U. S. 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.
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSACTION PERIOD FROM ______________ TO ___________________.
Commission File Number 000-50634
TAN RANGE EXPLORATION CORPORATION
(Exact name of Company as specified in its charter)
ALBERTA, CANADA
(Jurisdiction of Incorporation or Organization)
93 Benton Hill Road
Sharon, Connecticut
06069 U.S.A.
(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, without Par Value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE
The number of outstanding Common Shares as of August 31, 2004 was 82,464,037.
Indicate by check mark whether the Company (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 Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ ]Yes [ ]No
Not applicable
Indicate by check mark which financial statement item the Company has elected to follow.
Item 17 [X]
Item 18 [ ]
(Applicable only to issuers involved in bankruptcy proceedings during the past five years)
Indicate by check mark whether the Company has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. NOT APPLICABLE
TABLE OF CONTENTS | ||||
Cautionary Note to U.S. Investors Concerning Estimates of Measured and Indicated Mineral Resources | 1 | |||
Currency | 1 | |||
Foreign Private Issuer Filings | 1 | |||
Glossary of Technical Terms | 2 | |||
Part I | 6 | |||
Item 1. | Identity of Directors, Senior Management and Advisors | 6 | ||
Item 2. | Offer Statistics and Expected Timetable | 6 | ||
Item 3. | Key Information | 6 | ||
A. | Selected Financial Data | 6 | ||
B. | Capitalization and Indebtedness | 8 | ||
C. | Reasons for the Offer and Use of Proceeds | 8 | ||
| D. | Risk Factors | 8
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Item 4. | Information on the Company | 11 | ||
A. | History and Development of the Company | 11 | ||
B. | Business Overview | 15 | ||
Plan of Operations | 16 | |||
Governmental Regulations | 17 | |||
C. | Organization Structure | 18 | ||
D. | Property, Plant and Equipment | 18 | ||
Itetemia Property | 18 | |||
Luhala Property | 27 | |||
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| Lunguya Project Area | 32 |
|
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| Tulawaka Project Area | 35 |
|
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| Lake Victoria Goldfield Properties | 35 |
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Item 5. | Operating and Financial Review and Prospects | 43 |
| |
| A. | Operating Results | 44 |
|
| B. | Liquidity and Capital Resources | 45 |
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| C. | Research and Development, Patents and License, etc. | 47 |
|
| D. | Trend Information | 47 |
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| E. | Off Balance Sheet Arrangements | 47 |
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| F. | Tabular Disclosure of Contractual Obligations | 47 |
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Item 6. | Directors, Senior Management and Employees | 47 |
| |
| A. | Directors and Senior Management | 47 |
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| B. | Compensation | 52 |
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| C. | Board Practices | 53 |
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| D. | Employees | 54 |
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| E. | Share Ownership | 55 |
|
Item 7. | Major Shareholders and Related Party Transactions | 55 |
| |
| A. | Major Shareholders | 55 |
|
| B. | Related Party Transactions | 56 |
|
| C. | Interest of Experts and Counsel | 57 |
|
- ii -
Item 8. | Financial Statements | 58 | ||
A. | Consolidated Statements and Other Financial Information | 58 | ||
B. | Significant Changes
| 58 | ||
Item 9. | The Offering and Listing | 58 | ||
A. | Offering and Listing Details | 58 | ||
B. | Plan of Distribution | 59 | ||
C. | Markets | 60 | ||
D. | Selling Shareholders | 60 | ||
E. | Dilution | 60 | ||
F. | Expenses of the Issue
| 60 | ||
Item 10. | Additional Information | 60 | ||
A. | Share Capital | 60 | ||
B. | Articles of Association and Bylaws | 61 | ||
C. | Material Contracts | 63 | ||
D. | Exchange Controls | 64 | ||
E. | Taxation | 65 | ||
F. | Dividends and Paying Agents | 73 | ||
G. | Statement by Experts | 73 | ||
H. | Documents on Display | 73 | ||
I. | Subsidiary Information
| 73 | ||
Item 11. | Quantitative and Qualitative Disclosures About Market Risk | 73 | ||
Item 12. | Description of Securities Other than Equity Securities
| 74 | ||
Part II |
| 74 | ||
Item 13. | Defaults, Dividend Arrearages and Delinquencies | 74 | ||
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | 74 | ||
Item 15. | Controls and Procedures | 74 | ||
Item 16. | [Reserved] | 74 | ||
Item 16 A. | Audit Committee Financial Expert | 74 | ||
Item 16 B. | Code of Ethics | 75 | ||
Item 16 C. | Principal Accountant Fees and Services | 75 | ||
Item 16 D. | Exemptions from the Listing Standards for Audit Committees | 75 | ||
Item 16 E. | Purchase of Equity Securities by the Issuer and Affiliated Purchasers
| 75 | ||
Part III |
| 75 | ||
Item 17. | Financial Statements | 75 | ||
Item 18. | Financial Statements | 75 | ||
Item 19. | Exhibits | 75 | ||
Cautionary Note to U.S. Investors Concerning Estimates of Measured
and Indicated Mineral Resources
The Company advises U.S. Investors that while the terms "measured mineral resources" and "indicated mineral resources" (see: "Glossary of Technical Terms - - Canadian Terminology" herein) are recognized and required by Canadian securities regulations, the U.S. Securities and Exchange Commission does not recognize them. U.S. investors are cautioned not to assume that any part or all of mineral resources in these categories will ever be converted into mineral reserves.
Currency
All references to dollar amounts are expressed in the lawful currency of Canada, unless otherwise specifically stated.
Foreign Private Issuer Filings
As a foreign private issuer registered under section 12(g) of theSecurities Exchange Act of 1934 (the "Exchange Act"), the Company is subject to section 13 of the Exchange Act, and is required to file Annual Reports on Form 20-F and Report of Foreign Private Issuer on Form 6-K with the Commission. However, the Company is exempt from the proxy rules under section 14 of the Exchange Act, and the short-swing profit rules under section 16 of the Exchange Act.
1
Glossary of Technical Terms
Ag | The elemental symbol for silver. |
alteration | Usually referring to chemical reactions in a rock mass resulting from the passage of hydrothermal fluids. |
andesite | Volcanic rock, low in quartz content, generally fine grained and moderately dark coloured. |
anomalous | A value, or values, in which the amplitude is statistically between that of a low contrast anomaly and a high contrast anomaly in a given data set. |
anomaly | Any concentration of metal noticeably above or below the average background concentration. |
assay | An analysis to determine the presence, absence or quantity of one or more components. |
Au | The elemental symbol for gold. |
background | Traces of elements found in sediments, soils, and plant material that are unrelated to any mineralization and which come from the weathering of the natural constituents of the rocks. |
BLEG | Acronym for "bulk leach extractable gold" sampling. |
chalcedony | Very fine crystalline quartz which may be massive or banded (agate). |
chalcopyrite | Copper sulfide mineral. |
Cretaceous | The geologic period extending from 135 million to 63 million years ago. |
Cu | The elemental symbol for copper. |
dyke | A tabular body of igneous rock that has been injected while molten into a fissure. |
epidote | Calcium, aluminum, iron silicate mineral commonly occurring in hydrothermally altered carbonate-bearing rocks. |
fault | A fracture in a rock where there has been displacement of the two sides. |
Fe | The elemental symbol for iron. |
fracture | Breaks in a rock, usually due to intensive folding or faulting. |
gossan | Decomposed rock or vein material of reddish or rusty colour resulting from oxidized pyrites. |
grab sample | A sample of selected rock chips collected at random from within a restricted area of interest. |
grade | The concentration of each ore metal in a rock sample, usually given as weight percent. Where extremely low concentrations are involved, the concentration may be given in grams per tonne (g/t or gpt) or ounces per ton (oz/t). The grade of an ore deposit is calculated, often using sophisticated statistical procedures, as an average of the grades of a very large number of samples collected from throughout the deposit. |
2
HLEM | Horizontal loop electromagnetic survey, a form of geophysical survey used in the exploration for minerals. |
hectare or ha | An area totalling 10,000 square metres. |
highly anomalous | An anomaly which is 50 to 100 times average background, i.e. it is statistically much greater in amplitude. |
hydrothermal | Hot fluids, usually mainly water, in the earth's crust which may carry metals and other compounds in solution to the site of ore deposition or wall rock alteration. |
IP | Induced polarization survey, a form of geophysical survey used in the exploration for minerals. |
intrusive | A rock mass formed below earth's surface from magma which has intruded into a pre-existing rock mass. |
kilometres or km | Metric measurement of distance equal to 1,000 metres (or 0.6214 miles). |
mill | A facility for processing ore to concentrate and recover valuable minerals. |
mineral reserve | That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. |
mineralization | Usually implies minerals of value occurring in rocks. |
net smelter or NSR royalty | Payment of a percentage of net mining profits after deducting applicable smelter charges. |
ore | A natural aggregated of one or more minerals which may be mined and sold at a profit, or from which some part may be profitably separated. |
outcrop | An exposure of rock at the earth's surface. |
overburden | A general term for any material covering or obscuring rocks from view. |
Pb | The elemental symbol for lead. |
porphyry | Rock type with mixed crystal sizes, i.e. containing larger crystals of one or more minerals. |
ppm or parts per million | A unit of measurement which is 1000 times larger than parts per billion (i.e. ppb); 1 ppm is equivalent to 1000 ppb, and is also equivalent to 1 gram/tonne. |
prefeasibility study and preliminary feasibility study | Each mean a comprehensive study of the viability of a mineral project that has advanced to a stage where mining method, in the case of underground mining, or the pit configuration, in the case of open pit mining, as been established, and which, if an effective method of mineral processing has been determined, includes a financial analysis based on reasonable assumptions of technical, engineering, operating, economic factors, and the evaluation of other relevant factors which are sufficient for a qualified person, acting reasonably, to determine if all or part of the mineral resource may be classified as a mineral reserve. |
propylitic | A rock alteration assemblage comprising calcite, epidote, chlorite, pyrite and other minerals, found typically in the periphery of a hydrothermal system. |
pyrrhotite | A bronze coloured mineral of metallic lustre that consists of ferrous sulfide and is attracted by a magnet. |
pyrite | Iron sulfide mineral. |
quartz | Silica or SiO2, a common constituent of veins, especially those containing gold and silver mineralization. |
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RAB | Rotary air blast drilling. |
RC | Reverse circulation diamond drilling. |
reef | A geological formation or mineral within defined boundaries separating it from the adjoining rocks. |
Sb | The elemental symbol for antimony (stibnite). |
silicification | Replacement of the constituent of a rock by quartz. |
test pits | Shallow holes dug at spots along the strike of any mineralization or, if it is disseminated, anywhere in the area where the shallow holes might reach mineralized bedrock. |
ton | Imperial measurement of weight equivalent to 2,000 pounds (sometimes called a "short ton"). |
tonne | Metric measurement of weight equivalent to 1,000 kilograms (or 2,204.6 pounds). |
tuff | A rock comprised of fine fragments and ash particles ejected from a volcanic vent. |
veins | The mineral deposits that are found filling openings in rocks created by faults or replacing rocks on either side of faults. |
Zn | The elemental symbol for zinc. |
Canadian Terminology The following terms are used in the Company's technical reports to describe its mineral properties and have been used in this Annual Report (see: "Cautionary Note to U.S. Investors Concerning Estimates of Measured and Indicated Mineral Resources" at page 1 hereof). These definitions have been published by the Canadian Institute of Mining, Metallurgy and Petroleum (the "CIM") as the CIM Standards on Mineral Resources and Reserves Definitions and Guidelines adopted by the CIM Counsel on August 20, 2000, and have been approved for use by Canadian reporting issuers by the Canadian Securities Administrators under National Instrument 43-101, "Standards of Disclosure for Mineral Projects": | |
indicated mineral resource | That part of a mineral resource for which quantity, grade or quality, densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed planning and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed. |
inferred mineral resource | That part of a mineral resource for which the quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based upon limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. Confidence in the estimate is insufficient to allow the meaningful application of technical and economic parameters or to enable an evaluation of economic viability worthy of public disclosure. |
4
measured mineral resource | That part of a mineral resource for which quantity, grade or quality, densities, shape, and physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters, to support production planning and evaluation of the economic viability of the deposit. The estimates is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological grade and continuity. |
mineral reserve | A mineral reserve is the economically mineable part of a Measured or Indicated mineral resource demonstrated by at least a preliminary feasibility study. This study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of the reporting, that economic extraction can be justified. A mineral reserve includes diluting materials and allowances for losses that may occur when the material is mined. Mineral resources are sub-divided in order of increasing confidence into "probable" and "proven" mineral reserves. A probable mineral reserve has a lower level of confidence than a proven mineral reserve. The term "mineral reserve" does not necessarily signify that extraction facilities are in place or operative or that all governmental approvals have been received. It does signify that there are reasonable expectations of such approvals. |
mineral resource | The estimated quantity and grade of mineralization that is of potential economic merit. A resource estimate does not require specific mining, metallurgical, environmental, price and cost data, but the nature and continuity or mineralization must be understood. Mineral resources are sub-divided in order of increasing geological confidence into "inferred", "indicated", and "measured" categories. An inferred mineral resource has a lower level of confidence than that applied to an indicated mineral resource. An indicated mineral resource has a higher level of confidence than an inferred mineral resource, but has a lower level of confidence than a measured mineral resource. A mineral resource is a concentration or occurrence of natural, solid, inorganic or fossilized organic material in or on the Earth's crust in such form and quantity and of such grade or quality that it has reasonable prospects for economic extraction. |
5
Part I
Item 1.
Identity of Directors, Senior Management and Advisors
A.
Directors and Senior Management:
Not Applicable.
B.
Advisers
Not Applicable.
Item 2.
Offer Statistics and Expected Timetable
Not Applicable.
Item 3.
Key Information
A.
Selected Financial Data
The following tables set forth and summarize selected consolidated financial data for the Company prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). For each of the last five fiscal years, the tables also summarize certain corresponding information prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP"). Canadian GAAP, as applied to the Company, materially differs from U.S. GAAP, as set forth in Note 11 to the consolidated financial statements of the Company. Unless stated otherwise, reference to dollar amounts shall mean Canadian dollars.
For each of the years in the five year period ended August 31, 2004, the information in the tables was extracted from the more detailed audited financial statements of the Company.
The selected financial data should be read in conjunction with Item 5, "Operating and Financial Review and Prospects" and in conjunction with the consolidated financial statements of the Company and the notes thereto contained elsewhere in this Annual Report. The Company's fiscal period ends on August 31 of each year.
The following is a summary of certain selected financial information for the Company's five most recently completed fiscal years (in Canadian dollars, except number of shares):
Canadian GAAP | As at Fiscal Year ended August 31, | |||||
2004 | 2003 | 2002 | 2001 | 2000 | ||
Operations: | ||||||
Revenues | $ -- | $ -- | $ -- | $ -- | $ -- | |
Net loss | (1,616,364) | (3,014,778) | (1,343,958) | (792,773) | (3,411,602) | |
Basic and diluted | (0.02) | (0.04) | (0.02) | (0.02) | (0.09) | |
6
Canadian GAAP | As at Fiscal Year ended August 31, | ||||
2004 | 2003 | 2002 | 2001 | 2000 | |
Balance sheet: | |||||
Working Capital | 1,918,901 | 2,092,912 | 1,921,418 | 2,186,371 | 1,028,558 |
Total Assets | 22,092,373 | 21,424,565 | 20,912,060 | 12,439,780 | 9,035,881 |
Net Assets | 21,298,136 | 20,318,000 | 19,605,513 | 11,874,926 | 8,527,142 |
Share Capital | 42,145,471 | 39,423,971 | 35,821,706 | 26,747,161 | 22,606,604 |
Number of Shares | 82,464,037 | 80,191,542 | 74,714,203 | 50,760,978 | 40,026,971 |
Deficit | (20,847,335) | (19,230,971) | (16,216,193) | (14,872,235) | (14,079,462) |
During the year ended August 31,2004, the Company determined that it had previously incorrectly applied its accounting policy for U.S. GAAP purposes and had included property acquisition costs in the amounts to be expensed as exploration costs under U.S. GAAP. Such acquisition costs are now capitalized and will be amortized on a unit of production basis once production commences. The correction of the error in the application of the Company's accounting policy has been applied retroactively and has changed the amounts previously reported for U.S. GAAP purposes in the following table as follows:
(a)
the net loss has reduced by $416,854 and $7,077,133, or nil per share and $0.12 per share for the years ended August 31, 2003 and 2002, respectively;
(b)
total assets have increased by $8,009,146 and $8,150,874 as at August 31, 2003 and 2002, respectively;
(c)
net assets have increased by $7,493,987 and $7,077,133 as at August 31, 2003 and 2002, respectively; and
(b)
the deficit has decreased by $7,493,987 and $7,077,133 as at August 31, 2003 and 2002, respectively.
U.S. GAAP | 2000 | 2004 | 2003 | 2002 | 2001 (unaudited) |
Operations: |
| ||||
Revenues | $ -- | $ -- | $ -- | $ -- | $ -- |
Net loss | (2,204,505) | (2,779,514) | (5,457,815) | (2,698,204) | (3,157,571) |
| |||||
Basic and diluted loss per share | (0.06) | (0.03) | (0.07) | (0.05) | (0.07) |
Balance sheet: | |||||
Working Capital | 1,028,558 | 1,918,901 | 2,092,912 | 1,921,418 | 2,186,371 |
| |||||
Total Assets | 2,181,924 | 10,248,223 | 10,761,265 | 10,510,379 | 3,364,651 |
7
Net Assets | 9,604,092 | 9,787,106 | 9,217,656 | 2,799,797 | 1,673,185 |
Share Capital | 44,900,399 | 42,178,899 | 36,276,634 | 27,160,566 | 22,876,383 |
Number of Shares | 82,464,037 | 80,191,542 | 74,714,203 | 50,760,978 | 40,026,971 |
Deficit | (35,296,307) | (32,516,793) | (27,058,978) | (24,360,769) | (21,203,198) |
Exchange Rates
The Company's accounts are maintained in Canadian dollars. In this Annual Report, all dollar amounts are expressed in Canadian dollars, except where otherwise indicated. The following table sets forth information as to the period end, average, the high and the low exchange rate for Canadian Dollars ("CDN") and U.S. Dollars for the periods indicated based on the noon buying rate in New York City for cable transfers in Canadian Dollars as certified for customs purposes by the Federal Reserve Bank of New York (Canadian dollar = US$1):
Year Ended: August 31 | Average | Period End | High | Low |
1999 | 1.5071 | 1.4929 | 1.5677 | 1.4447 |
2000 | 1.4714 | 1.4776 | 1.5140 | 1.4310 |
2001 | 1.5283 | 1.5455 | 1.5822 | 1.4680 |
2002 | 1.5724 | 1.5591 | 1.6190 | 1.5024 |
2003 | 1.4819 | 1.3865 | 1.5991 | 1.3305 |
2004 | 1.3015 | 1.2034 | 1.4003 | 1.1714 |
The following table sets forth the high and low exchange rate for the past six months. As of December 31, 2004, the exchange rate was CDN $1.2034 for each US$1.
Month | High | Low |
July 2004 | $1.3348 | $1.3079 |
August 2004 | $1.3326 | $1.2963 |
September 2004 | $1.3068 | $1.2639 |
October 2004 | $1.2725 | $1.2233 |
November 2004 | $1.2263 | $1.1775 |
December, 2004 | $1.2401 | $1.1856 |
B.
Capitalization and Indebtedness
Not Applicable.
C.
Reasons for the Offer and Use of Proceeds
Not Applicable.
D.
Risk Factors
In addition to other information presented in this Annual Report, the following should be considered carefully in evaluating the Company and its business. This Annual Report contains forward-looking statements
8
that involve risk and uncertainties. The Company's actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed below and elsewhere in this Annual Report. The management of the Company have identified the following risk factors, listed in the view of management in order from most significant to least significant:
We have incurred net losses since our inception and expect losses to continue. We have not been profitable since our inception. For the fiscal year ended August 31, 2004, we had a net loss of $1,616,364, and an accumulated deficit on August 31, 2004 of $20,847,335. The Company has not generated revenues from operations during fiscal year 2004 and does not expect to generate revenues from operations until one or more of its properties are placed in production. There is a risk that none of the Company's properties will be placed in production, and that the Company's operations will not be profitable in the future.
Our exploration activities are highly speculative and involve substantial risks. All of the Company's properties are in the exploration stage and no proven mineral reserves have been established. The Company's exploration work may not result in the discovery of mineable deposits of ore in a commercially economical manner. There may be limited availability of water, which is essential to milling operations, and interruptions may be caused by adverse weather conditions. The Company's operations are subject to a variety of existing laws and regulations relating to exploration and development, permitting procedures, safety precautions, property reclamation, employee health and safety, air quality standards, pollution and other environmental protection controls. The Company's exploration activities are subject to substantial hazards, some of which are not insurable or may not be insured for economic reasons.
We cannot accurately predict whether commercial quantities of ores will be established. Whether an ore body will be commercially viable depends on a number of factors beyond the control of the Company, including the particular attributes of the deposit such as size, grade and proximity to infrastructure, as well as mineral prices and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. We cannot accurately predict the exact effect of these factors, but the combination of these factors may result in a mineral deposit being unprofitable. The Company has no mineral producing properties at this time. The Company has not defined or delineated any proven or probable reserves or resources on any of its properties. Although the mine ralized material estimates included herein have been carefully prepared by the Company, or, in some instances have been prepared, reviewed or verified by independent mining experts, these amounts are estimates only and there is a risk that a particular level of recovery of gold or other minerals from mineralized material will not in fact be realized or that an identified mineralized deposit, if any, will not ever qualify as a commercially mineable or viable reserve.
We may not be able to establish the presence of minerals on a commercially viable basis. Our ability to generate revenues and profits is expected to occur through exploration of our existing properties as well as through acquisitions of interests in new properties. We will need to incur substantial expenditures in an attempt to establish the economic feasibility of mining operations by identifying mineral deposits and establishing ore reserves through drilling and other techniques, developing metallurgical processes to extract metals from ore, designing facilities and planning mining operations. The economic feasibility of a project depends on numerous factors beyond our control, including the cost of mining and production facilities required to extract the desired minerals, the total mineral deposits that can be mined using a given facility, the proximi ty of the mineral deposits to a user of the minerals, and the market price of the minerals at the time of sale. Our existing or future exploration programs or acquisitions may not result in the identification of deposits that can be mined profitably.
Our competition is intense in all phases of our business. The Company competes with many companies possessing greater financial resources and technical facilities than itself for the acquisition of mineral interests, as well as for the recruitment and retention of qualified employees.
Our exploration activities are subject to various federal, state and local laws and regulations. Laws and regulation govern the development, mining, production, importing and exporting of minerals; taxes; labor standards; occupational health; waste disposal; protection of the environment; mine safety; toxic substances; and
9
other matters. We require licenses and permits to conduct exploration and mining operations. Amendments to current laws and regulations governing operations and activities of mining companies or more stringent implementation thereof could have a substantial adverse impact on the Company. Applicable laws and regulations will require the Company to make certain capital and operating expenditures to initiate new operations. Under certain circumstances, the Company may be required to close an operation once it is started until a particular problem is remedied or to undertake other remedial actions.
We have uninsurable risks. We may be subject to unforeseen hazards such as unusual or unexpected formations and other conditions. The Company may become subject to liability for pollution, cave-ins or hazards against which it cannot insure or against which it may elect not to insure. The payment of such liabilities may have a material, adverse effect on the Company's financial position.
We depend on key management personnel. The success of the operations and activities of the Company is dependent to a significant extent on the efforts and abilities of its management including James E. Sinclair, Chairman and Chief Executive Officer, Victoria Luis, Chief Financial Officer, and Jonathan Deane, President. Investors must be willing to rely to a significant extent on their discretion and judgment. We do not have employment contracts with the Chairman and Chief Executive Officer or the Chief Financial Officer. We maintain key-man life insurance on the Chairman and Chief Executive Officer but not on the Chief Financial Officer or President of the Company.
We depend on consultants and engineers for our exploration programs. The Company has relied on and may continue to rely upon consultants for explorationdevelopment, construction and operating expertise. Substantial expenditures are required to construct mines, to establish ore reserves through drilling, to carry out environmental and social impact assessments, to develop metallurgical processes to extract the metal from the ore and, in the case of new properties, to develop the exploration infrastructure at any suite chosen for exploration. We may not be able to discover minerals in sufficient quantities to justify commercial operation, and we may not be able to obtain funds required for exploration on a timely basis.
We are subject to the volatility of metal and mineral prices. The economics of developing metal and mineral properties are affected by many factors beyond our control including, without limitation, the cost of operations, variations in the grade ore or resource mined, and the price of such resources. The market prices of the metals for which we are exploring are highly speculative and volatile. Depending on the price of gold or other resources, the Company may determine that it is impractical to commence or continue commercial production. The price of gold has fluctuated widely in recent years. The price of gold and other metals and minerals may not remain stable, and such prices may not be at levels that will make it feasible to continue the Company's exploration activities, or commence or continue commercial production.
Our business activities are conducted in Tanzania. Our mineral exploration activities in Tanzania may be affected in varying degrees by political stability and government regulations relating to the mining industry and foreign investment in that country. The government of Tanzania may institute regulatory policies that adversely affect the exploration and development (if any) of the Company's properties. Any changes in regulations or shifts in political conditions in this country are beyond the control of the Company and may adversely affect its business. Investors should assess the political and regulatory risks related to the Company's foreign country investments. Our operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, foreign exchange controls, income taxes, expropriation of property, environmental legislation and mine safety.
We may not have clear title to our properties. Acquisition of title to mineral properties is a very detailed and time-consuming process, and the Company's title to its properties may be affected by prior unregistered agreements or transfers, or undetected defects. Several of the Company's prospecting licenses are currently subject to renewal by the Ministry of Energy and Minerals of Tanzania. In result, there is a risk that we may not have clear title to all our mineral property interests, or they may be subject to challenge or impugned in the future.
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We have requirements for and there is an uncertainty of access to additional capital. At August 31, 2004, the Company had cash of approximately $1,067,448 and working capital of $1,918,901. The Company will continue to incur exploration costs to fund its plan of operations and intends to fund its plan of operations from working capital and equity subscriptions from the Company's Chairman and C.E.O. Ultimately, the Company's ability to continue its exploration activities depends in part on the Company's ability to commence operations and generate revenues or to obtain financing through joint ventures, debt financing, equity financing, production sharing agreements or some combination of these or other means.
We have no cash flow from operations and depend on equity financing for our operations.The Company's current operations do not generate any cash flow. Any work on the Company's properties may require additional equity financing. If the Company seeks funding from existing or new joint venture partners, its project interests will be diluted. If the Company seeks additional equity financing, the issuance of additional shares will dilute the current interests of the Company's current shareholders. We may not be able to obtain additional funding to allow the Company to fulfill its obligations on existing exploration properties. Our failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and the possible partial or total loss of the Company's potential interest in certain properties or dilution of the Company's interest in certain properties.
Conflicts of interest may arise among our board of directors. Marek J. Kreczmer, Ulrich E. Rath, and Anton Esterhuizen, directors of the Company, are also directors, officers, or shareholders of other companies that are similarly engaged in the business of acquiring, developing, and exploiting natural resource properties. Mr. Kreczmer is a director of Golden Patriot Mining Inc., a Canadian company exploring for minerals in the Yukon Territory, Mongolia, and India. Mr. Rath is a director of Chariot Resources Ltd., a Canadian company exploring for minerals in Peru. Mr. Esterhuizen is the Managing Director of Pangea Exploration (Pty.) Ltd., a South African company exploring for minerals in Africa and South America. Dr. Betts is a director of Slam Exploration Inc., a Canadian company exploring for minerals in the Provinces of Ontario and New Brunswick in Canada. Such associations may give rise to conflicts of interest from time to time if the Company were to enter into negotiations to acquire an interest in a mineral project in which their other companies hold an interest, or the Company were to enter into negotiations to sell or joint venture an interest in its mineral properties to any of these companies. The directors of the Company are required to act honestly and in good faith with a view to the best interests of the Company and disclose any interest which they may have in any project or opportunity of the Company. If a conflict of interest arises at a meeting of the board of directors, any director in a conflict will disclose his interest and abstain from voting on such matter.
Penny stock rules may make it more difficult to trade the Company's common shares. The Securities and Exchange Commission has adopted regulations which generally define a "penny stock" to be any equity security that has a market price, as defined, less than US$5.00 per share or an exercise price of less than US$5.00 per share, subject to certain exceptions. Our securities may be covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors such as, institutions with assets in excess of US$5,000,000 or an individual with net worth in excess of US$1,000,000 or annual income exceeding US$200,000 or US$300,000 jointly with his or her spouse. For transactions covered by this rule, the broker-dealers must make a special suitability determination for the purchase and receive the purchaser's written agreement of the transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell our securities and also affect the ability of our investors to sell their shares in the secondary market.
