 $0.40
50,000 $0.50 May 2/07 $0.50
50,000 $0.84 Mar.7/08 $0.84
M. Briones Employee 4,250 $0.40 July 19/06 $0.40
7,000 $0.84 Mar.7/08 $0.84
R. Brown Director 50,000 $0.50 Sept 23/07 $0.50
J. C. Berretta Employee 78,500 $0.40 July 19/06 $0.40
21,500 $0.84 Mar.7/08 $0.84
Chase Mangement(3) Employee 27,500 $0.40 July 19/06 $0.40
L. Bottomer Employee 20,000 $0.40 July 19/06 $0.40
G. Carlson Director 200,000 $0.40 July 19/06 $0.40
M. Saldana Employee 50,000 $0.40 July 19/06 $0.40
25,000 $0.84 Mar.7/08 $0.84
63
MARKET VALUE ON
NATURE NUMBER EXERCISE EXPIRATION DATE OF GRANT
OPTIONEE OF OPTION(1) OF SHARES PRICE DATE OR REPRICING
P. Storelli Employee 10,000 $0.40 July 19/06 $0.40
M. DeSimone Employee 125,100 $0.40 July 19/06 $0.40
80,000 $0.50 May 2/07 $0.50
I. Saldana Employee 50,000 $0.50 May 2/07 $0.50
Bruno Faccin Employee 10,000 $0.50 May 2/07 $0.50
J. Dennee Employee 10,000 $0.50 May 2/07 $0.50
C. Smyth Employee 150,000 $0.50 May 2/07 $0.50
K. Patterson Employee 50,000 $0.50 Sept 23/07 $0.50
50,000 $0.84 Mar.7/08 $0.84
A.Montgomery Employee 20,000 $0.50 Sept 23/07 $0.50
J. Caplan Employee 2,500 $0.50 Sept 23/07 $0.50
D. Charchaflie Employee 30,000 $0.84 Mar.7/08 $0.84
TOTAL 2,352,000
=========
Officers and directors, 1,007,500
as a group (6 persons) ---------
(1) Pursuant to the rules of the TSX-V, the Company has issued stock
options to employees, directors, and consultants. The Company, for the
purposes of issuing stock options, designates consultants as employees;
therefore, certain persons designated as employees are, in fact,
consultants.
(2) The Company granted Nick DeMare options to acquire common shares during
his tenure as director. Mr. DeMare resigned as director of the Company
effective September 11, 2001.
(3) Mr. DeMare, a former director of the Company, also holds options to
acquire common shares of the Company through Chase Management Ltd., a
private company indirectly wholly-owned by Mr. DeMare.
WARRANTS AND OTHER COMMITMENTS
As of April 30, 2003, there were non-transferable common share purchase warrants
exercisable for the purchase of 8,497,650 common shares, as follows:
NUMBER OF SHARES EXERCISE PRICE EXPIRATION DATE
1,397,167 $0.90 March 16, 2005
637,000 $0.75 April 19, 2005
1,551,000 $0.75 September 15, 2004
36,166 $0.50 September 27, 2003
1,454,915 $0.55 September 27, 2003
$0.60 September 27, 2004
1,622,222 $0.53 May 23, 2003
$0.60 May 23, 2004
55,555 $0.53 May 23, 2003
195,750 $0.90 April 28, 2004
97,875 $1.10 April 28, 2004
1,450,000 $1.10 April 28, 2004
----------------
8,497,650 TOTAL
================
As of April 30, 2003, the Company's officers and directors, as a group,
including entities controlled or under significant influence of officers and
directors of the Company, held warrants to purchase up to 731,011 of the
Company's common shares.
64
There are no assurances that the options, warrants or other rights described
above will be exercised in whole or in part.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
--------------------------------------------------------------------------------
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth certain information regarding ownership by the
Company's officers and directors as a group, as well as all persons who own
greater than 5% of the Company's outstanding shares, as of April 30, 2002:
AMOUNT PERCENT OF
TITLE OF CLASS IDENTITY OF PERSON OR GROUP OWNED CLASS(1)
Common Stock Barrick Gold Corporation 3,000,000 9.22%
Common Stock Prudent Bear Funds, Inc. 3,963,774 12.18%
Common Stock Joseph Grosso 1,579,235(2) 4.85%
Common Stock Officers and Directors, as a group 848,589(3) 2.61%
(1) Where persons listed on this table have the right to obtain additional
shares of Common Stock through the exercise of options or warrants
within 60 days from April 30, 2003, these additional shares are deemed
to be outstanding for the purpose of computing the percentage of common
shares owned by such persons, but are not deemed to be outstanding for
the purpose of computing the percentage owned by any other person.
Based on 32,542,130 common shares outstanding as of April 30, 2003.
(2) Includes options and warrants held by Joseph Grosso to acquire an
additional 1,108,511 common shares.
(3) Includes options and warrants held by officers and directors of the
Company to acquire an additional 630,000 common shares.
The Company's major shareholders have the same voting rights as all other
shareholders.
CHANGES IN OWNERSHIP BY MAJOR SHAREHOLDERS
In August 1999, Barrick Gold Corporation ("Barrick") acquired, through a private
placement, 1.5 million units at a price of $1.00 per unit. Each unit consists of
one common share in the capital stock of the Company and one non-transferable
share purchase warrant, entitling Barrick to purchase an additional common share
for a period of one year at a price of $1.50 per share. On April 19, 2000,
Barrick exercised warrants at $1.50 to purchase an additional 350,000 shares of
the Company. On August 16, 2000, Barrick exercised their remaining warrants to
buy 1,150,000 common shares of the Company. As of April 30, 2003 Barrick owned
3,000,000 common shares of the Company (9.22%).
On April 28, 2003, Prudent Bear Funds, Inc. advised the Company that it had
acquired control and direction, through Prudent Bear Fund, a mutual fund
controlled by it, over 818,500 of the Company's common shares. This resulted in
Prudent Bear Funds, Inc. having ownership of and control over a total of
3,209,637 common shares together with warrants to purchase an additional 754,137
common shares. As of April 30, 2003, if such warrants were exercised Prudent
Bear Funds, Inc. would have control and direction of 3,963,774 common shares of
the Company (12.18%).
SHARES HELD IN THE UNITED STATES
As of March 31, 2003 there were approximately 187 registered holders of the
Company's shares in the United States, with combined holdings of 4,481,488
shares (15.7% of the 28,616,862 outstanding shares at March 31, 2003).
65
CHANGE OF CONTROL
As of April 30, 2003, there were no arrangements known to the Company which may
at a subsequent date result in a change of control of the Company.
CONTROL BY OTHERS
To the best of the Company's knowledge, the Company is not directly or
indirectly owned or controlled by another corporation, any foreign government,
or any other natural or legal person.
RELATED PARTY TRANSACTIONS
Other than as disclosed below, from January 1, 2002 through March 31, 2003, the
Company did not enter into any transactions or loans between the Company and any
(a) enterprises that directly or indirectly through one or more intermediaries,
control or are controlled by, or are under common control with the Company; (b)
associates; (c) individuals owning, directly or indirectly, an interest in the
voting power of the Company that gives them significant influence over the
Company, and close members of any such individual's family; (d) key management
personnel and close members of such individuals' families; or (e) enterprises in
which a substantial interest in the voting power is owned, directly or
indirectly by any person described in (c) or (d) or over which such a person is
able to exercise significant influence.
1. The Company shares office facilities, capital assets and personnel
with IMPSA. During the fiscal year ended December 31, 2002, the
Company charged IMPSA - $0 ( 2001 - $0; 2000 - $0). As of March 31,
2003, there have been no other charges to IMPSA.The Company on
September 1, 2002 began sharing office facilities, capital assets and
personnel with Amera. Nikolaos Cacos, an officer and director of the
Company, is an officer and director of Amera. During the fiscal year
ended December 31, 2002, the Company received $6,000 from Amera. For
the three month period ending on March 31, 2003, the Company received
$6,000 from Amera.
2. The Company leases its office space from Beauregard, a private company
50% owned by Joseph Grosso, an officer and director of the Company,
and 50% owned by Mr. Grosso's wife, Mrs. Evelina Grosso. The Company
commenced occupation of the office premises in January 1999. The term
of the lease was for three years and has been extended for another two
years, with minimum lease payments of $25,000 per annum, plus
operating costs. In addition, the Company is responsible for all
leasehold improvements. During the fiscal year ended December 31,
1999, the Company incurred $12,366 for leasehold improvements
conducted on the office premises. The Company made no further
leasehold improvement expenditures in 2000 or 2001. See "Item 4.
Information on the Company - Properties, Plants and Equipment -
Principal Office". During the fiscal year ended December 31, 2002, the
Company paid rent in the amount of $60,924. For the three month period
ending on March 31, 2003, the Company has paid rent in the amount of
$15,230.
3. By agreement dated July 1, 1996, as amended July 22, 1996, Joseph
Grosso, an officer and director of the Company, is paid a salary of
$8,500 per month through Oxbow. The term of the agreement expired July
1, 2002 was extended until July 1, 2003, by mutual agreement. During
the fiscal year ended December 31, 2002, Oxbow was paid $102,000 (2001
- $102,000; 2000 - $102,000), and during the three months ended March
31, 2003, Oxbow was paid $25,500. See "Item 6. Directors, Senior
Management and Employees - Employment Contracts".
4. During the fiscal years ended December 31, 2002, 2001 and 2000, the
Company paid $1,276, $1,850 and $1,140, respectively, to RFB for
consulting services provided by Robert Brown, a director of the
Company. See "Item 6. Directors, Senior Management and Employees".
5. By agreement dated January 1, 1996, as amended December 10, 1996 and
August 22, 2001, Nikolaos Cacos, an officer and director of the
Company, is paid a retainer of $5,500 per month. Mr. Cacos received a
retainer of $4,500 per month until December 1, 2001. Thereafer, the
rate was increased by $1,000. During the fiscal year ended December
31, 2002, Mr. Cacos was paid $66,000 ( 2001 - $66,000; 2000 -
$52,250).
66
During the three months ended March 30, 2003, Mr. Cacos was paid
$16,500. See "Item 6. Directors, Senior Management and Employees".
6. The Company's officers and directors have been granted incentive stock
options enabling them to purchase common shares of the Company. See
"Item 6. Directors, Senior Management and Employees - Share
Ownership".
7. By agreement dated June 21, 1996, as amended December 10, 1996,
William Lee, an officer and director of the Company, is paid a salary
of $6,000 per month. During the fiscal year ended December 31, 2002,
Mr. Lee was paid $72,000 (2001 - $72,000; 2000 - $68,206). During the
three months ended March 31, 2003, Mr. Lee was paid $18,000. See "Item
6. Directors, Senior Management and Employees".
8. By agreement dated February 26,1999 and as amended February 15, 2002,
between the Company and KGE Management Ltd., Gerald G. Carlson, an
officer and director of the Company, was paid a consulting fee of
$36,000 per year, plus $550 per day if services were rendered for more
than five days per month, through KGE Management Ltd. The agreement
has been renewewed to June 18, 2003. By mutual agreement on October 3,
2002 the fee was changed to $2,000 per month plus $550 per day if
services are rendered for more than four days per month. During the
fiscal year ended December 31, 2002, Mr. Carlson, through KGE, was
paid $33,000 (2001 - $33,000; 2000 - $34,749). During the three months
ended March 31, 2003, Mr. Carlson, through KGE, was paid $13,800. See
"Item 6. Directors, Senior Management and Employees".
