TIDMMOY
RNS Number : 5551C
Moydow Mines International Inc
16 November 2009
Third Quarter
Interim Report
Management's Discussion and Analysis of Financial Condition and
Operating Results
Three Months Ended September 30, 2009
Toronto Office
Suite 1220, 20 Toronto Street
Toronto, Ontario M5C 2B8
Tel : (416) 703-3751
Fax : (416) 367-3638
E-mail : info@moydow.com
Dublin Office
74 Haddington Road
Dublin 4, Ireland
Tel : (353) 1-667-7611
Fax : (353) 1-667-7622
E-mail : www.moydow.com
Moydow Mines International Inc.
Management's Discussion and Analysis of Financial Condition and
Operating Results
For Three Months Ended September 30, 2009
INTRODUCTION
General
The interim Management's Discussion and Analysis ("MD&A") provides a detailed
analysis of Moydow's business and compares its financial results for the third
quarter ending September 30, 2009, with those for the corresponding quarter of
2008. In order to better understand the MD&A, it should be read in conjunction
with the audited consolidated financial statements of the Company and notes
thereto for the year ended December 31, 2008. The MD&A has been prepared as at
November 11, 2009. The consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles. The reporting
currency for the Company is the United States dollar, and all amounts in the
following discussion are in United States dollars unless otherwise noted. The
attached financial statements have not been reviewed by the Company's auditors.
Company Overview
Moydow Mines International Inc. ("Moydow" or the "Company") is an international
exploration company with primary interests in precious. Exploration activities
are focused principally in Africa. Moydow Mines' common shares are listed on
both the Toronto Stock Exchange and the AIM Market of the London Stock Exchange
(symbol "MOY"). For further information on the Company please visit our website
at www.moydow.com or view our public filings on the SEDAR website at
www.sedar.com.
Subsidiaries and affiliated companies of Moydow are organized internationally so
that each has a specific geographic area or mineral project interest. Moydow
provides administrative, technical and financial assistance to these companies.
On November 10, 2009, Moydow entered into an agreement (the "Agreement") with
Franco-Nevada Corporation (TSX: FNV) ("Franco-Nevada") which sets out the basis
on which Franco-Nevada will acquire the Company and its 2% Net Smelter Returns
royalty (the "Ntotoroso Royalty") on a portion of Newmont Mining Corporation's
Ahafo gold mine in Ghana for total consideration valued at US$58 million. The
Ntotoroso Royalty is Moydow's principal asset and Moydow believes that this is
the right time to realize its value for the shareholders through its sale to
Franco-Nevada. Franco-Nevada is one of the world's premier precious metals
royalty companies. Through the sale of Moydow and the royalty to Franco-Nevada,
Moydow believes the shareholders will continue to benefit from the Ntotoroso
royalty as well as having increased leverage to rising commodity prices from
Franco-Nevada's broader portfolio of precious metals and oil and gas royalties.
The Agreement provides that Moydow and Franco-Nevada are to complete definitive
transaction agreements, including the arrangement agreement and the partial
royalty purchase agreement, by 5:00 pm (Toronto time) on November 20, 2009. The
transaction will be carried out in two steps whereby Franco-Nevada will first
purchase 20% of the Ntotoroso Royalty for cash consideration of US$13 million.
Following receipt of approval by Moydow shareholders and satisfaction of other
customary closing conditions, the parties will then carry out a court-approved
plan of arrangement (the "Arrangement"), whereby Franco-Nevada will acquire all
of the issued and outstanding common shares of Moydow ("MOY Shares") in exchange
for common shares of Franco-Nevada ("FN Shares") on the basis of 0.02863 FN
Shares for each MOY Share (the "Exchange Ratio"). Moydow will be delisted from
the TSX and AIM and Moydow shareholders will receive FN Shares in exchange for
their Moydow shares in accordance with the Exchange Ratio. The proposed
transaction includes a number of related party transactions which will be fully
disclosed to shareholders in the circular convening the Extraordinary General
Meeting.
The Agreement may be terminated in certain circumstances, including if the
parties do not enter into the definitive transaction agreements by the November
20th deadline or by Franco-Nevada as a result of its due diligence review of
Moydow. Moydow has also agreed not to solicit alternative proposals and has
agreed to pay a break fee to Franco-Nevada in certain circumstances if it enters
into a superior proposal. Certain shareholders of Moydow, including Brian
Kiernan, holding approximately 55% of the outstanding MOY Shares, will enter
into lock-up agreements pursuant to which they will agree to support and vote in
favour of the Arrangement. The parties expect the transaction will close in
January 2010.
Forward-Looking Statements
This MD&A contains "forward-looking statements" that are subject to a number of
known and unknown risks, uncertainties and other factors that may cause actual
results to differ materially from those anticipated in our forward looking
statements. Factors that could cause such differences include: changes in metal
prices, equity markets, results of exploration and related expenses, drilling
activity, sampling and other data, currency exchange rates, change in
governments, ability to raise finances and changes to regulations affecting the
mining industry. Such forward-looking statements involve known and unknown risks
and uncertainties that could cause actual events or results to differ materially
from estimated or anticipated events or results implied or expressed in such
forward-looking statements.
Disclosure Controls and Procedures ("DC&P")
DC&P are designed to provide reasonable assurance that information required to
be disclosed by the Company in reports filed with or submitted to various
securities regulators is recorded, processed, summarized and reported within the
time periods specified. This information is gathered and reported to the
Company's management, including the Chief Executive Officer ("CEO") and Chief
Financial Officer ("CFO"), so that timely decisions can be made regarding
disclosure.
The Company's management, under the supervision of, and with the participation
of, the CEO and CFO, have commenced an assessment of the design and evaluation
of the Company's DC&P, as required in Canada by "National Instrument - 52-109,
Certification of Disclosure in Issuers' Annual and Interim Filings".