Item 4.
Information on the Company
A.
History and Development of the Company
The Company was originally incorporated under the corporate name "424547 Alberta Ltd." in the Province of Alberta on July 5, 1990, under theBusiness Corporations Act (Alberta). The name was changed to "Tan Range Exploration Corporation" on August 13, 1991. The Company was registered in the Province of British Columbia as an extra provincial company under theCompany Act (British Columbia) on August 5, 1994
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however, in 2004 the Company did not maintain its extra provincial registration in the Province of British Columbia since the principal executive office and its executive personnel are located in Sharon, Connecticut.
The principal executive office of the Company is located at 93 Benton Hill Road, Sharon, Connecticut, 06069, U.S.A., and its telephone number is (860) 364-1830.
The Company is a mineral resource company with exploration stage properties, which means that the Company is engaged in the search for mineral deposits and that the properties are not in development or production.
Cautionary Note to U.S. Investors Concerning Estimates of
Measured and Indicated Mineral Resources
As an Alberta corporation, the Company is subject to certain rules and regulation issued by Canadian securities administrators. The Company files an Annual Information Form on Form 44-101F1 ("AIF") with the British Columbia, Alberta and Ontario Securities Commissions via the System for Electronic Document Analysis and Retrieval ("SEDAR"). Under the AIF, the Company is required to provide detailed information regarding its properties including mineralization, drilling, sampling and analysis, security of samples and mineral resource and mineral reserve estimates. Further, the Company describes its properties utilizing mining terminology such as "measured mineral resources" and "indicated mineral resources" that are required by Canadian regulations but are not recognized by the United States Securities and Exchange Commission ("SEC"). For clarification, the Company has no properties that contain "reserves" as defined by either the SEC or Canadian regulations, and is providing the following information on inferred mineral resources, in part, in order to meet its requirements under National Instrument 43-101 adopted by the Canadian securities administrators. U.S. investors are cautioned not to assume that any part or all of mineral resources will ever be converted into reserves.
The Company's Itetemia concession is our most advanced property (the "Itetemia Property"). This property contains an inferred mineral resource of 500,000 tonnes grading 7 g/t gold, using a 2 g/t gold cut-off.
The Itetemia Property consists of eleven contiguous prospecting licenses. One concession is subject to a 3% net smelter royalty. The Company has a 90% interest in another of the concessions, which concession is subject to a 2% royalty interest.
By an option and joint venture agreement dated May 31, 1999 as amended April 24, 2001 between the Company and Barrick Gold Corporation ("Barrick"), Barrick was granted the exclusive option to earn an undivided 60% interest in the Itetemia Project. In exchange for the option, Barrick agreed to provide funding to the Company totalling $4,000,000, which has been completed. In November 2004, Barrick advised the Company that it was returning the Itetemia properties. The Company will now explore the properties further itself or enter into a new joint venture agreement with another mining company.
The Company's Luhala property, also located in Tanzania, consists of seven (7) contiguous prospecting licenses.
The Luhala property was the focus of an exploration program under an option agreement dated April 25, 1999 with Newmont Overseas Exploration Limited ("Newmont"). This property contains an inferred mineral resource of 9,390,000 tonnes, averaging 1.0 g/t gold, using a 0.5 g/t gold cut-off. Newmont terminated their option on the property during the year 2000, and the Company is now exploring the property further itself.
During the fiscal year ended 2003, the Company has also discovered three new gold occurrences on the Kigosi Property (forming a part of the Company's Lake Victoria Goldfield Properties held through Tanzam). Two of the three occurrences are located at the north end of a three kilometre long northwest trending structure that may be responsible for concentrating the mineralization reported at the northern and southern limits of this prominent geological feature (see: "Lake Victoria Goldfield Properties" below for further details). At the present time the Company is exploring 121 mineral resource properties in the Lake Victoria Greenstone Belts region of
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Tanzania. The Company currently has a total of 25 royalty agreements with three industry partners; two of these royalty agreements are with Barrick Gold Corporation; 10with Ashanti Goldfields Limited; and 13 with Northern Mining Explorations.
Significant Acquisitions and Significant Dispositions
The Company's principal capital expenditures and divestitures (including interests in other companies and amounts invested) for the last three fiscal years are described as follows:
Fiscal Year Ended August 31, 2002
On April 30, 2002, the Company completed the acquisition of 100% of the issued and outstanding shares of Tanzania American International Development Corporation 2000 Limited ("Tanzam"), in exchange for 20,000,000 shares of the Company at a value of CDN$0.35 per share (or a cost of CDN$7,000,000). Tanzam, a privately held mineral investment company, which at the time of acquisition held an interest in 52 prospecting licenses and reconnaissance licenses in the Lake Victoria Goldfields Belts of north-western Tanzania. The total land area currently held under these licenses is 3480km2.
By a Prospecting and Mining Option Agreement dated March 31, 1999, as amended March 31, 2000, between Northern Mining & Consultancy Company Limited ("Northern Mining") and Tanzam, Tanzam acquired the right to form a joint venture with Northern Mining covering a prospecting license in the Lunguya area. Tanzam will hold a 60% equity interest and Northern Mining a 40% equity interest in the joint venture. Tanzam has paid US$50,000 on signing and a further US$25,000 to Northern Mining on the first anniversary of the agreement. In addition, Tanzam is required to complete at least US$35,000 in annual exploration work during the first two years, and depending on commercial viability and geological potentials another US$250,000 in exploration work during the fourth, fifth and sixth years. Until Tanzam is reimbursed for all of its expenses, Tanzam will be entitled to 80% of the net cash flows from production.
On December 14, 2001, Barrick Exploration Africa Limited ("BEAL") entered into an agreement with Tanzam (the "BEAL Agreement"), wherein BEAL was granted the option to acquire the total rights, titles and interests of the Company in thirteen prospecting licenses (now reduced to two licenses under the terms of this agreement) in different properties (called the "BEAL Project"; see "Lake Victoria Goldfields Properties" below for further details).
To exercise the option, BEAL was required to incur US$250,000 in exploration of the BEAL Project within the first year, and thereafter US$50,000 each year for each retained prospecting license. In addition, BEAL must make the following annual payments for each retained prospecting license:
December 14, 2002 | US$10,000 | |
December 14, 2003 | US$20,000 | |
December 14, 2004 | US$30,000 | |
December 14, 2005 and | US$40,000 |
Within thirty days after commercial production, BEAL must pay US$1,000,000 and an additional US$1,000,000 on each of the next two years of production. The BEAL Agreement is subject to a 1.5% net smelter returns royalty.
During the fiscal year ended August 31, 2002, the Company capitalized mineral property acquisition costs of $8,297,805. Of this amount, $8,166,292 related to the acquisition of Tanzam. The Company also completed $1,238,635 in exploration work on its mineral resource properties, including $443,603 on the Itetemia Property and $491,724 on the Luhala Property. The Company wrote-off deferred exploration expenditures of $59,014 in 2002 relating to certain licenses of the Bukwimba, Mbogwe and Tulawaka properties, based on management's review of the exploration results and uncertainty over recoverability.
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Fiscal Year Ended August 31, 2003
The Company's exploration work for the 2002 fiscal year and up to February 28, 2003 identified two gold-bearing mineralized quartz reefs on the Lunguya Property, located in the Lake Victoria Goldfields area of Tanzania (the "Lunguya Property"), ranging in thickness from 1.3 metres and extending for at least 350 metres along strike. The two structures, designated as the East and West reefs, are about 50 feet apart and are roughly parallel to the mafic-granite contact (see: "Lunguya Property" under Item 4D for further details).
The Company also discovered three new gold occurrences on the Kigosi Property (forming a part of the Company's Lake Victoria Goldfield Properties held through Tanzam). Two of the three occurrences are located at the north end of a three kilometre long northwest trending structure that may be responsible for concentrating the mineralization reported at the northern and southern limits of this prominent geological feature (see: "Lake Victoria Goldfield Properties" below for further details).
The Company has also signed nine (9) option and royalty agreements on prospecting licenses in the Lake Victoria goldfields area of Tanzania with Northern Mining Explorations/Explorations Minieres du Nord ("MDN"). In December 2003 MDN returned one of the subject prospecting licenses to the Company. There remains 8 licenses subject to this agreement. Under the agreements, MDN holds the right to earn 100% of the Company's underlying interest in the licenses for an up-front cash payment of US$80,000, plus US$1.8 million in option payments and US$1.5 million in property expenditures over the five year life of the agreements. MDN must also complete a feasibility study and make a production decision by December 31, 2008 and achieve production within 18 months or be subject to cash penalties in lieu of royalty payments. The Company retains the right to es calating net smelter royalties on commercial production that are tied to the price of gold and range from 0.5% below US$250 per ounce to a maximum of 2% at US$380 per ounce. The first year's commitments call for option payments of US$160,000 and an exploration expenditures of US$200,000.
In July, 2003, the Company closed nine (9) (and now has 10) royalty agreements with Ashanti Goldfields Company Limited ("Ashanti") for prospecting licenses of the Company in the Kigosi property area (also forming a part of the Company's Lake Victoria Goldfield Properties held through Tanzam). Under the terms of these royalty agreements, Ashanti has the right to earn 100% of the Company's underlying interests in the subject prospecting licenses, for staged cash payments totalling US$200,000 in the first year, plus minimum cash payments of US$930,000 over the remaining life of the five year agreement. Ashanti must also incur aggregate property expenditures of US$800,000 in the first two years of the agreements of which US$300,000 must be expended in the first year. In years three, four, and five of the agreements, Ashanti must complete 6,000, 8,000, and 10,000 metres of diamond drilling, respectively.
The Ashanti royalty agreements also call for Ashanti to complete a bankable feasibility report and make a positive production decision on or before the fifth anniversary of the effective date of the agreements. Ashanti is liable for cash penalties should gold output at production not reach a minimum annual threshold of 50,000 ounces per year.
The Company retains the right to escalating net smelter royalties in commercial production that are tied to the price of gold, and range from 0.5% below US$250 per ounce to a maximum of 2% at US$380 per ounce.
All of the above investments have been made abroad and were financed internally.
During the fiscal year ended August 31, 2003, the Company incurred $1,151,327 in property acquisition costs and exploration work on its mineral resource properties (net of $184,965 in option payments received) of which $450,912 was incurred on the Lunguya Property. The Company also wrote-off $1,031,436 in exploration expenditures, of which $729,309 related to claims relinquished within the Itetemia Property area.
Fiscal Year Ended August 31, 2004
During the fiscal year ended August 31, 2004, the Company's exploration office in Tanzania formed a new section called the "Regional Studies Group" whose mandate is to acquire new ground, based on geologically
14
sound research. The primary objective in forming this group is to upgrade the Company's property position in Tanzania for further exploration. Three new project areas within the Lake Victoria greenstone gold belts have been chosen to date and the Company's land position now totals 121 prospecting licenses, covering an area of approximately 8,200 square kilometres. One license in the Biharamulo North Project Area was returned to its owner during the year, but was written off in the previous fiscal year.
Exploration activity throughout the 2004 fiscal year was spent undertaking a first pass BLEG soils program over the Tanzam licenses in the Lake Victoria Goldfields Properties project area. This work was conducted on eight licenses within six locations; namely, Geita, Ushirombo West, Biharamulo, Biharamulo North, Shinyanga, and Nyanzaga North. The Shinyanga and Nyanzaga North project areas returned encouraging results that will require detailed follow-up next quarter.
Heavy mineral indicator sampling and ground magnetic follow-up was conducted during the year on aeromagnetic targets identified on the Tanzam properties. Work was completed on the Kanagele, Lunguya, and Ushirombo project areas, where 34 anomalies were ground proofed and sampled for indicator minerals. The bulk of this work program is now completed and only eight anomalies remain to be sampled. The results from the sampling program are being used to further refine exploration methodologies.
A significant reorganization was undertaken at the Tanzam corporate office in Dar es Salaam during the period. Virtually all of the administrative activities associated with Tanzam and Tancan are now being handled by the office in Dar es Salaam, where some of the Company's most skilled and experienced personnel reside.
For the year ended August 31, 2004, the Company reported a net loss of $1,616,364. The largest expense categories being $254,991 for new property investigations, and staff salaries and benefits of $604,368. Another $1,180,850 (net) was expended for exploration on existing properties.
The Company has not proposed any principal capital expenditures or divestitures which are currently in progress, other than the acquisition of a drill rig, including rods, hammer, bits and tools for CDN$783,130 (of which $482,069 has been paid).
B.
Business Overview
The Company is a natural resource company, which since its incorporation has engaged in the acquisition of interests in and the exploration of natural resource properties. The Company commits its own resources to the initial evaluation of mineral properties and in select situations, if and when warranted, the Company will enter into joint venture agreements with other corporations to further the exploration of such properties, in exchange for annual rental/option payments and post-production royalty payments. At present, the Company's natural resource activities do not generate any income from production.
The Company's general area of interest has been in the exploration of gold properties in regional East Africa. The Company has explored gold properties in Ethiopia, Tanzania, Zambia, Swaziland and South Africa. At the present time, the Company is exploring 121 mineral resource properties in the Lake Victoria Greenstone Belt and Kabanga regions of Tanzania. Tanzania remains the prime focus of the Company's activities. Other corporations, including Barrick Gold Corporation ("Barrick"), Ashanti Goldfields Limited ("Ashanti Goldfields"), Northern Mining Explorations, and Newmont Overseas Exploration Corporation have funded most of the work on the Company's properties in this area since 1999 under option arrangements, with the exception of properties explored by Tanzania American International Development Corporation 2000 Limited ("Tanzam") which were privately fund ed. The Company currently has a total of 25 joint venture and royalty agreements with its three industry partners: 2 of the agreements are with Barrick, 10 with Ashanti Goldfields, and 13 with Northern Mining Explorations.
In the Company's view, this joint venture and royalty strategy offers investors leverage to gold prices with lower risk and shareholder dilution. Future production royalties from any producing properties discovered by the Company's joint venture partners would provide the Company with a direct interest in the mine's cash
15
flow, with exposure to any benefits from new discoveries and production growth, but without the capital obligations, and environmental and social liabilities, associated with direct ownership.
Plan of Operations
Exploration Activities
All of the properties in which the Company holds an interest are in the exploration stage only. Mineral exploration and development involves a high degree of risk and few properties, which are explored, are ultimately developed into producing mines. There is no assurance that the Company's mineral exploration activities will result in any discoveries of commercial bodies of ore. The long-term profitability of the Company's operations will be in part directly related to the cost and success of its exploration programs, which may be affected by a number of factors beyond the control of the Company.
By way of general description of the Company's operating activities, the Company's business operations involve using known or published geological and geophysical data to locate mineral resource properties meriting further exploration or development. Once identified, the Company must stake and apply for registration to title of the mineral properties, or negotiate the acquisition of such properties from any third party owners. Upon registration or acquisition of title, the Company then designs a program of preliminary exploration which can involve grid mapping, geophysical and magnetic surveying, geochemical surveying, geological sampling, grab sampling, assaying and other forms of prospecting as circumstances may require. Based on the preliminary results, mineral properties are ranked according to merit for further exploration work, which may involve furthe r mapping, more detailed geophysical and geochemical surveying, and trenching to identify potential drill targets. If mineralization is indicated which merits further investigation, drill targets are selected, and a diamond drilling program for underground sampling and assaying will commence.
Based on the drilling program results, the Company will develop models of the underlying geology and mineralized zones for more detailed testing. After further drilling, some mineralized zones may be classified as inferred or indicated mineral resources. With sufficient infill drilling, these inferred or indicated mineral resources can be confirmed as a measured mineral resource, upon which a pre-feasibility study can be prepared by a qualified, independent mining engineer or geologist to determine whether mining activities are economic in the circumstances of the particular property. A pre-feasibility study must be completed under the requirements of National Instrument 43-101 in Canada in order for mineral reserves to be designated. A final or bankable feasibility study must be completed for the designation of reserves under the SEC's Industry Guide 7. If the bankable feasibility study is favorable, the Company can then use the feasibility study to seek out the necessary financing from a merchant banker or other financial institution for mine construction and development. A further mine feasibility study would be prepared to confirm the appropriate mining method based on the metallurgical studies of the ore, and to develop a mining plan.
At any point along this plan of operation, the Company may seek to interest larger mining companies in its mineral properties, which show potential for further development. It is highly unlikely that the Company would pursue any particular property through to mineral production by itself. By exploring and developing properties to a point where major mining companies are interested, the Company will leave the risk of mine development and operations to those companies, while retaining a carried interest or royalty from any future production.
During 2005 fiscal year, the Company plans to continue evaluation of all prospecting licenses in its portfolio with a view of offering some of them for royalty agreements to other mining companies. The evaluation of their potential comprises geological mapping, soil sampling and geophysical interpretations. Currently, prospecting licenses which have potential diamond targets are being prospected using ground magnetic surveys, followed by loam sampling and analysis for indicator minerals.
The Company's plans for the first six months of 2005 is to continue efforts for the "farming-out" of identified properties for royalty agreements with other mining companies, and continue to examine and review other exploration opportunities in Tanzania.
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Exploration
The Company's principal exploration properties are currently all located in the United Republic of Tanzania, Africa. The government of Tanzania is a stable, multi-party democracy. Mineral exploration in Tanzania is affected by local climatic, political, and economic conditions. The Company's properties have year round access, although seasonal winter rains from December to March may result in flooding in low lying areas, which are dominated by mbuga (black organic rich laustrine flood soils). Further, most lowland areas are under active cultivation for corn, rice, beans and mixed crops by subsistence farmers. As a result, the area has been deforested by local agricultural practices for many years. The seasonal rains and deforested areas can create a muddy bog in some areas, which can make access more difficult, and could impede or even prev ent the transport of heavy equipment to the Company's mineral properties at certain times of the year between December to March.
Competition
The mining industry in which the Company is engaged is in general, highly competitive. Competitors include well-capitalized mining companies, independent mining companies and other companies having financial and other resources far greater than those of the Company. The Company competes with other mining companies in connection with the acquisition of gold and other precious metal properties. In general, properties with a higher grade of recoverable mineral and/or which are more readily mineable afford the owners a competitive advantage in that the cost of production of the final mineral product is lower. Thus, a degree of competition exists between those engaged in the mining industries to acquire the most valuable properties. As a result, the Company may eventually be unable to acquire attractive gold mining properties.
Dependence on Customers and Suppliers
The Company is not dependent upon a single or few customers or supplier for revenues or its operations.
Governmental Regulations
The Company's mineral interests in Tanzania are initially held under prospecting licenses granted pursuant to theMining Act, 1998 (Tanzania) for a period of up to three years, and are renewable two times for a period of up to two years each. We must pay annual rental fees for our prospecting licenses based on the total area of the license measured in square kilometres, multiplied by US$20.00 per sq. km. There is also an initial one-time "preparation fee" of US$200.00 per license. Upon renewal, we pay a renewal fee of US$200.00 per license. Renewals of our prospecting licenses can take many months and even years to process by the regulatory authority in Tanzania.
All prospecting licenses in Tanzania also require the holder to expend funds in the employment and training of Tanzanian personnel, which expenditures typically amount to US$5,000 per year, and in exploration expenditures, which are set out in theMining Act, 1998 (Tanzania). At each renewal, at least 50% of our licensed area must be relinquished. If the Company wishes to keep the relinquished one-half portion, it must file a new application for the relinquished portion.
We must hold a mining license to carry on mining activities, and a mining license will only be granted to the holder of a prospecting license over the area. A mining license is granted for a period of 25 years or the life of the mine. It is renewable for a period not exceeding 15 years. We do not hold any mining licenses, only prospecting licenses. Prospecting and mining license holders must submit regular reports in accordance with mining regulations. Upon commercial production, the government of Tanzania imposes a royalty on the gross value of all production at the rate of 3% of all gold produced. The applicable regulatory body in Tanzania is the Ministry of Energy and Minerals.
In July 1999, environmental management and protection regulations under theMining Act, 1998 (Tanzania) came into force. An environmental impact statement and an environmental management plan must
17
accompany special mining license, mining license and gemstone mining license applications for mineral rights. In addition to the establishment of environmental regulations, the Tanzanian Government has improved management procedures for effective monitoring and enforcement of these regulations by strengthening the institutional capacity, especially in the field offices. The Government has provided rules for the creation of reclamation funds to reinstate land to alternative uses after mining and it has developed guidelines for mining in restricted areas, such as forest reserves, national parks, sources of water and other designated areas. These regulations have not had any material adverse effect on the Company's operations, which are exploration in nature at this time.
C.
Organization Structure
The Company has the following five subsidiaries:
Name of Subsidiary | Jurisdiction of Incorporation | Percentage &Type of Securities Owned or Controlled by Company | |
Voting Securities Held | Non-Voting Securities | ||
Dia Consult Limited | Republic of Tanzania, Africa | 100% (common) | n/a |
Itetemia Mining Company Limited(1) | Republic of Tanzania, Africa | 90% (common) | n/a |
Lunguya Mining Company Ltd. (2) | Republic of Tanzania, Africa | 60% (common | n/a |
Kabahelele Mining Company Limited(3) | Republic of Tanzania, Africa | 80% (common) | n/a |
Tancan Mining Company Limited ("Tancan") | Republic of Tanzania, Africa | 100% (common) | n/a |
Tanzania American International Development Corporation 2000 Limited | Republic of Tanzania, Africa | 100% (common) | n/a |
(1)
The remaining 10% interest is held by Stamico.
(2)
The remaining 40% interest is held by Northern Mining Consulting Ltd.
(3)
The remaining 20% interest is held by Bungu Minerals Ltd.
D.
Property, Plant and Equipment
The Company's business is the acquisition and exploration of mineral properties, with a primary focus on exploring for gold properties in Tanzania. The Company funds its activities by way of the sale and issuance of its securities to accredited investors. The Company also obtains operating funds through sales of and options to sell its various mineral property interests to other parties, retaining a royalty interest. The Company's properties are without a known body of commercial ore, with no established reserves, and the Company's activities to date on such properties have been exploratory in nature.
Itetemia Property
The following discussion regarding the geological information on the Itetemia Property is summarized from a technical report prepared in accordance with the requirements of NI 43-101F1 dated May 2, 2001 entitled, "Independent Review of the Itetemia Project, Lake Victoria Greenstone Region, Tanzania" by Michael J. Michaud, M.Sc. P. Geo. of Steffen Robertson and Kirsten Consulting (Canada) Inc. (the "Itetemia Report"). The reader is referred to the complete text of the Itetemia Report, which is available online atwww.sedar.com, filed on March 10, 2003 under the heading, "Engineering Report and Certificate of Qualifications".
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Property Description and Location
The Itetemia Property currently consists of eleven (11) contiguous prospecting licenses, covering approximately 174 km2. The eleven (11) prospecting licenses now comprising the Itetemia Property are held in the names of the following companies and expire as indicated:
Prospecting License | Name Of Holder | Date Granted | Last Renewal Application | Expiry Date |
Itetemia East | Tancan | May 18, 2004 | na/ | May 18, 2007 |
Ngula North | Tanzam | November 25, 2003 | n/a | November 24, 2006 |
Itetemia | Itetemia Mining Co. | March 10, 2003; May 18, 2004 | n/a | March 10, 2005 |
Ngula | Tancan | August 29, 2003 | n/a | August 29, 2006 |
Mwingilo | Tancan | September 1, 2004 | n/a | September 1, 2007 |
Itetemia Village | Tancan | May 18, 2004 | n/a | May 18, 2007 |
Itetemia North | Tancan | November 1, 2002 | n/a | November 1, 2005 |
PL 1713/01 & | Tancan | March 24, 2001 | May 12, 2004 | March 24, 2004* |
*
While the license has expired, the Company has applied for a renewal and has no reason to believe that such renewal application will not be granted in the ordinary course.
The Itetemia and Ngula prospecting licenses have been renewed once and may be renewed once more, each time for a period of two years. The rental payments and minerals permitted to be pursued under such licenses are summarized below:
Prospecting License | Annual Rentals & | Minerals Covered |
Itetemia East | US$343.00 | All except building materials and gems |
Ngula North | US$268.20 | All except building materials and gems |
Itetemia | US$557.10* | All except building materials and gems |
Ngula | US$250.80* | All except building materials and gems |
Mwingilo | US$640.40 | All except building materials and gems |
Itetemia Village | US$514.40 | All except building materials and gems |
Itetemia North | US$343.00 | All except building materials and gems |
PL 1713/01 | US$257.10* | All except building materials and gems |
*
First renewal annual rental fees = US$30/sq.km.
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Accessibility, Climate, Local Resources, Infrastructure and Physiography
The Itetemia Property is located in the Mwanza Region of the Lake Victoria Greenstone Region, Tanzania, approximately 90 kilometres by air southwest of the city of Mwanza, situated on the south shore of Lake Victoria. The property is accessed via local roads from Geita or by plane from Mwanza to an airstrip accommodating the neighbouring Bulyanhulu Mine, owned by Barrick. The Barrick airstrip is 3.75 km west of the western boundary of the Itetemia prospecting license, and approximately 4 km northeast of the Nyamykonze village. Local resources are available at Mwanza, located on the southern shore of Lake Victoria.
The topography in the region and on the property consists of large flat-lying areas surrounded by numerous small hills. The hills have elevations of up to 100 m above local terrain. The hills are thickly vegetated and access is only possible along cut lines. Little outcrop exists on the property. The climate is similar to the rest of the region. The rainy season starts in November and lasts to the middle of April, but precipitation is irregular from one season to another. The dry seasons are usually hot. Mwanza, located along the southern shore of Lake Victoria, can, and has, provided limited supplies for mining and exploration operations in the area. Dwellers in the area of the Itetemia Project, such as the neighbouring Nyamykonze village, are traditionally subsistence farmers and ranchers, and have limited mining experience from the Bulyanhulu operation and numerous small scale activities. Water for the purpose of mining and processing is not readily available in the region; however, a pipeline from Lake Victoria built by Barrick for its Bulyanhulu Mine, provides an adequate supply.
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The large, relatively flat terrain surrounding the known gold mineralization may be suitable for potential tailings and waste rock storage and for heap leach pads and a potential processing plant. Electric power is available via the national grid within 5 km; due to the unreliability of such power, alternative forms of residual or back-up power would be necessary for mining or processing operations, such as diesel power generation used by Barrick at its Bulyanhulu mine.
Ownership
Prior Ownership
Only two of the prospecting licenses comprising the Itetemia Property, namely, Itetemia and Itetemia North, were previously held by third parties. With respect to the Itetemia prospecting license, the interest of the Company was acquired from State Mining Corporation of Tanzania ("Stamico") pursuant to a joint venture agreement dated July 12, 1994 (the "Stamico Venture Agreement"). The Stamico Venture Agreement obligated the Company to make two initial payments of Tsh1,000,000 and US$7,200, both of which were satisfied. With respect to the Itetemia North prospecting license, the interest of the Company was acquired from RSR (Tanzania) Limited by agreement dated April 20, 1995 (the "RSR Royalty Agreement"). The RSR Royalty Agreement obligated the Company to pay a sum of US$35,000, which payment was made.
The Company's Interest
Prior to the Barrick Venture Agreement (defined below), four of the prospecting licenses comprising the Itetemia Property, namely, Itetemia Village, Mwingilo, Ngula and Itetemia East, were indirectly 100% held by the Company; in the case of the Itetemia North prospecting license, the Company held an indirect 100% interest therein, through Tancan, subject only to the 2% NSR Royalty payable pursuant to the RSR Royalty Agreement. In the case of the Itetemia prospecting license, Tancan acquired its interest pursuant to the Stamico Venture Agreement, as amended June 18, 2001, which provides, among other things, that:
1.
Tancan had to pay Stamico, on execution of the Stamico Venture Agreement, the sum of US$7,200 (as an advance against the 2% gross revenue royalty) and TS1,000,000.
2.
Tancan and Stamico were to form a joint venture company for the purpose of holding the prospecting license that shall be held 10% by Stamico (with no obligation to contribute) and 90% by Tancan, which was effected through the formation of Itetemia Mining Co.
3.
Stamico is entitled to acquire an additional 20% interest in the joint venture company by paying a sum equal to 20% of the cost of placing the property into commercial production based on the feasibility study submitted to the Government of Tanzania for such purpose.
4.
Tancan shall assist Stamico in raising the required capital to exercise the right referred to in (3) above.
5.
Tancan was to expend the sum of US$25,000 in the first year and US$50,000 annually thereafter in relation to the training of Tanzanian personnel.
6.