9. By agreement dated June 2, 2002, the Company agreed to pay Mr. Sean
Hurd, investor relations manager and director of the Company
(effective September 2000), a salary of $3,000 per month for the first
three months and $3,500 per month until August 2000, at which time Mr.
Hurd left the Company as an employee but remained a director. Mr. Hurd
later returned as investor relations manager, and under an agreement
dated June 11, 2001, the Company agreed to pay him a salary of $4,000
per month. During the year ended December 31, 2002, Mr. Hurd was paid
$52,050, (2001 - $30,882; 2000 -$28,235).
10. During the year ended December 31, 2002, the Company recorded
$64,641(2001 - $45,381; 2000 - $43,791) for reimbursement of
expenditures and disbursements incurred on behalf of the Company by
Mr. Grosso. As at December 31, 2002, $1,496 (2001 - $17,683; 2000 -
$14,461) remained unpaid and has been included in accounts payable and
accrued liabilities.
ITEM 8. FINANCIAL INFORMATION.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
FINANCIAL STATEMENTS
DESCRIPTION PAGE
Consolidated Financial Statements for the Years Ended F-1
December 31, 2002, 2001 and 2000.
SIGNIFICANT CHANGES
Subsequent to December 31, 2002, the Company completed a private placement of
2,900,000 units at $0.90 per unit for a total amount of $2.61 million. Each unit
consists of one common share and one half of one common share purchase warrant.
Each full warrant will entitle the holder thereof to purchase one additional
common share in the capital of the Company for one year at $1.10 per share. The
funds will be used on the Company's properties in South American and for general
working capital.
LEGAL PROCEEDINGS
None.
67
DIVIDEND POLICY
The Company has not paid any dividends on its common shares and does not intend
to pay dividends on its common shares in the immediate future. Any decision to
pay dividends on its common shares in the future will be made by the board of
directors on the Company on the basis of earnings, financial requirements and
other such conditions that may exist at that time.
ITEM 9. THE OFFER AND LISTING.
--------------------------------------------------------------------------------
PRICE HISTORY
The Company's common shares are listed on the TSX Venture Exchange (the
"TSX-V"). From April 15, 1996 to November 28,1999, the Company's shares were
listed on the Vancouver Stock Exchange (the "VSE"). Effective November 29, 1999,
the VSE and the Alberta Stock Exchange (the "ASE") merged and began operations
as the TSX-V. The Company is classified as a Tier I company and trades on the
TSX-V under the symbol "IMR". Companies which satisfy the minimum initial
listing requirements of the TSX-V are designated as Tier II companies and are
subject to listing requirements which are stricter than those for companies
which are designated as Tier I companies.
The following table lists the volume of trading and high and low sales prices on
theTSX-V the TSX-V, for shares of the Company's common stock for the last five
fiscal years, each quarterly period during the last two fiscal years and each
month from November 2002 through April 2003.
TSX VENTURE EXCHANGE STOCK TRADING ACTIVITY
SALES PRICE
--------------------------
YEAR ENDED VOLUME HIGH LOW
December 31, 2002 17,608,424 $0.94 $0.34
December 31, 2001 5,564,250 $0.62 $0.27
December 31, 2000 4,330,674 $1.15 $0.30
December 31, 1999 2,126,666 $0.88 $0.40
December 31, 1998 5,483,428 $0.60 $0.28
SALES PRICE
--------------------------
QUARTER ENDED VOLUME HIGH LOW
March 31, 2003 13,712,400 $1.06 $0.49
December 31, 2002 2,753,752 $0.56 $0.35
September 30, 2002 2,360,296 $0.55 $0.34
June 30, 2002 9,803,396 $0.94 $0.42
March 31, 2002 2,690,980 $0.56 $0.39
December 31, 2001 2,458,798 $0.62 $0.37
September 30, 2001 1,244,860 $0.59 $0.31
June 30, 2001 1,427,984 $0.39 $0.28
March 31, 2001 427,608 $0.39 $0.27
68
SALES PRICE
--------------------------
MONTH ENDED VOLUME HIGH LOW
April 30, 2003 2,953,800 $1.00 $0.78
March 31, 2003 8,954,800 $1.06 $0.70
February 28, 2003 3,588,400 $0.81 $0.62
January 31, 2003 1,169,200 $0.64 $0.49
December 31, 2002 1,167,854 $0.56 $0.35
November 30, 2002 357,839 $0.46 $0.38
OVER-THE-COUNTER BULLETIN BOARD STOCK TRADING ACTIVITY
As of October 8, 2002, the Company's shares received clearance for trading on
the OTC Bulletin Board operated by the National Association of Securities
Dealers in the United States.
BID PRICE
--------------------------
YEAR ENDED VOLUME HIGH LOW
December 31, 2002 97,497 $0.36 $0.22
BID PRICE
--------------------------
QUARTER ENDED VOLUME HIGH LOW
March 31, 2003 842,490 $0.70 $0.22
December 31, 2002 72,497 $0.33 $0.22
September 30, 2002 25,000 $0.36 $0.29
BID PRICE
--------------------------
MONTH ENDED VOLUME HIGH LOW
April 30, 2003 287,599 $0.69 $0.52
March 31, 2003 488,598 $0.70 $0.47
February 28, 2003 303,394 $0.54 $0.41
January 31, 2003 50,498 $0.43 $0.22
December 31, 2002 33,997 $0.33 $0.22
November 30, 2002 4,500 $0.31 $0.29
As of March 31, 2003 there were approximately 187 registered holders of the
Company's shares in the United States, with combined holdings of 4,481,488
shares (15.7% of the outstanding shares at March 31, 2003).
ITEM 10. ADDITIONAL INFORMATION.
--------------------------------------------------------------------------------
MEMORANDUM AND ARTICLES OF ASSOCIATION
Information regarding the Company's Memorandum and Articles of Association has
been previously reported in the Company's Registration Statement on Form 20-F,
filed with the Commission on January 6, 2000 and in the Company's annual report
on From 20-F, filed with the Commission on May 8, 2001 (File Number 000-03464).
69
MATERIAL CONTRACTS
The following are material contracts to which the Company is a party:
1. A Consulting Services Agreement Between Oxbow International Marketing
Corp. ("Oxbow") and IMA Resource Corporation, dated January 1, 1999
and amended on July 1, 1996, July 1, 1999, July 1, 2001, and July 1,
2002, under which the Company has agreed to pay Oxbow $8,500 per month
for consulting services. See "Item 6. Directors, Senior Management and
Employees - Compensation - Executive Compensation".
2. A Consulting Services Agreement Between Nikolaos Cacos and IMA
Resource Corporation dated January 1, 1996, and amended December 10,
1996 and August 22, 2000, under which Nikolaos Cacos, an officer and
director of the Company, was paid a retainer of $4,500 per month by
the Company for consulting services. The retainer, as of December 1,
2000, was increased to $5,500 per month. See "Item 6. Directors,
Senior Management and Employees - Employment Contracts".
3. A Consulting Agreement Between KGE Management Ltd. ("KGE Management")
and IMA Exploration Inc., dated February 15, 2001, under which Gerald
G. Carlson, an officer and director of the Company, is paid a salary
of $36,000 per year, plus $550 per day if services are rendered for
more than five days per month, through KGE Management Ltd. The
agreement expired January 14, 2001 and has been extended until June
18, 2003. By mutual agreement on October 3, 2002 the fee was changed
to $2,000 per month plus $550 per day if services are rendered for
more than four days per month. See "Item 6. Directors, Senior
Management and Employees - Employment Contracts".
4. By agreement dated June 1, 1999, Lindsay Bottomer, an officer of the
Company, was paid a salary of $6,250 per month. The agreement expired
May 31, 2000. The Company negotiated a new agreement with Mr.
Bottomer, effective March 31, 2001, whereby, he was paid a retainer of
$2,000 per month, plus $350 per day if services were rendered for more
than five days per month. The agreement was subsequently amended on
July 3, 2001 reducing the retainer to $800 per month, plus $350 per
day if services were rendered for more than two days per month. This
agreement was terminated on November 28, 2001. During the fiscal year
ended December 31, 2002, the Company paid Mr. Bottomer $ Nil (2001 -
$40,375; 2000 - $75,000).
5. An Exploration and Option Agreement with Barrick Exploraciones
Argentina S.A. ("Barrick"), dated August 17, 1999 and amended March
19, 2001 and further amended on March 25, 2003, granting Barrick an
option to earn an interest in EITHER the Rio de las Taguas or
Potrerillos properties in the Valle del Cura region. See "Item 4.
Information on the Company - Properties, Plants and Equipment -
Principal Properties - Argentinean Properties - Property Agreements
and Exploration Activities - Barrick Agreement".
6. Purchase Agreement with Victor Ronchietto, dated March 24, 1999 as
amended April 6, 2000, between IMASA and Mr. Ronchietto. See "Item 4.
Information on the Company - Properties, Plants and Equipment -
Principal Properties - Argentinean Properties - Property Agreements
and Exploration Activities - Ronchietto Properties".
7. Option Agreement with Sociedad Minera de Responsabilidad Limitado Nova
JJ de Piura and Sociedad Minera de Responsabilidad Limitada (SMR Ltda)
Don Alberto JJ de Piura, dated January 24, 1997 as amended January 31,
2000, August 22, 2000 and April 22, 2001. See "Item 4. Information on
the Company - Properties, Plants and Equipment - Principal Properties
- Peruvian Property".
8. An Agreement between the Company and Sean Hurd, investor relations
manager and director, dated June 2, 1999. The Company agreed to pay
Mr. Sean Hurd, a salary of $3,000 per month for the first three months
and $3,500 per month until August 2000, at which time Mr. Hurd left
the Company but remained a director. Mr. Hurd returned as investor
relations manager and under an agreement, dated June 11, 2001, the
Company has agreed to pay him a salary of $4,000 per month. See "Item
6. Directors, Senior Management and Employees - Employment Contracts".
9. An Option Agreement between Nestor Arturo and IMA S.A., signed June 7,
2000 as amended August 3, 2000 and September 1, 2000, granting the
Company an option to acquire mineral rights. See "Item 4.
70
Information on the Company - Properties, Plants and Equipment -
Principal Properties - Argentinean Properties - Property Agreements
and Exploration Activities - Arturo Property (Mogotes)".
10. An Option Agreement with Rio Tinto Mining and Exploration Limited
("Rio Tinto"), dated March 5, 2001, granting the Company an option to
acquire a majority interest in the Mogotes property in San Juan
Province, Argentina between IMA, IMASA and Rio Tinto. This agreement
was terminated by Rio Tinto in December 2001. See "Item 4. Information
on the Company - Properties, Plants and Equipment- Principal
Properties - Argentinean Properties - Property Agreements and
Exploration Activities - Arturo Property (Mogotes)".