Internal Control over Financial Reporting ("ICFR")
Designing, establishing and maintaining adequate ICFR is the responsibility of
the Company's management. ICFR is will be designed and supervised by senior
management, and effected by the Board of Directors, to provide reasonable
assurance regarding the reliability of financial reporting and preparation of
the Company's consolidated financial statements in accordance with Canadian
GAAP. These controls will include policies and procedures that: pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company; provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with Canadian GAAP, and that
expenditures are being made only in accordance with authorizations of management
of the Company. They will also provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or disposition of the
Company's assets that could have a material effect on the annual financial
statements or interim financial statements.
Management is responsible for establishing and maintaining ICFR and is currently
in the process of designing such controls to ensure that the required objectives
of these internal controls will be met. The Company will, on a continual basis,
review and enhance its systems of controls and procedures. However, because of
the inherent limitations in all control systems, management acknowledges that
ICFR will not prevent or detect all misstatements due to error or fraud.
Management do not expect that there were any deficiencies within the Company's
existing internal controls over financial reporting, during the third quarter of
2009, that materially affected, or are reasonably likely to materially affect,
the Company's ICFR.
Application of Critical Accounting Estimates
Moydow's accounting policies are described in Note 2 of the Consolidated
Financial Statements at December 31, 2008. Set out below is a discussion of the
application of Moydow's critical accounting policies that require the Company to
make assumptions about matters that are uncertain at the time the accounting
estimate is made, and where different estimates that could reasonably have been
used in the current period, or changes in the accounting estimate that are
reasonably likely to occur from period to period would have a material impact on
Moydow's financial statements.
Carrying value of mineral properties
Acquisition costs of mineral properties, together with direct exploration and
development expenses incurred thereon, are deferred and capitalized on a
property by property basis. Upon reaching commercial production, these
capitalized costs are transferred from exploration properties to producing
properties on the consolidated balance sheets and are amortized into operations
using the unit-of-production method over the estimated useful life of the
estimated related ore reserves.
In the event that the long-term expectation is that the net carrying amount of
these capitalized exploration costs will not be recovered, the carrying amount
is written down accordingly and the write-down amount charged to operations.
Such would be indicated where:
* Exploration activities have ceased;
* Exploration results are not promising such that exploration will not be planned
for the foreseeable future;
* Lease ownership rights expire; or
* Insufficient funding is available to complete the exploration program.
The amount shown for mineral properties represents costs incurred to date net of
recoveries from option or joint venture participants and write-downs, and does
not necessarily reflect present or future values.
OVERVIEW OF EXPLORATION ACTIVITIES, cONTRACTUAL OBLIGATIONS AND COMMITMENTS
Angola - Africa
Dala project, Angola
The Company is party to two separate exploration projects with the same partners
on the Dala property in Angola, relating to the exploration for alluvial and
kimberlite diamonds.
Alluvial diamonds
On October 1, 2004, the Company signed an agreement with Empressa Nacional De
Diamantes De Angola (Endiama), the Angolan state diamond mining company and
Cimader-Comercio Geral Limitada (Cimader), a local Angola company, to explore
for alluvial diamonds on the Dala concession, located near the town of Saurimo,
in north-east Angola. The concession comprises 3,000 square kilometres. The
Company has a 33% interest, in the alluvial licence. The Company has applied to
Endiama for the renewal of this licence. Cimader and Endiama have a free carried
interest in the exploration phase of the project.
The Company's cumulative expenditures on the alluvial licence to September 30,
2009, amounted to $nil million of which $nil million was incurred during 2009
($0.23 million was incurred during the first half of 2008).
The alluvial licence expired on February 7, 2009, hence, the Company has written
off all expenditures on this alluvial licence as December 31, 2008 in the amount
of $5.361 million.
Kimberlite
On December 16, 2005, the Company signed another agreement with Endiama and
Cimader to explore for kimberlite (primary) diamonds on the Dala concession.
Under the terms of the agreement, the Company can earn 40% interest in the
concession with the remaining percentages held by Endiama and Cimader. To obtain
its interest, the Company will have to incur expenditures of not less than
$10,000,000 on or before April 10, 2010. Cimader and Endiama have a free carried
interest in the exploration phase of the project. The granting of the licence
was ratified by the Angolan Council of Ministers on October 18th, 2006, and was
subject to the Company making a deposit of $1 million with the Angolan
government. The deposit was made in 2006 and may be refunded provided that
Moydow meet certain conditions. The deposit has been included as a component of
the cost to acquire an interest in the Dala project.
The Company's cumulative expenditures on the kimberlite licence to September 30,
2009, amounted to $7.13 million of which $0.14 million was incurred during the
first nine months of 2009 (2008 - $2.16 million). The management of the Company
have decided to write off all expenditures on this property in the sum of $7.13
million due to the extraordinary challenging times for the diamond industry and
the global economic crisis together with concerns over the commercial viability
of the mineral deposit which is dependent on a number of factors but in
particular the particular attributes of the deposit, such as its size, grade and
proximity to infrastructure.
On April 21, 2008, the Company issued 4,000,000 shares to Concord Minerals LLC
in connection with the acquisition of its interest in the Dala project, Angola.
The common shares were issued at a price of CA$0.20 per share, in settlement of
the cumulative expenditures incurred by Concord Minerals LLC on the Dala
project, Angola of $0.73 million.
Sierra Leone, West Africa
Port Loko property, Sierra Leone
On July 14, 2008, the Company entered into an agreement to sell its 50% interest
in the Port Loko bauxite exploration licence in Sierra Leone to a private
company for the purpose of accelerated development. The Company received a
non-refundable upfront payment of $1.53 million, which has been offset against
the mineral property carrying value. As the terms of the agreement were not
fulfilled, the property reverts back to its original shareholding. The Company
still holds a 50% interest in the Port Loko bauxite exploration project in
Sierra Leone, West Africa. The other 50% interest in the project is held by
Gondwana Investments Limited ("Gondwana"), a company incorporated in Luxembourg.