Upon commencement of commercial production, Stamico shall receive a 2% gross revenue royalty, which shall be increased to a 2.5% gross revenue royalty should a mine on the Itetemia prospecting license produce recoverable gold in excess of 12 grams per tonne.
7.
Tancan shall pay to Stamico, as an advance against the 2% gross revenue royalty, the sum of US$7,200 on or before every anniversary of the Stamico Venture Agreement up until the development phase, upon and after which the annual sum of US$10,000 shall be paid as an advance against such royalty.
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8.
Tancan shall show preference to Stamico for the provision of local materials and services during the period of mining operations.
9.
Tancan shall pay to Stamico the sum of US$20,000 on or before July 12 of each year beginning in 2001 and ending upon commercial production, provided that commercial production commences by December 31, 2007, failing which the aforementioned payment shall be revisited.
10.
Tancan may assign its rights under the agreement, subject to the prior written consent of Stamico.
By an option and joint venture agreement dated May 31, 1999 as amended April 24, 2001 between the Company and Barrick (the "Barrick Venture Agreement"), Barrick agreed to provide funding to the Company totalling $4,000,000 in the form and amounts, and on or before the dates, set out as follows:
Amount | Exercise Date | Form | No. Shares | Price Paid |
$1,000,000 | Upon Regulatory Approval | Share Subscription | 1,428,571 | $0.70 |
$1,000,000 | April 30, 2000 | Share Subscription | 1,176,471 | $0.85 |
$1,000,000 | October 31, 2000 | Share Subscription | 1,000,000 | $1.00 |
$1,000,000 | June 14, 2001 | Warrant | 740,741 | $1.35 |
Barrick made the first three payments to the Company and requested an extension of the date to exercise the warrants from April 30, 2001 to June 14, 2001, which was then exercised at that date. Pursuant to the terms of the Barrick Venture Agreement, the Company was required to use 80% of the Barrick payments to advance the exploration of the Itetemia Property. To date, the Company has expended the funds received from the Barrick payments. The Company has spent at least 80% of these funds on the exploration of the Itetemia Property in accordance with its commitment to Barrick, and has therefore met its expenditure requirements. Barrick retains the right to participate in any sale or issue of further securities by the Company, provided it holds at least 10% of the outstanding common shares of the Company, subject to certain exceptions. At present, Bar rick does not hold 10% of the total issued common shares.
On November 23, 2004 Barrick advised that they would return the Itetemia Property (with the exception of PL 2374/03 which is held under the BEAL Agreement) to the Company.
The Company has incurred total net costs (after any recoveries) of $6,565,003 on the Itetemia Property to August 31, 2004. The Company plans to carry out exploration work on the property, as Barrick has returned the Itetemia Property to the Company.
History
The exploration history of the Itetemia Property from 1988 to 1999 may be summarized as follows:
Itetemia Exploration History Synopsis
Year | Operator | Work Performed |
1988 - 1992 | BRG, a Tanzanian-German Corporation | First modern exploration program conducted, consisting of geological mapping, ground geophysics, magnetometer, horizontal loop electromagnetic ("HLEM"), pulse electromagnetic, and induced polarization ("IP") surveys, trenching and sampling. |
1993 | Stamico | Continued BRG's work and completed an air photo interpretation of the region, resulting in the identification of a northerly trenching gold bearing structure. |
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1994 | Stamico | Completed regional geological mapping, and geochemical soil sampling on the northern and southwestern portions of the licensed area. |
1995 | Tancan | Detailed soil sampling in several areas confirmed strong gold anomalies along the northwest trend. A 100 m long trench trending northwesterly was dug, returning anomalous grades of gold. Pangea drilled six reverse circulation ("RC") holes by mistake on the southwest corner of Itetemia. Tancan also begins first RC drilling program consisting of 4 holes totalling 374 m, in the southwest corner, but subeconomic intersections were recovered. |
1996 | Geodass (under contract to Pangea and Tancan) | Airborne magnetic and radiometric surveys completed over Itetemia, Itetemia North and Ngula prospecting licenses. A magnetic survey was conducted on the Golden Horseshoe Reef and 25 kms of IP which further defined the reef and extended the reef for more than one kilometre. |
1996 | Tancan | Next phase of RC drilling continued with 39 holes totalling 3,596 m (Oct. '95 to July '96) covering the main HLEM anomalies. Most of the conductors were explained by the presence of argillite horizons, containing 1-50% sulphides. |
1997 | Tancan | A fence of 66 RC holes totalling 2,188 m were drilled in the southern portion of the license. |
1998 | Tancan | A further 14 RC holes were drilled totalling 1,350 m in the southwest portion to test several IP anomalies, the best results returned 0.65 g/t Au over 9.0 m and 1.1 g/t Au over 8.0 m, respectively. A second phase of 14 RC holes totalling 831 m, were drilled in the area of the Golden Horseshoe Reef to test IP anomalies and the south eastern extension of the reef near the granite contact. Holes RC-65 and RC-66 intersected 0.7 g/t Au over 5.0 m, respectively, west of the reef. The next phase of diamond drilling focused on the Golden Horseshoe Reef with 21 holes totalling 2,032 m drilled to test the gold showing. The holes were drilled at a spacing of 15 m to 50 m. The Golden Horseshoe Reef appears to be terminated to the southeast by an intrusion and seems to be pinching to the northwest. |
1999 | Tancan | A rotary air blast ("RAB") drilling program of 151 holes totalling 6,660 m, in seven fences were drilled; the northwestern extension of the Golden Horseshoe Reef was intersected, returning 0.28 g/t Au over 33 m. |
Very little exploration work has been carried out on the Itetemia East, Itetemia Village and Mwingilo prospecting licenses. Only limited mapping and soil sampling have been carried out. At present, no work is being carried out on the Ngula prospecting license.
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Recent Exploration (Including Drilling)
2000 Exploration Program
Barrick provided the funds for the 2000 program to the Company through share subscriptions, as provided in the Barrick Venture Agreement. Pursuant to the Barrick Venture Agreement, 80% of the funds subscribed for are required to be incurred in respect of the Itetemia Property. The total cost of the 2000 program, including support services was $809,148.
On behalf of Barrick, the Company carried out the following exploration program in 2000: A total of 211 geochemical soil samples were collected on 21 line segments utilizing a 50 m sample interval. Twenty-eight samples came from Itetemia, 90 from Itetemia North, 9 from Itetemia Village and 84 from Mwingilo. This soil survey confirmed most of the main anomalies, and some secondary and isolated anomalies interpreted from the earlier survey.
A RAB drilling program, comprising 448 holes and totalling 9,862 m was undertaken on the Itetemia and Ngula licenses during the period from May 23 to June 19, 2000. The main targets of this drilling were gold soil anomalies, HLEM conductors, I.P. anomalies and mafic/felsic contacts. With respect to the Ngula prospecting license, two fences, NA and NB, were drilled to test HLEM conductors located in the central part of the license. These conductors are thought to reflect a north-northwest shear zone. The fences intersected the shear zone, but did not encounter any significant gold mineralization. On the Itetemia prospecting license, three areas were designated for RAB drilling during the 2000 program, namely, (i) the Golden Horseshoe Reef area, (ii) the southwest corner area and (iii) the southeast corner area.
A multi-purpose drilling program, consisting of a combination of RC and diamond drilling in the same hole, was carried out during the period from June 28 to August 5, 2000 on the Itetemia prospecting license. Four holes were drilled for an aggregate total of 1,558.2 m comprising 526.0 m of RC drilling and 1,032.2 m of diamond drilling. Two holes ITDD-69 and 70 tested the "QFP/Reef 2" located in the southwest corner of the license, targeting the lateral and depth extensions of the QFP intersected in diamond drill hole ITDD-37, grading 0.40 g/t Au over 40.1 m. Holes ITRC-71 and 72 holes tested the northwest extension of the Golden Horseshoe Reef. A subsequent diamond drilling program was carried out during the period from August 17 to October 20, 2000 and consisted of 12 holes totalling 2,376.8 m. The objective of this program was to test the Golden Horseshoe Reef at depth and along strike to the west, the southwest corner area and 7 anomalies identified during the 1999 soil sampling program. The drilling results are summarized in the table below:
2000 MULTIPURPOSE AND DIAMOND DRILLING PROGRAM (significant assays >0.19 g/t Au and >1,000ppm Cu+Zn+Pb) | |||||||
HOLE | FROM | TO | INTERVAL | Au | Cu | Zn | Pb |
(m) | (m) | (m) | g/t | (ppm) | (ppm) | (ppm) | |
ITRC-69 | 248.8 | 252.0 | 3.2 | 0.217 | n/a | n/a | n/a |
ITRC-71 | 453.5 | 467.5 | 14.0 | 0.140 | 390 | 7,140 | 3.850 |
ITRC-72 | 370.3 | 377.0 | 6.7 | 0.106 | 170 | 1,330 | 40 |
ITDD-40 | 335.9 | 366.5 | 30.6 | 3.65 | 365 | 639 | n/a |
including | 337.8 | 343.8 | 6.0 | 7.75 | 867 | 1,359 | n/a |
including | 337.8 | 342.2 | 4.4 | 9.80 | 1,109 | 1,290 | n/a |
including | 351.0 | 359.0 | 8.0 | 5.49 | 449 | 806 | n/a |
including | 351.0 | 354.4 | 3.4 | 8.84 | 496 | 1,158 | n/a |
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2000 MULTIPURPOSE AND DIAMOND DRILLING PROGRAM (significant assays >0.19 g/t Au and >1,000ppm Cu+Zn+Pb) | |||||||
HOLE | FROM | TO | INTERVAL | Au | Cu | Zn | Pb |
(m) | (m) | (m) | g/t | (ppm) | (ppm) | (ppm) | |
ITDD-41 | 309.0 | 330.4 | 21.4 | 1.55 | 86 | 481 | n/a |
including | 311.9 | 316.6 | 4.7 | 2.63 | 166 | 1,512 | n/a |
ITDD-42 | 115.5 | 118.1 | 2.6 | 1.07 | 534 | 837 | n/a |
ITDD-43 | 134.0 | 135.5 | 1.5 | 1.22 | n/a | n/a | n/a |
ITDD-44 | 128.0 | 131.2 | 3.2 | 2.50 | n/a | n/a | n/a |
ITDD-46 | 117.9 | 120.9 | 3.0 | 0.98 | n/a | n/a | n/a |
2001 Exploration Program
During 2001, the Company carried out, on behalf of Barrick, the following exploration program. Barrick provided the funds for the 2001 program to the Company through share subscriptions, as provided in the Barrick Venture Agreement. Pursuant to the Barrick Venture Agreement, 80% of the funds subscribed for are required to be incurred in respect of the Itetemia Property. The total cost of the 2001 program, including support services was $554,046.
In May 2001, the Company reported that two holes, totalling approximately 1,100 meters, were drilled to evaluate the down dip potential of gold mineralization in the Golden Horseshoe Reef deposit. The results of this drilling are summarized in the following table:
MINERALIZED INTERVAL | ||||||
Grade (g | ||||||
DDH# | Au/t) | Width (m) | Interval (m) | Zone | ||
GHDD-25 | 2.10 | 27.20 | 479.40-506.60 | Mineralized Envelope | ||
2450E; 100S | ||||||
Location Includes: | 3.14 | 16.45 | 483.45-499.90 | |||
Contains: | 4.58 | 6.50 | 484.35-490.85 | South Zone | ||
6.73 | 1.40 | 498.00-499.90 | North Zone | |||
11.0 | 1.00 | 518.50-519.50 | Quartz Feldspar Poryphyry | |||
GHDD-25W | 2.15 | 49.8 | 464.50-514.30 | Mineralized Envelope | ||
2450E; 100S | ||||||
4.42 | 2.9 | 470.50-473.40 | South Zone | |||
Contains: | 5.59 | 2.2 | 476.10-478.30 | North Zone |
The recent deep core drilling of the Golden Horseshoe has confirmed that gold mineralization over widths of approximately 50 meters has been traced from surface to a vertical depth of 440 meters. The gold mineralization occurs primarily within two discrete gold zones, the South and North zones, and appears to plunge 55° to the northwest. Gold mineralization intersected in Hole GHDD-26 indicates that the geologic structure hosting the gold mineralization of the Golden Horseshoe Reef deposit may transect the felsic package of rocks. This suggests that the gold mineralization may extend further to the west, beyond the basaltic rocks that were previously thought to represent the western limit of the gold mineralization.
The Company is of the opinion that the drill results correlate well with the geology and gold mineralization identified by previous surface trenching and shallow core drilling. Additional drilling is required
25
to provide adequate information of the continuity of the geometry and grade of the gold mineralization for updating the current resource estimate.
2002 to 2004 Exploration Work
During the 2002 fiscal year, the Company has carried out only minor surface work on the Itetemia Property at a cost of $443,603. No drilling was conducted and no significant new results were reported. During the 2003 fiscal year, the Company incurred only minor geochemical and geophysical work of $13,910 on the Itetemia Property. The Company will be receiving reports from Barrick detailing the exploration work they have conducted on the property in 2004.
Geology
Regional
The Lake Victoria area contains 12 Archean Nyanzian greenstone belts which are surrounded by and have been interrupted by numerous granitic intrusions. The Nyanzian belts comprise a volcano-sedimentary sequence composed of mafic to felsic volcanics (lavas and tuffs), BIF and shales. The greenstone belts have been grouped into locally distinct geographic regions. One of these regions is the Southwest Mwanza Region which includes a large area south of town of Mwanza, located on the south shore of Lake Victoria. There are five greenstone belts in the Southwest Mwanza Region, one of which is the Ushirombo belt. The Ushirombo belt is an east-west trending belt, the eastern end of which is located approximately 25 km west of the southern end of Smith Sound on Lake Victoria. The eastern end of the belt is arcuate in shape and trends northerly tangential to the northwe stern flank of the Siga Hills.
Property
The Itetemia Property is underlain by the northerly trending eastern portion of the Ushirombo Nyanzian greenstone belt. Granite underlies the eastern and northern portions of the property. The greenstone/granite contact trends northerly through the east-central portion of the Itetemia prospecting license and through the central portion of the Itetemia East prospecting license onto the Itetemia Village license; at which point, the contract tends westerly through the Mwingilo license cutting the northeast corner of the Ngula license. Sixty percent of the Itetemia, Itetemia North and Ngula licenses are underlain by the Nyanzian greenstone belt. The remaining 40% is underlain by granite. Granite variably underlies 90 to 100% of the Itetemia East, Itetemia Village and Mwingilo prospecting licenses. The mbuga soil covers 10 to 40% of the property.
Lithology
The lithologies encountered on the Itetemia and Itetemia North prospecting licenses can be divided into three volcano-sedimentary domains: (i) Northeast Domain, (ii) Central Domain and (iii) Southwest Domain. The granite truncates these domains to the east. The Northeast Domain is composed of basalt, felsic flows, thick to thin sequences of argillite and dykes/sill of gabbro. The domain is up to 3 km thick, exhibits a north to north-northeasterly trend and has numerous extensive HLEM conductors. The conductors are related to argillite dominantly located in one horizon at the top of the sequence. A massive sulphide unit/zone is situated at the bottom of this horizon marking change in the volcanism.
Mineralization
The sulphide mineralization encountered on the Itetemia Property comprise massive to semi-massive, stringers, veins and veinlets, disseminated and nodular mineralization. The types of mineralization are (i) sulphides associated with volcanism activity; (ii) remobilized sulphides associated with deformation (shear hosted); and (iii) sulphides associated with sedimentation. The gold and metallic contents associated with this
26
mineralization are variable and the relation between the grades and the mineralized type is not well known at this stage.
The massive to semi-massive sulphide mineralization seems to be related to volcanism. It occurs in two areas on the Property. One area is located in the northern part of the licenses and has been intersected by the hole ITDD-06. More than 30 m. of sulphides were intersected at the contact between a QFP and an argillite horizon separating two pillowed basalts. The sulphide content ranges from 10 to 90% pyrrhotite, 2 to 5% pyrite, trace to 5% sphalerite, trace to 1% copper.
The Golden Horseshoe Reef mineralization occurs as massive sulphide veins locally ranging from 15-30 cm wide. Sulphides dominantly appear in veins/veinlets less than 5 cm wide in felsic volcanic rocks. Five to thirty percent pyrite-pyrrhotite is common over sections of 1 to 15 m along the holes. They are sub-concordant and parallel to the schistosity. The strong shearing at the Golden Horseshoe Reef probably represents a remobilization of the sulphides.
Mineral Resource Estimation
Cautionary Note to U.S. Investors Concerning Estimates of
Measured and Indicated Mineral Resources
This section uses the terms "mineral resource" and "inferred mineral resource". We advise U.S. investors that while those terms are recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize them. U.S. investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves.
In 1998, Minestart Management Inc. ("Minestart") was retained by Tancan to prepare a mineral resource estimation for the Golden Horseshoe Reef. The mineral resource was calculated based on 13 diamond drill holes which were drilled at 25 m. intervals along strike for approximately 300 m. and to a depth of approximately 50 m. The mineral resource was calculated using polygons on cross-sections incorporating a 2 g/t gold cutoff and a constant bulk density of 2.7 tonnes/cubic meter. Minestart estimated the mineral resource for the Golden Horseshoe Reef to be 500,000 tonnes grading 7 g/t gold. As an integral part of its review, the Company hired Steffen, Robertson and Kirsten Consulting (Canada) Inc. ("SRK") to review the mineral resource estimate prepared by Minestart, and SRK provided the following observations:
SRK believes there is a need for more near-surface and down-dip information in order to better define the controls on the mineralization and the geometry of the mineralized horizon. With respect to the density, SRK notes that the bulk density was used for estimating the bulk tonnage. Given the climate and the weathering environment, the density of sulfide rich rocks and volcanics could vary considerably and based on their experience it may be required to weigh the assays during compositing and estimating the bulk tonnage of the mineralized and unmineralized zones.
With respect to the 2.0 g/t cutoff grade used in the estimation, SRK believes that initially, it might be possible to mine the reef by way of a very narrow and shallow open pit. However, it is more likely that given the higher grade mineralization, narrow widths and current limited strike length the Golden Horseshoe Reef would be more amenable to underground mining methods. As such, the cutoff grade of 2.0 g/t gold initially used to estimate the mineral resource may be too low.
With respect to the diamond drilling core recovery, SRK considers the NQ size to be appropriate and that it has been appropriately split using a diamond saw. The split core remains in good condition and is stored on-site in a proper facility. The rock quality is very good. The core recovery is excellent.
27
SRK believes the mineral resource estimation prepared by Minestart to be an inferred mineral resource as defined by standards set by the Canadian Institute of Mining, Metallurgy and Petroleum (see: "Glossary of Technical Terms - Canadian Terminology" at page 5 herein).
THE ITETEMIA PROPERTY IS WITHOUT KNOWN MINERAL RESERVES AND ANY PROPOSED PROGRAM IS AN EXPLORATORY SEARCH FOR ORE.
Luhala Property
The following discussion regarding both the Luhlala and Lunguya Properties below is summarized from a technical report prepared in accordance with the requirements of NI 43-101F dated February 28, 2003 entitled, "Report on the 2002 Exploration of the Luhala Concessions and the Lunguya Concessions, Lake Victoria Goldfields District, North-Central Tanzania" by Dr. Jim L. Oliver, Ph.D., P. Geo. (the "Luhlala and Lunguya 2002 Report"). The reader is referred to the complete text of the Luhala and Lunguya 2002 Report, which is available atwww.sedar.com, filed on March 10, 2003 under the heading, "Other".
Property Description and Location
The Luhala property is located in Misungwi District of Mwanza Region of Tanzania(see property location map on page 22). It lies approximately 70 kilometres south of the city of Mwanza. The Luhala property consists of seven (7) prospecting licenses (namely, Luhala PL 1451/00, Luhala PL 2519/04, Shilalo PL 2297/03, Ngobo PL 1559/00, Ngobo PL 2680/04, Sima PL 1560/00 and Sima PL 2681/04). These prospecting licenses are in good standing with respect to required filings and payments with the Government of Tanzania.
The Company has a 100% interest in the Luhala prospecting license, and has the right to acquire a 100% interest in the Ngobo and Sima prospecting licenses by making a series of payments to the property holder, Widescope Promotion Ltd. ("Widescope"), totaling US$120,000 over six years for the Ngobo license and US$84,000 over six years for the Sima license. Widescope retains a 2% net smelter returns royalty on both the Ngobo and Sima licenses, which the Company may buy back, in each case, one-half (i.e. 1%) for US$1,000,000. For the Shilalo license, the Company has earned the right to acquire a 100% interest by having madea series of payments to the property owner totaling US$16,000. The Shilalo property owner retains a 2% net smelter return royalty, of which the Company may buy back one-half (i.e.1%) for US$ 250,000.
Each of the prospecting licenses forming the Luhala property has the following mandatory annual work and rental payments:
Prospecting License | Work Program | Annual Rentals | Minerals Covered |
Luhala | None | US$835.80* | all excluding building materials and gems |
Shilalo | None | US$74.40 | all excluding building materials and gems |
Ngobo | None | US$360.00* | all excluding building materials and gems |
Sima | None | US$617.40* | all excluding building materials and gems |
*First renewal annual rental fees = US$30/sq.km.
The Luhala property covers an area of approximately 128 square kilometers. The target on the Luhala property is gold stockwork mineralization associated with felsic rock units in dilational structures. There is widespread gold mineralization on the property over a 6.25 square kilometer area.
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The Company has incurred total net costs (after any recoveries) of $2,819,621 on the Luhala Property to August 31, 2004.
Accessibility, Climate, Local Resources, Infrastructure and Physiography
Access to the Luhala Property is via the main Mwanza - - Shinyanga road, which is a single lane, good to excellent quality, asphalt highway. Approximately 45 kms south of Mwanza, a dirt road from a junction at the settlement of Manawa, leads southwest to the town of Misasi. The property has year round access, although seasonal winter rains, December to March, may result in flooding in low lying areas which are dominated by mbuga (black organic rich laustrine flood soils). Most lowland areas are under active cultivation, corn, rice, beans and mixed crops, by subsistence farmers. Low scrub and thorn bushes cover the small hills. The area has been, for many years, deforested by local agricultural practices.
At Luhala, the mean elevation is approximately 1,200 m above sea level, with a series of small sub-rounded hills, rising up to one hundred metres above the surrounding plain. These hills are typically formed by either resistive iron formations or felsic volcanic rocks. Mafic volcanic rocks weather recessively and are typically only exposed in trenches through well formed laterite profiles. Laterite development is extensive with brick-red laterites overlying weak mottled zones and saprolites at a depth of approximately 3-5 m's. Deep weathering penetrates 45 - 60 m's vertically within the subsurface.
An enthusiastic and competent labor force is available through the surrounding villages, and local people have been routinely hired during the trenching, drilling and soil sampling programs conducted on this property. However, no other significant infrastructure is available.
History
Luhala has had a significantly more protracted exploration history than Lunguya, beginning with the initial exploration by the then Tanganyikan Geological Survey in 1947. The exploration history of Luhala may be summarized as:
LUHALA EXPLORATION HISTORY SYNOPSIS
Year | Operator | Work Performed |
1947 | Tanganyikan | Underground adit, Shilalo West |
1960's | Unknown | Minor test pits and trenches |
1994 | Tan Range | Grab sampling and panning, Luhala Hills |
1996 | Tan Range | Airbourne magnetic survey, 505 m diamond drilling in two drillholes |
1997 | JCI/Tan Range | MMI survey, 5,700 samples collected, geological mapping and sampling, 243 grab samples, gradient array IP over Lahula Hills, 5 DDH's for 549 m |
2000 | Newmont/Tan Range | 251 Rotary Air Blast (RAB) drillholes |
2001 | Tan Range | 10 DDH's, 1204 m, trenching and sampling, 32 RAB holes, totaling 1969 m. Regional mapping |
2002 | Tan Range | Property mapping. |
2003 | Tan Range | Updated geological model |
2004 | Tan Range | Trenching Kisunge hill, 14 RC holes drilled on new model on Kisunge Hill. |
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The sole activities conducted on the Luhala project during 2002 were mapping and surface sampling. No drilling programs were completed on the property in 2002. The work programs at Luhala to date have greatly enhanced the Company's understanding of the geological and structural environment on the property. Drill targets on the Kisunge hill based on an updated geological model, were drilled in 2004. 14 shallow RC holes were drilled to test the sub surface oxide potential of the area.
Geology
Luhala is found within the eastern portion of the Buhungukira Belt, a local place name assigned to one to the eight greenstone belts in the Lake Victoria District. These rocks are believed to be the eastern continuation of the Geita Greenstone Belt and consist of dominantly Upper Nyanzian rock sequences.
In the Luhala area, the predominant structural grain is dominated by an early deformational event which has deformed all supracrustal rocks into tight, south to southwest plunging, west overturned, synforms and antiforms. The short limbs of these folds may have east-west strikes and modest, 40 degree south dips. The long limbs of these folds have north to northeast strikes and generally much steeper, 60 - - 80 degree, and east dips.
At Luhala, three principal mineralized zones have been identified. These include Kisunge Hill, Shilalo South, and Shilalo West. All of the three principal mineralized areas are linked by a common southwest plunging antiform, the limbs of which are separated by 500 to 800 m's and converge just south of Line 6200 E and 3800 N. Mineralization to Kisunge Hill is associated with a chert - felsic volcanic contact. As Shilalo South, structurally controlled gold mineralization closely tracks the position of a massive to locally well-bedded chert or cherty iron formation. The results of diamond drilling in Shilalo West strongly outline the importance of the felsic volcanic - chert - - structural sites and gold association. For example, borehole LSD - 08A is collared in the hangingwall to the Shilalo West mineralized zone, traverses the host rhyolite-chert lithology, and terminates in the footwall. This borehole intersected significant gold mineralization of 3.55 g/t Au over 5 m near the hangingwall contact of the felsic volcanic rocks, and is mineralized repeatedly at over one gram ranges throughout much of the felsic host interval, which in this borehole is over 35 metres thick.
The felsic volcanic rock package at Shilalo West once again presents an excellent structural site for the development of dilatant sites and gold mineralization. As at Shilalo South, a well defined planar, brittle-ductile structural zone was not identified at Shilalo West. Gold distribution is likely related to volumes of extensional and shear extensional veinlets, which are developed within the felsic volcanic rocks at or near, the felsic volcanic "red tuff" contact.
Exploration
Exploration at Luhala has included the following material work:
1.
The development of a strong, 1:5,000 scale geological map base tied to sub-surface geological data. The
geological base has strong predictive value and may be used to guide and interpret both the results of
historical drilling and plan future programs.
2.
RC and diamond drilling conducted during 2001 on the Luhala property was successful in "ground
truthing" the interpreted structural style and conclusively demonstrating the association of multi-gram per
tonne gold mineralization at well defined structural and stratigraphic sites, particularly antiform - - synform
closures near felsic volcanic - - tuff contacts.
Mineralization
At Luhala, gold mineralization is associated with zones of diffuse silicification, localized around small cm and mm scale fractures within competent chert and felsic volcanic rock units. Major discordant vein structures are not identified and planar high strain zones are absent. The width of these intersections may be estimated as approximately true width but this may only be ascertained through the construction of a complete set
30
of geological sections which reconcile sub-surface and surface geological data. Currently these kinds of sections are available for only a few of the total required areas.
No specific gravity data have been calculated for any of the rocks cored in these intervals and without strong cross sectional control, no reliable resource estimates for any of the principal mineralized zones at Kisunge, Shilalo South and Shilalo West may be calculated.
Drilling
Drilling programs were completed on the Luhala prospecting license in 2001, consisting of nine diamond drill holes, totaling 1,865 metres with an average depth of 207 metres. The holes were planned along the three best RAB section lines (7400E, 7600E and 8000E) on Kisunge Hill, as well as some testing of a lower ranked target on the Shilalo South. Some gold mineralization was encountered, including 4.3 metres at 1.84 g/t, 8.5 metres at 1.23 g/t, and 14.4 metres at 5.72 g/t, using a 1g/t cut-off. Diamond drilling has shown that these gold zones do not continue at depth. The distribution of gold at Kisunge would appear to be flat or near flat dipping. There is insufficient drill hole coverage to tie up the numerous different rock types found at depth. Most of the drill holes stopped in fresh rock, but it is not possible to model the significa nce of these rock types at depth.
No drilling programs were conducted during 2002 or 2003 on the Luhala Property, but a further US$100,000 in RC drilling was performed during the 2004 exploration season. The Kisunge hill area was targeted where trenching in 2001 identified numerous zones of surface mineralization.
In March-April, 2004, old trenches from L7400E to L7600E as well as the trench on L8000E were cleaned to expose the floor of the trench for remapping. Four new trenches were excavated, the first along L7650E. The remaining three trenches were excavated along E-W lines to determine if N-S structures (similar to that shown at Kisunge outlier) might have a determining control on gold mineralization at Kisunge hill.