11. The Company leases its office space from Beauregard, a private company
50% owned by Joseph Grosso, an officer and director of the Company,
and 50% owned by Mr. Grosso's wife, Mrs. Evelina Grosso. The Company
commenced occupation of the office premises in January 1999. The term
of the lease was for three years and has been extended for another two
years, with minimum lease payments of $25,000 per annum, plus
operating costs. In addition, the Company is responsible for all
leasehold improvements. During the fiscal year ended December 31,
1999, the Company incurred $12,366 for leasehold improvements
conducted on the office premises. The Company made no further
leasehold improvement expenditures in 2000 or 2001. See "Item 4.
Information on the Company - Properties, Plants and Equipment -
Principal Office". During the fiscal year ended December 31, 2002, the
Company paid rent in the amount of $60,924. For the three month period
ending on March 31, 2003, the Company has paid rent in the amount of
$15,230.
12. The Company signed a letter of Intent on March 6, 2003 with Amera
Resources Corporation a private company which has a commpn director to
earn a undivided 51 % interest (subject to regulatory approval) to
further explore the Arturo Property (Mogotes). To earn a 51 % interest
in the property, Amera must issue 1,650,000 common shares to the
Company and incur US $1.25 million of expenditures, including work
programs and underlying option payments, all over five years. See
"Item 4. Information on the Company - Principal Properties -
Argentinean Properties - Property Agreements and Exploration
Activities - Arturo's Property (Mogotes)" and "Item. 7 Major
Shareholders and Related Party Transactions - Related Party
Transactions."
EXCHANGE CONTROLS
There are no governmental laws, decrees, or regulations in Canada relating to
restrictions on the export or import of capital, or affecting the remittance of
interest, dividends, or other payments to non-resident holders of the Company's
Common Stock. Any remittances of dividends to United States residents are,
however, subject to a 15% withholding tax (10% if the shareholder is a
corporation owning at least 10% of the outstanding Common Stock of the Company)
pursuant to Article X of the reciprocal tax treaty between Canada and the United
States. See "Item 10. Additional Information - Taxation".
Except as provided in the Investment Canada Act (the "Act"), there are no
limitations specific to the rights of non-Canadians to hold or vote the Common
Stock of the Company under the laws of Canada or the Province of British
Columbia or in the charter documents of the Company.
Management of the Company considers that the following general summary is
materially complete and fairly describes those provisions of the Act pertinent
to an investment by an American investor in the Company.
The Act requires a non-Canadian making an investment which would result in the
acquisition of control of a Canadian business, the gross value of the assets of
which exceed certain threshold levels or the business activity of which is
related to Canada's cultural heritage or national identity, to either notify, or
file an application for review with, Investment Canada, the federal agency
created by the Investment Canada Act.
The notification procedure involves a brief statement of information about the
investment of a prescribed form which is required to be filed with Investment
Canada by the investor at any time up to 30 days following implementation of the
investment. It is intended that investments requiring only notification will
proceed without government intervention unless the investment is in a specific
type of business activity related to Canada's cultural heritage and national
identity.
71
If an investment is reviewable under the Act, an application for review in the
form prescribed is normally required to be filed with Investment Canada prior to
the investment taking place and the investment may not be implemented until the
review has been completed and the Minister responsible for Investment Canada is
satisfied that the investment is likely to be of net benefit to Canada. If the
Minister is not satisfied that the investment is likely to be of net benefit to
Canada, the non-Canadian must not implement the investment or, if the investment
has been implemented, may be required to divest himself of control of the
business that is the subject of the investment.
The following investments by non-Canadians are subject to notification under the
Act:
(1) an investment to establish a new Canadian business; and
(2) an investment to acquire control of a Canadian business that is not
reviewable pursuant to the Act.
The following investments by a non-Canadian are subject to review under the Act:
(1) direct acquisitions of control of Canadian businesses with assets of $5
million or more unless the acquisition is being made by an American
investor;
(2) direct acquisitions of control of Canadian businesses with assets of $152
million or more by an American investor;
(3) indirect acquisitions of control of Canadian businesses with assets of $5
million or more if such assets represent more than 50% of the total value
of the assets of the entities, the control of which is being acquired,
unless the acquisition is being made by an American investor;
(4) indirect acquisitions of control of Canadian businesses with assets of
$152 million or more by an American investor if such assets represent more
than 50% of the total value of the assets of the entities, the control of
which is being acquired;
(5) indirect acquisitions of control of Canadian businesses with assets of $50
million or more even if such assets represent less than 50% of the total
value of the assets of the entities, the control of which is being
acquired, unless the acquisition is being made by an American investor in
which case there is no review; and
(6) an investment subject to notification that would not otherwise be
reviewable if the Canadian business engages in the activity of
publication, distribution or sale of books, magazines, periodicals,
newspapers, audio or video music recordings, or music in print or
machine-readable form.
Generally speaking, an acquisition is direct if it involves the acquisition of
control of the Canadian business or of its Canadian parent or grandparent and an
acquisition is indirect if it involves the acquisition of control of a
non-Canadian parent or grandparent of an entity carrying on the Canadian
business. Control may be acquired through the acquisition of actual or de jure
voting control of a Canadian corporation or through the acquisition of
substantially all of the assets of the Canadian business. No change of voting
control will be deemed to have occurred if less than one-third of the voting
control of a Canadian corporation is acquired by an investor.
An American, as defined in the Act includes an individual who is an American
national or a lawful permanent resident of the United States, a government or
government agency of the United States, an American-controlled corporation,
limited partnership, trust or joint venture and a corporation, limited
partnership, trust or joint venture that is neither American-controlled or
Canadian-controlled of which two-thirds of its board of directors, general
partners or trustees, as the case may be, are any combination of Canadians and
Americans.
The higher thresholds for Americans do not apply if the Canadian business
engages in activities in certain sectors such as oil, natural gas, uranium,
financial services (except insurance), transportation services or media
activities.
The Act specifically exempts certain transactions from either notification or
review. Included among the category of transactions is the acquisition of voting
shares or other voting interests by any person in the ordinary course of that
72
person's business as a trader or dealer in securities. Given the nature of the
Company's business and the size of its operations, management does believe the
Investment Canada Act would apply to an investment in the Company's shares by a
U.S. investor.
TAXATION
MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES
Management of the Company considers that the following discussion describes the
material Canadian federal income tax consequences applicable to a holder of
Common Stock of the Company who is a resident of the United States and who is
not a resident of Canada and who does not use or hold, and is not deemed to use
or hold, his shares of Common Stock of the Company in connection with carrying
on a business in Canada (a "non-resident shareholder").
This summary is based upon the current provisions of the Income Tax Act (Canada)
(the "ITA"), the regulations thereunder (the "Regulations"), the current
publicly announced administrative and assessing policies of Revenue Canada,
Taxation and all specific proposals (the "Tax Proposals") to amend the ITA and
Regulations announced by the Minister of Finance (Canada) prior to the date
hereof. This description is not exhaustive of all possible Canadian federal
income tax consequences and, except for the Tax Proposals, does not take into
account or anticipate any changes in law, whether by legislative, governmental
or judicial action.
DIVIDENDS
Dividends paid on the common stock of the Company to a non-resident will be
subject to withholding tax. The Canada-U.S. Income Tax Convention (1980)
provides that the normal 25% withholding tax rate is reduced to 15% on dividends
paid on shares of a corporation resident in Canada (such as the Company) to
residents of the United States, and also provides for a further reduction of
this rate to 5% where the beneficial owner of the dividends is a corporation
which is a resident of the United States which owns at least 10% of the voting
shares of the corporation paying the dividend.
CAPITAL GAINS
In general, a non-resident of Canada is not subject to tax under the ITA with
respect to a capital gain realized upon the disposition of a share of a
corporation resident in Canada that is listed on a prescribed stock exchange.
For purposes of the ITA, the Company is listed on a prescribed stock exchange.
Non-residents of Canada who dispose of shares of the Company will be subject to
income tax in Canada with respect to capital gains if:
(a) the non-resident holder;
(b) persons with whom the non-resident holder did not deal at
arm's length; or
(c) the non-resident holder and persons with whom the non-resident
holder did not deal with at arm's length,
owned not less than 25% of the issued shares of any class or series of the
Company at any time during the five-year period preceding the disposition. In
the case of a non-resident holder to whom shares of the Company represent
taxable Canadian property and who is resident in the United States, no Canadian
taxes will be payable on a capital gain realized on such shares by reason of the
Canada-U.S. Income Tax Convention (1980) (the "Treaty") unless the value of such
shares is derived principally from real property situated in Canada. However, in
such a case, certain transitional relief under the Treaty may be available.
73
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material United States federal income
tax consequences, under current law, applicable to a U.S. Holder (as defined
below) of the Company's common stock. This discussion does not address
consequences peculiar to persons subject to special provisions of federal income
tax law, such as tax-exempt organizations, qualified retirement plans, financial
institutions, insurance companies, real estate investment trusts, regulated
investment companies, broker-dealers, nonresident alien individuals or foreign
corporations, or shareholders owning common stock representing 10% of the vote
and value of the Company. In addition, this discussion does not cover any state,
local or foreign tax consequences.
The following discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations, published Internal
Revenue Service ("IRS") rulings, published administrative positions of the IRS
and court decisions that are currently applicable, any or all of which could be
materially and adversely changed, possibly on a retroactive basis, at any time.
In addition, this discussion does not consider the potential effects, both
adverse and beneficial of recently proposed legislation which, if enacted, could
be applied, possibly on a retroactive basis, at any time. Holders and
prospective holders of the Company's Common Stock should consult their own tax
advisors about the federal, state, local and foreign tax consequences of
purchasing, owning and disposing of shares of Common Stock of the Company.
U.S. HOLDERS
As used herein, a "U.S. Holder" is defined as (i) citizens or residents of the
U.S., or any state thereof, (ii) a corporation or other entity created or
organized under the laws of the U.S., or any political subdivision thereof,
(iii) an estate the income of which is subject to U.S. federal income tax
regardless of source or that is otherwise subject to U.S. federal income tax on
a net income basis in respect of the common stock, or (iv) a trust whose
administration is subject to the primary supervision of a U.S. court and which
has one or more U.S. fiduciaries who have the authority to control all
substantial decisions of the trust, whose ownership of common stock is not
effectively connected with the conduct of a trade or business in the United
States and shareholders who acquired their stock through the exercise of
employee stock options or otherwise as compensation.