Cumulative expenditures by the Company to September 30, 2009, amounted to $2.15
million, of which $0.21 million was incurred in first nine months of 2009, (2008
- $0.16 million) and $0.01 million in the quarter ended September 30, 2009,
(2008 - $0.08 million). The non-refundable deposit has been offset against the
mineral property carrying value.
The management of the Company has decided to write off all expenditures on this
property in the sum of $2.15 million due to an on-going dispute with the
Ministry of Mineral Resources in Sierra Leone.
Ghana, West Africa
Ntotoroso property, Ghana
On December 8, 2003, the Company sold its wholly owned subsidiary, Moydow
Limited (Isle of Man), which, following an internal restructuring, owned the
Company's 50% joint venture interest in the Ntotoroso Property ("Property") but
no other mineral properties, to Newmont Mining Corporation ("Newmont").
In connection with the sale, the Company entered into a royalty agreement,
whereby the Company acquired the right to a net smelter return royalty of 2% on
all recovered ounces of gold and silver produced from the Property after the
first 1,200,000 gold equivalent ounces in consideration for $250,000. No value
has been ascribed to the future royalty payments.
At the time of sale, the reserve on the Property was calculated at 1,200,000
ounces of gold. This figure was based on a gold price of $325 per ounce and
assumed that only the Subika pit would be mined down to a depth of 150 metres.
The project poured its first gold on July 18, 2006 and, as at September 30,
2009, had produced 849,681 ounces of gold of which 64,223 ounces of gold were
produced in the third quarter of 2009 (2008 - 79,714 ounces).
On November 10, 2009, Moydow entered into an agreement (the "Agreement") with
Franco-Nevada Corporation (TSX: FNV) ("Franco-Nevada") which sets out the basis
on which Franco-Nevada will acquire the Company and its 2% Net Smelter Returns
royalty (the "Ntotoroso Royalty") on a portion of Newmont Mining Corporation's
Ahafo gold mine in Ghana for total consideration valued at US$58 million. The
Ntotoroso Royalty is Moydow's principal asset and Moydow believes that this is
the right time to realize its value for the shareholders through its sale to
Franco-Nevada. Franco-Nevada is one of the world's premier precious metals
royalty companies. Through the sale of Moydow and the royalty to Franco-Nevada,
Moydow believes the shareholders will continue to benefit from the Ntotoroso
royalty as well as having increased leverage to rising commodity prices from
Franco-Nevada's broader portfolio of precious metals and oil and gas royalties.
The Agreement provides that Moydow and Franco-Nevada are to complete definitive
transaction agreements, including the arrangement agreement and the partial
royalty purchase agreement, by 5:00 pm (Toronto time) on November 20, 2009. The
transaction will be carried out in two steps whereby Franco-Nevada will first
purchase 20% of the Ntotoroso Royalty for cash consideration of US$13 million.
Following receipt of approval by Moydow shareholders and satisfaction of other
customary closing conditions, the parties will then carry out a court-approved
plan of arrangement (the "Arrangement"), whereby Franco-Nevada will acquire all
of the issued and outstanding common shares of Moydow ("MOY Shares") in exchange
for common shares of Franco-Nevada ("FN Shares") on the basis of 0.02863 FN
Shares for each MOY Share (the "Exchange Ratio"). Moydow will be delisted from
the TSX and AIM and Moydow shareholders will receive FN Shares in exchange for
their Moydow shares in accordance with the Exchange Ratio. The proposed
transaction includes a number of related party transactions which will be fully
disclosed to shareholders in the circular convening the Extraordinary General
Meeting.
The Agreement may be terminated in certain circumstances, including if the
parties do not enter into the definitive transaction agreements by the November
20th deadline or by Franco-Nevada as a result of its due diligence review of
Moydow. Moydow has also agreed not to solicit alternative proposals and has
agreed to pay a break fee to Franco-Nevada in certain circumstances if it enters
into a superior proposal. Certain shareholders of Moydow, including Brian
Kiernan, holding approximately 55% of the outstanding MOY Shares, will enter
into lock-up agreements pursuant to which they will agree to support and vote in
favour of the Arrangement. The parties expect the transaction will close in
January 2010.
Hwidem property, Ghana
On February 13, 2007, the Company was granted a one-year extension to its
prospecting licence with respect to the Hwidem property by the Minister for
Lands, Forestry and Mines in Ghana. The licence area covers 24.7 square
kilometres and it adjoins the Kenyase-Ntotoroso area currently under lease to
Rank Mining Company Limited, a subsidiary of Newmont. The Company incurred
exploration expenditures on this property of $0.70 million (2008-$0.59 million)
and $0.03 million in the quarter ended September 30, 2009 (2008 - $0.01
million). The minimum exploration expenditures required in order to maintain the
licence are $0.52 million, of which $0.70 million had been spent as at September
30, 2009.
Kanyankaw property, Ghana
On March 10, 2008, the Company was granted a two-year extension to its
prospecting licence with respect to the Kanyankaw property by the Minister for
Lands, Forestry and Mines in Ghana. The carrying value of the Kanyankaw property
was written off in 2005 in the amount of $0.33 million, as exploration results
were not promising, such that exploration is not planned for the foreseeable
future.
On February 11, 2009, the Company granted Adamus Resources Limited ("Adamus") an
option to acquire up to 100% interest in the Kanyankaw property, as follows:
* Initial option fee of $10,000;
* at any time during the option period of twelve months, Adamus shall have the
right to acquire a 75% interest in the prospecting licence in consideration for
a payment of AUD$150,000 or 250,000 shares in Adamus; and
* within thirty days of a decision to mine at Kanyankaw, the Company may elect to
transfer its remaining 25% interest to Adamus in consideration for a 2% net
smelter royalty.