The trenches intersected the following positive results:
T7650E
12.4 g/t Au / 9m including 16.6 g/t Au / 6m
T4180N
1.27 g/t Au / 8m
T4265N
8.43 g/t Au / 2m
T4290N
2.82 g/t Au / 29m including 4.69 g/t Au / 11m
Based on these results 14 shallow RC holes were drilled on Kisunge returning the following better results:
KISUNGE WEST ZONE: | ||||||||||
Section 1: | ||||||||||
Hole No | From | Intersection | Grade | Including | From | |||||
LRC-19: | 0m | 40m | 2.40 g/t | 8m @ 4.45g/t | 30m | |||||
LRC-20: | 2m | 39m | 1.69g/t | 7m @ 3.86g/t | 28m | |||||
57m | 3m | 1.09g/t | ||||||||
65m | 5m | 1.25g/t | (end of hole). | |||||||
LRC-21: | 26m | 14m | 1.81g/t | 4m @ 2.67g/t | 33m | |||||
62m | 4m | 1.10g/t | ||||||||
LRC-22: | 46m | 12m | 0.92g/t | |||||||
Section 2: | ||||||||||
Hole No | From | Intersection | Grade | Including | From | |||||
LRC-25: | 10m | 26.5m | 1.10g/t | 6m @ 2.11g/t | 28m | |||||
NB, hole ends in gold zone. |
31
KISUNGE CENTRAL ZONE: | ||||||||||
Section 4: | ||||||||||
Hole No | From | Intersection | Grade | Including | From | |||||
LRC-26: | 3m | 8m | 4.48 g/t | |||||||
LRC-27: | 11m | 8m | 1.91g/t | 4m @ 3.04g/t | 11m | |||||
LRC-28: | 2m | 6m | 1.26g/t | |||||||
20m | 14m | 1.28g/t | 3m @ 2.09g/t | 26m | ||||||
Section 5: | ||||||||||
Hole No | From | Intersection | Grade | Including | From | |||||
LRC-23: | 1m | 12m | 1.42g/t | 4m @ 3.26g/t | 5m | |||||
23m | 2m | 1.11g/t | (end of hole) |
KISUNGE EAST ZONE:
Section 6:
Hole No | From | Intersection | Grade | Including | From | |
LRC-24: | 52m | 4m | 3.29g/t | (end of hole) | ||
LRC-29: | 44m | 5m | 0.85 |
This mineralization will be followed up with a more detailed RC program in early 2005. The above technical information for the 2004 trenching and drilling program was reviewed and verified by Mr. Peter Chadwick, M.Sc., the Company's qualified person for the Luhala Property.
THE LUHALA PROPERTY IS WITHOUT KNOWN MINERAL RESERVES AND ANY PROPOSED EXPLORATION PROGRAM IS AN EXPLORATORY SEARCH FOR ORE.
Lunguya Project Area
Property Description and Location
The Lunguya Property is located in the Kahama District of Tanzania(see property location map on page 22), and the Company's interest therein is held indirectly through Tanzam. The Lunguya Property is situated in the Lake Victoria Greenstone Belts, approximately 100 kms by air to the southwest of Mwanza and about 15 kms south of Bulyanhulu. The Lunguya Property consists of seven (7) prospecting licenses (namely, the Lunguya 1766/01 and 2828/04, Lunguya East 1887/02, Shilela North 2059/02, Shilela 2472/04, Lunguya West PL 2193/03 and PL 1990/02). These prospecting licenses are in good standing with respect to required filings and payments with the Government of Tanzania, although the Shilela prospecting license is under application for renewal.
With respect to Lunguya PL 1766/02, in January, 2003, a Shareholder's Agreement was entered into wherein a new company, Lunguya Mining Company Limited ("LMC"), was created to form a joint venture between Northern Mining Consultancy Company Limited ("NMCCL"), Tanzam and LMC. Tanzam has a 60% shareholding and NMCCL has the remaining 40% shareholding in LMC.
32
The Lunguya Property covers an area of 333 square kilometers. There are no work requirements, and property payments on each of licenses are as follows:
Prospecting License | Annual Rentals & | Minerals Covered |
Lunguya | US$1,071.30* | all excluding building |
Lunguya East | US1,696.80 | as above |
Shilela North | US$685.60 | as above |
Shilela | US$1,025.00 | as above |
Lunguya West | US$1,622.80 | as above |
PL 1990/02 | US$205.80 | as above |
* First renewal annual rental fees = US$30/sq.km.
Through prospecting and mining option agreements, the Company has options to acquire interests ranging from 60% to 75% in the seven (7) licenses. To maintain the options, the Company is required to make certain expenditures and fund all exploration costs of the properties. During the fiscal year ended August 31, 2003, the Company abandoned one of the licenses, and wrote-off $35,342 in costs deferred to such license. There are no royalties to the original license holder. At Shilela North, through a Prospecting and Mining Option Agreement signed by Tanzam dated June 25, 1999, the Company has a right to obtain a 70% working interest in this project and no royalties are required. The payment schedule is identical at Shilela. At Lunguya East, the Company can earn up to a 70% interest and no royalty is required. For PL 1990/02, through a Prosp ecting and Mining Option Agreement dated June 10, 1999, the Company can earn a right to obtain a 75% working interest in this project and no royalty is required; an initial payment of US$50,000 was made and no annual payments are required.
Internal to the Lunguya prospecting license (1766/01) is a small approximately 1.0 square kilometre primary mining license ("PML"). The PML is currently held by Mr. Joseph Magunila who is exploiting the Nyamakwenge Reefs. Negotiations for control and the validity of this license is currently under discussion with relevant private and government third parties. Portions of the currently known veins at Lunguya and some of the RC and Lunguya diamond drilling, conducted by the Company in 2002, lie within this mining license.
The Company has incurred total net costs (after any recoveries) of $2,788,862 on the Lunguya Property to August 31, 2004. The Company carried out limited exploration in 2004 undertaking region biogeochemical surveys across the entire Project Area. Results are pending.
Accessibility, Climate, Local Resources, Infrastructure and Physiography
The Lunguya Property can be reached by plane from Mwanza to an airstrip accommodating Bulyanhuylu or by road via Geita up to the Bulyanhulu/Kahama road intersection. From Kahama, the property is located approximately 8 kms to the south, toward Lunguya village. Secondary roads and trails traverse the property. The Nyamakwenge Reef, located in the northeastern part of the property, can be accessed using a 12 kms dirt tract passing to the north of the property. Climate and elevation are similar to the Luhala Property.
Very little outcrop (less than 1%) has been identified at Lunguya. The entire property is flat and covered largely by granitic sands and grey orange laterities derived from granitic sources. Like Luhala, Lunguya is
33
actively cultivated, but also is being actively mined by a few score artisenal miners along the trend of the Nyamakwenge Reefs. No significant infrastructure, power or water is available on site. However, the entire infrastructure of the region including electricity, air transport, health clinics, schools, and improved road networks, have been greatly improved due to the proximity to Barrick's Bulyanhulu mine, some 20 kms to the north.
History
Exploration in the Lunguya area has had a much briefer history than the exploration of the Luhala area. Reconnaissance overviews of this area are documented, but no significant historical exploration activities are known to the Company. The license was acquired by the Company in 2001 and a program of bulk leach extractable gold (BLEG) sampling, geological mapping, rock sampling, reverse circulation (RC) and diamond drilling was initiated.
Geology
The very limited outcrop exposures on the Lunguya concession necessitate development of a geological and interpretive environment largely based on geophysical interpretations.
Regionally, Lunguya is located near the eastern terminus of the inner volcanic arc, lower Nyanzian, of the Sukumaland Greenstone belt. The succession is dominated by tholeiitic volcanic rocks containing lesser felsic tuffaceous rocks and argillaceous horizons cut by thin quartz porphyry dykes and sills. The thick, banded iron formation and felsic flows characteristic of the outer arc Upper Nyanzian sequence are absent. Most of the map scale granite - - greenstone contacts strike north-south. No information is available with respect to the orientation of sub-surface contacts.
At Lunguya, all currently known, auriferous structural zones track at an oblique angle, the eastern granodiorite-mafic volcanic contact. Auriferous veins strike at 020° to 030° with the dominant intrusive volcanic contact trending at approximately 360°. On the property scale, two 330° trending fault structures are interpreted to offset the Lunguya vein into two fault repeated vein segments, having strike lengths of approximately 180 and 300 m. A few score artesinal miners have exploited these veins to a depth not exceeding 30 vertical m's subsurface. A second set of auriferous reefs, the Nyikoboko Reefs, are located 12 kilometres to the south. This area is associated with a smaller set of largely inactive artisanal dumps an d workings.
Based on the aeromagnetic data a new model has been proposed whereby a large NS trending shear zone is believed to exist below a thick black cotton soil (mbuga) cover. The thin veins associated with the Nyikoboko and Nyamakwengwe reefs probably represent secondary structures from the main shear. This idea has been tested using biogeochemistry and results are pending.
Exploration
Exploration at Lunguya has included the following material work:
1.
Rock geochemical surveys were successful in defining the principal mineralized trends of auriferous vein
systems at Lunguya. Reconnaissance mapping programs have established a spatial relationship of granite
greenstone contacts to the localization of auriferous quartz veins. The proximity of these contacts is clear at
both the Nyamakewnge and Nyikoboko Reefs.
2.
Diamond drilling programs on the Nyamakwenge and Nyikoboko Reefs have been successful in
demonstrating excellent geological continuity of the vein systems. Continuity of gold grades within these vein
systems is more problematic.
34
3.
In combination with geological mapping, diamond drill programs have established the strong likelihood that the
Western and Eastern Reefs at Nyamakwange represent a common, fault repeated vein system with dextral
and reverse offsets. The re-constructed length of the known segments of this vein system is approximately
475 m's. The vein ranges in thickness, cross sectional indicated, from 1.0 to 8.0 m's.
4.
Using right handed or dextral offsets, several apparently unrelated geochemical anomalies may be tied to
interpreted dextral fault offsets of the Lunguya vein system.
Mineralization
Lunguya is a mineralized brittle ductile strain zone, developing internal to a major granite-greenstone contact. Gold is associated with one fault offset vein which is likely broken into two segments, the Western and Eastern reefs. Lesser veins are also present. Initial sampling of artisenal vein waste dumps indicated the presence of well mineralized dump samples. The site contained greater than 200 of these small pits-shafts ranging from 1 to 20 metres deep.
Diamond drill and RC programs at Lunguya have demonstrated excellent geological continuity of the Nyamakwenge West and East Reefs but weaker continuity of grade. The difficulty in obtaining representative gold grades from small core samples of vein material containing coarse particulate gold is a well documented phenomenon. Significant assays obtained during the 2002 diamond drill program at Lunguya are summarized in Table 4 of the Luhala and Lunguya 2002 Report. Widths in these boreholes are approximately true widths and the boreholes have been collared roughly perpendicular to the strike and dip of the mineralized structural zones.
Drilling
Two programs of drilling where initiated on the Lunguya property during 2002. This included a seven hole RC program totaling 535 metres completed in late August 2002. A follow-up diamond drill program consisting of 1175 metres, in 18 boreholes was completed in November and December of 2002.
Core recovery measurements where made on site by geotechnician of the Company. RC boreholes (LGRC 01 - - 07) utilized the same grid system as the diamond drill program. The location of all drill collars were marked with concrete monuments. Drilling was concentrated on the Lunguya Reefs (11 boreholes) with three boreholes completed on the Nyikoboko Reefs. A series of geological cross-sections and plans (Figures 10 to Figure 18 in the Luhala and Lunguya 2002 Report), summarize the results of these programs. Both RC and diamond drill data are combined on these sections. Drill collar locations for 12 diamond holes and 7 RC holes on the Nyamakwenge Reefs are shown on Figure 9 of the Luhala and Lunguya 2002 Report. Drill logs for diamond drill holes are compiled on Appendix III and for RC holes in Appendix IV of the Luhala and Lunguya 2002 Report. Assay results for diamond drill holes are compiled in Appendix V and RC assay data in Appendix VI of the Luhala and Lunguya 2002 Report.
THE LUNGUYA PROPERTY IS WITHOUT KNOWN MINERAL RESERVES AND ANY EXPLORATION PROGRAM IS AN EXPLORATORY SEARCH FOR ORE.
Tulawaka Project Area
The Tulawaka Project is located in the Biharamulo District of Kagera Region of Tanzania and is approximately 160 kilometers west-southwest of Mwanza town. The Tulawaka Project consists of ten (10) prospecting licenses, including two (2) licenses held through Tanzam. These prospecting licenses are in good standing with respect to required filings and payments with the Government of Tanzania. The Company has incurred $1,528,023 in total costs on the Tulawaka Project to August 31, 2004.
The Tulawaka Project covers an area of approximately 391 square kilometers. The property lies on an east-west magnetic trend, between the Kakindu gold discovery (Ashanti) and the Tuluwaka gold discovery
35
(Pangea). RAB (rotary air blast) drilling on the Mnekezi property intersected mineralized chert sequences which included intersections of 5 meters @ 0.26 grams/tonne gold, 3 meters @ 0.24 grams/tonne gold and 1 meter @ 0.37 grams/tonne gold. The majority of this project has been joint ventured to MDN.
THE TULAWAKA PROPERTY IS WITHOUT KNOWN MINERAL RESERVES AND ANY EXPLORATION PROGRAM IS AN EXPLORATORY SEARCH FOR ORE.
Lake Victoria Goldfield Properties
The following discussion regarding the Lake Victoria Goldfield Properties below is summarized from a technical report prepared in accordance with the requirements of NI 43-101F dated March 21, 2002 entitled, "Project Technical Review on 52 Prospecting Licenses, Lake Victoria Goldfields Tanzania" by Stephen R. McMullan, P. Geo. of Poseidon Geophysics (Pty) Ltd. (the "52 PL Report"). The reader is referred to the complete text of the 52 PL Report, which is available atwww.sedar.com, filed on March 28, 2002 under the heading, "Technical Reports".
Property Description and Location
Tanzam, a privately held mineral investment company wholly-owned by the Company, currently holds various interests in 76 prospecting licenses in the Lake Victoria Goldfields Belts of north-western Tanzania (the "LVGB") in order to explore for economic mineral deposits.
Tanzam engaged Geodass (Pty) Limited of Johannesburg, South Africa (now Fugro Airborne Surveys (Pty) Limited) to undertake and manage an integrated mineral exploration program in the LVGB in August 1999. The exploration program was designed primarily to explore for gold mineralisation, without bias for mode of occurrence. Other commodities including base metals, diamonds and industrial minerals were also considered and suitable exploration methods were adopted for a multi-commodity approach.
As of the date hereof, Tanzam holds interests in the following 76 licenses (including previously discussed Itetemia, Luhala, Lunguya and Tulawaka Project Areas):
Book # | JV Partner | JV% | Project Area | Old PL# | New PL# | Sq Km |
1 | Wazawa Limited | 65% | Ushirombo, Kahama | 752/97 | 1846/2001 | 40.2 |
2 | Martedo Investment | 65% | Diabohika Bukombe | 1795/01 | Appl. R-299 | 24.01 |
3 | Afrigold Limited | 65% | Igando, Biharamulo | 1798/01 | Appl. R-302 | 68.39 |
4 | Tanzam | 100% | Bwanga, Kahama | 1163/98 | 1946/02 | 72.36 |
5 | Jope Buisness/ Mineral Industries | 65% | Nyambale, Geita | 1226/99 | 1951/02 | 102.9 |
6 | Tanzam | 100% | Runazi, Biharamulo | 1252/99 | 2198/03 | 34.41 |
7 | Tesemining/F-Bminerals | 51% | Runazi, Biharamulo | 750/97 | 2102/02 | 90.3 |
8 | Jope Business | 65% | Kisengo, Biharamulo | 1275/99 | 2448/04 | 78.88 |
9 | Jope Business | 65% | Nyaesero, Biharamulo | 1218/99 | 2182/03 | 82.31 |
10 | Tanzam | 100% | Kaniha, Biharamulo | 1164/98 | 1947/02 | 120.4 |
11 | Tanzam | 100% | Kaniha, Biharamulo | 1161/98 | 1945/02 | 85.72 |
12 | Tanzam | 100% | Kaniha, Biharamulo | 1162/98 | 1944/02 | 85.72 |
13 | Tanzam | 100% | Kaniha, Biharamulo | 1250/98 | 2192/03 | 132.6 |
14 | Tanzam | 100% | Ushirombo West | 1249/99 | 2197/03 | 16.0 |
15 | Tese Mining/ F-B Minerals | 51% | Kigosi | 936/98 | 2040/02 | 83.99 |
16 | Bazo Enterprises | 65% | Kigosi | 1775/01 | Appl. R-295 | 39.77 |
17 | Afrigold Limited | 65% | Kigosi | 1796/01 | Appl. R-300 | 84.0 |
18 | Martedo Investment | 65% | Kigosi | 1400/99 | 2449/04 | 34.28 |
36
Book # |
JV Partner
JV%
Project Area
Sq Km
19
Tanzam
100%
Kigosi
1251/99
2191/03
147.4
20
Abby's Mining Co
65%
Kigosi
1180/98
1854/2001
154.3
21
Madaba Minerals Ltd.
70%
Lunguya
33/92
1887/02
84.84
22
Wazawa Limited
65%
Ushirombo
1749/01
Appl. R-277
33.51
97
Wazawa Limited/Tanzam
65%
Ushirombo
Relinquished 1/2 1749/01
2832/04
33.73
23
Martedo Investment
65%
Ushirombo
1794/01
Appl. R-298
52.62
24
Charles Shumbi
70%
Kigosi
1762/01
Appl. R-283
17.28
96
Charles Shumbi/Tanzam
70%
Kigosi
Relinquished 1/2 1762/01
2833/04
17.29
25
Abby's Mining Co
65%
Mbogwe
1758/01
Appl. R-276
8.572
95
Abby's Mining/Tanzam
65%
Mbogwe
Relinquished 1/2 1758/01
2830/04
8.577
26
Tese Mining/ F-B Minerals
51%
Mbogwe
1754/01
Appl. R-275
55.72
94
Tese Minerals/F-B Minerals/Tanzam
51%
Mbogwe
Relinquished 1/2 1754/01
2829/04
55.72
27
Tese Mining/ F-B Minerals
51%
Mbogwe
1930/02
Appl. 2180
51.44
28
Northern Mining Consultancy
60%
Lunguya
1766/01
Appl. R-282
35.7
93
Northern Mining Consultancy/Tanzam
60%
Lunguya
Relinquished 1/2 1766/01
2828/04
35.71
29
Reapa Bus. Assoc. Inc.
65%
Mbogwe
1225/99
1942/02
154.3
30
Abby's Mining Co.
65%
Lunguya
639/97
2193/03
81.14
31
Abby's Mining Co.
65%
Mbogwe
RL196/99
2194/03
138.2
32
Abby's Mining Co.
65%
Mbogwe
RL195/99
2195/03
161.2
33
JSN Limited
70%
Itetemia
1300/99
2374/04
13.41
34
Dalles & Shamwada
65%
Biharamulo
1269/99
2510/04
102.9
35
Germina Lukuvi
65%
Kanegele
1815/01
Appl. 2207
37.47
36
Zahabu Investments
70%
Lunguya
1320/99
2059/02
34.28
37
Fenites Limited
70%
Lunguya
1307/99
2472/04
51.25
38
Afrigold Limited
70%
Mbogwe
1308/99
2455/04
143.4
39
Afrigold Limited
65%
Ushirombo
1797/01
Appl. R-301
52.62
40
Fenites Limited
75%
Lunguya
1291/99
1990/02
10.29
42
JSN Limited
65%
Kanegele
847/97
2056/02
23.14
43
Afrigold Limited
65%
Kanegele
1311/99
2502/04
51.41
44
Zahabu Investments
70%
Ushirombo West
1319/99
Appl. 722
63.09
45
Sigo Gems
65%
Kigosi
66/92
1853/2001
22
46
Digitel Holdings
70%
Geita
1087/98
2044/02
60.89
47
Digitel Holdings
70%
Geita
1086/98
2506/04
51.45
50
Tamo Geo-Consult
80%
Ushirombo
1401/99
1401/99
74.68
81
Tamo Geo-Consult/Tanzam
80%
Ushirombo
Relinquished 1/2 1401/99
2466/04
74.60
51
Tamo Geo-Consult
80%
Ushirombo
1402/99
1402/99
43.79
82
Tanzam
80%
Ushirombo
Relinquished 1/2 1402/99
2467/04
43.57
52
Tanzam
100%
Geita
2196/03
11.23
53
Tangulf Express Ltd.
85%
Majimoto
2070/02
50.81
54
RSR (T) Ltd.
90%
Mwadui
2513/04
8.351
55
RSR (T) Ltd.
85%
Kanegele
2514/04
59.42
37
As of the date hereof, Tancan holds interests in the following 45 prospecting licenses (including previously discussed Itetemia, Luhala and Tulawaka Project Areas):
Book # | License Holder | TancanJV% | Project Area | Old PL# | New PL# | Sq Km |
101 | Itetemia Mining Co. Ltd. | 90% | Itetemia | 1450/00 | 1450/00 | 18.57 |
84 | Itetemia Mining Co. Ltd. | 90% | Itetemia | Relinquished 1/2 1450/00 | 2523/04 | 18.57 |
102 | Tancan | Luhala | 1451/00 | 1451/00 | 27.86 | |
83 | Tancan | Luhala | Relinquished 1/2 1451/00 | 2519/04 | 27.865 | |
103 | Tancan | 100% | Itetemia | 1713/01 | App R-234 | 8.57 |
104 | Tancan | 100% | Itetemia | 268/95 | 2038/02 | 17.15 |
105 | Tancan | 100% | Itetemia | 241/94 | 2665/04 | 32.02 |
106 | Tancan | 100% | Itetemia | 1612/00 | 1612/00 | 8.36 |
85 | Tancan | 100% | Itetemia | Relinquished 1/2 1612/00 | 2578/04 | 5.82 |
107 | Tancan | 100% | Itetemia | 509/96 | 2520/04 | 25.72 |
108 | Widescope Promotion | 100% | Luhala | 1559/00 | 1559/00 | 12.0 |
88 | Widescope Promotion | 100% | Luhala | Relinquished 1/2 1559/00 | 2680/04 | 12.0 |
109 | Widescope Promotion | 100% | Luhala | 1560/00 | 1560/00 | 20.58 |
89 | Widescope Promotion | 100% | Luhala | Relinquished 1/2 1560/00 | 2681/04 | 24.0 |
110 | Tancan (Dismas Calist) | 100% | Luhala | 1303/99 | 2297/03 | 3.72 |
38
Book # | License Holder | TancanJV% | Project Area | Old PL# | New PL# | Sq Km |
111 | Tancan | 100% | Geita | 276/95 | 1856/1 | 102.9 |
112 | Kabahelele Mining Co. | 80% | Tulawaka | 1452/00 | 1452/00 | 15.95 |
90 | Kabahelele Mining Co. | 80% | Tulawaka | Relinquished 1/2 1452/00 | 2682/04 | 15.95 |
113 | Dia Consult Ltd. | 100% | Tulawaka | 427/96 | 2473/04 | 54.01 |
98 | Dia Consult Ltdf. | 100% | Tulawaka | Relinquished 1/2 427/96 | 2803/04 | 55.76 |
114 | Tancan | 100% | Itetemia | 1115/98 | 2518/04 | 17.15 |
119 | Dia Consult | 100% | Tulawaka | 2798/04 | 1757/01 | 5.219 |
120 | Eb-Hance | 90% | Kibara | 2058/02 | 34.58 | |
124 | Charles Shumbi | 90% | Kanagele | 1375/99 | 1375/99 | 5.26 |
92 | Charles Shumbi/Tancan | 90% | Kanagele | Relinquished 1/2 1375/99 | 2699/04 | 5.415 |
125 | Mega Deposit Explorers | 90% | Kigosi | PLR 2019/02 | 495.1 | |
127 | Mega Deposit Explorers | 90% | Miyabi | PLR 2020/02 | 150.8 | |
130 | Dismas Calist | 90% | Shinyanga | 2217/03 | 123.4 | |
131 | Makweba/Kusundwa | 90% | Tulawaka | 2295/03 | 39.46 | |
132 | Eb-Hance Co. | 90% | Kibara | 2308/03 | 53.35 | |
133 | Mussah Mussah | 90% | Nyanzaga North | 2279/03 | 35.79 | |
134 | Hasanet Ltd. | 90% | Manonga | 2272/03 | 54.82 | |
135 | Trust Marck Investments | 90% | Manonga | 2007/03 | 10.64 | |
136 | Mbonimpa, J&F | 90% | Manonga | 2461/04 | 116.5 | |
137 | Bey & Daniel | 90% | Manonga | 1187/01 | 37.96 | |
138 | Hasanet | 90% | Manonga | 2487/04 | 24.84 | |
139 | Dismast Calist | 90% | Igunga | 2458/04 | 152.4 | |
140 | Tancan | 100% | Manonga | 2655/04 | 75.65 | |
141 | Tancan | 100% | Nyanzaga North | 2656/04 | 143.7 | |
142 | Tancan | 100% | Manonga | 2657/04 | 120.3 | |
143 | Tancan | 100% | Manonga | 2658/04 | 100.3 | |
144 | Tancan | 100% | Manonga | 2667/04 | 7.7 | |
145 | Tancan | 100% | Igunga | 2668/04 | 30.25 | |
146 | Tancan | 100% | Manonga | 2669/04 | 91.58 | |
147 | Tancan | 100% | Igunga | PLR 2670/04 | 219.3 |
The total land area currently held under license is approximately 8200 km2.
History
Prior to Tanzam's acquisition of the original fifty-two prospecting licenses ("PL") in its current portfolio, little systematic work using modern exploration methods had been undertaken on the licenses. Tanzam acquired the licenses through negotiation with local vendors and prospectors, and by direct application to the Geological Survey (Madini), within the Mineral Resources Department of the Ministry of Water, Energy and Minerals of Tanzania.
Tanzam's interest in the prospecting licenses is variable, depending on the agreements with the individual vendors. However, it is common to all agreements with the vendors that Tanzam has exclusive rights to sell the project to a third party without restraint. Compensation to the vendors remains the responsibility of Tanzam.
39
Tanzam has granted to Barrick Exploration Africa Limited ("BEAL") an option to acquire the total rights, titles and interests held by Tanzam in the following two (2) prospecting licenses:
PL 2374/03
PL 2455/04
If such option is exercised, Tanzam is entitled to (i) certain payments after the Commercial Production Date (as defined) with respect to the first mine constructed by BEAL on any property covered by the licenses; and (ii) a 1.5% net smelter return (which may, in certain circumstances, be reduced). Refer to Item 4A for further information on the option granted to BEAL.
The Company has incurred total net costs of $1,541,833 on the Lake Victoria Goldfields Properties to August 31, 2004.
Mineralisation
Lake Victoria Goldfields Belts
The Lake Victoria Goldfields have produced the greatest proportion of Tanzania's mineral wealth and are still the most fertile and prospective for gold exploration. Ninety percent of Tanzania's gold production to 1991 had come from the district and new production is likely. Significant gold resources have been discovered in the Lake Victoria Goldfields in the last decade by other third parties.
Artisanal Gold Mining
Official estimates indicate that artisanal gold mining in Tanzania produces 8 to 15 tonnes of gold per annum. Black market dealers have previously purchased most of this production, but Meremeta (a state-owned gold company) has set up regional buying centres to capture most of this production. The net benefit is both to the State in gaining foreign currency, and to the artisanal miners who can sell gold at set prices based on world commodity markets.
Historically, artisanal miners have only operated on a cash basis, i.e. where the gold grade was less than approximately 40g/t, the artisanals could not profitably mine the ore. Artisanals actively explored the Lake Victoria Goldfields, and have discovered several significant deposits that are currently being developed commercially by other mining companies.
Geology
Tanzania is underlain by the Tanzanian Craton, a crustal block of predominately Archaean (>2,500 Ma) rocks surrounded and overlain by younger sediments and mobile belts. It is one of the core blocks of Africa, and is essentially a continuation of the Congo Craton.