DISTRIBUTIONS ON SHARES OF COMMON STOCK
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to the Company's common stock are required to include in gross
income for United States federal income tax purposes the gross amount of such
distributions to the extent that the Company has current or accumulated earnings
and profits, without reduction for any Canadian income tax withheld from such
distributions. Such Canadian tax withheld may be credited, subject to certain
limitations, against the U.S. Holder's United States federal income tax
liability or, alternatively, may be deducted in computing the U.S. Holder's
United States federal taxable income by those who itemize deductions. (See more
detailed discussion at "Foreign Tax Credit" below.) To the extent that
distributions exceed current or accumulated earnings and profits of the Company,
they will be treated first as a return of capital up to the U.S. Holder's
adjusted basis in the common stock and thereafter as gain from the sale or
exchange of such shares. Preferential tax rates for long-term capital gains are
applicable to a U.S. Holder which is an individual, estate or trust. There are
currently no preferential tax rates for long-term capital gains for a U.S.
Holder which is a corporation. Dividends paid on the Company's common stock will
not generally be eligible for the dividends received deduction provided to
corporations receiving dividends from certain United States corporations.
FOREIGN TAX CREDIT
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of the Company's common stock may be entitled, at
the option of the U.S. Holder, to either a deduction or a tax credit for such
foreign tax paid or withheld. Generally, it will be more advantageous to claim a
credit because a credit reduces United States federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on a year-by-year basis and applies to all
foreign taxes paid by (or withheld from) the U.S. Holder during that year.
Subject to certain limitations, Canadian taxes withheld will be eligible for
credit against the U.S. Holder's United States federal income taxes. Under the
Code, the limitation on foreign taxes eligible for credit is calculated
separately with respect to specific classes of income. Dividends paid by
74
the Company generally will be either "passive" income or "financial services"
income, depending on the particular U.S. Holder's circumstances. Foreign tax
credits allowable with respect to each class of income cannot exceed the U.S.
federal income tax otherwise payable with respect to such class of income. The
consequences of the separate limitations will depend on the nature and sources
of each U.S. Holder's income and the deductions appropriately allocated or
apportioned thereto. The availability of the foreign tax credit and the
application of the limitations on the credit are fact specific and holders and
prospective holders of common stock should consult their own tax advisors
regarding their individual circumstances.
DISPOSITION OF SHARES OF COMMON STOCK
A U.S. Holder will recognize gain or loss upon the sale of shares of common
stock equal to the difference, if any, between (i) the amount of cash plus the
fair market value of any property received; and (ii) the shareholder's tax basis
in the common stock. This gain or loss will be capital gain or loss if the
shares are a capital asset in the hands of the U.S. Holder, and such gain or
loss will be long-term capital gain or loss if the U.S. Holder has held the
common stock for more than one year. Gains and losses are netted and combined
according to special rules in arriving at the overall capital gain or loss for a
particular tax year. Deductions for net capital losses are subject to
significant limitations. For U.S. Holders who are individuals, any unused
portion of such net capital loss may be carried over to be used in later tax
years until such net capital loss is thereby exhausted. For U.S. Holders which
are corporations (other than corporations subject to Subchapter S of the Code),
an unused net capital loss may be carried back three years from the loss year
and carried forward five years from the loss year to be offset against capital
gains until such net capital loss is thereby exhausted.
OTHER CONSIDERATIONS
The Company has not determined whether it meets the definition of a "passive
foreign investment company" (a "PFIC"). It is unlikely that the Company meets
the definition of a "foreign personal holding company" (a "FPHC") or a
"controlled foreign corporation" (a "CFC") under current U.S. law.
If more than 50% of the voting power or value of the Company were owned
(actually or constructively) by U.S. Holders who each owned (actually or
constructively) 10% or more of the voting power of the Company's common shares
("10% Shareholders"), then the Company would become a CFC and each 10%
Shareholder would be required to include in its taxable income as a constructive
dividend an amount equal to its share of certain undistributed income of the
Company. If (1) more than 50% of the voting power or value of the Company's
common shares were owned (actually or constructively) by five or fewer
individuals who are citizens or residents of the United States and (2) 60% or
more of the Company's income consisted of certain interest, dividend or other
enumerated types of income, then the Company would be a FPHC. If the Company
were a FPHC, then each U.S. Holder (regardless of the amount of the Company's
Common Shares owned by such U.S. Holder) would be required to include in its
taxable income as a constructive dividend its share of the Company's
undistributed income of specific types.
If 75% or more of the Company's annual gross income has ever consisted of, or
ever consists of, "passive" income or if 50% or more of the average value of the
Company's assets in any year has ever consisted of, or ever consists of, assets
that produce, or are held for the production of, such "passive" income, then the
Company would be or would become a PFIC. The Company has not provided assurances
that it has not been and does not expect to become a PFIC. Please note that the
application of the PFIC provisions of the Code to mining companies is somewhat
unclear.
If the Company were to be a PFIC, then a U.S. Holder would be required to pay an
interest charge together with tax calculated at maximum tax rates on certain
"excess distributions" (defined to include gain on the sale of stock) unless
such U.S. Holder made an election either to (1) include in his or her taxable
income certain undistributed amounts of the Company's income or (2) mark to
market his or her Company common shares at the end of each taxable year as set
forth in Section 1296 of the Code.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. information reporting requirements may apply with respect to the payment of
dividends to U.S. Holders of the Company's shares. Under Treasury regulations
currently in effect, non-corporate holders may be subject to backup withholding
at a 31% rate with respect to dividends when such holder (1) fails to furnish or
certify a correct taxpayer
75
identification number to the payor in the required manner, (2) is notified by
the IRS that it has failed to report payments of interest or dividends properly
or (3) fails, under certain circumstances, to certify that it has been notified
by the IRS that it is subject to backup withholding for failure to report
interest and dividend payments.
DOCUMENTS ON DISPLAY
Documents concerning the Company and referred to in this report may be inspected
at the Company's principal office, located at #709 - 837 Hastings Street,
Vancouver, British Columbia, V6C 3N6.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
--------------------------------------------------------------------------------
Not applicable.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
--------------------------------------------------------------------------------
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
--------------------------------------------------------------------------------
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS.
--------------------------------------------------------------------------------
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES.
--------------------------------------------------------------------------------
Based on their evaluation conducted within 90 days of filing this report, our
chief financial officer and chief executive officer have concluded that the
Company's disclosure controls and procedures (as defined in Rule 13a-15(c) and
Rule 15d-15(c) promulgated under the Securities Exchange Act of 1934, as
amended) are effective and designed to alert them to material information
relating to the Company.
Within the 90 day period prior to the filing of this report there have been no
significant changes in the Company's internal controls or the occurrence of
events or other factors that could significantly affect these controls.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.
--------------------------------------------------------------------------------
Not applicable.
ITEM 16B. CODE OF ETHICS.
--------------------------------------------------------------------------------
Not applicable.
76
PART III
ITEM 17. FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
See pages F-1 though F-26
ITEM 18. FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
Not applicable.
ITEM 19. EXHIBITS.
--------------------------------------------------------------------------------
EXHIBITS
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
1.1 Memorandum as Amended (1) N/A
1.2 Articles (1) N/A
4.1 Share Purchase Agreement Between Shareholders and N/A
389863 B.C. Ltd. (1)
4.2 Arrangement Agreement Between Viceroy Resource N/A
Corporation and IMA Resource Corporation (1)
4.3 Consulting Services Agreement Between Oxbow International N/A
Marketing Corp. and IMA Resource Corporation (1)
4.4 Employment Agreement with William Lee (1) N/A
4.5 Consulting Services Agreement Between Nikolaos Cacos and N/A
IMA Resource Corporation (1)
4.6 Consulting Agreement Between KGE Management Ltd. and IMA N/A
Exploration Inc.(2)
4.7 Consulting Agreement Between Lindsay R. Bottomer and IMA N/A
Exploration Inc. (1)
4.8 Exploration and Option Agreement with Barrick N/A
Exploraciones Argentina S.A. (1)
4.9 Option Agreement with Juan Demetrio Lirio Jr. and N/A
Juan Demetrio Lirio representing Lir-Fer Construcciones
S.R.L. (1)
4.10 Option Agreement with Lirio and Lir-Fer Construcciones N/A
S.R.L. (1)
4.11 Option Agreement with Oscar Garcia and others (1) N/A
4.12 Purchase Agreement with Modesto Enrique Arasena (1) N/A
4.13 Option Agreement with Hugo Arturo Bosque (1) N/A
4.14 Option Agreement with Guillermo Munoz, Lydia Gonzalez, N/A
Ricardo Sanchez and Antonio Monteleone (1)
4.15 Option Agreement with Jorge Ernesto Rodriguez and N/A
Gerardo Javier Rodriguez (1)
4.16 Option Agreement with Jorge Ernesto Rodriguez and Raul N/A
Alberto Garcia (1)
4.17 Purchase Agreement with Victor Ronchietto (1) N/A
4.18 Option Agreement with Sociedad Minera de Responsabilidad N/A
Limitado Nova JJ de Piura and Sociedad Minera de
Responsabilidad Limitada (SMR Ltda) Don Alberto JJ
de Piura (1)
77
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
4.19 Amendment to Option Agreement with Hugo Arturo Bosque (2) N/A
4.20 Amendment to Purchase Agreement with Victor Ronchietto (2) N/A
4.21 Option Agreement with Dionisio Ramos (2) N/A
4.22 Amendment to Consulting Services Agreement Between Oxbow N/A
International Marketing Corp. and IMA Resource
Corporation (2)
4.23 Amendment to consulting Agreement between IMA Exploration N/A
Inc. and Nikolaos Cacos (3)
4.24 Agreement between the Company and Sean Hurd dated N/A
June 2, 2002 (3)
4.25 Option Agreement between Nestor Arturo and IMA S.A. (3) N/A
4.26 Amendment to Option Agreement with Guillermo Munoz, Lydia N/A
Gonzalez, Ricardo Sanchez and Antonio Monteleone (3)
4.27 Amendment to Option Agreement with Sociedad Minera de N/A
Responsabilidad Limitado Nova JJ de Piura and Sociedad
Minera de Responsabilidad Limitada (SMR Ltda) Don Alberto
JJ de Piura (3)
4.28 Option Agreement with Rio Tinto Mining and Exploration N/A
Limited (4)
4.29 Amendment to Exploration and Option Agreement with N/A
Barrick Exploraciones Argentina S.A. (4)
4.30 Consulting Agreement between the Company and Lindsay N/A
Bottomer dated April 1, 2002(4)
4.31 Amendment to Option Agreement with Juan Demetrio Lirio N/A
Jr. and Juan Demetrio Lirio representing Lir-Fer
Construcciones S.R.L. (4)
4.32 Amendment to Option Agreement with Juan Demetrio Lirio N/A
and Lir-Fer Construcciones S.R.L. (4)
4.33 Amendment to Option Agreement with Sociedad Minera de N/A
Responsabilidad Limitado Nova JJ de Piura and Sociedad
Minera de Responsabilidad Limitada (SMR Ltda) Don
Alberto JJ de Piura (4)
4.34 Amendment to Option Agreement between Nestor Arturo and N/A
IMA S.A. (4)
4.35 Amendment to Consulting Agreement Between KGE Management N/A
Ltd. and IMA Exploration Inc. (4)
4.36 Amendment to Option Agreement with Juan Demetrio Lirio N/A
Jr. and Juan Demetrio Lirio representing Lir-Fer
Construcciones S.R.L. (5)
4.37 Amendment to Option Agreement with Juan Demetrio Lirio N/A
and Lir-Fer Construcciones S.R.L. (5)
4.38 Amendment to Option Agreement between Nestor Arturo and N/A
IMA S.A. (5)
4.39 Amendment to Option Agreement with Sociedad Minera de N/A
Responsabilidad Limitado Nova JJ de Piura and Sociedad
Minera de Responsabilidad Limitada (SMR Ltda) Don
Alberto JJ de Piura (5)
4.40 Short Form Offering Document (5) N/A
4.41 Amendment to Consulting Services Agreement Between Oxbow N/A
International Marketing Corp. and IMA Resource Corpora-
tion (5)
78
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
4.42 Lease Agreement between IMA Exploration Inc. and N/A
Beauregard Holdings Corp. (5)
4.43 Amendment to Consulting Agreement Between KGE Management N/A
Ltd. And IMA Exploration Inc. (5)
4.44 Amendment to Agreement between the Company and Sean Hurd N/A
(5)
4.45 Amendment to Exploration and Option Agreement with 109
Barrick Exploraciones Argentina S.A. dated March 26, 2003.