Adamus is a Perth based mineral exploration company listed on the Australian
Securities Exchange (ASX), TSX Venture Exchange (TSX-V) and Frankfurt Stock
Exchange Open Market (FSE).
Commitments and contingencies
The Company, either directly or through certain joint ventures, has obligations
to expend various amounts on its mineral properties and projects in order to
keep its mineral property rights in good standing. All agreements are in the
normal course of business.
+---------------------------+--------------+---------------+--------------+
| Payments due ($ thousand) | Total | Less than 1 | 1 to 3 years |
| | | year | |
+---------------------------+--------------+---------------+--------------+
| Exploration and | $- | $- | $- |
| development | | | |
+---------------------------+--------------+---------------+--------------+
FINANCIAL SUMMARY
Segmented Information
The Company has one reportable operating segment, being exploration of mineral
properties in geographic areas disclosed in Note 3 to the Consolidated Financial
Statements as at December 31, 2008.
Results of Operations
Comprehensive loss for the quarter ended September 30, 2009, was $2.62 million
or $0.04 per share compared to a loss of $0.21 million in the same period in
2008 or $0.003 per share.
The management of the Company has decided to write off all expenditures on the
Port Loko property, Sierra Leone, in the sum of $2.15 million due to an on-going
dispute with the Ministry of Mineral Resources in Sierra Leone.
General and administrative expenses were $0.47 million during the thirds quarter
of 2009 as compared with $0.28 million in the same period of 2008. The increase
is associated with cost incurred exploring the Company's options in relation to
the Ntotoroso Royalty.
On July 13, 2007, the Company granted 3.3 million stock options to officers,
directors, employees and consultants. The estimated fair value of the options
granted during the three months ended September 30, 2008 was $0.024 million. The
Company recognizes this expense over the period in which entitlement to the
awards vest.
The foreign exchange loss for the quarter ended September 30, 2009, was $0.03
million compared to a gain of $0.04 million in the same period of 2008. The
foreign exchange gain resulted from the movements in exchange rates between
operating currencies and the United States dollar.
A company controlled by certain insiders of the Company advanced money to the
Company and interest has been accrued at Libor plus 2%. The amount of interest
charged to the Company during the quarter ended September 30, 2009 and 2008 was
$0.03 million and $0.09 million, respectively.
The Company had an unrealised gain of $0.01 million and an unrealised loss $0.02
million in the thirds quarter of 2009 and 2008, respectively on financial assets
held-for-trading.
The Company's revenues are derived from: interest which is dependent on
available cash balances and prevailing interest rates and returns on investments
which are dependent on the prevailing market at the time of sale.
As at September 30, 2008, the Company recorded an income tax recovery in the sum
of $0.029 million.
Comprehensive losses for the nine months ended September 30, 2009, were $10.45
million or $0.17 per share compared to a loss of $0.98 million in the same
period in 2008 or $0.013 per share.
During the period ended September 30, 2009, the management of the Company
decided to write off all expenditures on the Kimberlite diamond property,
Angola, in the sum of $7.13 million. The write-down was necessitated by the
extraordinary challenging times for the diamond industry and the global economic
crisis together with concerns over the commercial viability of the mineral
deposit which is dependent on a number of factors together with concerns over
the particular attributes of the deposit, such as its size, grade and proximity
to infrastructure.
The management of the Company has decided to write off all expenditures on the
Port Loko property, Sierra Leone, in the sum of $2.15 million due to an on-going
dispute with the Ministry of Mineral Resources in Sierra Leone.
General and administrative expenses were $1.00 million during the first nine
months of 2009 as compared with $0.85 million in the same period of 2008. The
increase is associated with cost incurred exploring the Company's options in
relation to the Ntotoroso Royalty.
On July 13, 2007, the Company granted 3.3 million stock options to officers,
directors, employees and consultants. The estimated fair value of the options
granted during the six months ended September 30, 2008 was $0.05 million. The
Company recognizes this expense over the period in which entitlement to the
awards vest.
The foreign exchange loss in the first nine months of 2009 was $0.05 million
compared to a gain of $0.05 million in the same period of 2008. The foreign
exchange gain resulted from the movements in exchange rates between operating
currencies and the United States dollar.
On February 11, 2009, the Company granted Adamus Resources Limited ("Adamus") an
option to acquire up to 100% interest in the Kanyankaw property. Part of the
transaction included a non-refundable option fee of $0.01 million.
A company controlled by certain insiders of the Company advanced money to the
Company and interest has been accrued at Libor plus 2%. The amount of interest
charged to the Company during the six months ended September 30, 2009 and 2008
was $0.14 million and $0.26 million, respectively.
The Company had an unrealised gain of $0.01 million and loss of $0.02 million in
the first nine months of 2009 and 2008, respectively on financial assets
held-for-trading.
The Company's revenues are derived from: interest and dividend income, which is
dependent on available cash balances and prevailing interest rates and returns
on investments which are dependent on the prevailing market at the time of sale.
As at September 30, 2008, the Company recorded an income tax recovery in the sum
of $0.17 million.
Liquidity and Capital Resources
At September 30, 2009, the Company had negative working capital of $8.69 million
(December 31, 2008 - $7.078 million). Cash and cash equivalents at September 30,
2009, amounted to $0.07 million compared to cash and cash equivalents as the end
of 2008 of $0.147 million.
A company controlled by certain insiders of the Company advanced money to the
Company and interest has been accrued at Libor plus 2%. The amount of interest
charged to the Company during the three months ended September 30, 2009, and
2008 was $0.03 million and $0.09 million, respectively. Included in accounts
payable and accrued liabilities as at September 30, 2009, is $8.39 million (2008
- $5.85 million) payable to these related parties. Moydow has reached agreement
with this related party, whereby they will continue to fund the Company in the
future and will not demand repayment of the monies advanced until Moydow has
sufficient income stream, principally from the Ntotoroso royalty. Moydow has not
pledged any of its assets against this debt and no guarantees have been entered
into. The Company feels that the shareholders interest are been protected by
this related party funding rather than raising money through a rights issue in
these turbulent economic times and diluting shareholders. The rate of interest
being charged at Libor plus 2% is far more favourable than raising third party
debt and pledging the Company's assets.