The Lake Victoria Goldfields consist of a granite greenstone terrain that extends northwards into SW Kenya. The internal stratigraphy of the greenstone belts is reasonably well constrained. It consists of a lower, essentially mafic, volcanic unit in which ultramafic rocks are rare, overlain by chemical and classic sediments and then felsic volcanics. This assemblage is called the Nyanzian Group. The Nyanzian Group is unconformably overlain by a classic sedimentary sequence, also Archean, known as the Kavirondian Group. These sediments contain clasts of all Nyanzian lithogies, some of which appear to have been deformed before erosion. In addition they contain debris of some granitoids. However, the main period of granitoid emplacement post-dates the Kavirondian. Although there was early tectonism, the main pervasive deformation p ost-dates the bulk of the granites, imparting a foliation to all these lithogies. Some Archaean granitoids of the Belt appear to pot-date this foliation. Further discussion on the regional and local geology is set out above, under the section on "Geology" for the Itetemia Property.
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Exploration
The exploration program on behalf of Tanzam comprised the following elements:
41
Prospecting License Ranking Criteria
The prospecting licenses in the Tanzam portfolio in Phase I have been ranked according to the following criteria for potential to host gold mineralisation:
(a)
Regional structural controls for mineralisation (including relative ages) interpreted from airborne geophysics and satellite imagery should be present.
(b)
The presence of artisanal mining on a prospecting license, especially if it is currently active.
(c)
Underlying "prospective" lithologies (eg. banded iron formation that had been sheared is a known host for gold).
42
(d)
Indications from assay data that gold or a marker element present in anomalously high concentrations. This criterion will take into consideration possible near-surface leaching, nature of the sample (regolith, grab rock specimen, etc).
(e)
Indication of hydrothermal alteration associated with mineralisation.
(f)
Proximity to known gold occurrences.
From the Phase I program, nine prospecting licenses have been ranked high potential for gold mineralization, and an additional eight have been categorized as moderate-high potential for gold mineralization. Within the high ranking prospecting licenses, twenty-nine targets over a 715.36km2 area warrant detailed follow-up.
Prospecting Licenses Ranked "High" | Prospecting Licenses Ranked "Moderate-High" |
1846/01(2) | 1762/01(3) |
1798/01 | 1942/02 |
2182/03(2) | 2195/03 |
1854/01(3) | 2194/03 |
1749/01 | 2510/04(2) |
1766/01 / 2828/04 | 2059/02 |
2374/03(1) | 2472/04 |
2455/04(1) | 1853/01(3) |
1401/99 / 2466/04 |
(1)
Prospecting licenses over which BEAL has an option.
(2)
Prospecting licenses over which MDN has an option.
(3)
Prospecting licenses over which Ashanti has an option.
Conclusions from Phase I
The LVGB is generally under explored using modern exploration methodology. The Tanzam exploration program tested the effectiveness of several exploration techniques and has assembled a considerable database of literature, digital data and exploration methodologies Greenstone rocks that are favorable hosts to gold mineralisation are more widespread than previously mapped. Thick soil development obscures virtually all bedrock exposures, and geophysics is the only effective geological mapping tool. Areas that were mapped previously as granite based on soils and float are seen to be underlain by greenstone rocks which are favorable for gold mineralization. Artisanal miners in PL 1854/01 have led to the discovery of an unknown mineralized occurrence previously mapped as granitic terrain with low potential for gold mineralization.
THE LAKE VICTORIA GOLDFIELDS PROPERTY IS WITHOUT KNOWN MINERAL RESERVES AND ANY EXPLORATION PROGRAM IS AN EXPLORATORY SEARCH FOR ORE.
Biogeochemistry
A key component in this optimization process is the deployment of biogeochemistry techniques in our field programs.
43
One of the major problems confronting mineral explorers in the LVGB - and for that matter in most other greenstone belts in the world - is the presence of deep overburden which frequently masks the existence of favorable host rocks for gold, diamonds and other mineral commodities.
Over the past year, the Company has expended considerable effort to identify an exploration tool that would help our in-house geoscientists identify mineral potential beneath heavy cover. After carefully reviewing a variety of options, management concluded that biogeochemistry was a cost-effective methodology for the preliminary evaluation of its mineral properties.
Protocols have been developed relating to the selection and analysis of sample materials and specially trained crews have been put into the field to gather samples for analysis. In addition, a biogeochemistry laboratory has been established in Mwanza for the preparation of sample materials which are then sent to independent laboratories.
At the present time, the Company is examining the possibility of protecting its internally developed biogeochemical methodology via international laws governing intellectual property.
Item 5.
Operating and Financial Review and Prospects
This discussion and analysis of the operating results and the financial position of the Company for the years ended August 31, 2004, 2003 and 2002, and should be read in conjunction with the consolidated financial statements and the related notes attached hereto.
Critical Accounting Policies
The Company is in the process of exploring its mineral properties and has not yet determined whether these properties contain mineral deposits that are economically recoverable. The continued operations of the Company and the recoverability of the amounts shown for mineral properties and related deferred costs are dependent upon the existence of economically recoverable reserves, securing and maintaining title and beneficial interest in the properties, obtaining necessary financing to explore and develop the properties, and upon future profitable production or proceeds from disposition of the mineral properties.
In accordance with Canadian generally accepted accounting principles, acquisition costs and exploration and development costs relating to mineral properties are deferred until the properties are brought into production, at which time they are amortized on a unit-of-production basis, or until the properties are abandoned or sold or management determines that the mineral property is not economically viable, at which time the deferred costs are written off. Option payments on mineral properties are exercisable at the discretion of the Company and, accordingly, are only recognized as paid.
Amounts recovered from third parties to earn an interest in the Company's mineral properties are applied as a reduction of the deferred exploration costs. The amounts shown as deferred expenditures and property acquisition costs represent net costs to date, less amounts amortized and/or written off, and do not necessarily represent present or future values.
Overhead costs directly related to exploration are allocated to the mineral properties explored during the year and are deferred and amortized using the same method applied to property-specific exploration costs. All other overhead and administration costs are expensed in the year they are incurred.
For the purposes of United States generally accepted accounting principles ("US GAAP"), the Company expenses all exploration expenditures made prior to commercially mineable deposits being identified. Property acquisition costs are capitalized as incurred and are subject to impairment analysis on occurrence of a triggering event. During the year ended August 31, 2004, the Company determined that it had previously incorrectly applied its accounting policy for US GAAP purposes and had included property acquisition costs in the amounts to be expenses under US GAAP. Such acquisition costs are now capitalized and will be amortized on a unit of
44
production basis once production commences. The correction of the error in the application of the Company's US GAAP accounting policy has been applied retroactively. See Note 11(a) of the Consolidated Financial Statements of the Company.
The Consolidated Financial Statements utilize estimates and assumptions principally regarding mineral properties and going concern that reflect management's expectations at the date of preparation. Events or circumstances in the future, many of which are beyond the control of the Company, may impact these expectations and accordingly could lead to different assumptions and estimates from those utilized. Factors that could impact the estimates and assumptions that were made at the date of preparation of the Consolidated Financial Statements have been previously discussed under the heading "Risk Factors".
A.
Operating Results
The following discussion and analysis of the financial condition and operating results of the Company for the three years ended August 31, 2004, 2003 and 2002 should be read in conjunction with the Consolidated Financial Statements and related notes to the financial statements which have been prepared in accordance with Canadian GAAP. The discussion and analysis set for the below covers the results measured under Canadian GAAP. Material differences between the application of Canadian GAAP and U.S. GAAP to the Company's audited financial statements exist as described in Note 11 to the Consolidated Financial Statements.
Fiscal year ended August 31, 2004 compared to fiscal year ended August 31, 2003
The Company incurred a net loss of $1,616,364 for the year ended August 31, 2004 or $0.02 per share, compared to a net loss of $3,014,778 for the year ended August 31, 2003. The decrease in net loss in the period-to-period comparison is $1,398,414, which is due primarily to the write-off of mineral properties and deferred exploration costs in 2003 of $1,031,436, compared to nil for 2004. Property investigation costs were also $125,095 lower in 2004, as the Company focused on exploring its current properties. Professional fees were $108,389 lower in 2004; consulting fees were $30,369 lower in 2004; and office rent was $39,014 lower in 2004. The lower consulting and management fees in 2004 were due to reductions in consulting and management staff, and the lower professional fees were due to the settlement of an outstanding lawsuit. The lower office rent is due to a reduction in leased space, and is part of a general reduction in office overhead expenses.
Fiscal year ended August 31, 2003 as compared to fiscal year ended August 31, 2002
The Company incurred a net loss for year ended August 31, 2003 of $3,014,778 or $0.04 per share, compared to a net loss of $1,343,958 or $0.02 per share in 2002. The increase in net loss in the year-to-year comparison is $1,670,820. The increase in net loss prior to future income tax recovery is $2,110,820. Throughout the fiscal year ending August 31, 2003, exploration staff performed exploration over the territory acquired from Tanzam and on new properties acquired for the Company's account during the year. At the end of the fiscal year, a total of ten licenses were relinquished. The write-offs associated with these licenses of $1,031,436 comprise the largest expense category for the 2003 fiscal year, while the write-off in the 2002 fiscal year was only $59,014. A license within the Itetemia Property area accounted for the largest portion ($7 29,309) of this write-off. In addition, the expense to investigate new properties for the Company's portfolio increased by $175,134 from the prior year's amount of $204,952, to a total of $380,086. Administration expenses amounted to $1,978,041 in 2003 compared to $1,144,038 in 2002. The increase is primarily due to an increase in consulting and management fees, office rentals, professional fees and salaries and benefits, as a result of an increase in activities in all these areas.
Consulting and management fees increased to $170,468 in 2003, compared to $98,899 in 2002 mainly due to the increase in the Company's focus and exploration efforts in Tanzania. Office and administration costs decreased to $110,123 in 2003, from $116,264 in 2002, and office rentals increased to $142,148 in 2003, from $88,467 in 2002, the increase in office rentals relating to the Company's offices in Tanzania as a result of the
45
Tanzam acquisition. Professional fees increased to $309,556 in 2003, from $90,202 in 2002 mainly due to the increase in property acquisition, exploration, and financing activities of the Company, increase in auditing costs associated with the acquisition of Tanzam, and legal fees associated with an outstanding law suit. Promotions and shareholder relations expense increased to $92,876 in 2003, from $83,790 in 2002. Salaries and benefits costs increased to $637,327 in 2003, from $351,975 in 2002, mainly due to increased staffing levels.
Travel and accommodation costs increased to $78,906 in 2003, from $53,875 in 2002 mainly due to increased travel as a result of more activity in Tanzania. Foreign exchange loss increased to $104,989 in 2003, from $13,509 in 2002 mainly due to a weaker Tanzanian schilling versus the Canadian dollar.
Inflation
Historically, inflation has not affected the Company's business in the current locations where it is doing business and the Company does not expect it to affect the Company's operations in the future.
B.
Liquidity and Capital Resources
The Company had $1,067,448 in cash at August 31, 2004, as well as $415,201 in short term investments, compared to $1,550,072 in cash and $926,192 in short term investments as at August 31, 2003. The Company had working capital of $1,918,901 at August 31, 2004, compared to $2,092,912 at August 31, 2003. Although the Company believes it has enough resources through working capital and share subscription agreements to finance operations for its 2005 fiscal year, ultimately the Company will need to obtain additional financing to sustain operations at the present rate of activity. Historically, the Company has raised funds through equity financing, entering into joint venture or royalty agreements with other mining companies, and the exercise of options and warrants to fund its operations. The Company's funding requirements by major expenditure category, liste d in order of priority are:
(a)
exploration work,
(b)
new property investigations, and
(c)
general and administrative costs.
Exploration work and new property investigations can generally be deferred until adequate capital resources are available, and general and administrative costs can be reduced during periods when funding is not available.
At this time, the Company has no operating revenues, and does not anticipate any operating revenues unless the Company is able to find, acquire, place in production and operate a profitable mining property.
The Company has completed the following twenty-two (22) tranches of a twenty-four (24) tranche private placement pursuant to a Subscription Agreement dated March 5, 2003 made between the Company and James E. Sinclair, Chairman and Chief Executive Officer of the Company:
(a)
March 19, 2003 - 58,480 common shares at a price of $1.71 per share;
(b)
April 11, 2003 - 73,368 common shares at a price of $1.363 per share;
(c)
May 15, 2003 - 101,875 common shares at a price of $1.227 per share;
(d)
June 26, 2003 - 77,930 common shares at a price of $1.604 per share;
(e)
July 30, 2003 - 88,968 common shares at a price of $1.405 per share;
(f)
August 27, 2003 - 73,443 common shares at a price of $1.702 per share;
(g)
September 26, 2003 - 65,445 common shares at a price of $1.91 per share;
(h)
October 21, 2003 - 68,757 common shares at a price of $1.818 per share;
(i)
November 21, 2003 - 76,876 common shares at a price of $1.626 per share;
(j)
December 12, 2003 - 66,525 common shares at a price of $1.879 per share;
(k)
January 13, 2004 - - 77,785 common shares at a price of $1.607 per share;
46
(l)
February 24, 2004 - - 82,508 common shares at a price of $1.515 per share;
(m)
March 26, 2004 - - 83,001 common shares at a price of $1.506 per share;
(n)
April 29, 2004 - - 82,946 common shares at a price of $1.507 per share;
(o)
May 20, 2004 - - 98,580 common shares at a price of $1.268 per share;
(p)
July 2, 2004 - - 110,035 common shares at a price of $1.136 per share;
(q)
August 16, 2004 - - 107,759 common shares at a price of $1.16 per share;
(r)
September 27, 2004 - - 109,361 common shares at a price of $1.143 per share;
(s)
October 18, 2004 - - 108,696 common shares at a price of $1.15 per share;
(t)
November 10, 2004 - - 101,461 common shares at a price of $1.232 per share;
(u)
November 22, 2004 - - 95,493 common shares at a price of $1.309 per share; and
(v)
December 8, 2004 - - 97,050 common shares at a price of $1.288 per share.
The Company also completed a $1,000,000 private placement pursuant to a separate Subscription Agreement dated January 5, 2004 between the Company and James E. Sinclair for 622,278 common shares at a price of $1.607 per share.
On January 13, 2005, the Company entered into private placement subscription agreement with the Company's Chairman and C.E.O. for the purchase of an aggregate of $3,000,000 worth of common shares of the Company in eight separate quarterly tranches of $375,000 each. The initial quarterly period is to commence February 1, 2005.
Mineral Property Projects:
As at August 31, 2004, amounts capitalized in respect of mineral properties were $19,853,296, an increased from August 31, 2003 when the balance was $18,672,446 and August 31, 2002 when the balance was $18,552,555.
During the fiscal year ended August 31, 2003, the Company capitalized under Canadian GAAP $1,151,327 (net of option payments received of $184,965) for property acquisition and exploration work, of which $450,912 was incurred on the Lunguya Property. The Company also wrote-off $1,031,436 in exploration expenditures, of which $729,309 related to claims relinquished in the Itetemia Property area.
During the fiscal year ended August 31, 2002, the Company capitalized mineral property acquisition costs of $8,297,805. Of this amount, $8,166,292 related to the acquisition of Tanzam. The Company also completed $1,238,635 in exploration work on its mineral resource properties, including $443,603 on the Itetemia Property and $491,724 on the Luhala Property. On Itetemia, the exploration work was primarily trenching and drilling and on Luhala, it related primarily to geophysical and geochemcial analysis.
During the fiscal year ended August 31, 2004, the Company capitalized mineral property exploration costs of $1,180,850 (net of option payments received of $331,934) on its mineral resource properties.
For information on the Company's commitments for property and rental payments, refer to Item 4.
C.
Research and Development, Patents and License, etc.
Not Applicable.
D.
Trend Information
No known trend.
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E.
Off Balance Sheet Arrangements
The Company has no material off balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition.
F.
Tabular Disclosure of Contractual Obligations
The following table sets out the Company's known contractual obligations as of the latest fiscal year end:
Contractual Obligations | Payments Due by Period | ||||
Total | Less than | 1-3 years | 3-5 years | More than | |
Mwanza Office Lease(1) | US$12,000 | US$1,000/mo | Nil | Nil | Nil |
Dar es Salaam Office Lease(2) | US$5,760 | US$480/mo | Nil | Nil | Nil |
Vancouver Office Lease(3) | CDN$20,400 | CDN$1,700/mo | Nil | Nil | Nil |
Field Staff House Lease(4) | US$4,800 | US$400/mo | Nil | Nil | Nil |
(1)
Renewable annually in October, 2005.
(2)
Renewable annually in January, 2005.
(3)
Expires on May 31, 2005.
(4)
Renewable annually in July, 2005.
Item 6.
Directors, Senior Management and Employees
A.
Directors and Senior Management
The following is a list of the Company's current directors and officers. The directors named below were all re-elected by the Company's shareholders on February 16, 2004, except for Dr. Betts, who was appointed to the Board on January 4, 2005:
Name, Municipality of Residence and Position With the Company | Principal occupation or employment and, if not a previously elected director, occupation during the past | Served as a Director Continuously Since |
James E. Sinclair Chairman, Chief Executive Officer and Director | Chairman and CEO of the Company; Chairman and CEO of Tanzania American International Development Corporation 2000 Limited | April 30, 2002 |
Victoria Luis Chief Financial Officer, Secretary and Director | CFO and Secretary of the Company; CFO, Tanzania American International Development Corporation 2000 Limited; Process Improvement Manager, General Electric Capital | April 30, 2002 |
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Name, Municipality of Residence and Position With the Company | Principal occupation or employment and, if not a previously elected director, occupation during the past | Served as a Director Continuously Since |
Jonathan G. Deane President | Exploration Manager of the Company from 1996; Vice-President, Exploration of the Company from February, 2004 to September 2004; President from September 2004 to present | Not a director |
Marek J. Kreczmer Director | President of the Company from 1991 to December, 2003; Chairman of the Technical Committee since October, 2003 | July 24, 1991 |
Ulrich E. Rath Director | Chief Executive Officer, Compania Minera Milpo (Peru) from May, 1999 to April, 2002; Chief Executive Officer, EAGC Ventures Ltd. from May, 2002 to April, 2003; Director, Chariot Resources Ltd. from December, 2002 to present | October 7, 2003 |
Anton Esterhuizen Director | Managing Director, Pangea Exploration (Pty) | January, 2001 |
William Harvey Director | Psychologist | April 30, 2002 |
Rosalind Morrow Director | Lawyer; Partner, Borden Ladner Gervais LLP | October 20, 2003 |
Dr. Norman Betts Director | President and CEO Oak Ledge Management Inc.; Associate Professor, Faculty of Administration, University of New Brunswick | January 4, 2005 |
Directors and Senior Management
James E. Sinclair
Chairman, Chief Executive Officer and Director
Mr. Sinclair became Chairman and CEO of the Company following the Company's acquisition in April, 2002 of Tanzam, a Tanzanian gold exploration company formerly controlled by the Sinclair family. Mr. Sinclair, aged 63, devotes his full time to the business and affairs of the Company.
49
Mr. Sinclair is primarily a precious metals specialist and a commodities and foreign currency trader. His past experience includes that of founder of the Sinclair Group of Companies (1977), which offered full brokerage services in stocks, bonds, and other investment vehicles. The companies, which operated branches in New York, Kansas City, Toronto, Chicago, London and Geneva, were sold in 1983. Mr. Sinclair served as a Precious Metal Advisor to Hunt Oil and the Hunt family from 1981 to 1984 for the liquidation of their silver position. Mr. Sinclair was a general partner and member of the executive committee of two New York Stock Exchange firms and also President of Sinclair Global Clearing Corporation (Commodity clearing firm) and Global Arbitrage (derivative dealer in metals and currencies). Mr. Sinclair was President of James Sinclair Financial Research SARL in Luxembourg. Mr. Sinclair held the position of Chairman of Sutton Resources from 1989 to 1995.
Mr. Sinclair is the author of numerous magazine articles and three books, which deal with a variety of investment subjects, including precious metals, trading strategies and geopolitical events and their relationship to world economics and the markets.
Victoria Luis, M.B.A., CSCPA and AICPA Member
Chief Financial Officer, Secretary and Director
Prior to her association with the Company, she was a board member of Tanzam in addition to being its Chief Financial Officer, a position she also held with an associated company, Sinclair Financial.
Before joining Tanzam, Mrs. Luis held various management positions with General Electric Capital Corporation where she was part of a team that facilitated the amalgamation of companies acquired by GE.
She earned her Masters of Business Administration with a specialization in Accounting in 1998 and her Bachelors of Science in Finance in 1990. Ms. Luis, aged 35, devotes her full time to the business and affairs of the Company.
Jonathan G. Deane, M.Sc. (Geol.), B.Sc. (Honors)
President
Prior to his association with the Company, he held various positions with Gold Fields Namibia, including Senior Exploration Geologist, from 1988 to 1994 and Senior Mine Geologist with Otjihase Copper Mine, Central Namibia from April, 1994 to July, 1996.
Mr. Deane, aged 43, devotes his full time to the business and affairs of the Company.
Marek J. Kreczmer, M.Sc. (Geol.), B.Sc. (Geol.)
Director
Mr. Kreczmer was the President of the Company since its inception in 1991until December 31, 2003. He established the Company's operating subsidiary in Tanzania, Tancan Mining Company Limited ("Tancan"). Mr. Kreczmer has initiated, formed and operated several exploration joint ventures with senior gold companies. He is responsible for representing the Company's interests in various management and technical committees required to operate these joint ventures, and is currently the Chairman of the Technical Committee of the Company. Jonathan Deane, President of the Company, has assumed Mr. Kreczmer's former responsibilities for the day-to-day management and administration of the Company's exploration programs, and local negotiations for new property acquisitions. Mr. James Sinclair, Chairman and Chief Executive Officer, has assumed Mr.&nb sp;Kreczmer's former responsibilities for strategic planning and negotiations for major acquisitions.
Mr. Kreczmer has an extensive background in the mineral exploration business. He was a project geologist for two leading Canadian explorers, Cameco and Granges Exploration. The exploration focus for these companies included base metals, uranium and gold. His responsibilities included all aspects of administering the
50
exploration budget, on-site field management, and the set-up and establishment of an exploration team to deal with specific project objectives. Mr. Kreczmer, aged 53, devotes approximately 10% of his time to the business and affairs of the Company.
Ulrich E. Rath
Director
Mr. Rath has a wide range of experience in the mining industry, and has specific experience in South Africa and Peru. Currently a director of Chariot Resources Ltd. since December 2002, he was formerly the CEO and a director of EAGC Ventures Inc. from May 2002 to April 2003, and the CEO and director of Compania Minera Milpo from May 1999 to April 2002. Mr. Rath was also formerly Vice-President, Corporate Development, for Rio Algom Ltd. from December 1992 to October 1998. Rio Algom Ltd. was a U.S. reporting issuer, whose common shares were listed on the American Stock Exchange. Mr. Rath, aged 57, devotes approximately 10% of his time to the business and affairs of the Company.
Anton Esterhuizen
Director
Mr. Esterhuizen is based in Johannesburg, South Africa is currently the Managing Director of Pangea Exploration (Pty) Ltd., a South African company with exploration interests in Africa and South America and not related to Pangea Goldfields Inc. Mr. Esterhuizen developed the exploration model which led to the discovery of the Tulawaka gold deposit. He successfully managed Pangea Goldfields' gold and mineral sands exploration in East Africa until July, 2000 when that company was sold to Barrick. Mr. Esterhuizen, aged 53, devotes approximately 15% of his time to the business and affairs of the Company.
Dr. William Harvey, B.A., Ph.D.
Director
Dr. Harvey is presently a consultant and technical expert to a variety of research centres and state and federal programs in the United States. He is a consultant to: National Drug Information Centre for Families in Action; American Institute of Research; Office of Juvenile Justice & Delinquency Prevention; National Institute on Drug Abuse; and National Institute on Alcoholism and Alcohol Abuse. He is involved in the formulation of new programs and policies aimed at the betterment of society. The Sinclair family has already made a significant donation to a private trust, The Tanzanian Relief Fund, which in turn has funded the hospital at Bulyanhulu. Dr. Harvey will expand the role which the Company has at the local level to ensure that stakeholder interests are addressed. Dr. Harvey, aged 71, devotes approximately 10% of his time to the bus iness and affairs of the Company.
Rosalind Morrow,B.A., B.Ed., LL.B.
Director
Ms. Morrow's practice includes a special emphasis on financings and acquisitions for the financial services and communications industry sectors, project and government financings, and corporate governance. She advises issuers, underwriters, and investors in connection with debt and equity offerings and investments, including domestic and trans-border public offerings and private placements, capital restructurings and corporate and securities law compliance. Ms. Morrow, aged 50, devotes approximately 10% of her time to the business and affairs of the Company.
Dr. Norman Betts, Ph.D.
Director
Dr. Betts Dr. Betts is an Associate Professor, Faculty of Administration, University of New Brunswick (UNB) Canada and is a Fellow of the New Brunswick Institute of Chartered Accountants (FCA). He also serves
51
as a director and chair of the Audit Committee of Minacs Worldwide Inc. and Slam Exploration Ltd. in addition to being a director and member of the Audit Committee of New Brunswick Power Corporation.
Dr. Betts is a co-chair of the Board of Trustees of the UNB Pension Plan for Academic Employees and is a director of the Nature Conservancy for the Atlantic region. A former Finance Minister and Minister of Business with the Province of New Brunswick, Dr. Betts was awarded a PhD in Management from the School of Business at Queen's University in Kingston, Ontario in 1992.
Penalties or Sanctions
No directors or officers of the Company, or a shareholder holding a sufficient number of securities of the Company to affect materially the control of the Company has:
(a)
been subject to any penalties or sanctions imposed by a court relating to Canadian securities legislation or by a Canadian securities regulatory authority or has entered into a settlement agreement with a Canadian securities regulatory authority; or
(b)
been subject to an other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision;
except for Mr. James E. Sinclair who entered into a settlement agreement dated July 22, 1998 with the British Columbia Securities Commission and paid a fine of $2,000 in connection with the issuance of a news release and proxy circular prepared in connection with a proxy contest for Sutton Resources Ltd. ("Sutton"), a reporting issuer of which Mr. Sinclair was a director, which contained a statement which was not accurate, since the statement was not properly qualified to distinguish between the acquisition cost and current market cost of the Sutton shares in question.
Personal Bankruptcies
No director or officer of the Company, or a shareholder holding a sufficient number of securities of the Company to affect materially the control of the Company, or a personal holding company of any such persons has, with the 10 years before the date of this Annual Report, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets of the director or officer; except for Victoria Luis who was discharged from personal bankruptcy on September 18, 1995.
Conflicts of Interest
There is no existing material conflict or interest between the Company or its subsidiaries and a director or officer of the Company or its subsidiaries. However, certain directors and officers of the Company are and may continue to be involved in the mining and mineral exploration industry through their direct and indirect participation in corporations, partnerships or joint ventures which are potential competitors. Situations may arise in connection with potential acquisitions and investments where the other interests of these directors and officers may conflict with the interests of the Company. As required by law, each of the directors of the Company is required to act honestly, in good faith and in the best interests of the Company. Any conflicts which arise shall be disclosed by the directors and officers in accordance with the Business Corporation Act (Alberta) and they will govern themselves in respect thereof to the best of their ability with the obligations imposed on them by law.
B.
Compensation
The Company has three (3) executive officers, namely James E. Sinclair, Chief Executive Officer of the Company, Victoria Luis, Chief Financial Officer of the Company, and Jonathan G. Deane, President.
52
The following table sets forth particulars concerning the compensation since their appointments of the executive officers, as defined in Form 51-102F6 prescribed by the "Regulations" under the Securities Act of the Province of Alberta, for the Company's last three fiscal years ended August 31, 2004:
Name and Principal Position
| Fiscal Year | Annual Compensation | Long Term Compensation |
All Other Compen- | ||||
Salary | Bonus |
Other Annual Compen- | Awards | Shares or Units Subject to Resale Restrictions | Payouts | |||
Securities under Options Granted (#) (f) | LTIP Payouts (h) | |||||||
James E. Sinclair, Chief Executive Officer | 2004 2003 2002 | $119,100 $105,968 $46,406 | Nil Nil Nil | $10,000 Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil |
Victoria Luis, | 2004 | $66,430 | $4,792 | $10,000 | Nil | Nil | Nil | Nil |
Marek J. Kreczmer, | 2004 | Nil | Nil | $12,500 | Nil | Nil | $10,000 | Nil |
Jonathan G. Deane, | 2004 | $113,974 | $5,574 | $4,020 | Nil | Nil | $5,583 | Nil |
(1) Mr. Kreczmer resigned as President effective December 31, 2003.
(2) Mr. Deane was appointed President effective September 20, 2004.
The Company has not set aside or accrued any funds for pension, retirement or similar benefits.
Long Term Incentive Plan Awards to Named Executive Officers
The Company has made no long-term incentive plan awards during the fiscal year ended August 31, 2004, to any executive officers of the Company, and none are proposed.