4.46 Letter of Intent dated March 6, 2003 with Amera Resources 113
Corporation
4.47 Letter Agreement with Amera Resources Corporation re: 125
reimbursement of office expenses
4.48 Amendment to Option Agreement with Sociedad Minera de 127
Responsabilidad Limitado Nova JJ de Piura and Sociedad
Minera de Responsabilidad Limitada (SMR Ltda) Don
Alberto JJ de Piura dated Decmeber 23, 2002
4.49 Amendment to Option Agreement with Juan Demetrio Lirio 133
Jr. and Juan Demetrio Lirio representing Lir-Fer
Construcciones S.R.L. dated July 10, 2002
4.50 Amendment to Option Agreement with Juan Demetrio Lirio 136
Jr. and Juan Demetrio Lirio representing Lir-Fer
Construcciones S.R.L. dated December 27, 2002
4.51 Amendment to Consulting Services Agreement Between Oxbow 139
International Marketing Corp. and IMA Resource Corporation
dated July 15, 2002
4.52 Amendment to Consulting Agreement Between KGE Management 141
Ltd. And IMA Exploration Inc. dated June 14, 2002
4.53 Amendment to Consulting Agreement Between KGE Management 143
Ltd. And IMA Exploration Inc. dated October 3, 2002
4.54 Amendment to Agreement between the Company and Sean Hurd 145
dated June 10, 2002
4.55 Amendment to Consulting Services Agreement Between Oxbow 147
International Marketing Corp. and IMA Resource
Corporation dated April 17, 2003
8.1 List of Subsidiaries 155
12.1 Certification of Joseph Grosso 157
12.2 Certification of William Lee 159
12.3 Consent of George Sivertz, Professional Geologist 161
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form 20-F, filed with the Commission on January 6, 2000. File number 0-30464.
(2) Previously filed as an exhibit to the Company's Registration Statement on
Form 20-F/A Amendment No. 1 filed July 14, 2000. File Number 0-30464.
(3) Previously filed as an exhibit to the Company's Registration Statement on
Form 20-F/A Amendment No. 2 filed September 15, 2000. File Number 0-30464.
(4) Previously filed as an exhibit to the Company's Annual Report on Form 20-F
filed May 8, 2001. File Number 0-30464.
(5) Previously filed as an exhibit to the Company's Annual Report on Form 20-F
filed May 8, 2002. File Number 0-30464.
79
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
IMA EXPLORATION INC.
(Registrant)
/s/ WILLIAM LEE
------------------------------------------------------
William Lee
Vice President, Chief Financial Officer and Director
Date: MAY 16, 2003
------------------
80
PRICEWATERHOUSECOOPERS
--------------------------------------------------------------------------------
PricewaterhouseCoopers LLP
Chartered Accountants
PricewaterhouseCoopers Place
250 Howe Street, Suite 700
Vancouver, British Columbia
Canada V6C 3S7
Telephone +1 (604) 806 7000
Facsimile +1 (604) 806 7806
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF
IMA EXPLORATION INC.
We have audited the consolidated balance sheets of IMA EXPLORATION INC. as at
December 31, 2002 and 2001 and the consolidated statements of loss and deficit
and cash flows for the years ended December 31, 2002, 2001 and 2000. 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 generally accepted auditing standards
in Canada and the United States. 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 the years
ended December 31, 2002, 2001 and 2000 in accordance with Canadian generally
accepted accounting principles. As required by the British Columbia Company Act,
we report that, in our opinion, these principles have been applied on a
consistent basis.
/s/ PricewaterhouseCoopers LLP
CHARTERED ACCOUNTANTS
Vancouver, B.C., Canada
March 18, 2003
(except as to note 12 which is as of April 11, 2003)
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and the other member firms of PricewaterhouseCoopers International Limited, each
of which is a separate and independent legal entity.
F-1
81
================================================================================
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
================================================================================
F-2
82
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
2002 2001
$ $
A S S E T S
CURRENT ASSETS
Cash and cash equivalents 1,436,124 755,765
Amounts receivable and prepaids 79,661 69,889
Marketable securities 23,460 23,460
-------------- --------------
1,539,245 849,114
PROPERTY, PLANT AND EQUIPMENT net of
accumulated depreciation of $201,771 (2001 - $179,000) 45,517 57,088
MINERAL PROPERTIES AND DEFERRED COSTS (Note 4) 5,847,727 4,581,172
-------------- --------------
7,432,489 5,487,374
============== ==============
L I A B I L I T I E S
CURRENT LIABILITIES
Accounts payable and accrued liabilities 108,351 115,716
-------------- --------------
S H A R E H O L D E R S ' E Q U I T Y
SHARE CAPITAL (Note 6) 21,354,823 18,090,497
CONTRIBUTED SURPLUS (Note 5) 128,260 -
DEFICIT (14,158,945) (12,718,839)
-------------- --------------
7,324,138 5,371,658
-------------- --------------
7,432,489 5,487,374
============== ==============
NATURE OF OPERATIONS (Note 1)
SUBSEQUENT EVENTS (Notes 6 and 12)
APPROVED BY THE BOARD
/s/ JOSEPH GROSSO , Director
------------------------------------------
/s/ WILLIAM LEE , Director
------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
F-3
83
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
2002 2001 2000
$ $ $
EXPENSES
Administrative and management services 224,109 219,891 218,451
Bank charges and interest 10,492 7,464 7,078
Corporate development and investor relations 249,373 88,198 179,082
Depreciation 22,772 24,657 31,886
General exploration 180,321 109,875 137,148
Office and sundry 34,823 37,875 40,970
Printing 22,304 12,133 21,945
Professional fees 172,828 105,052 240,860
Rent, parking and storage 67,768 68,522 64,221
Salaries and employee benefits 194,542 193,544 167,743
Stock based compensation (Note 5) 128,260 - -
Telephone and utilities 34,368 25,138 34,805
Transfer agent and regulatory fees 35,831 15,596 14,798
Travel and accommodation 80,485 37,740 44,538
--------------- -------------- -------------
1,458,276 945,685 1,203,525
--------------- -------------- -------------
OTHER EXPENSE (INCOME)
Foreign exchange 8,415 (17,030) 9,050
Interest and miscellaneous income (26,585) (97,280) (156,865)
Write-off of mineral properties and related deferred costs - 21,483 789,953
Write-down of marketable securities - 22,483 178,777
Loss on sale of marketable securities - 6,534 -
--------------- -------------- -------------
(18,170) (63,810) 820,915
--------------- -------------- -------------
LOSS FOR THE YEAR (1,440,106) (881,875) (2,024,440)
DEFICIT - BEGINNING OF YEAR (12,718,839) (11,836,964) (9,812,524)
--------------- -------------- -------------
DEFICIT - END OF YEAR (14,158,945) (12,718,839) (11,836,964)
=============== ============== =============
LOSS PER SHARE - BASIC AND DILUTED $(0.06) $(0.06) $(0.17)
=============== ============== =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 23,188,485 15,104,239 11,938,699
=============== ============== =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
F-4
84
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
2002 2001 2000
$ $ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Loss for the year (1,440,106) (881,875) (2,024,440)
Items not affecting cash
Depreciation 22,772 24,657 31,886
Stock based compensation 128,260 - -
Write-down of marketable securities - 22,483 178,777
Loss on sale of marketable securities - 6,534 -
Write-off of mineral properties and deferred costs - 21,483 789,953
Decrease (increase) in amounts receivable and prepaids (9,772) (17,984) 14,729
Increase (decrease) in accounts payable and accrued liabilities (7,365) (73,703) 21,838
-------------- -------------- ---------------
(1,306,211) (898,405) (987,257)
-------------- -------------- ---------------
INVESTING ACTIVITIES
Additions to mineral properties and deferred costs (1,266,555) (1,320,777) (1,989,049)
Additions to property, plant and equipment (11,201) (8,012) (15,321)
Proceeds on sale of marketable securities - 16,966 -
-------------- -------------- ---------------
(1,277,756) (1,311,823) (2,004,370)
-------------- -------------- ---------------
FINANCING ACTIVITIES
Issuance of common shares 3,453,382 1,563,940 3,483,250
Share issuance costs (189,056) (100,684) (103,194)
-------------- -------------- ---------------
3,264,326 1,463,256 3,380,056
-------------- -------------- ---------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 680,359 (746,972) 388,429
CASH AND CASH EQUIVALENTS
- BEGINNING OF YEAR 755,765 1,502,737 1,114,308
-------------- -------------- ---------------
CASH AND CASH EQUIVALENTS - END OF YEAR 1,436,124 755,765 1,502,737
============== ============== ===============
CASH AND CASH EQUIVALENTS IS COMPRISED OF:
CASH 631,255 605,765 177,737
SHORT-TERM DEPOSIT 804,869 150,000 1,325,000
-------------- -------------- ---------------
1,436,124 755,765 1,502,737
============== ============== ===============
SUPPLEMENTARY CASH FLOW INFORMATION (Note 11)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
F-5
85
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
1. NATURE OF OPERATIONS
The Company is in the process of exploring its mineral properties in
South America and evaluating other mineral properties. The Company
presently has no proven or probable reserves and on the basis of
information to date, it has not yet determined whether these properties
contain economically recoverable ore reserves. Consequently the Company
considers itself to be an exploration stage company. The amounts shown
as mineral properties and deferred costs represent costs incurred to
date, less amounts amortized and/or written off, and do not necessarily
represent present or future values. The underlying value of the mineral
properties and deferred costs is entirely dependent on the existence of
economically recoverable reserves, securing and maintaining title and
beneficial interest in the properties, the ability of the Company to
obtain the necessary financing to complete development, and future
profitable production.
The Company considers that it has adequate resources to maintain its
core operations for the next year. However, the Company recognizes that
it will require additional financing in the forthcoming year to
complete its proposed exploration programs. The Company is seeking
additional financing to complete these programs, and while it has been
successful at doing so in the past, there can be no assurance that it
will be able to do so in the future. See also Note 12.