These financial statements have been prepared using Canadian generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and settlement of liabilities in the normal course of
business as they come due. As at September 30, 2009, the Company had an excess
of current liabilities over current assets of $8.69 million and has recorded
losses and net cash outflows from operations for the past three years. In
recognition of these circumstances, the Company has entered into an agreement
with Franco-Nevada. The Agreement provides that Moydow and Franco-Nevada are to
complete definitive transaction agreements, including the arrangement agreement
and the partial royalty purchase agreement, by 5:00 pm (Toronto time) on
November 20, 2009. The transaction will be carried out in two steps whereby
Franco-Nevada will first purchase 20% of the Ntotoroso Royalty for cash
consideration of US$13 million. Following receipt of approval by Moydow
shareholders and satisfaction of other customary closing conditions, the parties
will then carry out a court-approved plan of arrangement (the "Arrangement"),
whereby Franco-Nevada will acquire all of the issued and outstanding common
shares of Moydow ("MOY Shares") in exchange for common shares of Franco-Nevada
("FN Shares") on the basis of 0.02863 FN Shares for each MOY Share (the
"Exchange Ratio"). Moydow will be delisted from the TSX and AIM and Moydow
shareholders will receive FN Shares in exchange for their Moydow shares in
accordance with the Exchange Ratio. The proposed transaction includes a number
of related party transactions which will be fully disclosed to shareholders in
the circular convening the Extraordinary General Meeting.
Cash Flow Statements
Cash flow used by operating activities for the quarter ended September 30, 2009,
including changes in non-cash working capital of $0.47 million, totalled $0.04
million as compared to cash flow used by operation activities of $0.61 million
in the same period in 2008. In the quarter ended September 30, 2009, cash
provided in investing activities was $0.01 million which (cash flow used 2008 -
$0.28 million) was expended on exploration of mineral properties incurred
principally in Ghana and Sierra Leone. Cash flow from financing activities for
the quarter ended September 30, 2009 and 2008 was $nil and $nil million,
respectively.
Cash flow provided for operating activities for the nine months ended September
30, 2009, including increases in non-cash working capital of $1.52 million,
totalled $0.36 million as compared to cash flow provided for operating
activities of $1.36 million in the same period of 2008. During the nine months
ended September 30, 2009 and 2008, cash used in investing activities was $0.44
million and $2.15 million, respectively, which was expended on exploration of
mineral properties, principally on the Dala diamond project in Angola and Port
Loko bauxite property in Sierra Leone.
Cash flow from financing activities for the nine months ended September 30, 2009
and 2008, was $nil and $0.80 million, respectively, reflecting in 2008, the
issue of 4,000,000 common shares to Concord Minerals LLC in connection with the
acquisition of its interest in the Dala property.
Selected Consolidated Annual Financial Information
Set forth below is certain financial data for the last three completed financial
years:
+--------------------------------------+--------------+---------------+---------------+
| |December 31, | December 31, | December 31, |
| | 2008 | 2007 | 2006 |
| | $ | $ | $ |
+--------------------------------------+--------------+---------------+---------------+
| Total revenue | - | - | - |
+--------------------------------------+--------------+---------------+---------------+
| Basic and diluted (loss) per share | (0.11) | (0.02) | (0.03) |
+--------------------------------------+--------------+---------------+---------------+
| Total assets | 9,857,836 | 12,478,835 | 8,358,027 |
+--------------------------------------+--------------+---------------+---------------+
| (Loss) for the year | (6,763,542) | (989,030) | (1,060,179) |
+--------------------------------------+--------------+---------------+---------------+
| Total long term financial | - | - | - |
| liabilities | | | |
+--------------------------------------+--------------+---------------+---------------+
| Dividends declared | - | - | - |
+--------------------------------------+--------------+---------------+---------------+
Quarterly Information
The following table summaries the results of the Company for each of the most
recent eight quarters:
+---------------+-------------+-------------+------------+-------------+-------------+-------------+---------+-----------+-------------+
| | | | | | | | |
+---------------+-------------+-------------+------------+-------------+-------------+-------------+---------+
| | Sept | June | March | Dec | Sept | June | March | Dec |
| | 2009 | 2009 | 2009 | 2008 | 2008 | 2008 | 2007 | 2007 |
+---------------+-------------+-------------+------------+-------------+-------------+-------------+---------------------+-------------+
| Revenues | $ | $ | $ | $ | $ | $ | $ | $ |
| Net | - | 10,000 | - | - | - | - | - | - |
| profit/(loss) | (2,620,381) | (7,492,379) | (342,430) | (208,086) | (208,086) | (388,980) | (380,640) | 589 |
| Basic and | (0.04) | (0.124) | (0.006) | (0.003) | (0.003) | (0.007) | (0.007) | nil |
| diluted | | | | | | | | |
| (loss)/ | 776,541 | 2,944,281 | 9,946,675 | 14,419,161 | 14,419,161 | 14,814,250 | 13,056,805 | 12,478,835 |
| earnings per | 60,572,904 | 60,572,904 | 60,572,904 | 60,572,904 | 60,572,904 | 60,572,904 | 56,572,904 | 56,572,904 |
| common | | | | | | | | |
| share | | | | | | | | |
| Total assets | | | | | | | | |
| Number of | | | | | | | | |
| common shares | | | | | | | | |
| outstanding | | | | | | | | |
| | | | | | | | | |
+---------------+-------------+-------------+------------+-------------+-------------+-------------+---------+-----------+-------------+
Outstanding Share Data
As at Novemer 11, 2009, the Company has 60,572,904 common shares in issue.