Options and SAR's Exercised by Named Executive Officers
The following options were exercised during the fiscal year ended August 31, 2004 by the named executive officers:
Name | Securities | Aggregate | Unexercised | Value of |
James E. Sinclair, | Nil | N/A | Nil | N/A |
Victoria Luis, | Nil | N/A | 75,000 | $28,500 |
Marek J. Kreczmer, | 380,000 | $565,000 | 250,000 | $95,000 |
Jonathan Deane, | N/A | N/A | N/A | N/A |
53
C.
Board Practices
The directors of the Company serve a one year term and are elected at the Annual General Meeting of shareholders. At the last Annual General Meeting, held on February 16, 2004, the shareholders elected James E. Sinclair, Marek J. Kreczmer, Victoria Luis, Anton Esterhuizen, William Harvey, Rosalind Morrow and Ulrich E. Rath as directors. The officers of the Company are elected by the Board serve at the pleasure of the Board.
The Company has an audit committee consisting of Ulrich E. Rath, Rosalind Morrow, William Harvey and Dr. Norman Betts. The roles and responsibilities of the audit committee have been specifically defined as described in the Company's Information Circular dated January 5, 2005, and include responsibilities for overseeing management reporting on internal control. The audit committee has direct communication channels with the external auditors.
The Company also has a compensation committee comprised of Ulrich E. Rath, Rosalind Morrow, William Harvey and Dr. Norman Betts. The Compensation Committee periodically reviews the compensation paid to directors, management, and employees based on such factors as time commitment, comparative fees paid by other companies in the industry in North America and Africa, level of responsibility and the Company's current position as an exploration company with limited operating revenue.
The Company has formed a Technical Committee comprised of Marek J. Kreczmer (Chairman), Ulrich E. Rath, Anton Esterhuizen, and Jonathan G. Deane. The Committee sets the definitive exploration policy for the Company and reports directly to the Board of Directors.
Directors' Fees and Stock Option Plan
The Board of Directors has recently implemented an arrangement to compensate directors for their services to the Company by the payment of $10,000 per annum, and $2,500 per committee served by each director.
In addition to these arrangements, directors are also compensated by the Company for their services in their capacity as directors under a Stock Option Plan (the "Plan"). The Plan is administered by the Company's Board of Directors and options are granted at their discretion. The number of shares reserved and available for issue under the Plan shall not exceed 8,144,132 or such greater number of shares as may be determined by the Board and approval, if required, by the shareholders of the Company and by any relevant stock exchange or other regulatory authority. Options must expire no later than five years from the date such options are granted. As of April 3, 2003, the Board resolved that the Company will not to grant any further options under the Plan, subject to further resolutions of the Board. There has been no other arrangement pursuant to which directors were compensated by the Company in their capacity as directors; however, directors' fees of $88,470 were paid to directors during the fiscal year ended August 31, 2004, prior to implementing the compensation package described above.
54
Employee Share Ownership Plan
By an agreement dated May 1, 2003, the Company appointed Olympia Trust Company of Calgary, Alberta, as trustee (the "Trustee") to manage and administer an employee share ownership plan ("ESOP"). Under the ESOP, eligible employees, directors, and consultants can elect to contribute up to 30% of their salary or compensation on a monthly basis for investment by the Trustee in shares of the Company. The Company will contribute funds equal to 100% of the employee's contribution up to an amount equal to 5% or less of the employee's salary. The Company will contribute funds equal to 50% of the employee's contribution for the next 6% to 30% inclusive of the employee's salary. All share purchases will be at market prices at the time of purchase, through the facilities of the Toronto Stock Exchange using registered representatives. To date, eight employees have purchased a total of 5,500 common shares under the ESOP. Monthly employee contributions are $3,905, and the Company's matching contribution currently is $3,804 per month.
Employment Agreements
There are currently no service or employment contracts with directors or officers of the Company, except for the employment contract dated June 8, 2004 with Jonathan Deane, President of the Company, which provides for a remuneration of US$375 per day, on an after tax basis, and payable monthly, plus employee benefits including accommodation and board in Mwanza at the Company's staff house.
D.
Employees
The Company has two (2) full time employees located in Vancouver, British Columbia, Canada, 30 full time employees located in Mwanza, Tanzania, and two (2) full time employees located in Dar es Salaam, Tanzania.
The Company also contracts three or more persons on a full time or part time basis as dictated by the exploration activities on its properties. The full time and temporary employees of the Company as at the most recent fiscal year end can be grouped according to main category of activity and geographic location as follows:
Location | Category | Full Time Employees | Temporary Employees | Full Time Consultants | Part Time Consultants |
Vancouver, Canada | Administration | 1 | Nil | Nil | 1 |
Exploration | 1 | Nil | Nil | Nil | |
Mwanza, Tanzania | Administration | 5 | Nil | Nil | Nil |
Exploration | 25 | Nil | 2 | 1 | |
Dar es Salaam, | Administration | 2 | Nil | 1 | Nil |
Exploration | Nil | Nil | Nil | Nil | |
Connecticut, USA | Administration | Nil | Nil | 2 | 1 |
Exploration | Nil | Nil | Nil | Nil |
E.
Share Ownership
The following table sets forth the share ownership of the directors and officers of the Company as of December 31, 2004:
Name of Owner | Number of Shares | Percent |
James E. Sinclair | 2,498,620 | 3.0% |
Marek J. Kreczmer | 257,637 | 0.31% |
Victoria Luis | 230,000 | 0.28% |
Ulrich E. Rath | Nil | -- |
55
Name of Owner | Number of Shares | Percent |
Anton Esterhuizen | 150,000 | 0.18% |
William Harvey | 345,000 | 0.41% |
Rosalind Morrow | 404,100 | 0.48% |
Jonathan G. Deane | 12,184 | 0.01% |
Options Granted to Directors and Officers During the Fiscal Year Ended August 31, 2004
No stock options were granted to directors or officers during the fiscal year ended August 31, 2004, or subsequent thereto, to the date of this Annual Report.
Outstanding Options
The following information as of August 31, 2004, reflects outstanding options held by directors and officers of the Company:
Name | No. of Shares | Date of Grant | Exercise Price | Expiration Date |
James E. Sinclair | Nil | |||
Marek J. Kreczmer | 250,000 | May 3, 2002 | $0.79 | May 3, 2007 |
Victoria Luis | 75,000 | May 3, 2002 | $0.79 | May 3, 2007 |
William Harvey | 75,000 | May 3, 2002 | $0.79 | May 3, 2007 |
Options held by officers | 400,000 |
Item 7.
Major Shareholders and Related Party Transactions
A.
Major Shareholders
As far as it is known to the Company, it is not directly or indirectly owned or controlled by any other corporation or by the Canadian Government, or any foreign government. The Company has no knowledge of any arrangements which at a subsequent date would result in a change of control. All of the Company's issued common shares rank equally as to voting rights, dividends, and any distribution of assets on winding-up or liquidation.
As of December 31, 2004, the Company knows of no person who owned more than five (5%) of the outstanding shares of each class of the Company's voting securities.
The above major shareholder has held its shares interests in the Company for over the past three years. The major shareholder does not have different voting rights.
The following table sets out the portion of common shares of the Company held by shareholders of record in Canada, the United States of America, and all other countries by total number of holders, total shareholdings, percentage of total issued shares, and percentage of total holders:
Jurisdiction | No. of Shareholders | No. of Common Shares | Percentage of Total Issued Shares | Percentage of Total Holders |
United States | 2,556 | 35,160,628 | 42.3% | 70.7% |
Canada | 1,043 | 39,384,071 | 47.5% | 28.8% |
Other Countries | 18 | 8,441,399 | 10.2% | 0.5% |
TOTAL: | 3,617 | 82,986,098 | 100% | 100% |
56
B.
Related Party Transactions
Financing
Pursuant to a Subscription Agreement dated March 5, 2003 made between the Company and James E. Sinclair, Mr. Sinclair has elected to proceed with his earlier commitment to purchase common shares of the Company over a two-year period representing a value between $1,500,000 and $3,000,000. Mr. Sinclair has agreed to conduct these share purchases in 24 separate tranches, each tranche having a minimum subscription price of $62,500. At the sole option of Mr. Sinclair, each tranche may be increased to a maximum of $125,000.
The price paid for the shares will be equal to the weighted average trading price of the Company's shares for the last five consecutive trading days of each month immediately preceding the closing of each tranche. Each tranche is subject to approval by the Toronto Stock Exchange.
As at the date of this Annual Report, Mr. Sinclair has completed the following twenty-two (22) tranches:
(a)
March 19, 2003 - 58,480 common shares at a price of $1.71 per share;
(b)
April 11, 2003 - 73,368 common shares at a price of $1.363 per share;
(c)
May 15, 2003 - 101,875 common shares at a price of $1.227 per share;
(d)
June 26, 2003 - 77,930 common shares at a price of $1.604 per share;
(e)
July 30, 2003 - 88,968 common shares at a price of $1.405 per share;
(f)
August 27, 2003 - 73,443 common shares at a price of $1.702 per share;
(g)
September 26, 2003 - 65,445 common shares at a price of $1.91 per share;
(h)
October 21, 2003 - 68,757 common shares at a price of $1.818 per share;
(i)
November 21, 2003 - 76,876 common shares at a price of $1.626 per share;
(j)
December 12, 2003 - 66,525 common shares at a price of $1.879 per share;
(k)
January 13, 2004 - 77,785 common shares at a price of $1.607 per share;
(l)
February 24, 2004 - 82,508 common shares at a price of $1.515 per share;
(m)
March 26, 2004 - 83,001 common shares at a price of $1.506 per share;
(n)
April 29, 2004 - 82,946 common shares at a price of $1.507 per share;
(o)
May 20, 2004 - 98,580 common shares at a price of $1.268 per share;
(p)
July 2, 2004 - 110,035 common shares at a price of $1.136 per share;
(q)
August 16, 2004 - 107,759 common shares at a price of $1.16 per share;
(r)
September 27, 2004 - 109,361 common shares at a price of $1.143 per share;
(s)
October 18, 2004 - 108,696 common shares at a price of $1.15 per share;
(t)
November 10, 2004 - 101,461 common shares at a price of $1.232 per share;
(u)
November 22, 2004 - 95,493 common shares at a price of $1.309 per share; and
(v)
December 8, 2004 - 97,050 common shares at a price of $1.288 per share.
The Company also completed a $1,000,000 private placement pursuant to a separate Subscription Agreement dated January 5, 2004 between the Company and James E. Sinclair for 622,278 common shares at a price of $1.607 per share.
Pursuant to a Subscription Agreement dated January 13, 2005 made between the Company and James E. Sinclair, Mr. Sinclair has subscribed for a placement of common shares of the Company for aggregate proceeds to the Company of C$3,000,000. Mr. Sinclair has agreed to subscribe for eight (8) quarterly tranches of C$375,000 each, commencing February 1, 2005. The pricing of each quarterly tranche will be based on the weighted average trading price of the Company's common shares for the last five consecutive trading days of each quarterly period. Each tranche is subject to approval by the Toronto Stock Exchange.
57
Other
During the year ended August 31, 2004, $22,435 (2003 - $178,894; 2002 - $143,635) was paid or payable by the Company to certain directors and a former director for consulting fees, and $88,470 (2003 - $5,600; 2002 - $nil) was paid to directors for directors' fees.
Accounts receivable include advances to related parties of $21,000 (2003 - $nil; 2001 - $42,599), which consisted of funds advanced to officers and directors for exploration and corporate activities conducted in the normal course of business. Also included in accounts receivable is an amount of $15,291 (2003 - $16,081; 2002 - $52,000) payable to certain directors and a former director for consulting fees.
C.
Interest of Experts and Counsel
Not Applicable.
Item 8.
Financial Statements
A.
Consolidated Statements and Other Financial Information
This Annual Report contains the audited consolidated financial statements of the Company for the fiscal years ended August 31, 2004, 2003 and 2002 with Audit Reports and Comments by Auditors for U.S. Readers on Canada-U.S. Reporting Differences, comprised of:
(a)
Consolidated Balance Sheets as of August 31, 2004 and 2003;
(b)
Consolidated Statements of Operations and Deficit for the years ended August 31, 2004, 2003 and 2002;
(c)
Consolidated Statements of Cash Flows for the years ended August 31, 2004, 2003 and 2002; and
(d)
Notes to the consolidated financial statements.
Dividend Policy
The Company has never paid dividends and does not intend to in the near future.
Litigation
There is no outstanding litigation against or otherwise involving the Company.
B.
Significant Changes
None.
Item 9.
The Offering and Listing
A.
Offering and Listing Details
The common stock of the Company was listed on the Toronto Stock Exchange under the symbol "TNX" on October 29, 2001, and prior to that date the Company's common stock was listed on the Canadian Venture Exchange ("CDNX"), now known as the TSX Venture Exchange.
As of December 31, 2004, there were 2,556 record holders in the United States holding 42.3% of the Company's outstanding common stock, representing approximately 70.7% of the total number of shareholders. The Company's Common stock is issued in registered form and the percentage of shares reported to be held by
58
record holders in the United States is taken from the records of the Computershare Trust Company of Canada in the City of Vancouver, the registrar and transfer agent for the common stock.
The number of record holders resident in the United States is attributed as to 3.04% to directors and officers of the Company who are United States residents; a further 9.38% held by United States residents who are immediate family members of a director and officer of the Company; a further 0.73% by United States residents who were formerly shareholders of Tanzam; and the balance of 29.05% are United States residents who have purchased shares in the secondary market, through the facilities of the Toronto Stock Exchange.
The high and low prices expressed in Canadian dollars on the Toronto Stock Exchange for the Company's common stock for the last six months and for each quarter for the last three fiscal years:
Toronto Stock Exchange | ||||||||||
(Canadian Dollars) | ||||||||||
Last Six Months | High | Low | Volume | |||||||
December, 2004 | $ | 1.27 | $ | 1.02 | 4,382,691 | |||||
November, 2004 | $ | 1.43 | $ | 1.15 | 4,781,540 | |||||
October, 2004 | $ | 1.57 | $ | 1.24 | 3,767,249 | |||||
September, 2004 | $ | 1.28 | $ | 1.06 | 1,529,431 | |||||
August, 2004 | $ | 1.25 | $ | 0.99 | 1,499,648 | |||||
July, 2004 | $ | 1.42 | $ | 1.10 | 1,680,626 | |||||
2004-2003 |
High | Low | Volume | |||||||
Fourth Quarter ended August 31, 2004 | 1.35 | 1.06 | 4,590,068 | |||||||
Third Quarter ended May 31, 2004 | $ | 1.45 |
|
| $ |
| 1.18 |
| 7,170,606 | |
Second Quarter ended February 29, 2004 | $ | 1.83 |
|
| $ |
| 1.46 |
| 10,584,543 | |
First Quarter ended November 30, 2003 | $ | 1.97 |
|
| $ |
| 1.56 |
| 15,207,219 | |
2003-2002 |
High |
|
| Low |
| Volume | ||||
Fourth Quarter ended August 31, 2003 | $ | 1.86 |
|
| $ |
| 1.44 |
| 14,552,920 | |
Third Quarter ended May 31, 2003 | $ | 1.66 |
|
| $ |
| 1.15 |
| 16,604,990 | |
Second Quarter ended February 28, 2003 | $ | 1.44 |
|
| $ |
| 1.05 |
| 18,998,816 | |
First Quarter ended November 30, 2002 | $ | 0.89 |
|
| $ |
| 0.69 |
| 6,531,443 | |
2002-2001 |
High |
|
| Low |
| Volume | ||||
Fourth Quarter ended August 31, 2002 | $ | 0.86 |
|
| $ |
| 0.63 |
| 8,873,199 | |
Third Quarter ended May 31, 2002 | $ | 0.81 |
|
| $ |
| 0.54 |
| 13,061,443 | |
Second Quarter ended February 28, 2002 | $ | 0.45 |
|
| $ |
| 0.24 |
| 3,941,433 | |
First Quarter ended November 30, 2001 | $ | 0.38 |
|
| $ |
| 0.23 |
| 1,166,353 | |
Last Five Fiscal Years |
High |
|
| Low |
|
| ||||
2004 Annual | $ | 1.65 |
|
| $ |
| 1.31 |
|
| |
2003 Annual | $ | 1.46 |
|
| $ |
| 1.08 |
|
| |
2002 Annual | $ | 0.63 |
|
| $ |
| 0.41 |
|
| |
2001 Annual | $ | 0.48 |
|
| $ |
| 0.35 |
|
| |
2000 Annual | $ | 0.37 |
| $ | 0.33 (CDNX) |
|
|
B.
Plan of Distribution
Not Applicable.
59
C.
Markets
The Company's common stock is listed on the Toronto Stock Exchange under the trading symbol "TNX". The Company may apply to list its common shares on the American Stock Exchange. If such an application is made, there can be no assurance made that any such application will be successful.
D.
Selling Shareholders
Not Applicable.
E.
Dilution
Not Applicable.
F.
Expenses of the Issue
Not Applicable.
Item 10.
Additional Information
A.
Share Capital
As of April 3, 2003, the Board resolved that the Company authorize for issuance up to a maximum 91,000,000 common shares, subject to further resolutions of the Company's Board of Directors, from time to time. Of the 91,000,000 common shares authorized, without par value, 82,464,037 shares were issued and outstanding as of August 31, 2004.
Each of the common shares has equal dividend, liquidation and voting rights. Voters of the common shares are entitled to one vote per share on all matters that may be brought before them. Holders of the common shares are entitled to receive dividends when declared by the Board from funds legally available therefor. The common shares are not redeemable, have no conversion rights and carry no pre-emptive or other rights to subscribe for additional shares. The outstanding common shares are fully paid and non-assessable.
The following table reconciles the total number of shares outstanding for the last three fiscal years:
No. of Shares | Amount | Price and Terms | |
Total Outstanding Shares at August 31, 2001 | 50,760,978 | $26,747,161 | |
Add: Stock Options Exercised for cash | 1,756,000 | $ 795,995 | $0.45/share (deemed value) |
Issued on Exercise of Warrants | 2,197,225 | $ 1,380,550 | $0.63/share (deemed value) |
Issued on acquisition of Tanzam | 20,000,000 | $ 7,000,000 | $0.35/share (deemed value) |
Subscriptions receivable | -- | $ (102,000) | |
Total Outstanding Shares at August 31, 2002 | 74,714,203 | $35,821,706 | |
Add: Stock Options Exercised for cash | 2,454,000 | $ 1,255,700 | $0.51/share (deemed value) |
Issued on Exercise of Warrants | 2,549,275 | $ 1,544,565 | $0.61/share (deemed value) |
60
No. of Shares | Amount | Price and Terms |
Issued for cash | 474,064 | $ 700,000 | $1.48/share (deemed value) |
Collection of previous years subscription receivable | 0 | $ 102,000 | |
Total Outstanding at August 31, 2003 | 80,191,542 | $39,423,971 | |
Add: Stock Options Exercised for cash | 730,000 | $ 346,500 | $0.47/share (deemed value) |
Issued for cash | 1,477,050 | $ 2,250,000 | $1.52/share (deemed value) |
Issued for share subscription previously received | 65,445 | $ 125,000 | |
Total Outstanding at August 31, 2004 | 82,464,037 | $42,145,471 |
Due to the issuance of 20,000,000 common shares for the acquisition of Tanzam in April, 2002, more than 10% of the total outstanding shares have been issued for non-cash consideration within the last five years.
Shares are issued by the Company with the regulatory acceptance of the Toronto Stock Exchange, upon resolution of the Board of Directors of the Company. There are a total of 82,986,098 common shares issued and a further 515,000 common shares reserved for issuance under outstanding stock options.
B.
Articles of Association and Bylaws
The Company was originally incorporated under the corporate name "424547 Alberta Ltd." in the Province of Alberta on July 5, 1990, under the Business Corporations Act (Alberta).
The Articles of 424547 Alberta Ltd. were amended on August 13, 1991 as follows:
the name of the Company was changed to its present name, "Tan Range Exploration Corporation";
the restriction on the transfer of shares was removed; and
a new paragraph regarding the appointment of additional directors was added as follows:
"(b)
The Directors, may, between annual general meetings, appoint one or more additional directors of the Company to serve until the next annual general meeting, but the number of additional Directors shall not at any time exceed one-third (1/3) of the number of Directors who held office at the expiration of the last annual meeting of the corporation."
The Company was registered in the Province of British Columbia as an extra provincial company under the Company Act (British Columbia) on August 5, 1994.
The Articles of the Company were further amended on February 15, 1996 as follows:
the provisions of the Articles authorizing the issue of Class "B" Voting shares, Class "C" Non-Voting shares and Class "D" Preferred shares were deleted;
Class "A" voting shares were redesignated as Common shares; and
a provision was added to allow meetings of shareholders to be held outside Alberta in either of the cities of Vancouver, British Columbia or Toronto, Ontario.
61
Common Shares
All issued and outstanding common shares are fully paid and non-assessable. Each holder of record of common shares is entitled to one vote for each common share so held on all matters requiring a vote of shareholders, including the election of directors. The holders of common shares will be entitled to dividends on a pro-rata basis, if and when as declared by the board of directors. There are no preferences, conversion rights, preemptive rights, subscription rights, or restrictions or transfers attached to the common shares. In the event of liquidation, dissolution, or winding up of the Company, the holders of common shares are entitled to participate in the assets of the Company available for distribution after satisfaction of the claims of creditors.
The rights of shareholders cannot be changed without a special resolution of at least 2/3 of the votes cast by the shareholders who voted in respect of the resolution, and separate classes of shareholders are entitled to separate class votes. Any such alteration of shareholder's rights would also require the regulatory acceptance of the Toronto Stock Exchange. There are no provisions of the Company's Articles or Bylaws that would have the effect of delaying, deferring, or preventing a change of control of the Company, and that would operate only with respect to a merger, acquisition, or corporate restructuring involving the Company (or any of its subsidiaries).
However, the Company has implemented a Shareholder Rights Plan dated April 19, 2000 (the "Rights Plan") whereunder in the event of a take-over bid (i.e. an offer to purchase 20% or more of the Company's issued shares, when aggregated with the offeror's shareholdings), which fails to meet certain conditions, the Rights Plan entitles all shareholders to rights to purchase additional shares of the Company. Take-over bids which meet the required conditions ("Permitted Bids") do not trigger the issuance of rights to purchase additional shares.
Permitted Bids are offers which meet all of the following conditions:
1.
The offer is made to all shareholders and include shares issuable upon exercise of share purchase warrants, stock options and other convertible securities;
2.
The offer must contain an irrevocable and unqualified provision that no shares will be taken up or paid for prior to the close of business on a date less than 60 days following the date of the Bid, and only if at such date more than 50% of the shares held by independent shareholders have been deposited or tendered and not withdrawn;
3.
The offer must contain an irrevocable and unqualified provision that any share deposited may be withdrawn at any time until being taken up and paid for; and
4.
The offer must contain an irrevocable and unqualified provision that if the deposit conditions set out in subparagraph 2 above are met, then the offeror will make a public announcement of that fact, and the bid will remain open for deposits or tenders of additional shares for not less than 10 business days from the date of the public announcement.
The Rights Plan is designed to ensure that all shareholders are treated fairly and equitably in the event of a take-over bid. The Rights Plan will expire on April 19, 2005, unless renewed by the Company.
Powers and Duties of Directors
The directors shall manage or supervise the management of the affairs and business of the Company and shall have authority to exercise all such powers of the Company as are not, by the Business Corporations Act (Alberta) or by the Articles or Bylaws, required to be exercised by the Company in a general meeting.
Directors will serve as such until the next annual meeting. In general, a director who is, in any way, directly or indirectly interested in an existing or proposed contract or transaction with the Company whereby a duty or interest might be created to conflict with his duty or interest director, shall declare the nature and extent
62
of his interest in such contract or transaction or the conflict or potential conflict with his duty and interest as a director. Such director shall not vote in respect of any such contract or transaction with the Company in which he is interested and if he shall do so, his vote shall note be counted, but he shall be counted in the quorum present at the meeting at which such vote is taken. However, notwithstanding the foregoing, directors shall have the right to vote on determining the remuneration of the directors.
The directors may from time to time on behalf of the Company: (a) borrow money in such manner and amount from such sources and upon such terms and conditions as they think fit; (b) issue bonds, debentures and other debt obligations; or (c) mortgage, charge or give other security on the whole or any part of the property and assets of the Company.
At least half of the directors of the Company should be persons ordinarily resident in Canada and all must be at least 18 years of age. At least half of the Company's directors are not Canadian residents; however, this has no material adverse effect on the Company's operations. There is no minimum share ownership to be a Director. No person shall be a Director of the Company who is not capable of managing their own affairs; is an undischarged bankrupt or who is a person who is not an individual.
Shareholders
An annual general meeting shall be held once in every calendar year at such time and place as may be determined by the directors. A quorum at an annual general meeting and special meeting shall be two shareholders or one or more proxy holder representing two shareholders, or one shareholder and a proxy holder representing another shareholder. There is no limitation imposed by the laws of Canada or by the charter or other constituent documents of the Company on the right of a non-resident to hold or vote the common shares, other than as provided in the Investment Canada Act, (the "Investment Act") discussed below under "Item 10. Additional Information, D. Exchange Controls."
In accordance with Alberta law, directors shall be elected by an "ordinary resolution" which means (a) a resolution passed by the shareholders of the Company in general meeting by a simple majority of the votes cast in person or by proxy, or (b) a resolution that has been signed by all shareholders entitled to vote on the resolution.
Under Alberta law certain items such as an amendment to the Company's articles or entering into a merger, requires approval by a special resolution, which means (a) a resolution passed by a majority of not less than 2/4 of the votes cast by the shareholders of the Company who, being entitled to do so, vote in person or by proxy at a general meeting of the company (b) a resolution consented to in writing by every shareholder of the Company who would have been entitled to vote in person or by proxy at a general meeting of the Company, and a resolution so consented to is deemed to be a special resolution passed at a general meeting of the Company.
C.
Material Contracts
The following are the material contracts of the Company (other than contracts in the ordinary course of business) entered into within the last two years:
63
Date | Names of Parties | Description of General Nature of the Contract | Consideration Paid; Terms and Conditions
|
January 13, 2005 | James E. Sinclair and the Company | Subscription Agreement for purchase of common shares over a two year period, in 8 separate quarterly tranches commencing February 1, 2005 | The pricing of each quarterly tranche will be based on the weighted average trading price of the Company's common shares for the last five consecutive trading days of each quarterly period. |
September 7, 2004 | Northern Mining Explorations Ltd. ("NME") and the Company | Letter of Intent granting to NME the right to acquire all of the Company's interests in 3 prospecting licenses | US$10,000, plus up to US$560,000 in installments over the next five years; US$75,000 in exploration work within the next 2 years; up to 12,000 metres in diamond drilling over the next 5 years; and a sliding scale NSR royalty up to 2% |
January 5, 2004 | James E. Sinclair and the Company | Subscription Agreement for purchase of 622,278 common shares | $1.607 per share for a total of $1,000,000 |
July 21, 2003 | Ashanti Goldfields (Cayman) Limited ("Ashanti") and the Company | Letter of Intent granting to Ashanti the right to acquire all of the Company's interests in 9 licenses | Over US$1.4 million over five years; US$800,000 in exploration work; up to 10,000 meters in diamond drilling; and a feasibility study to earn its interests; and payment of a NSR royalty up to 2% |
March 18, 2003 | Northern Mining Explorations Ltd. ("NME") and the Company | Amending Letter Agreement to January 20, 2003 agreement | Not applicable |
March 5, 2003 | James E. Sinclair and the Company | Subscription Agreement for purchase of common shares over a two year period, in 24 separate monthly tranches | Market price at the time of purchase; to date a total of $1,700,002 for 1,078,267 shares, or an average price of $1.58 per share |
January 20, 2003 | Northern Mining Explorations Ltd. ("NME") and the Company | Letter of Intent granting to NME the right to acquire all of the Company's interests in 7 prospecting licenses and one application for license | US$70,000; assuming underlying property payments; feasibility study; pre-production payments; and NSR royalty of up to 2% |
D.
Exchange Controls
Canada
There is no law, governmental decree or regulation in Canada that restricts the export or import of capital or affects the remittance of dividends, interest or other payments to a non-resident holder of common shares other than withholding tax requirements. Any such remittances to United States residents are subject to withholding tax. See "Taxation."
There is no limitation imposed by the laws of Canada or by the charter or other constituent documents of the Company on the right of a non-resident to hold or vote the common shares, other than as provided in the Investment Act. The following discussion summarizes the principal features of the Investment Act for a non-resident who proposes to acquire the common shares.