2. CHANGE IN ACCOUNTING POLICY
On January 1, 2002, the Company adopted, on a prospective basis, the
provisions of new Section 3870 "STOCK-BASED COMPENSATION AND OTHER
STOCK BASED PAYMENTS" of the Canadian Institute of Chartered
Accountants' ("CICA") Handbook ("Section 3870").
The Company elected not to adopt the fair value method for stock-based
compensation granted to employees and directors and to continue using
the intrinsic value method. As a result, no compensation expense is
recognized if the exercise price of the stock options at the date of
grant is equal to market value. Grants of stock options to
non-employees and direct awards of stock to employees and non-employees
must be accounted for using the fair value method of accounting.
Consideration paid for shares on exercise of stock options is credited
to share capital. The additional disclosure required by Section 3870 as
a result of the Company not adopting the fair value method is provided
in Note 5.
F-6
86
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles
("Canadian GAAP"). The significant measurement differences between
those principles and those that would be applied under US generally
accepted accounting principles ("US GAAP") as they affect the Company
are disclosed in Note 10.
USE OF ESTIMATES
The preparation of financial statements in conformity with Canadian
GAAP requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
period. Significant areas requiring the use of management estimates
relate to the determination of environmental obligations and impairment
of mineral properties and deferred costs. Actual results may differ
from these estimates.
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the
Company and all its subsidiaries. The Company's principal subsidiaries
are IMPSA Resources Corporation (80.69%), Minera Imp- Peru S.A. (100%)
and Inversiones Mineras Argentinas S.A. (100%). All intercompany
transactions and balances have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and short-term investments
maturing within 90 days of the original date of acquisition.
MARKETABLE SECURITIES
Marketable securities are carried at the lower of cost or market.
F-7
87
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
MINERAL PROPERTIES AND DEFERRED COSTS
Direct costs related to the acquisition and exploration of mineral
properties held or controlled by the Company are deferred on an
individual property basis until the viability of a property is
determined. Administration costs and general exploration costs are
expensed as incurred. When a property is placed in commercial
production, deferred costs will be depleted using the
units-of-production method. Management of the Company periodically
reviews the recoverability of the capitalized mineral properties.
Management takes into consideration various information including, but
not limited to, results of exploration activities conducted to date,
estimated future metal prices, and reports and opinions of outside
geologists, mine engineers and consultants. When it is determined that
a project or property will be abandoned or its carrying value has been
impaired, a provision is made for any expected loss on the project or
property.
The Company also accounts for foreign value added taxes paid as part of
mineral properties and deferred costs. The recovery of these taxes will
commence on the beginning of foreign commercial operations. Should
these amounts be recovered they would be treated as a reduction in
carrying costs of mineral properties and deferred costs.
Although the Company has taken steps to verify title to mineral
properties in which it has an interest, according to the usual industry
standards for the stage of exploration of such properties, these
procedures do not guarantee the Company's title. Such properties may be
subject to prior agreements or transfers and title may be affected by
undetected defects.
From time to time, the Company acquires or disposes of properties
pursuant to the terms of option agreements. Options are exercisable
entirely at the discretion of the optionee and, accordingly, are
recorded as mineral property costs or recoveries when the payments are
made or received.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, which comprise leasehold improvements
and office furniture and equipment, are recorded at cost less
accumulated depreciation calculated using the straight-line method over
their estimated useful lives of five years.
F-8
88
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
TRANSLATION OF FOREIGN CURRENCIES
The Company's foreign operations are integrated and translated using
the temporal method. Under this method, the Company translates monetary
assets and liabilities denominated in foreign currencies at period-end
rates. Non-monetary assets and liabilities are translated at historical
rates. Revenues and expenses are translated at average rates in effect
during the period except for depreciation and amortization which are
translated at historical rates. The resulting gains or losses are
reflected in the operating results in the period of translation.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
significant concentration of credit risk consist primarily of cash and
cash equivalents and amounts receivable. The Company limits its
exposure to credit loss by placing its cash and cash-equivalents with
major financial institutions.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments consisting of
cash and cash equivalents, amounts receivable and accounts payable and
accrued liabilities approximate their carrying values, due to their
short-term nature. As of December 31, 2002, the market value of
marketable securities was $78,200.
INCOME TAXES
The Company uses the liability method of accounting for future income
taxes. Under this method of tax allocation, future income tax
liabilities and assets are recognized for the estimated tax
consequences attributable to differences between the amounts reported
in the consolidated financial statements and their respective tax
bases, using substantively enacted tax rates and laws that are expected
to be in effect in the periods in which the future income tax assets or
liabilities are expected to be settled or realized. The effect of a
change in income tax rates on future income tax liabilities and assets
is recognized in income in the period that the change occurs. Future
income tax assets are recognized to the extent that they are considered
more likely than not to be realized.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing income
available to common shareholders by the weighted average number of
common shares outstanding during the year. The computation of diluted
earnings per share assumes the conversion, exercise or issuance of
securities only when such conversion, exercise or issuance would have a
dilutive effect on earnings per share. The dilutive effect of
outstanding options and warrants and their equivalents is reflected in
diluted earnings per share by application of the treasury stock method.
F-9
89
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
4. MINERAL PROPERTIES AND DEFERRED COSTS
2002 2001
---------------------------------------- ----------------------------------------
DEFERRED DEFERRED
ACQUISITION EXPLORATION ACQUISITION EXPLORATION
COSTS COSTS TOTAL COSTS COSTS TOTAL
PROPERTY $ $ $ $ $ $
Argentina:
Valle de Cura 661,635 1,879,040 2,540,675 622,791 1,866,361 2,489,152
Gualcamayo 85,621 16,240 101,861 52,880 9,595 62,475
NW San Juan 51,065 101,831 152,896 37,096 83,471 120,567
Chubut - 354,873 354,873 - 79,869 79,869
Other - 30,972 30,972 - 25,395 25,395
------------ ------------ ------------ ------------ ----------- -------------
798,321 2,382,956 3,181,277 712,767 2,064,691 2,777,458
Peru:
Rio Tabaconas 700,046 1,966,404 2,666,450 535,217 1,268,497 1,803,714
------------ ------------ ------------ ------------ ----------- -------------
1,498,367 4,349,360 5,847,727 1,247,984 3,333,188 4,581,172
============ ============ ============ ============ =========== =============
(a) Argentinean Properties
The Company has either staked, fully paid or holds options to
acquire 100% working interests in mineral properties, located
in San Juan Province and Chubut Province in Argentina. As of
December 31, 2002, the Company must make further payments with
respect to option agreements relating to the Valle de Cura and
NW San Juan regions, totalling US$550,000, as follows:
YEAR VALLE DE CURA NW SAN JUAN TOTAL
US$ US$ US$
2003 65,000 35,000 100,000
2004 70,000 100,000 170,000
2005 170,000 110,000 280,000
----------- ----------- ------------
305,000 245,000 550,000
=========== =========== ============
The Company is required to pay annual government payments of
approximately US$30,000 on its Argentinean properties. The
Company has also agreed to pay net smelter return royalties
("NSR") (ranging from 0.5% to 2.0% NSR) of up to US$8,460,000
once commercial production is achieved on certain of the
Argentinean properties.
F-10
90
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
4. MINERAL PROPERTIES AND DEFERRED COSTS (continued)
The Company has granted Barrick Gold Corporation ("Barrick")
an option, whereby Barrick can elect to earn an interest in
either the Rio de las Taguas or Potrerillos properties in the
Valle de Cura region. Barrick may earn an initial 50% interest
in the selected property by paying the Company US$250,000, and
expending US$3 million in exploration on the selected property
within five years of making the US$250,000 payment. The
initial option period expired on November 30, 2002 without
exercise of the option. Subsequent to December 31, 2002,
Barrick paid the Company US$65,000 to extend the date by which
it is required to elect to proceed with its option to December
31, 2003.
Once Barrick has earned its 50% interest in the selected
property, Barrick will have the right to earn an additional
25% interest by providing financing necessary to bring the
property into commercial production.
In addition, should Barrick earn its initial 50% interest and
not discover ore in commercial quantities, it has the option
to purchase the remaining interest in the selected property
from the Company for US$2 million and a 5% NSR.
See also Note 12 (iii).
(b) Rio Tabaconas, Peru
The Company holds an option to acquire a 100% interest in
three concessions, in the Cajamarca Department of San Ignacio
Province in northern Peru. In addition, the Company owns ten
concessions, which surround and overlie the optioned
concessions. Collectively these are known as the Rio Tabaconas
Project.
Under the terms of the option agreement, the Company has paid
US$160,000 and is required to make further payments totalling
US$1,340,000. On June 28, 2002, the Company suspended further
exploration activities at the Rio Tabacanos project. This
decision was made in response to the local community
expressing its concerns with mineral exploration activities.
The Company has deferred any further exploration until an
agreement with the local community has been finalized. As a
result the Company declared force majeure, as allowed under
its option agreement. Accordingly, the Company and the
optionor have revised the timing of the remaining $1,340,000
option payments as follows:
F-11
91
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
4. MINERAL PROPERTIES AND DEFERRED COSTS (continued)
i) US$25,000 on July 30, 2003, US$100,000 on December
20, 2003, and US $200,000 on December 20, 2004; and
ii) US$1,015,000 on August 20, 2005, if commercial
production has commenced. Alternatively, in the event
commercial production has not commenced, the Company
will be required to make four instalments of
US$200,000, with the initial payment due on August
20, 2005 and the remaining instalments due on
December 30, 2006 and each year thereafter. The final
instalment of US$215,000 is due on December 30, 2009.
In the event that commercial production commences
subsequent to August 20, 2005, the full remaining
outstanding balance will be due within 20 days of
commercial production.
The Company is making progress towards the finalization of an
agreement with the local community and expects exploration
activities to resume in fiscal 2003.
5. STOCK BASED COMPENSATION
During the year ended December 31, 2002, the Company granted stock
options to its employees, directors and independent consultants to
purchase up to 1,050,000 shares of the Company. The options are
exercisable at $0.50 per share and have a 5 year term to expiry.
The Company has recognized compensation expense of $128,260 for 510,000
stock options granted to consultants during the year which vested
immediately.
As the Company did not adopt the fair value method of accounting for
stock options granted to employees and directors, Section 3870 requires
disclosure of pro forma amounts that reflect the impact as if the
Company had adopted the fair value based method of accounting. Had
compensation costs for the Company's stock options granted to employees
and directors been accounted for under the fair value method, the
Company's net loss and loss per share would have increased as follows:
F-12
92
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
$
Net loss for the year
- as reported (1,440,106)
- compensation expense (140,840)
------------
- pro-forma (1,580,946)
============
Basic and diluted loss per share
- as reported $(0.06)
- pro-forma $(0.07)
F-13
93
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
5. STOCK BASED COMPENSATION (continued)
The fair value of stock options granted to employees, directors and
consultants was estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions used for the grants
made during the year:
Risk-free interest rate 3.89% - 4.25%
Estimated volatility 78% - 87%
Expected life 2.5 years
The weighted average fair value per share of stock options, calculated
using the Black-Scholes option pricing model, granted during the period
to the Company's employees, directors and consultants was $0.26 per
share.