Holders of common shares are entitled to one vote on any ballot at meetings in
respect of each common share held. The Company has 3,300,000 stock options
outstanding at a weighted average price of Cdn$0.25. On August 13, 2009,
1,600,000 stock options expire at an exercise price of Cdn$0.33.
Transactions with Related Parties
Related party transactions relate primarily to the payment of fees under
contracts for services with companies in which a Moydow director is a
shareholder and director. The Company was charged during the period ended
September 30, 2009, a total of $0.22 million (2008 - $0.22 million) with respect
to administration services.
The Company's primary legal counsel is a firm in which a director of the Company
is a partner. The Company was charged $0.01 million during 2009 (2008 - $0.11
million) for legal services provided by this firm.
A company controlled by certain insiders of the Company advanced money to the
Company and interest has been accrued at Libor plus 2%. The amount of interest
charged to the Company during the nine month period to September 30, 2009, was
$0.14 million (2008 - $0.26 million). Included in accounts payable and accrued
liabilities as at September 30, 2009 is $8.40 million payable to these related
parties.
Use of Financial Instruments
The Company has not entered into any specialized financial agreements to
minimize its investment risk, currency risk or commodity risk. There are no
off-balance sheet arrangements.
Changes in Accounting Policies
On January 1, 2007, the company adopted the CICA Handbook Section 1506,
Accounting Changes, which prescribes the criteria for changing accounting
policies, together with the accounting treatment and disclosure of changes in
accounting policies, changes in accounting estimates and corrections of errors.
This standard did not affect the Company's financial position or results of
operations.
Section 1535
The new Section 1535, Capital Disclosures, requires that an entity disclose
information that enables users of its financial statements to evaluate an
entity's objectives, policies and processes for managing capital, including
disclosures of any externally imposed capital requirements and the consequences
of non-compliance. The new standard applies to interim and annual financial
statements relating to fiscal years beginning on or after October 1, 2007,
specifically January 1, 2008 for the Company.
This standard has impacted the Company's disclosures provided but will not
affect the Company's results or financial position.
Section 3031
The new Section 3031, Inventories, relates to the accounting for
inventories and revises and enhances the requirements for assigning costs to
inventories. The new standard applies to interim and annual financial statements
relating to fiscal years beginning on or after January 1, 2008, and was
effective for the Company as of this date.
This standard has not had a significant impact on the Company's consolidated
financial statements.
Sections 3862 and 3863
The new Sections 3862, Financial Instruments Disclosure and 3863, Financial
Instruments-Presentation replace Section 3861 Financial Instruments, Disclosure
and Presentation, revising and enhancing its disclosure requirements. These new
sections place increased emphasis on disclosures about the nature and extent of
risks arising from financial instruments and how the entity manages those risks.
The new standards apply to interim and annual financial statements relating to
fiscal years beginning on or after October 1, 2007, specifically January 1,
2008, for the Company.
These standards have impacted the Company's disclosures but did not affect the
Company's results or financial position.
Future Accounting Changes
Section 3064
The new Section 3064, Goodwill and Intangibles Assets, ensures that intangible
assets meet the definition of an asset, and eliminates the "matching' principle
whereby certain costs were being deferred and expensed to match with revenue
earned. The new standard applies for interim and annual financial statements for
years beginning on or after October 1, 2008.
The standard is not expected to have a significant impact on the Company's
consolidated financial statements.
Section 1582
The new section 1582, Business Combinations, which replaces Section 1581,
Business Combinations, establishes standards for the measurement of a business
combination and the recognition and measurement of assets acquired and
liabilities assumed. The new standard applies to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after January 1, 2011. Earlier application is permitted.
The Company is currently assessing the impact of the adoption of this new
standard on its consolidated financial statements.
Section 1601 and Section 1602
The new Section 1601, Consolidated Financial Statements and Section 1602,
Non-Controlling Interests, together replace Section 1600, Consolidated Financial
Statements. Section 1601 establishes standards for the preparation of
consolidated financial statements. Section 1602 establishes the accounting for a
non-controlling interest in a subsidiary, in the consolidated financial
statements, subsequent to a business combination. These standards apply to
interim and annual consolidated financial statements relating to fiscal years
beginning on or after January 1, 2011. Earlier adoption is permitted as of the
beginning of a fiscal year.
The Company is currently assessing the impact of the adoption of these new
standards on its consolidated financial statements.
International Financial Reporting Standards
In 2006, the Canadian Accounting Standards Board ("AcSB") published a new
strategic plan that will significantly affect financial reporting requirements
for Canadian companies. The AcSB strategic plan outlines the convergence of
Canadian GAAP and IFRS over an expected five year transitional period. In
February 2008 the AcSB announced that January 1, 2011 is the changeover date for
publicly-listed companies to use IFRS, replacing Canadian GAAP, affecting
interim and annual financial statements relating to fiscal years after this
time. The transition date of January 1, 2011 will require the restatement for
comparative purposes of amounts reported by the Company for the year ended
December 31, 2010.
To transition to IFRS, the Company must apply "IFRS 1 - First Time Adoption of
IFRS" which set out the rules for first time adoption. In general, IFRS 1
requires an entity to comply with each IFRS effective at the reporting date for
the entity's first IFRS financial statements. This requires that an entity apply
IFRS to its opening IFRS balance sheet as at January 1, 2010 (i.e.: the balance
sheet prepared at the beginning of the earliest comparative period presented in
the entity's first IFRS financial statements).
Within IFRS 1 there are exemptions, some of which are mandatory and some of
which are elective. The exemptions provide relief for companies from certain
requirements in specified areas when the cost of complying with the requirements
is likely to exceed the resulting benefit to users of financial statements. IFRS
1 generally requires retrospective application of IFRSs on first-time adoptions,
but prohibits such application in some areas, particularly when retrospective
application would require judgments by management about past conditions after
the outcome of a particular transaction is already known.