The Investment Canada Act generally prohibits implementation of a reviewable investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture (each an "entity") that is not a "Canadian" as defined in the Investment Canada Act (a "non-Canadian"), unless after review, the Director of Investments appointed by the minister responsible for the Investment Canada Act is satisfied that the investment is likely to be of net benefit to Canada. An investment in the common shares by a non-Canadian
64
other than a "WTO Investor" (as that term is defined by the Investment Canada Act, and which term includes entities which are nationals of or are controlled by nationals of member states of the World Trade Organization) when the Company was not controlled by a WTO Investor, would be reviewable under the Investment Canada Act if it was an investment to acquire control of the Company and the value of the assets of the Company, as determined in accordance with the regulations promulgated under the Investment Canada Act, was $5,000,000 or more, or if an order for review was made by the federal cabinet on the grounds that the investment related to Canada's cultural heritage or national identity, regardless of the value of the assets of the Company. An investment in the common shares by a WTO Investor, or by a non-Canadian when the Company was controlled by a WTO Investor, would be reviewable under the Investment Canada Act if it was an investment to acquire control of the Company and the value of the assets of the Company, as determined in accordance with the regulations promulgated under the Investment Canada Act was not less than a specified amount, which for 2004 was any amount in excess of $237 million. A non-Canadian would acquire control of the Company for the purposes of the Investment Canada Act if the non-Canadian acquired a majority of the common shares. The acquisition of one third or more, but less than a majority of the common shares would be presumed to be an acquisition of control of the Company unless it could be established that, on the acquisition, the Company was not controlled in fact by the acquirer through the ownership of the common shares.
Certain transactions relating to the common shares would be exempt from the Investment Canada Act, including: (a) an acquisition of the common shares by a person in the ordinary course of that person's business as a trader or dealer in securities; (b) an acquisition of control of the Company in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions of the Investment Canada Act; and (c) an acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of the Company, through the ownership of the common shares, remained unchanged.
Foreign Investments and Exchange in Tanzania
Tanzania adopted in 1997 an Investment Act under which the Tanzania Investment Centre (TIC), as agency for investment promotion and facilitation, was established. Foreign investment is welcome and in order to enjoy certain tax benefits under the Investment Act, the minimum equity contribution whether in kind or in cash must be not less than US$300,000.
In 1992, the stringent foreign exchange legislation was repealed and the restriction on foreign commercial banks abolished. Any person whether resident or not may establish foreign currency accounts with any of the commercial banks and transfer foreign currency outside Tanzania without restriction. The Bank of Tanzania regulates commercial banks and approves the establishment of offshore foreign currency accounts by residents. There are no controls on foreign exchange rates or interest rate on loans and overdrafts.
E.
Taxation
Canadian Federal Income Tax Consequences
The following summarizes the principal Canadian federal income tax consequences applicable to the holding and disposition of common shares in the capital of the Company by a United States resident, a corporation or partnership created or organized in or under the laws of the United States or of any political subdivision thereof, an entity created or organized in or under the laws of the United States or of any political subdivision thereof, which has elected to be treated as a corporation for U.S. federal income tax purposes, an estate whose income is taxable in the U.S. irrespective of source, or a trust subject to primary supervision of a court within the U.S. and control of a U.S. fiduciary, and who holds common shares solely as capital property and who owns (directly and indirectly) no more than 5% of the value of the total outstanding stock of the Company (a "U.S. Holder"). This summary is based on the current provisions of the Income Tax Act (Canada) (the "Tax Act"), the regulations thereunder, all amendments thereto publicly proposed by the government of Canada, the published administrative practices of Canada Revenue Agency, and on the current provisions of the
65
Canada-United States Income Tax Convention, 1980, as amended (the "Treaty"). Except as otherwise expressly provided, this summary does not take into account any provincial, territorial or foreign (including without limitation, any U.S.) tax law or treaty. It has been assumed that all currently proposed amendments will be enacted substantially as proposed and that there is no other relevant change in any governing law or practice, although no assurance can be given in these respects.
Each U.S. Holder is advised to obtain tax and legal advice applicable to such U.S. Holder's particular circumstances.
Every U.S. Holder is liable to pay a Canadian withholding tax on every dividend that is or is deemed to be paid or credited to the U.S. Holder on the U.S. Holder's common shares. The statutory rate of withholding tax is 25% of the gross amount of the dividend paid. The Treaty reduces the statutory rate with respect to dividends paid to a U.S. Holder for the purposes of the Treaty. Where applicable, the general rate of withholding tax under the Treaty is 15% of the gross amount of the dividend, but if the U.S. Holder is a company that owns at least 10% of the voting stock of the Company and beneficially owns the dividend, the rate of withholding tax is 5% for dividends paid or credited after 1996 to such corporate U.S. Holder. The Company is required to withhold the applicable tax from the dividend payable to the U.S. Holder, and to remit the tax to the Receiver General of Canada for the account of the U. S. Holder.
Pursuant to the Tax Act, a U.S. Holder will not be subject to Canadian capital gains tax on any capital gain realized on an actual or deemed disposition of a common share, including a deemed disposition on death, provided that the U.S. Holder did not hold the common share as capital property used in carrying on a business in Canada, and that neither the U. S. Holder nor persons with whom the U.S. Holder did not deal a arms length (alone or together) owned or had the right or an option to acquire 25% or more of the issued shares of any class of the Company at any time in the five years immediately preceding the disposition.
United States Federal Income Tax Consequences
The following is, in the opinion of the Company after consultation with its professional advisors, a discussion of material United States federal income tax consequences, under current law, generally applicable to a U.S. Holder (as defined above) of common shares of the Company. This discussion does not address all potentially relevant federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of federal income tax law. In addition, this discussion does not cover any state, local or foreign tax consequences. (See "Taxation - Canadian Federal Income Tax Consequences" above). Accordingly, holders and prospective holders of common shares of the Company are urged to consult their own tax advisors about the specific federal, state, local, and foreign tax consequences to them of purchasing, owning and disposing of common shares of the Company, based upon their individual circumstances.
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 and which are subject to differing interpretations. This discussion does not consider the potential effects, both adverse and beneficial, of any proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.
Passive Foreign Investment Company.
The Company believes that it could be a passive foreign investment company ("PFIC") for United States federal income tax purposes with respect to a U.S. Holder (as defined above). The Company will be a PFIC with respect to a U.S. Holder if, for any taxable year in which such U.S. Holder held the Company's shares, either (i) at least 75% of the gross income of the Company for the taxable year is passive income, or (ii) at least 50% of the Company's assets are attributable to assets that produce or are held for the production of passive income. In each case, the Company must take into account a pro rata share of the income and the assets of any company in which
66
the Company owns, directly or indirectly, 25% or more of the stock by value (the "look-through" rules). Passive income generally includes dividends, interest, royalties, rents (other than rents and royalties derived from the active conduct of a trade or business and not derived from a related person), annuities, and gains from assets that produce passive income. As a publicly traded corporation, the Company would apply the 50% asset test based on the value of the Company's assets.
Because the Company may be a PFIC, unless a U.S. Holder who owns shares in the Company (i) elects (a section 1295 election) to have the Company treated as a "qualified electing fund" (a "QEF") (described below), or (ii) marks the stock to market (described below), the following rules apply:
1.
Distributions made by the Company during a taxable year to a U.S. Holder who owns shares in the Company that are an "excess distribution" (defined generally as the excess of the amount received with respect to the shares in any taxable year over 125% of the average received in the shorter of either the three previous years or such U.S. Holder's holding period before the taxable year) must be allocated ratably to each day of such shareholder's holding period. The amount allocated to the current taxable year and to years when the corporation was not a PFIC must be included as ordinary income in the shareholder's gross income for the year of distribution. The remainder is not included in gross income but the shareholder must pay a deferred tax on that portion. The deferred tax amount, in general, is the amount of tax that would have been owed if the allocated amount had been included in income in the earlier year, plus interest. The interest charge is at the rate applicable to deficiencies in income taxes.
2.
The entire amount of any gain realized upon the sale or other disposition of the shares will be treated as an excess distribution made in the year of sale or other disposition and as a consequence will be treated as ordinary income and, to the extent allocated to years prior to the year of sale or disposition, will be subject to the interest charge described above.
A shareholder that makes a section 1295 election will be currently taxable on his or her pro rata share of the Company's ordinary earnings and net capital gain (at ordinary income and capital gains rates, respectively) for each taxable year of the Company, regardless of whether or not distributions were received. The shareholder's basis in his or her shares will be increased to reflect taxed but undistributed income. Distributions of income that had previously been taxed will result in a corresponding reduction of basis in the shares and will not be taxed again as a distribution to the shareholder.
A shareholder may make a section 1295 election with respect to a PFIC for any taxable year of the shareholder (shareholder's election year). A section 1295 election is effective for the shareholder's election year and all subsequent taxable years of the shareholder. Procedures exist for both retroactive elections and filing of protective statements. Once a section 1295 election is made it remains in effect, although not applicable, during those years that the Company is not a PFIC. Therefore, if the Company re-qualifies as a PFIC, the section 1295 election previously made is still valid and the shareholder is required to satisfy the requirements of that election. Once a shareholder makes a section 1295 election, the shareholder may revoke the election only with the consent of the Commissioner.
If the shareholder makes the section 1295 election for the first tax year of the Company as a PFIC that is included in the shareholder's holding period, the PFIC qualifies as a pedigreed QEF with respect to the shareholder. If a QEF is an unpedigreed QEF with respect to the shareholder, the shareholder is subject to both the non-QEF and QEF regimes. Certain elections are available which enable shareholders to convert an unpedigreed QEF into a pedigreed QEF thereby avoiding such dual application.
A shareholder making the section 1295 election must make the election on or before the due date, as extended, for filing the shareholder's income tax return for the first taxable year to which the election will apply. A shareholder must make a section 1295 election by completing Form 8621; attaching said Form to its federal income tax return; and reflecting in the Form the information provided in the PFIC Annual Information Statement or if the shareholder calculated the financial information, a statement to that effect. The PFIC Annual
67
Information Statement must include the shareholder's pro rata shares of the ordinary earnings and net capital gain of the PFIC for the PFIC's taxable year or information that will enable the shareholder to calculate its pro rata shares. In addition, the PFIC Annual Information Statement must contain information about distributions to shareholders and a statement that the PFIC will permit the shareholder to inspect and copy its permanent books of account, records, and other documents of the PFIC necessary to determine that the ordinary earnings and net capital gain of the PFIC have been calculated according to federal income tax accounting principles. A shareholder may also obtain the books, records and other documents of the foreign corporation necessary for the shareholder to determine the correct earnings and profits and net capital gain of the PFIC according to federal income tax principles and calculate the shareholder's pro rata shares of the PFIC's ordinary earnings and net capital gain. In that case, the PFIC must include a statement in its PFIC Annual Information Statement that it has permitted the shareholder to examine the PFIC's books of account, records, and other documents necessary for the shareholder to calculate the amounts of ordinary earnings and net capital gain. A shareholder that makes a Section 1295 election with respect to a PFIC held directly or indirectly, for each taxable year to which the Section 1295 election applies, must comply with the foregoing submissions.
Because the Company's stock is "marketable" under section 1296(e), a U.S. Investor may elect to mark the stock to market each year. In general, a PFIC shareholder who elects under section 1296 to mark the marketable stock of a PFIC includes in income each year an amount equal to the excess, if any, of the fair market value of the PFIC stock as of the close of the taxable year over the shareholder's adjusted basis in such stock. A shareholder is also generally allowed a deduction for the excess, if any, of the adjusted basis of the PFIC stock over the fair market value as of the close of the taxable year. Deductions under this rule, however, are allowable only to the extent of any net mark to market gains with respect to the stock included by the shareholder for prior taxable years. While the interest charge regime under the PFIC rules generally does not apply to distributions from and dispositions of stock of a PFIC where the U.S. Investor has marked to market, coordination rules for limited application will apply in the case of a U.S. Investor that marks to market PFIC stock later than the beginning of the shareholder's holding period for the PFIC stock.
Special rules apply with respect to the calculation of the amount of the foreign tax credit with respect to excess distributions by a PFIC or inclusions under a QEF.
Distribution on Common Shares of the Company
In general, U.S. Holders receiving dividend distributions (including constructive dividends) with respect to common shares of the Company are required to include in gross income for United States federal income tax purposes the gross amount of such distributions, equal to the U.S. dollar value of such distributions on the date of receipt (based on the exchange rate on such date), 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 federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder's federal taxable income. (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 shares and thereafter as gain from the sale or exchange of property. 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.
In the case of foreign currency received as a dividend that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Generally any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for U.S. dollars, will be ordinary income or loss. However, an individual whose realized gain does not exceed $200 will not recognize that gain, provided that there are no expenses associated with the transaction that meet the requirements for deductibility as a trade or business
68
expense (other than travel expenses in connection with a business trip) or as an expense for the production of income.
Dividends paid on the common shares of the Company generally will not be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations. A U.S. Holder which is a corporation and which owns shares representing at least 10% of the voting power and value of the Company may, under certain circumstances, be entitled to a 70% (or 80% if the U.S. Holder owns shares representing at least 20% of the voting power and value of the Company) deduction equal to the United States source portion of dividends received from the Company (unless the Company qualifies as a "foreign personal holding company" as defined below, or a "passive foreign investment company" (a PFIC) as defined above). The Company does not anticipate that it will earn any United States income, however, and therefore does not anticipate that any U.S. Holder will be eligible for the dividends received deduction.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of common shares of the Company may be entitled, at the option of the U.S. Holder, to either receive 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 generally applies to all foreign taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder's United States income tax liability that the U.S. Holder's foreign source income bears to his or its worldwide taxable income. In the determination of the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. In addition, this limitation is calculated separately with respect to specific classes of income such as "passive income", " "high withholding tax interest," "financial services income," "shipping income," and certain other classifications of income. Dividends distributed by the Company will generally constitute "passive income" or, in the case of certain U.S. Holders, "financial services income" for these purposes. The availability of the foreign tax credit and the application of the limitations on the credit are fact specific, and U.S. Holders of common shares of the Company should consult their own tax advisors regarding their individual circumstances. U.S. Holders should be aware that recently enacted legislation eliminates the "financial services income" category for taxable years beginning after December 31, 2006. Under the recently enacted legislation, the foreign tax credit limitation categories are limited to "passive income" and "general income".
Disposition of Common Shares of the Company
In general, U.S. Holders will recognize gain or loss upon the sale of common shares of the Company 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 shares of the Company. Preferential tax rates apply to long-term capital gains of U.S. Holders which are individuals, estates or trusts. In general, gain or loss on the sale of common shares of the Company will be long-term capital gain or loss if the common shares are a capital asset in the hands of the U.S. Holder and are held for more than one year. Deductions for net capital losses are subject to significant limitations. For U.S. Holders which are not corporations, 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 that are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted.
69
Controlled Foreign Corporations.
Sections 951 through 964 and Section 1248 of the Code relate to controlled foreign corporations ("CFCs"). A foreign corporation that qualifies as a CFC will not be treated as a PFIC with respect to a shareholder during the portion of the shareholder's holding period after December 31, 1997, during which the shareholder is a 10% United States shareholder and the corporation is a CFC. The PFIC provisions continue to apply in the case of PFIC that is also a CFC with respect to shareholders that are less than 10% United States shareholders.
The 10% United States shareholders of a CFC are subject to current U.S. tax on their pro rata shares of certain income of the CFC and their pro rata shares of the CFC's earnings invested in certain U.S. property. The effect is that the CFC provisions may impute some portion of such a corporation's undistributed income to certain shareholders on a current basis and convert into dividend income some portion of gains on dispositions of stock, which would otherwise qualify for capital gains treatment.
The Company does not believe that it will be a CFC. It is possible that the Company could become a CFC in the future. Even if the Company were classified as a CFC in a future year, however, the CFC rules referred to above would apply only with respect to 10% shareholders.
Personal Holding Company/Foreign Personal Holding Company/Foreign Investment Company.
A corporation will be classified as a personal holding company (a "PHC") if at any time during the last half of a tax year (i) five or fewer individuals (without regard to their citizenship or residence) directly or indirectly or by attribution own more than 50% in value of the corporation's stock and (ii) at least 60% of its ordinary gross income, as specially adjusted, consists of personal holding company income (defined generally to include dividends, interest, royalties, rents and certain other types of passive income). A PHC is subject to a United States federal income tax of 39.6% on its undistributed personal holding company income (generally limited, in the case of a foreign corporation, to United States source income).
A corporation will be classified as a foreign personal holding company (an "FPHC") and not a PHC if at any time during a tax year (i) five or fewer individual United States citizens or residents directly or indirectly or by attribution own more than 50% of the total combined voting power or value of the corporation's stock and (ii) at least 60% of its gross income consists of foreign personal holding company income (defined generally to include dividends, interest, royalties, rents and certain other types of passive income). Each United States shareholder in a FPHC is required to include in gross income, as a dividend, an allocable share of the FPHC's undistributed foreign personal holding company income (generally the taxable income of the FPHC, as specially adjusted). The FPHC rules are repealed for tax years of foreign corporations beginning after December 31, 2004 (and for tax years of U.S. Holders with or within which such tax years of foreign corporations end).
A corporation will be classified as a foreign investment company (an "FIC") if for any taxable year it (i) is registered under the Investment Company Act of 1940, as amended, as a management company or share investment trust or is engaged primarily in the business of investing or trading in securities or commodities (or any interest therein) and (ii) 50% or more of the value or the total combined voting power of all the corporation's stock is owned directly or indirectly (including stock owned through the application of attribution rules) by United States persons. In general, unless an FIC elects to distribute 90% or more of its taxable income (determined under United States tax principles as specially adjusted) to its shareholders, gain on the sale or exchange of FIC stock is treated as ordinary income (rather than capital gain) to the extent of such shareholder's ratable share of the corporation's earnings and profits for the period during which such stock was held. The FIC rules are repealed for tax years of corporations beginning after December 31, 2004 (and for tax years of U.S. Holders with or within which such tax years of foreign corporations end).
The Company believes that it is not and will not be a PHC, FPHC or FIC. However, no assurance can be given as to the Company's future status.
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U.S. Information Reporting and Backup Withholding.
Dividends are generally subject to the information reporting requirements of the Code. Dividends may be subject to backup withholding at the rate of 28% unless the holder provides a taxpayer identification number on a properly completed Form W-9 or otherwise establishes an exemption.
The amount of any backup withholding will not constitute additional tax and will be allowed as a credit against the U.S. Holder's federal income tax liability, provided the required information is furnished to the IRS.
Filing of Information Returns.
Under a number of circumstances, a U.S. Holder acquiring shares of the Company may be required to file an information return. In particular, any U.S. Holder who becomes the owner, directly or indirectly, of 10% or more of the shares of the Company will be required to file such a return. Other filing requirements may apply, and U.S. Holders should consult their own tax advisors concerning these requirements.
Tanzania
Taxation
Tax in Tanzania is levied on the income of any person which is deemed to have accrued in or was derived in Tanzania, in the case of individuals, if he was resident in Tanzania during the year of income for a total of 183 days, or an average of 122 days per year over 3 tax years. Prevailing income tax rate is 30% in the case of both corporate entities and individuals.
Value Added Tax ("VAT")
Taxable Supplies | Rate |
Supply of goods and services in Mainland Tanzania | 20% |
Import of goods and services in Mainland Tanzania | 20% |
Export of goods and services from Mainland Tanzania | 0% |
VAT registrable threshold is Tshs. 20 Million (or about US$20,000 at prevailing exchange rates).
Withholding Tax
Withholding tax is charged at the rates specified below:
Resident | Non-Resident | |
Dividend (unlisted companies) | 10% | 10% |
Interest | 15% | 15% |
Royalty | 0% | 20% |
Management and Professional Fees | 0% | 20% |
Rental Income | 15% | 20% |
Pension/Retirement Annuity | 0% | 15% |
Insurance Commission | 7.5% | 0% |
Goods and Services (not applicable to TIN Cert. Holders) | 2% | 2% |
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Special Rates for Persons Engaged in "Mining Operations" Rates
Resident | Non-Resident | |
Dividend | 10% | 10% |
Technical Service Fee | 3% | 3% |
Management Fee up to 2% of Operating Costs | 0% | 3% |
Management Fee - Excess Over 2% | 0% | 20% |
Interest on Foreign Sourced Loans* | 0% | 0% |
Companies listed on the Dar es Salaam Stock Exchange enjoy a preferential withholding tax on 5% on dividends. |
*
In respect of mining companies having Development Agreements with Government.
Capital Gains Tax
Capital Gains Tax is chargeable on Premises and Financial Assets. The prevailing rate is 10%.
Stamp duty
Stamp duty is changeable on conveyance of property, shares and registration of securities as follows:
Rate | |
Conveyance | 4% |
Transfer of Shares or Debenture | 1% |
Insurance Commission | 7.5% |
Customs Duty
Imports into Tanzania are subject to duty as follows:
Rate | |
Capital Goods | 5% |
Semi-processed inputs and spare parts other than for motor vehicles | 10% |
Fully processed inputs and motor vehicle spare parts | 15% |
Consumer Goods | 25% |
Equipment and supplies imported by persons engaged in mining operations subcontractors - up to one (1) year after production | 0% |
Thereafter | 5% (max) |
Mining Sector
There is a special fiscal regime for mining companies which provides for 100% depreciation allowance on all mining capital expenditures. Losses may be carried forward for an unlimited period of time. There is also an exemption on import duty for mining equipment and supplies up to one year after start up of production as well as a 10% withholding tax on dividends and maximum 3% withholding tax on management fees up to 2% of operating costs and 20% for any excess over 2% of the operating costs. Mining companies may opt to keep their books of account in the United States Dollar Currency. The special regime applies for subcontractors and providers of technical services to the mining sector as well. The government of Tanzania also imposes a royalty on the gross value of all production equal to 5% for diamonds and 3% for all gold produced.
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Double Taxation Agreement
Tanzania has an Agreement to prevent double taxation with Sweden, Denmark, Norway, Zambia, Canada, India, Finland and Italy. Treaties with Kenya, Uganda, South Africa, South Korea and Zimbabwe have been signed but not yet ratified.
F.
Dividends and Paying Agents
Not Applicable.
G.
Statement by Experts
Not Applicable.
H.
Documents on Display
The Company will file annual reports and other information with the Securities and Exchange Commission. You may read and copy any document that we file at the Commission's Public Reference Room at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for more information about the Public Reference Rooms. The Securities and Exchange Commission also maintains a website, www.sec.gov, where you may obtain our reports. We also file certain reports with the Canadian Securities Administrators that you may obtain through access of the Sedar website, www.sedar.com.
Copies of the Company's material contracts are kept in the Company's administrative headquarters.
I.
Subsidiary Information
Not Applicable.
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk, primarily related to foreign exchange and metals prices (gold in particular). The Company uses the Canadian dollar as its reporting currency, but the Company converts Canadian dollars to U.S. dollars, and then U.S. dollars to Tanzanian schillings. The Company is therefore exposed to foreign exchange movements in Tanzania where the Company is incurring costs in conducting exploration activities. Most of the Company's exploration work is conducted in U.S. dollars; however, some general and administrative expenses are paid in Tanzanian schillings.
The following table sets forth the percentage of the Company's administrative expense by currency for the year ended August 31, 2004.
By Currency
2003 | |
Canadian Dollar | 35% |
U.S. Dollar | 40% |
Tanzanian Schilling | 25% |
Total: | 100% |
Such administrative expense by currency may change from time to time, but it has been roughly the same year to year. Further, the Company incurred exploration costs of $1,180,850 and $1,151,327 for the years ended August 31, 2004 and 2003, respectively, which are primarily paid in U.S. dollars.
73
The Company has not entered into any material foreign exchange contracts to minimize or mitigate the effects of foreign exchange fluctuations on the Company's operations. The Company exchanges Canadian dollars to U.S. dollars to fund its Tanzanian operations. Based on prior years, the Company does not believe that it is subject to material foreign exchange fluctuations. However, no assurance can be given that this will continue to be true in the future.
The Company has no long-term debt, therefore, the Company does not believe that the interest rate market risk to be material.
The market prices of most precious metals, including gold, have generally increased over the past three years, but are subject to market fluctuations based primarily on supply and demand.
The following table sets out the cumulative average prices of gold for the past five years, based on the London Metals Market afternoon price fix in U.S. dollars:
2000 | 2001 | 2002 | 2003 | 2004 |
$279.11 | $271.04 | $309.73 | $363.38 | $409.72 |
The cumulative average price of gold to January 14, 2005 was $423.82, based on the London afternoon price fix.
Item 12.
Description of Securities Other than Equity Securities
Not Applicable.
Part II
Item 13.
Defaults, Dividend Arrearages and Delinquencies
None.
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15.
Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's chief executive officer and principal financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company's chief executive officer and principal financial officer concluded that the Company's disclosure controls and procedures as of the end of the fiscal year covered by this Annual Report are effective in timely alerting them to material information relating to the Company required to be included in this Annual Report.
Item 16.
[Reserved]
Item 16 A.
Audit Committee Financial Expert
The Company's audit committee financial expert is Dr. Norman Betts, who is an "independent director", as defined pursuant to National Association of Securities Dealers (NASD) Rule 4200(a)(15) (as such definition may be modified or supplemented). The Securities and Exchange Commission has indicated that the designation
74
of an audit committee financial expert does not make that person an "expert" for any purpose, impose any duties, obligations, or liability on that person that are greater than those imposed on members of the audit committee and board of directors who do not carry this designation, or affect the duties, obligations, or liabilities of any other member of the audit committee.
Item 16 B.
Code of Ethics
We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, controller and other persons performing similar functions. A copy of our code of ethics can be found on our website at www.tanrange.com. The Company will report any amendment or wavier to the code of ethics on our website within five (5) days.
Item 16 C.
Principal Accountant Fees and Services
The independent auditor for the fiscal year ended August 31, 2003 and 2004 was KPMG LLP, Chartered Accountants. The following summarizes the significant professional services rendered by KPMG to the Company for the year ended August 31, 2004:
Financial Year Ending August 31 | Audit Fees | Audit Related Fees | Tax Fees(1) | All other Fees(2) |
2004 | Canada - C$74,750 | Nil | $6,500 | Nil |
2003 | $69,200 | Nil | $950 | $13,023 |
(1)
Tax advice and planning assistance including review of and assistance with capital tax assessments.
(2)
Investigative services and review of exercised share options by company personnel.
Item 16 D.
Exemptions from the Listing Standards for Audit Committees
Not Applicable.
Item 16 E.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
Not Applicable.
Part III
Item 17.
Financial Statements
The consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles and are expressed in Canadian dollars. The consolidated financial statements attached have been reconciled to U.S. Generally Accepted Accounting Principles. See Item 8 (A).
Consolidated Financial Statements (Expressed in Canadian dollars) TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Years ended August 31, 2004, 2003 and 2002 |
KPMG LLP Chartered Accountants PO Box 10426 777 Dunsmuir Street Vancouver BC V7Y 1K3 Canada |
| Telephone (604) 691-3000 Fax (604) 691-3031 Internet www.kpmg.ca |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Directors of Tan Range Exploration Corporation We have audited the consolidated balance sheets of Tan Range Exploration Corporation as at August 31, 2004 and 2003 and the consolidated statements of operations and deficit and cash flows for each of the years in the three-year period ended August 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (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 August 31, 2004 and 2003 and the results of its operations and its cash flows for each of the years in the three-year period ended August 31, 2004 in accordance with Canadian generally accepted accounting principles. KPMG LLP (Signed) Chartered Accountants Vancouver, Canada November 9, 2004, except as to notes 10(d) and (e) COMMENTS BY AUDITOR FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there is a correction of an error in application of accounting principles that has a material effect on the comparability of the Company's financial statements, such as the change reported in note 11(a) to the financial statements. Our report to the board of directors dated November 9, 2004, except as to note 10(d) and (e) which are as of January 13, 2005, is expressed in accordance with Canadian reporting standards which do not permit a reference to such change in the auditors' report when the correction of the application of an accounting policy is properly accounted for and adequately disclosed in the comparative financial statements. KPMG LLP (Signed) Chartered Accountants Vancouver, Canada November 9, 2004, except as to notes 10(d) and (e) |
KPMG LLP, a Canadian limited liability partnership is the Canadian
member firm of KPMG International, a Swiss cooperative.