Option-pricing models require the use of estimates and assumptions
including the expected volatility. Changes in the underlying
assumptions can materially affect the fair value estimates and
therefore, existing models do not necessarily provide reliable measure
of the fair value of the Company's stock options.
6. SHARE CAPITAL
Authorized - 99,708,334 common shares without par value
Issued NUMBER $
Balance, December 31, 1999 9,967,552 13,247,185
Private placements 2,034,167 1,220,500
Exercise of options 22,500 9,000
Exercise of warrants 1,505,000 2,253,750
Less share issue costs - (103,194)
------------- -------------
Balance, December 31, 2000 13,529,219 16,627,241
Private placements 5,063,000 1,563,940
Less share issue costs - (100,684)
------------- ------------
Balance, December 31, 2001 18,592,219 18,090,497
Private placements 5,703,026 2,552,870
Exercise of options 170,000 68,000
Exercise of warrants 2,085,361 837,512
Less share issue costs - (194,056)
------------- ------------
Balance, December 31, 2002 26,550,606 21,354,823
============= ============
F-14
94
6. SHARE CAPITAL (continued)
In addition to subsequent events disclosed in Notes 6(a) and (b) below,
further equity issuances subsequent to the year end are described in
Note 12.
(a) During the year ended December 31, 2002, the Company completed
the following private placements:
i) 637,000 units at a price of $0.38 for cash proceeds of
$222,695, net of share issue costs of $19,365. Each
unit consisted of one common share of the Company and
one warrant. Two warrants entitle the holder to
purchase an additional common share for the exercise
price of $0.45 on or before March 31, 2003. In
addition, agents warrants were issued to purchase
63,700 common shares at a price of $0.45 on or before
March 31, 2003. Subsequent to December 31, 2002, the
Company issued 382,200 common shares on the exercise of
warrants and agents warrants for $171,990;
ii) 1,777,778 units at a price of $0.45 per unit for cash
proceeds of $686,132, net of share issue costs of
$118,868. Each unit consisted of one common share of
the Company and one warrant. Two warrants entitle the
holder to purchase an additional common share at a
price of $0.54 per share on or before April 9, 2003. In
addition, the Company issued 11,111 shares to the
agents, at a price of $0.45 per share. The agents also
received agents warrants to purchase 355,556 common
shares at a price of $0.54 per share on or before April
9, 2003.
During the year ended December 31, 2002, the Company
issued 326,361 common shares on the exercise of 652,722
warrants for $146,862. Subsequent to December 31, 2002
the Company issued 915,083 common shares on the
exercise of warrants and agents warrants for $494,145.
The remaining warrants reserved for 3,001 common shares
expired without exercise;
iii) 1,722,222 units at a price of $0.45 per unit, for cash
proceeds of $751,000 net of share issue costs of
$24,000. Each unit consisted of one common share of the
Company and one warrant. Each warrant entitles the
holder to purchase an additional common share of the
Company at a price of $0.53 per share on or before May
23, 2003 and $0.60 per share on or before May 23, 2004.
The agents also received agents warrants to purchase
66,666 common shares at a price of $0.53 per share on
or before May 23, 2003. Certain directors have
purchased 191,111 units. Subsequent to December 31,
2002 the Company issued 111,111 common shares on the
exercise of 100,000 warrants and 11,111 agents warrants
for $58,889; and
F-15
95
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
6. SHARE CAPITAL (continued)
iv) 1,554,915 units at a price of $0.47 for cash proceeds
of $698,987, net of share issue costs of $31,823. Each
unit consisted of one common share of the Company and
one warrant. Each warrant entitles the holder to
purchase an additional common share of the Company at a
price of $0.55 per share on or before September 27,
2003 and $0.60 on or before September 27, 2004. The
agents also received agents warrants to purchase 37,496
common shares at a price of $0.50 per share on or
before September 27, 2003. Certain directors have
purchased 325,000 units. Subsequent to December 31,
2002 the Company issued 61,330 common shares on the
exercise of 60,000 warrants and 1,330 agents warrants
for $33,665.
(b) During the year ended December 31, 2001, the Company completed
the following private placements:
i) 3,000,000 units at a price of $0.26 for cash proceeds
of $746,250, net of share issue costs of $33,750. Each
unit consisted of one common share of the Company and
one- half warrant. Each full warrant entitles the
holder to purchase one common share for the exercise
price of $0.40 on or before July 3, 2002. In addition,
agents warrants were issued to purchase 259,000 common
shares for the exercise price of $0.35 on or before
July 3, 2002. The President of the Company subscribed
for 240,000 units of the private placement.
During the year ended December 31, 2002, the Company
issued 1,759,000 common shares on the exercise of the
warrants and agents warrants for $690,650; and
ii) 2,063,000 units at a price of $0.38 for cash proceeds
of $717,006, net of share issue costs of $66,934. Each
unit consisted of one common share of the Company and
one- half warrant. Each full warrant entitles the
holder to purchase one common share for the exercise
price of $0.45 on or before March 31, 2003. In
addition, agents warrants were issued to purchase
206,300 common shares for the exercise price of $0.45
on or before March 31, 2003. Subsequent to December 31,
2002 the Company issued 1,237,800 common shares on the
exercise of the warrants and agents warrants for
$557,010.
F-16
96
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
6. SHARE CAPITAL (continued)
(c) During the year ended December 31, 2000, the Company completed
the following private placements:
i) 637,000 units at a price of $0.60 per unit for cash
proceeds of $343,980, net of commissions of $38,220.
Each unit consisted of one common share of the Company
and one warrant. Each warrant entitles the holder to
purchase an additional common share of the Company at a
price of $0.75 per share on or before April 19, 2005.
The warrants remained outstanding at December 31, 2002;
and
ii) 1,397,167 units at a price of $0.60 per unit, for cash
proceeds of $773,327, net of commissions of $64,973.
Each unit consisted of one common share of the Company
and one warrant. Each warrant entitles the holder to
purchase an additional common share of the Company at a
price of $0.90 per share on or before March 16, 2005.
The warrants remained outstanding at December 31, 2002.
(d) Stock Options
The Company grants stock options in accordance with the
policies of the TSX Venture Exchange ("TSX Venture"). A
summary of the Company's outstanding options at December 2002,
2001 and 2000 and the changes for the years ending on those
dates is presented below:
2002 2001 2000
---------------------- ---------------------- ----------------------
OPTIONS WEIGHTED OPTIONS WEIGHTED OPTIONS WEIGHTED
OUTSTANDING AVERAGE OUTSTANDING AVERAGE OUTSTANDING AVERAGE
AND EXERCISE AND EXERCISE AND EXERCISE
EXERCISABLE PRICE EXERCISABLE PRICE EXERCISABLE PRICE
$ $ $
Balance, beginning of year 1,635,500 0.40 1,224,000 0.54 996,500 0.51
Granted 1,050,000 0.50 1,635,500 0.40 250,000 0.65
Exercised (170,000) 0.40 - - (22,500) 0.40
Cancelled (50,000) 0.40 (1,224,000) 0.54 - -
------------ ------------ -----------
Balance, end of year 2,465,500 0.44 1,635,500 0.40 1,224,000 0.54
============ ============ ===========
F-17
97
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
6. SHARE CAPITAL (continued)
Stock options outstanding and exercisable at December 31, 2002
are as follows:
NUMBER EXERCISE PRICE EXPIRY DATE
$
1,415,500 0.40 July 19, 2006
510,000 0.50 May 2, 2007
540,000 0.50 Sept. 23, 2007
---------
2,465,500
=========
(e) Warrants
A summary of the number of common shares reserved pursuant to
the Company's outstanding warrants and agents warrants
outstanding at December 31, 2002, 2001 and 2000 and the
changes for the years ending on those dates is as follows:
2002 2001 2000
Balance, beginning of year 6,588,967 3,592,167 3,709,019
Issued 5,007,944 2,996,800 2,034,167
Expired - - (646,019)
Exercised (2,085,361) - (1,505,000)
------------ ------------ ------------
Balance, end of year 9,511,550 6,588,967 3,592,167
============ ============ ============
Common shares reserved pursuant to warrants outstanding at
December 31, 2002 are as follows:
NUMBER EXERCISE PRICE EXPIRY DATE
$
1,620,000 0.45 Mar. 31, 2003
918,084 0.54 Apr. 09, 2003
1,722,222 0.53 / 0.60 May 23, 2003 / 2004
66,666 0.53 May 23, 2003
1,554,915 0.55 / 0.60 Sept. 27, 2003 / 2004
37,496 0.50 Sept. 27, 2003
1,558,000 0.75 Sept. 15, 2004
1,397,167 0.90 Mar. 16, 2005
637,000 0.75 Apr. 19, 2005
----------
9,511,550
==========
(f) See also Note 12.
F-18
98
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
7. RELATED PARTY TRANSACTIONS
(a) During the year ended December 31, 2002, the Company paid
$136,276 (2001 - $157,825; 2000 - $218,451) to companies
controlled by current and former directors and officers of the
Company, for accounting, management, and consulting services
provided.
(b) The Company has agreements with a company controlled by the
President of the Company for the rental of office premises.
The Company is required to make monthly rent payments of
$5,077. These amounts are comparable to market rates. During
the year ended December 31, 2002, the Company paid $60,924
(2001 - $60,924; 2000 - $53,745) for rent.
(c) The Company shares office facilities with a private company
that has a common director. The affiliated company is
currently paying $2,000 per month to the Company for shared
rent and administration. During the year ended December 31,
2002, the Company received $6,000 from the affiliated company.
(d) During the year ended December 31, 2002, the Company recorded
$64,641(2001 - $45,381; 2000 - $43,791) for reimbursement of
expenditures and disbursements incurred on behalf of the
Company by the President of the Company. As at December 31,
2002, $1,496 (2001 - $17,683; 2000 - $14,461) remains unpaid
and has been included in accounts payable and accrued
liabilities.
(e) Other related party transactions are disclosed elsewhere in
these consolidated financial statements.
8. INCOME TAXES
The recovery of income taxes shown in the consolidated statements of
operations and deficit differs from the amounts obtained by applying
statutory rates to the loss before provision for income taxes due to
the following:
2002 2001 2000
$ $ $
Statutory tax rate 39.62% 44.62% 45.62%
Provision for income taxes based on statutory
Canadian combined federal and provincial
income tax rates (570,570) (393,493) (918,075)
Differences in foreign tax rates (4,234) 179,918 239,306
Losses for which an income tax benefit
has not been recognized 574,804 213,575 678,769
------------ ----------- -----------
- - -
============ =========== ===========
F-19
99
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
8. INCOME TAXES (continued)
The significant components of the Company's future tax assets are as
follows:
2002 2001
$ $
Future income tax assets
Financing costs 98,934 89,063
Operating loss carryforward 4,164,745 2,782,412
Excess of tax values of mineral properties
and property, plant and equipment over book value 330,957 428,648
-------------- -------------
4,594,636 3,300,123
Valuation allowance for future tax assets (4,594,636) (3,300,123)
-------------- -------------
- -
============== =============
The Company has Canadian non-capital loss carryforwards of $8,756,438
that may be available for tax purposes. The losses expire as follows:
EXPIRY DATE $
2003 1,202,652
2004 1,554,225
2005 1,266,386
2006 1,255,915
2007 1,277,771
2008 845,836
2009 1,353,653
------------
8,756,438
============
9. SEGMENTED INFORMATION
The Company's principal activities are the exploration of mineral
properties in Argentina and Peru. Management reviews the financial
results according to expenditures by property.