On transition, management must apply the mandatory exemptions and make the
determination as to which elective exemptions will be made under IFRS 1.
Management intends to assess the impact that IFRS will have on the aspects of
the business including accounting policy, financial reporting, information
technology and communications perspective. Management will also be reviewing the
Company's accounting systems and assessing the changes that will be required and
the strategies that will be employed. Communication and training strategies will
also be developed.
A team will be set up to manage this transition and to ensure successful
implementation within the required time frame. The Company will provide
disclosures of the key elements of our plan and progress on this transition as
the information becomes available during the transition period.
Regulatory, Environmental and Other Risk Factors
An investment in the securities of the Company is subject to a number of risks.
In addition to the other information contained in this MD&A and the Company's
other publicly filed disclosure documents, investors should give careful
consideration to the following factors, which are qualified in their entirety by
reference to, and must be read in conjunction with, the detailed information
appearing elsewhere in this MD&A. Any of the matters highlighted in these risk
factors could have a material adverse effect on the Company's business prospects
or financial condition.
The Company intends to fulfil all statutory commitments on its current licences
over the next year and to apply for licence renewals in the normal course of
business.
Exploration Risks
Exploration is speculative in nature, involves many risks and is frequently
unsuccessful. Any exploration program entails risks relating to the location of
economic ore bodies, development of appropriate metallurgical processes, receipt
of necessary governmental approvals and construction of mining and processing
facilities at any site chosen for mining. The commercial viability of a mineral
deposit is dependent on a number of factors including the price, exchange rates,
the particular attributes of the deposit, such as its size, grade and proximity
to infrastructure, as well as other factors including financing costs, taxation,
royalties, land tenure, land use, water use, power use, importing and exporting
gold and environmental protection. The effect of these factors cannot be
accurately predicted.
Political and Regulatory Risks
The Company is conducting exploration activities mainly in Africa. There is no
assurance that future political and economic conditions in Africa will not
change or that the government may adopt less supportive policies respecting
foreign development and ownership of mineral property.
Changes in government policy may result in changes to laws affecting ownership
of assets, mining policies, monetary policies, taxation, rates of exchange,
environmental regulations, labour relations, repatriation of income and return
of capital. This may affect both the Company's ability to undertake exploration
and development activities in respect of present and future properties in the
manner currently contemplated, as well as its ability to continue to explore and
possible develop/operate those properties in which it has an interest or in
respect of which it has obtained exploration rights to date. The possibility
that future governments of these and other countries may adopt substantially
different policies, which might extend to expropriation of assets, cannot be
ruled out.
Environmental Risks
Environmental legislation is evolving in a manner which will require stricter
standards and enforcement, increased fines and penalties for non-compliance,
more stringent environmental assessments of proposed projects and a heightened
degree of responsibility for companies and their officers, directors and
employees. There can be no assurance that future changes to environmental
regulation, if any, will not adversely affect the Company's operations.
Environmental hazards may exist on the properties in which the Company holds
interests that have been caused by previous or existing owners or operators.
Compliance with environmental, reclamation, closure and other requirements may
involve significant costs and other liabilities. The EPA has broad powers under
environmental assessment legislation to suspend, cancel or revoke an
environmental permit or certificate in cases of non compliance with laws,
permits, certificates and mitigation commitments in an EIA or environmental
management plan. The EPA also may suspend a permit or certificate in the event
of an occurrence of fundamental changes in the environment due to natural causes
before or during the implementation of an undertaking.
Calculation of Reserves and Metal Recovery
There is a degree of uncertainty attributable to the calculation of reserves,
mineralized material, and corresponding grades being dedicated to future
production. Until reserves or mineralized material are actually mined and
processed, the quantity of reserves or mineralized material and grades must be
considered as estimates only. In addition, the quantity of reserves or
mineralized material may vary depending on metal prices. Any material change in
the quantity of reserves, ore grade or stripping ratio may affect the economic
viability of the Company's properties. In addition, there can be no assurance
that mineral recoveries in small-scale laboratory tests will be duplicated in
large tests under on-site conditions or during production.
Dependence on Key Personnel
The Company is dependent on a relatively small number of key personnel the loss
of any one of whom could have an adverse effect on the Company. In addition,
while certain of the Company's officers and directors have experience in the
exploration and operation of gold, diamonds and bauxite producing properties,
the Company will remain dependent upon contractors and third parties in the
performance of its exploration and possible development activities. As such
there can be no guarantee that such contractors and third parties will be
available to carry out such activities on behalf of the Company or be available
upon commercially acceptable terms.
Title Matters
No assurance can be given that the various governments will not significantly
alter the conditions of or revoke the applicable exploration or mining
authorizations or that such exploration and mining authorizations will not be
challenged or impugned by third parties. In addition, there can be no assurance
that the properties in which the Company has an interest are not subject to
prior unregistered agreements, transfers or claims and title may be affected by
undetected defects.
The Ghana mining law entitles the Republic of Ghana to a free 10% carried equity
interest in all mineral properties in Ghana. Pursuant to the Ghana Mining Law,
the Republic of Ghana also has an option to acquire, on terms as shall be agreed
upon between the holder of the mining lease and the government of Ghana or,
failing such agreement, as determined by arbitration, an additional 20% interest
in any mineral properties. To the knowledge of the Company, this purchase option
has never been exercised. There can be no assurance that the government of Ghana
will not decide to exercise this right in the future or that the price at which
such option would be exercised would reflect the then current value of the
property concerned.
Repatriation of Capital and Distribution of Earnings
Currently there are no significant restrictions on the repatriation of capital
and distribution of earnings from Ghana to foreign entities. There can be no
assurance, however, that restrictions on repatriation of capital or
distributions of earnings from Ghana, Angola and Sierra Leone will not be
imposed in the future.
Tax
Amendments to current taxation laws and regulations that alter tax rates and/or
capital allowances could have a material adverse impact on the Company. The
Company has a number of subsidiaries and related companies that operate in a
number of different tax jurisdictions. At present, profits from the Company
would most likely be generated in Africa and will be susceptible to taxation in
that jurisdiction, as well as the Isle of Man and Canada.
Financial Risk Management
The Company's risk exposures and the impact on the Company's financial
instruments are summarized below:
Credit Risk
Credit risk is the risk of loss associated with a counterparty's inability to
fulfil its payment obligations. The Company is not exposed to any significant
credit risk on its financial assets. The Company's cash deposits have been
invested with reputable financial institutions, from which management believes
the risk of loss to be remote. However due to the recent number of bank failures
and continued losses reported by banking institutions, the Company can only
continue to monitor its financial institutions by means of stock prices and
reported financial statements. The Company cannot be assured that the
institutions will not fail, given the current global economic uncertainty.
Management believes that credit risk with respect to accounts receivable is low,
as they primarily consist of prepaid expenses. As of September 30, 2009, the
Company had no financial assets that were either past due or impaired.
Liquidity Risk
The Company's approach to managing liquidity is to ensure that it will have
sufficient liquidity to settle obligations and liabilities when due. As at
September 30, 2009, the Company had a cash balance of $0.07 million (December
31, 2008 - $0.147 million), to settle current liabilities of $8.69 million
(December 31, 2008 - $7.360 million).
For the current liabilities, $8.39 million of the balance relates to money
advanced to the Company by a company controlled by certain insiders of the
Company.
Interest Rate Risk
The cash advance from the related party of $8.40 million, is interest bearing.
Interest is paid at Libor + 2%. The amount of interest charged to the Company to
September 30, 2009 and 2008 was $0.14 million and $0.26 million, respectively.
Foreign Currency Risk
The Company's functional and reporting currency is the US dollar, as most major
expenditures are transacted in US dollars. The Company funds its Canadian
corporate costs with Canadian dollar currency transactions. For financial
reporting purposes, the Canadian dollar expenditures are translated to US
dollars at month-end. Foreign exchange gains and losses are recognized in the
consolidated statements of loss, comprehensive loss and deficit. Management
believes the foreign exchange risk derived from currency conversions is
negligible and therefore does not hedge its foreign exchange risk. The Company
recognized a $0.05 million loss (2008 - $0.05 million gain) on currency
translation for the period ended September 30, 2009.
The Company's operating income and cash flow are also affected by the movements
in the local currencies in Canada, Ghana and Ireland as a portion of the
Company's costs are incurred in these currencies.
Price Risk
The Company's financial assets and liabilities are not exposed to price risk
with respect to commodity prices. The Company's exploration drill programs are
carried out by outside contractors. Cost increases for consumables such as fuel
and drill bits are indirectly passed on to the Company through its contracted
drill programs.
Sensitivity Analysis
As of September 30, 2009, both the carrying value and the fair value amounts of
the Company's financial instruments are approximately equivalent.
Management estimates that a plus or minus change interest rates of one
percentage point would have impacted net loss by approximately $0.07 million for
the year ended December 31, 2008.
The Company does not hold significant balances in foreign currencies to give
exposure to foreign currency exchange risk.
Impairments
There has been notable market turbulence worldwide due to the credit crisis and
potential of a global recession. This has impacted the ability of mining
companies to secure debt and equity funding or enter into Joint Venture
arrangements. As the Company is in the exploration stage, it has historically
relied on equity financing to raise capital and will continue to do so, but this
ability will be impacted by the current situation, particularly with respect to
dilution.
The world diamond industry was not immune to the global economic turbulence. The
fears regarding the future of the US economy and other Western markets have
hindered pricing, consumption and exacerbated the status of small and
medium-sized diamond mining companies. As a result, mining companies, in
general, are finding it problematic to finance new exploration projects.
Management's reviews the carrying cost of its mineral properties, whenever there
is an event or circumstance that indicates that the assets carrying amount may
not be recoverable. The current market conditions led to a fall in the Company's
share price and therefore, a decline in the Company's market capitalization,
which is currently lower than the book value of the capitalized mineral
properties.
These factors combined, provide an indicator that the mineral properties may be
impaired. As such management has conducted an impairment test on all properties
for the period ended September 30, 2009.
During the peroid ended September 30, 2009, the management of the Company
decided to write off all expenditures on the Kimberlite diamond property,
Angola, in the sum of $7.13 million due to the extraordinary challenging times
for the diamond industry and the global economic crisis together with concerns
over the commercial viability of the mineral deposit which is dependent on a
number of factors together with concerns over the particular attributes of the
deposit, such as its size, grade and proximity to infrastructure. As the
alluvial licence expired on February 7, 2009, the Company has written off all
expenditures in the accounts to December 31, 2008, on this licence in the amount
of $5.361 million. Management considers that the expected future cash flows from
the other properties exceeds the current carrying value and that they are not
impaired at this time.
The management of the Company decided to write off all expenditures on the Port
Loko Bauxite property located in Sierra Leone, in the sum of $2.15 million, due
to an on-going dispute with the Ministry of Mineral Resources in Sierra Leone.
There is a risk that in the future, that the continuing unfavorable trends on
commodity prices, worsening market conditions or the inability to raise funds
could result in an impairment to the carrying value of the Company's mineral
properties, which would be recorded as an impairment in the financial
statements.
Going Concern
The financial statements of the Company have been prepared on the basis that the
Company will continue as a going concern which presumes that it will be able to
realize its assets and discharge its liabilities in the normal course of
business. The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern. If management
is unsuccessful in finalising the transaction with Franco-Nevada, the Company's
assets may not be realized or its liabilities discharged at their carrying
amounts and these differences could be material.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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