Segment assets by geographical location are as follows:
2002
--------------------------------------------------------
CANADA ARGENTINA PERU TOTAL
$ $ $ $
Property, plant and equipment 34,323 5,817 5,377 45,517
Mineral properties and deferred costs - 3,181,277 2,666,450 5,847,727
---------- ----------- ----------- -----------
34,323 3,187,094 2,671,827 5,893,244
========== =========== =========== ===========
F-20
100
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
9. SEGMENTED INFORMATION (continued)
2001
----------------------------------------------------------
CANADA ARGENTINA PERU TOTAL
$ $ $ $
Property, plant and equipment 45,376 5,817 5,895 57,088
Mineral properties and deferred costs - 2,777,458 1,803,714 4,581,172
---------- ------------ ----------- -----------
45,376 2,783,275 1,809,609 4,638,260
========== ============ =========== ===========
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements of the Company have been prepared
in accordance with Canadian GAAP, which differ in certain material
respects from US GAAP.
The significant measurement differences between Canadian GAAP and US
GAAP for certain items on the consolidated balance sheets, statements
of operations and deficit and statements of cash flows are as follows:
2002 2001 2000
$ $ $
CONSOLIDATED STATEMENTS OF OPERATIONS
Loss for the year under Canadian GAAP (1,440,106) (881,875) (2,024,440)
Mineral properties and deferred costs for the year (i) (1,266,555) (1,320,777) (1,989,049)
Mineral properties and deferred costs written off
during the year which would have been
expensed in the year incurred (i) - 21,483 789,953
Stock-based compensation (iii) (102,150) - -
-------------- -------------- --------------
Loss for the year under US GAAP (2,808,811) (2,181,169) (3,223,536)
Unrealized gains on available-for-sale securities (ii) 54,740 - -
-------------- -------------- --------------
Comprehensive loss (iv) (2,754,071) (2,181,169) (3,223,536)
============== ============== ==============
Loss per share under US GAAP (0.12) (0.14) (0.26)
============== ============== ==============
Diluted loss per share under US GAAP (0.12) (0.14) (0.26)
============== ============== ==============
F-21
101
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (continued)
2002 2001
$ $
SHAREHOLDERS' EQUITY
Balance per Canadian GAAP 7,324,138 5,371,658
Mineral properties and deferred costs expensed (i) (5,847,727) (4,581,172)
Accumulated other comprehensive income (ii) 54,740 -
------------- -------------
Balance per US GAAP 1,531,151 790,486
============= =============
2002 2001
$ $
MINERAL PROPERTIES AND DEFERRED COSTS
Balance per Canadian GAAP 5,847,727 4,581,172
Mineral properties and deferred costs
expensed under US GAAP (i) (5,847,727) (4,581,172)
-------------- --------------
Balance per US GAAP - -
============== ==============
2002 2001 2000
$ $ $
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Cash used per Canadian GAAP (1,306,211) (898,405) (987,257)
Mineral properties and deferred costs (i) (1,266,555) (1,320,777) (1,989,049)
-------------- ------------- -------------
Cash used per US GAAP (2,572,766) (2,219,182) (2,976,306)
============== ============= =============
INVESTING ACTIVITIES
Cash used per Canadian GAAP (1,277,756) (1,311,823) (2,004,370)
Mineral properties and deferred costs (i) 1,266,555 1,320,777 1,989,049
-------------- ------------- -------------
Cash provided (used) per US GAAP (11,201) 8,954 (15,321)
============== ============= =============
F-22
102
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (continued)
i) Mineral properties and deferred costs
Mineral properties and deferred costs are accounted for in
accordance with Canadian GAAP as disclosed in Note 3. For US
GAAP purposes, the Company expenses acquisition and
exploration costs relating to unproven mineral properties as
incurred. When proven and probable reserves are determined for
a property, subsequent exploration and development costs of
the property are capitalized. The capitalized costs of such
properties would then be assessed, on a periodic basis, to
determine whether the carrying value can be recovered on an
undiscounted cash flow basis. If the carrying value cannot be
recovered on this basis, the mineral properties would be
written down to fair value determined using discounted cash
flows.
ii) Investments
The Company's marketable securities are classified as
available-for-sale investments under US GAAP and carried at
the lower of cost and market value for Canadian GAAP purposes.
Such investments are not held principally for the purpose of
selling in the near term and, for US GAAP purposes, must have
holding gains and losses reported as a separate component of
shareholders' equity until realized or until an other than
temporary impairment in value occurs.
iii) Accounting for stock-based compensation
For US GAAP purposes, the Company accounts for stock-based
employee compensation arrangements using the intrinsic value
method prescribed in Accounting Principles Board ("APB")
Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES".
Under US GAAP, when stock options are cancelled and
immediately reissued at a revised price (the "Repricing"),
these options are accounted for as variable compensation from
the date of the Repricing. Under this method, following the
repricing date, compensation expense is recognized when the
quoted market value of the Company's common shares exceeds the
amended exercise price. Should the quoted market value
subsequently decrease, a recovery of a portion, or all of the
previously recognized compensation expense, will be
recognized.
F-23
103
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (continued)
iv) Comprehensive income
US GAAP requires disclosure of comprehensive income (loss)
which is intended to reflect all other changes in equity
except those resulting from contributions by and payments to
owners.
v) New Accounting Standards
In June 2001, the Financial Accounting Standards Board
("FASB") issued SFAS 143, "ACCOUNTING FOR ASSET RETIREMENT
OBLIGATIONS." SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement
costs. SFAS 143 generally requires that the fair value of a
liability for an asset retirement obligation be recognized in
the period which it is incurred if a reasonable estimate of
fair value can be made. The associated retirement costs are
capitalized as part of the cost of the long-lived asset. The
pronouncement is effective for financial statements issued for
fiscal years beginning after June 15, 2002. Management does
not believe that the adoption of SFAS 143 will have any impact
on its consolidated financial position or results of
operations.
The CICA issued Section 3063, "IMPAIRMENT OF LONG-LIVED
ASSETS". This statement establishes standards for recognition,
measurement and disclosure of the impairment of non- monetary
long-lived assets, including property, plant and equipment,
intangible assets with finite useful lives, deferred
pre-operating costs and long-term prepaid assets. The Company
does not expect that the implementation of this new standard
will have a material impact on its consolidated financial
position or results of its operations. The effect of adopting
this standard on January 1, 2004, has not yet been determined.
In June 2002, the FASB issued SFAS 146, "ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES." SFAS 146
addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies
Emerging Issues Task Force Issue No. 94-3, "LIABILITY
RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND
OTHER COSTS TO EXIT AN ACTIVITY." SFAS 146 generally requires
a liability for a cost associated with an exit or disposal
activity to be recognized and measured initially at its fair
value in the period in which the liability is incurred. The
pronouncement is effective for exit or disposal activities
initiated after December 31, 2002.
F-24
104
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (continued)
The CICA has issued Accounting Guideline 13, "HEDGING
RELATIONSHIPS", ("AcG13") which will be effective for years
beginning on or after July 1, 2003. AcG 13 addresses the
identification, designation, documentation and effectiveness
of hedging transactions for the purposes of applying hedge
accounting. It also establishes conditions for applying or
discounting hedge accounting. In December 2002, the CICA
approved, subject to written ballot, certain amendments to
AcG13. These amendments are expected to be finalized in the
first half of 2003. Under the new guideline, the Company will
be required to document any hedging transactions and
explicitly demonstrate that the hedges are sufficiently
effective in order to continue accrual accounting for hedging
and derivatives. Management does not believe that the adoption
of AcG13 will have any impact on its consolidated financial
position or results of operations.
In December 2002, the FASB issued SFAS 148, "ACCOUNTING FOR
STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE". This
standard amends SFAS 123, "ACCOUNTING FOR STOCK- BASED
COMPENSATION", to provide alternative methods of transition
for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. The Company
does not use the fair value method. In addition, this
statement amends the disclosure requirements of SFAS 123 to
require prominent disclosures in both annual and interim
financial statements about the method of accounting for
stock-based employee compensation and the effect of the method
used on reported results.
11. SUPPLEMENTARY CASH FLOW INFORMATION
The Company conducted non-cash financing activities as follows:
2002 2001 2000
$ $ $
Non-cash financing activities
Finder's fees payable (5,000) - -
Shares issued for payment of finder's fees 5,000 - -
--------- --------- ---------
- - -
========= ========= =========
F-25
105
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(EXPRESSED IN CANADIAN DOLLARS)
12. SUBSEQUENT EVENTS
Subsequent to December 31, 2002 and on or before April 11, 2003, the
Company:
(i) issued 237,000 shares for $100,800 on the exercise of options.
In addition, the Company issued 2,714,524 shares for
$1,320,949 on the exercise of warrants and agents warrants as
described in Note 6;
(ii) received regulatory approval to grant stock options to
purchase 223,500 common shares exercisable for a period of
five years at a price of $0.84 per share;
(iii) agreed, subject to regulatory approvals, to farm out its
Mogote Property in the NW San Juan Region of Argentina to
Amera Resources Corporation ("Amera"), a private company which
has a common director. Amera has the option to earn a 51%
interest in the 8,009 hectare Mogote Property by issuing
1,650,000 common shares of Amera to the Company and by
incurring US$1.25 million of expenditures, including work
programs and underlying option payments, all over a five year
period; and
(iv) arranged, subject to regulatory approval, to conduct a private
placement financing of up to 2,900,000 units, at $0.90 per
unit, to raise gross proceeds of up to $2.61 million. Each
unit is comprised of one common shares and one-half of one
warrant. Each full warrant will entitle the holder to purchase
an additional share for a period of one year at $1.10 per
share. A cash commission of 8% will be paid and warrants
granted for the portion of the private placement sold by
agents.
F-26
106
CERTIFICATION
I, Joseph Grosso, certify that:
1. I have reviewed this annual report on Form 20-F of IMA Exploration,
Inc.;
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 or not 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 16, 2003
---------------------
Signed: /s/ JOSEPH GROSSO
--------------------------------------------
Joseph Grosso, Chief Executive Officer
107
CERTIFICATION
I, William Lee, certify that:
1. I have reviewed this annual report on Form 20-F of IMA Exploration,
Inc.;
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 or not 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 16, 2003
-------------------------
Signed: /s/ WILLIAM LEE
-----------------------------------------
William Lee, Chief Financial Officer
108