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Consolidated Balance Sheets (Expressed in Canadian dollars) August 31, 2004 and 2003 | |||||
2004 | 2003 | ||||
Assets | |||||
Current assets: | |||||
Cash and cash equivalents | $ | 1,067,448 | $ | 1,550,072 | |
Short-term investments | 415,201 | 926,192 | |||
Accounts and other receivables (note 8) | 61,035 | 44,288 | |||
Prepaid expenses | 521,889 | 31,360 | |||
2,065,573 | 2,551,912 | ||||
Mineral properties and deferred exploration costs (note 4) | 19,853,296 | 18,672,446 | |||
Equipment and leasehold improvements (note 5) | 173,504 | 200,207 | |||
$ | 22,092,373 | $ | 21,424,565 | ||
Liabilities and Shareholders' Equity | |||||
Current liabilities: | |||||
Accounts payable and accrued liabilities | $ | 146,672 | $ | 459,000 | |
Future income taxes (notes 3 and 6) | 647,565 | 647,565 | |||
Shareholders' equity: | |||||
Share capital (note 7) | 42,145,471 | 39,423,971 | |||
Share subscriptions received (note 7(b)) | - | 125,000 | |||
Deficit | (20,847,335) | (19,230,971) | |||
21,298,136 | 20,318,000 | ||||
$ | 22,092,373 | $ | 21,424,565 | ||
Nature of operations (note 1) | |||||
Commitments (note 9) | |||||
Subsequent events (note 10) | |||||
See accompanying notes to consolidated financial statements. | |||||
1
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Consolidated Statements of Operations and Deficit (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 | |||||||
- | - | - | |||||
- | - |
2004
2003
2002
Amortization
$
54,643
$
63,509
$
92,227
Annual general meeting
21,894
11,889
10,611
Capital tax
(46,052)
125,477
-
Consulting and management fees
140,099
170,468
98,899
Insurance
65,744
48,735
40,011
Memberships, courses and publications
6,551
14,628
16,192
Office and administration
82,643
110,123
116,264
Office rentals
103,134
142,148
88,467
Press releases
23,642
16,638
12,448
Printing and mailing
19,266
9,261
4,658
Professional fees
201,167
309,556
90,202
Promotions and shareholder relations
8,408
92,876
83,790
Salaries and benefits
604,368
637,327
351,975
Sustainable development
-
18,879
-
Telephone and fax
29,592
42,189
33,420
Training
14,433
-
-
Transfer agent and listing
68,895
85,432
36,236
Travel and accommodation
40,284
78,906
53,875
1,438,711
1,978,041
1,144,038
Other earnings (expenses):
Foreign exchange
48,630
(104,989)
(13,509)
Interest, net
30,626
75,876
83,692
Loss on sale of asset
(12,692)
-
(6,137)
Gain on sale of short-term investment
10,774
(36,102)
-
Property investigation costs
(254,991)
(380,086)
(204,952)
-
(1,031,436)
(59,014)
(177,653)
(1,476,737)
(199,920)
Loss before income taxes
(1,616,364)
(3,454,778)
(1,343,958)
Future income tax recovery
-
440,000
-
Loss for the year
(1,616,364)
(3,014,778)
(1,343,958)
Deficit, beginning of year
(19,230,971)
(16,216,193)
(14,872,235)
Deficit, end of year
$
(20,847,335)
$
(19,230,971)
$
(16,216,193)
Basic and diluted loss per share
$
(0.02)
$
(0.04)
$
(0.02)
81,056,126
78,839,344
56,759,051
See accompanying notes to consolidated financial statements.
2
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Consolidated Statements of Cash Flows (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 | ||||||||||
2004 | 2003 | 2002 | ||||||||
Cash provided by (used in): | ||||||||||
Operations: | ||||||||||
Loss for the year | $ | (1,616,364) | $ | (3,014,778) | $ | (1,343,958) | ||||
Items not affecting cash: | ||||||||||
Amortization | 54,643 | 63,509 | 92,227 | |||||||
Loss on sale of asset | 12,692 | - | 6,137 | |||||||
Gain on sale of short-term investments | (10,744) | 36,102 | - | |||||||
Write-off of mineral properties and deferred exploration costs | - | - | - | 1,031,436 | - | 59,014 | ||||
Future income tax recovery | - | (440,000) | - | |||||||
(1,559,773) | (2,323,731) | (1,186,580) | ||||||||
Changes in non-cash working capital | ||||||||||
Accounts receivable and other receivables | (16,747) | 12,579 | 114,314 | |||||||
Prepaid expenses | (490,529) | 24,901 | (41,010) | |||||||
Accounts payable and accrued liabilities | (312,328) | 240,018 | (358,693) | |||||||
(2,379,377) | (2,046,233) | (1,471,969) | ||||||||
Investments: | ||||||||||
Mineral properties and deferred exploration costs - net of option payments received | (1,180,850) | (1,151,327) | (1,370,148) | |||||||
Equipment and leasehold improvement additions | (40,660) | (44,611) | (187,870) | |||||||
Sale (purchase) of short-term investments, net | 521,763 | (962,294) | - | |||||||
Proceeds on disposal of asset | - | - | 13,150 | |||||||
Restricted cash | - | - | 500,000 | |||||||
Business acquisition costs, net of cash acquired of $13,454 (note 3) | - | - | (95,229) | |||||||
(699,747) | (2,158,232) | (1,140,097) | ||||||||
Financing: | ||||||||||
Share capital issued - net of issuance costs | - | 2,596,500 | - | 3,602,265 | - | 2,074,545 | ||||
Share subscriptions received | - | - | 125,000 | - | ||||||
- | - | 2,596,500 | - | 3,727,265 | - | 2,074,545 | ||||
Increase (decrease) in cash and cash equivalents | (482,624) | (477,200) | (537,521) | |||||||
Cash and cash equivalents, beginning of year | 1,550,072 | 2,027,272 | 2,564,793 | |||||||
Cash and cash equivalents, end of year | $ | 1,067,448 | $ | 1,550,072 | $ | 2,027,272 | ||||
Supplementary information: | ||||||||||
Interest received, net | $ | 50,382 | $ | 47,428 | $ | 76,031 | ||||
Non-cash transactions: | ||||||||||
Shares issued for acquisition of Tanzam 2000 (note 3) | - | - | 7,000,000 | |||||||
See accompanying notes to consolidated financial statements. |
3
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 | |||
1. | Nature of operations: | ||
The Company is in the process of exploring its mineral properties and has not yet determined whether these properties contain mineral deposits that are economically recoverable. Consequently, the Company considers itself to be an exploration stage company. Although at August 31, 2004 the Company has funding commitments (note 4) which exceed funds on hand, subsequent to year end the Company has realized additional funds from equity transactions (note 10) and, if necessary, could adjust the extent and timing of certain expenditures. The recoverability of the amounts shown for mineral properties and related deferred costs are ultimately dependent upon the existence of economically recoverable reserves, securing and maintaining title and beneficial interest in the properties, obtaining necessary financing to explore and develop the properties, entering into agreements with others to explore and develop the mineral properties, and upon future profitable production or proceeds from disposition of the mineral properties. The amounts shown as mineral properties and deferred exploration expenditures represent net costs incurred to date, being less amounts recovered from third parties and/or written off, and do not necessarily represent present or future values. | |||
2. | Significant accounting policies: | ||
These consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles. A reconciliation of material measurement differences to accounting principles generally accepted in the United States and practices prescribed by the Securities and Exchange Commission is provided in note 11. | |||
(a) | Principles of consolidation: | ||
These consolidated financial statements include the accounts of Tan Range Exploration Corporation and its subsidiaries. All intercompany amounts are eliminated on consolidation. | |||
(b) | Translation of foreign currencies: | ||
The measurement currency of the Company in these consolidated financial statements is the Canadian dollar. The Company's subsidiaries are considered integrated foreign subsidiaries and their accounts are translated using the temporal method. Under this method, monetary assets and liabilities are translated at the prevailing year-end exchange rates. Non-monetary assets are translated at historical exchange rates. Revenue and expense items are translated at the average rate of exchange for the year except for those arising from non-monetary assets which are translated at the historical exchange rate. Translation gains and losses are included in the statements of operations and deficit. | |||
(c) | Cash and cash equivalents: | ||
Cash and cash equivalents consist of cash on deposit with banks or highly liquid short-term interest-bearing securities with maturities at purchase dates of three months or less when acquired. | |||
(d) | Short-term investments: | ||
Interest-bearing securities having a term in excess of three months but less than one year are classified as short-term investments. Short-term investments are stated at the lower of cost and market value. |
4
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
2. | Significant accounting policies (continued): | ||
(e) | Mineral properties and deferred exploration costs: | ||
The Company holds various positions in mineral property interests, including prospecting licences, reconnaissance licences, and options to acquire mining licences or leases. All of these positions are classified as mineral properties for financial statement purposes. | |||
Acquisition costs and exploration costs, including option payments, relating to mineral properties are deferred until the properties are brought into production, at which time they are amortized on a unit-of-production basis, or until the properties are abandoned, sold or to be sold or management determines that the mineral property is not economically viable, at which time the unrecoverable deferred costs are written off. Option payments arising on the acquisition of mineral property interests are exercisable at the discretion of the Company and are recognized as paid or payable. | |||
Amounts recovered from third parties to earn an interest in the Company's mineral properties are applied as a reduction of the mineral property and deferred exploration costs. | |||
Overhead costs directly related to exploration are allocated to the mineral properties explored during the year and are deferred and are to be amortized using the same method applied to property-specific exploration costs. All other overhead and administration costs are expensed in the year they are incurred. | |||
Under CICA Handbook Section 3061, "Property, Plant and Equipment", for a mining property, the cost of the asset includes exploration costs if the enterprise considers that such costs have the characteristics of property, plant and equipment. Emerging Issue Committee Abstract 126, "Accounting by Mining Enterprises for Exploration Costs", ("EIC-126") states that a mining enterprise that has not established mineral reserves objectively, and therefore does not have a basis for preparing a projection of the estimated cash flow from the property, is not precluded from considering the exploration costs to have the characteristics of property, plant and equipment. EIC-126 also sets forth the EIC's consensus that a mining enterprise in the development stage is not required to consider the conditions in Accounting Guideline No. 11 "Enterprises in the Development Stage" ("AcG 11") regarding impairment in determining whether exploration costs may be initially capitalized. With respect to impairment of capitalized exploration costs, EIC-126 sets forth the EIC's consensus that a mining enterprise in the development stage that has not established mineral reserves objectively, and, therefore, does not have a basis for preparing a projection of the estimated cash flow from the property, is not obliged to conclude that capitalized costs have been impaired. However, such an enterprise should consider the conditions set forth in AcG 11 and CICA Handbook Section 3061 in determining whether a subsequent write-down of capitalized exploration costs related to mining properties is required. | |||
The Company considers that its exploration costs have the characteristics of property, plant and equipment, and, accordingly, defers such costs. Furthermore, pursuant to EIC-126, deferred exploration costs would not automatically be subject to regular assessment of recoverability, unless conditions, such as those discussed in AcG 11, exist. |
5
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
2. | Significant accounting policies (continued): | ||||
(e) | Mineral properties and deferred exploration costs (continued): | ||||
The Company follows these recommendations and therefore the unproven mineral property claim costs are initially capitalized. Such assets are tested for impairment in accordance with the provisions of the CICA Handbook Section 3063, "Impairment of Long-Lived Assets". Mineral properties and deferred exploration costs are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recognized if, at the date it is tested for recoverability, the carrying amount of the mineral property exceeds the sum of the undiscounted cash flows expected to result from its production and/or eventual disposition. The impairment loss is measured as the amount by which the carrying amount of the mineral property exceeds its fair value. | |||||
(f) | Equipment and leasehold improvements: | ||||
Equipment and leasehold improvements, other than mineral properties and deferred exploration and development costs, are recorded at cost and amortization is provided for on a declining balance basis using the following rates: | |||||
Assets | Rate | ||||
Machinery and equipment | 20% to 30% | ||||
Automotive | 30% | ||||
Computer equipment | 30% | ||||
Leasehold improvements | 20% | ||||
(g) | Stock-based compensation: | ||||
Effective September 1, 2002, the Company adopted the new standard of the Canadian Institute of Chartered Accountants with respect to the accounting for stock-based compensation and other stock-based payments. The new standards have been applied prospectively. All stock-based compensation will be determined based on the fair value method and expensed over the vesting period. | |||||
As the Company did not grant any stock options or had no other stock-based payments during the years ended August 31, 2004 and 2003, the new accounting standard has had no effect on these consolidated financial statements. Consideration paid on the exercise of stock options is credited to share capital. | |||||
(h) | Income taxes: | ||||
The Company follows the asset and liability method of accounting for income taxes. Under the asset and liability method, future income tax assets and liabilities are determined based on differences between the financial statement carrying values of existing assets and liabilities and their respective income tax bases (temporary differences) and loss carry forwards, and are measured using the enacted or substantively enacted tax rates expected to be in effect when the temporary differences are likely to reverse. Future tax benefits, such as non-capital loss carry forwards, are recognized if realization of such benefits is considered more likely than not. |
6
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
2. | Significant accounting policies (continued): | ||||
i) | Loss per share: | ||||
Loss per share has been calculated using the weighted average number of common shares issued and outstanding. Shares held in escrow subject to performance conditions for release are considered contingently issuable shares and are excluded from the weighted average number of shares used in calculating loss per share. Outstanding stock options, special warrants and share purchase warrants, all of which could potentially dilute basic loss per share, have not been included in the computation of diluted loss per share because to do so would be anti-dilutive. | |||||
(j) | Financial instruments: | ||||
The Company's financial assets and liabilities consist of cash and cash equivalents, short-term investments, accounts and other receivables and accounts payable and accrued liabilities. The fair value of the Company's financial assets and liabilities is estimated to approximate their carrying value. | |||||
(k) | Use of estimates: | ||||
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the year. Areas requiring the use of estimates and measurement uncertainties include the valuation and impairment of value of mineral properties and deferred exploration costs and the determination of future income taxes. Actual results may differ from management's estimates. | |||||
(l) | Segmented information: | ||||
The Company's principal operations are located in Tanzania. The Company conducts its business in a single operating segment being the investment in and exploration of mineral properties. Substantially all mineral properties (note 4) and equipment and leasehold improvements are situated in Tanzania (note 5). | |||||
3. | Acquisition of the business of Tanzania American International Development Corporation Limited ("Tanzam 2000"): | ||||
On April 30, 2002, the Company completed the acquisition of 100% of the issued and outstanding shares of Tanzam 2000 in exchange for 20,000,000 shares of the Company valued at $0.35 per share, which value reflected the market price of the Company's common shares around February 15, 2002, the date the Company agreed to acquire Tanzam 2000 by way of a letter agreement and announced the acquisition. Tanzam 2000 is engaged in gold exploration in the Republic of Tanzania. The results of operations and cash flows of Tanzam 2000 have been included in these financial statements from April 30, 2002. |
7
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
3. | Acquisition of the business of Tanzania American International Development Corporation Limited ("Tanzam 2000") (continued): | ||||||
The purchase price has been allocated to the identifiable assets acquired and liabilities assumed based upon their fair values at the date of acquisition. | |||||||
Assets acquired: | |||||||
Current assets | $ | 13,454 | |||||
Equipment | 29,323 | ||||||
Mineral properties | 8,166,292 | ||||||
8,209,069 | |||||||
Liabilities assumed: | |||||||
Accounts payable | (12,821) | ||||||
Future income tax liability | (1,087,565) | ||||||
(1,100,386) | |||||||
Net assets acquired | $ | 7,108,683 | |||||
Consideration paid: | |||||||
Shares issued | $ | 7,000,000 | |||||
Acquisition costs | 108,683 | ||||||
$ | 7,108,683 | ||||||
4. | Mineral properties and deferred exploration costs: | ||||||
The Company acquires gold or other precious metal concessions through its own efforts or through the efforts of its subsidiaries. All of the Company's concessions are located in Tanzania. | |||||||
For each concession granted in Tanzania under a prospecting or a reconnaissance licence, the Company is required to carry out a minimum amount of exploration work before a mining licence can be granted for further development. Commencing with the new mining act issued in Tanzania in 1998, a prospecting licence is issued for a period of up to three years and renewable two times for a period up to two years each. At each renewal at least 50% of the remaining area is relinquished. A reconnaissance licence is issued for one year and renewed for a period not exceeding a year. All prospecting licences are granted subject to an annual rental fee of not more than U.S. $30 per square kilometer payable to the government of Tanzania, a minimum exploration work commitment, and employment and training of Tanzanians. In addition, the government of Tanzania imposes a royalty on the gross value of all production at the rate of 3% of all gold produced. |
8
4. | Mineral properties and deferred exploration costs (continued): | |||||||||||||||||||||||
The continuity of expenditures on mineral properties is as follows: | ||||||||||||||||||||||||
Itetemia Project (a) | Luhala Project (b) | Kigosi (c) | Lunguya (d) | Kanagele (e) | Tulawaka (f) | Ushirombo (g) | Mbogwe (h) | Biharamulu (i) | Other (j) | Total | ||||||||||||||
Balance, August 31, 2001 | $ 6,762,014 | $ 1,949,444 | $ - | $ - | $ - | $ 315,608 | $ - | $ - | $ - | $ 48,063 | $ 9,075,129 | |||||||||||||
Camp, field supplies and travel | 31,826 | 8,647 | - | 5,497 | - | - | - | - | - | 698 | 46,668 | |||||||||||||
Exploration and field overhead | 155,871 | 198,784 | 9,144 | 140,702 | - | - | 1,258 | 18,191 | - | 9,612 | 533,562 | |||||||||||||
Geological consulting and field wages | 70,900 | 73,104 | - | - | - | - | - | - | - | - | 144,004 | |||||||||||||
Geophysical and geochemical | 30,342 | 137,157 | 532 | 8,572 | 5,504 | - | - | 2,287 | 3,173 | 20,556 | 208,123 | |||||||||||||
Property acquisition costs (note 3) | 82,583 | 57,125 | 1,062,840 | 1,945,732 | 780,061 | 1,111,747 | 1,328,744 | 976,320 | 676,696 | 144,444 | 8,166,292 | |||||||||||||
Property option costs | - | - | - | - | - | - | - | - | - | 131,513 | 131,513 | |||||||||||||
Parts and equipment | 5,542 | 150 | - | - | - | - | - | - | - | - | 5,692 | |||||||||||||
Trenching and drilling | 149,122 | 73,882 | - | 77,265 | - | - | - | - | - | 317 | 300,586 | |||||||||||||
526,186 | 548,849 | 1,072,516 | 2,177,768 | 785,565 | 1,111,747 | 1,330,002 | 996,798 | 679,869 | 307,140 | 9,536,440 | ||||||||||||||
7,288,200 | 2,498,293 | 1,072,516 | 2,177,768 | 785,565 | 1,427,355 | 1,330,002 | 996,798 | 679,869 | 355,203 | 18,611,569 | ||||||||||||||
Write-offs | - | - | - | - | - | (2,810) | - | (12,608) | - | (43,596) | (59,014) | |||||||||||||
Balance, August 31, 2002 | 7,288,200 | 2,498,293 | 1,072,516 | 2,177,768 | 785,565 | 1,424,545 | 1,330,002 | 984,190 | 679,869 | 311,607 | 18,552,555 | |||||||||||||
Camp, field supplies and travel | 2,512 | 3,747 | 1,223 | 15,687 | 218 | 42 | 24,275 | 2,770 | 1,659 | 6,172 | 58,305 | |||||||||||||
Exploration and field overhead | (143) | 33,543 | 6,240 | 182,437 | 52,319 | 185,825 | 66,311 | 36,418 | 17,743 | 149,041 | 729,734 | |||||||||||||
Geological consulting and field wages | 22 | 314 | 6,510 | 47,786 | 1,234 | - | 5,376 | 130 | 278 | 397 | 62,047 | |||||||||||||
Geophysical and geochemical | 13,910 | 2,814 | 3,298 | 80,985 | 8,465 | - | 24,619 | 16,421 | 1,896 | 34,623 | 187,031 | |||||||||||||
Property option costs | - | 40,519 | 36,183 | - | 6,900 | - | - | - | 12,501 | 57,850 | 153,953 | |||||||||||||
Parts and equipment | - | - | - | 1,454 | - | - | 1,875 | - | - | 2,937 | 6,266 | |||||||||||||
Trenching and drilling | - | - | - | 122,563 | - | - | - | 16,393 | - | - | 138,956 | |||||||||||||
Option payments received | (11,410) | - | - | - | - | (56,974) | (44,419) | (11,410) | (60,752) | - | (184,965) | |||||||||||||
Reclassifications | - | - | 371,411 | - | - | 4,270 | (371,411) | - | - | (4,270) | - | |||||||||||||
4,891 | 80,937 | 424,865 | 450,912 | 69,136 | 133,163 | (293,374) | 60,722 | (26,675) | 246,750 | 1,151,327 | ||||||||||||||
7,293,091 | 2,579,230 | 1,497,381 | 2,628,680 | 854,701 | 1,557,708 | 1,036,628 | 1,044,912 | 653,194 | 558,357 | 19,703,882 | ||||||||||||||
Write-offs | (729,309) | - | - | (35,342) | - | - | (106,386) | - | (10,744) | (149,655) | (1,031,436) | |||||||||||||
Balance, August 31, 2003 | 6,563,782 | 2,579,230 | 1,497,381 | 2,593,338 | 854,701 | 1,557,708 | 930,242 | 1,044,912 | 642,450 | 408,702 | 18,672,446 | |||||||||||||
Camp, field supplies and travel | - | 13,967 | - | 5,528 | 3,406 | - | 1,098 | - | 2,259 | 21,386 | 47,644 | |||||||||||||
Exploration and field overhead | - | 168,588 | 39,175 | 129,371 | 101,526 | 56,643 | 52,614 | 41,485 | 28,182 | 348,888 | 985,189 | |||||||||||||
Geological consulting and field wages | 18,717 | 1,274 | - | - | - | - | - | - | - | (21,113) | (19,839) | |||||||||||||
Geophysical and geochemical | - | 4,813 | 3,986 | 60,625 | 73,524 | 2,598 | 16,065 | 2,288 | 5,244 | 91,976 | 261,119 | |||||||||||||
Property option costs | - | 50,546 | - | - | 21,706 | - | - | - | 274 | 164,833 | 237,359 | |||||||||||||
Parts and equipment | - | 108 | - | - | - | - | - | - | - | 109 | 217 | |||||||||||||
Trenching and drilling | - | 1,095 | - | - | - | - | - | - | - | - | 1,095 | |||||||||||||
Option payments received | (17,496) | - | (58,811) | - | - | (88,926) | (123,275) | (17,496) | (25,930) | - | (331,934) | |||||||||||||
Reclassifications | - | - | 286,762 | - | - | - | (286,762) | - | - | - | - | |||||||||||||
1,221 | 240,391 | 271,112 | 195,524 | 200,162 | (29,685) | (340,260) | 26,277 | 10,029 | 606,079 | 1,180,850 | ||||||||||||||
Balance, August 31, 2004 | $ 6,565,003 | $ 2,819,621 | $ 1,768,493 | $ 2,788,862 | $ 1,054,863 | $ 1,528,023 | $ 589,982 | $ 1,071,189 | $ 652,479 | $ 1,014,781 | $ 19,853,296 |
9
TAN RANGE EXPLORATION CORPORATION Notes to Consolidated Financial Statements Years ended August 31, 2004, 2003 and 2002 |
4. | Mineral properties and deferred exploration costs (continued): | |||||||
The Company has assessed the carrying value of mineral properties and deferred exploration costs as at August 31, 2004 and concluded that additional write-downs are not required. | ||||||||
(a) | Itetemia Project: | |||||||
The Itetemia property consists of nine contiguous prospecting licences (2003 - six prospecting licences). Collectively, the Company refers to these concessions as the Itetemia Project. | ||||||||
One prospecting licence is subject to a 3% net smelter royalty. | ||||||||
The Company acquired a 90% interest in another of the prospecting licences through an agreement with the State Mining Corporation ("Stamico") dated July 18, 1994. Stamico retains a 2% royalty interest as well as a right to earn back an additional 20% interest in the prospecting licence by meeting 20% of the costs required to place the property into production. The Company retains the right to purchase one-half of Stamico's 2% royalty interest in exchange for US$1,000,000. | ||||||||
On December 6, 1999, Barrick Gold Corporation (Barrick) closed an agreement with the Company granting Barrick the exclusive option to earn an undivided 60% interest in the Itetemia Project. To exercise its option and maintain its rights beyond April 30, 2005, Barrick must make a positive production decision with respect to the Itetemia Project which contemplates a rate of production of not less than 100,000 ounces per annum by April 30, 2005. In addition, Barrick must finance the entire project, with the Company to repay its portion of the costs from its share of the net proceeds of production. Once a production decision is taken by Barrick, if the property is not in production on a stand-alone basis within 18 months, or within 12 months on a custom-milling basis, Barrick must make penalty payments to the Company as follows: | ||||||||
Year one | US$ | 500,000 | ||||||
Year two | 750,000 | |||||||
Year three | 1,000,000 | |||||||
Year four and subsequent years | 1,200,000 | |||||||
Payments due after year five will be adjusted for inflation based on the Canadian Consumer Price Index. | ||||||||
In addition to the above, upon exercise of its option, Barrick will assume the Company's right to purchase Stamico's 10% interest in the prospecting licence acquired from Stamico. Should this occur, Barrick has agreed to pay the Company's portion of all production royalties payable from the Itetemia concession to the Tanzanian government. |
10
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
4. | Mineral properties and deferred exploration costs (continued): | |||||||||
(b) | Luhala Project: | |||||||||
The Luhala property consists of five contiguous prospecting licences. Collectively, the Company refers to these concessions as the Luhala Project. | ||||||||||
During the years ended August 31, 2001 and 2000, the Company entered into option agreements to acquire three additional licences, named Shilalo, Ngobo and Sima. For Ngobo, the Company must make payments totalling US$120,000 over six years (US$66,000 paid to date) and for Sima, payments totalling US$84,000 over six years (US$50,000 paid to date) in order to maintain the options. The vendor in each case retains a 2% net smelter return royalty, of which the Company may buy back, in each case, one-half (i.e., 1%) for US$1,000,000. | ||||||||||
For the Shilalo licence, the vendor retains a 2% net smelter return royalty, of which the Company may buy back one-half (i.e., 1%) for US$250,000. | ||||||||||
(c) | Kigosi: | |||||||||
The Kigosi property consists of nine prospecting licences. During the year ended August 31, 2003, the Company reclassified five licences from the Ushirombo and Ushirombo West with deferred costs of $371,411 (note 4(g)) to the Kigosi property. The Company has a 100% interest in one of the licences and, through prospecting and mining option agreements entered into in the 2003 fiscal year, has options to acquire between 51% to 90% interests in the other eight licences. The Company must make payments totalling US$162,000 over eight years (US$22,000 paid to date) and is required to fund all costs of exploration of the properties in order to maintain the options. | ||||||||||
On July 21, 2003, the Company entered into an agreement with Ashanti Goldfields (Cayman) Limited ("Ashanti"), granting Ashanti the option to acquire the total rights, titles and interests of the Company in the nine prospecting licences in the Kigosi area, save and except for a royalty varying between 0.5% to 2% of net smelter returns, depending on the market price of gold, to be paid by Ashanti to the licence owners. To maintain and exercise the option, Ashanti must expend US$300,000 within the first year and US$800,000 within the second year of closing the agreement, complete various diamond drilling requirements and complete a bankable feasibility report within five years of the closing of the agreement. | ||||||||||
Ashanti must also make the following payments to the Company: | ||||||||||
Year one (US$75,00 paid to date) | US$ | 200,000 | ||||||||
Year two | 150,000 | |||||||||
Year three | 180,000 | |||||||||
Year four | 260,000 | |||||||||
Year five | 340,000 | |||||||||
Ashanti and the Company have verbally agreed to a delay in some of these payments pending the conversion of a six month access permit to a twelve month access permit. |
11
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
4. | Mineral properties and deferred exploration costs (continued): | ||
(c) | Kigosi (continued): | ||
In addition, Ashanti must make payments to the Company of US$25,000 for each licence in excess of three held 24 months subsequent to the closing of the agreement and US$25,000 for each licence held in excess of two in subsequent years. | |||
Should Ashanti complete a bankable feasibility report and make a positive production decision before the fifth anniversary date of the closing of the agreement, then the above payments and drilling by Ashanti shall no longer be required. | |||
(d) | Lunguya: | ||
The Lunguya property consists of six prospecting licences (2003 - six prospecting licences). Through prospecting and mining option agreements the Company has options to acquire interests ranging from 60% to 75% in the six licences. To maintain the options, the Company is required to make certain expenditure requirements and fund all exploration costs of the properties. | |||
(e) | Kanagele: | ||
The Kanagele property consists of six prospecting licences. In 2002, the Company entered into an option agreement requiring payments totaling US$72,000 over eight years (US$15,000 paid to date) in exchange for a 90% interest in one prospecting licence and an option to purchase the remaining 10% upon production decision. In 2004, the Company entered into an option agreement for one prospecting license requiring payments of US$145,000 (US$10,000 paid to date) over nine years and another option agreement for one prospecting licence requiring payments of US$90,000 over five years (none paid to date). The Company has options to acquire a 65% interest in the other three licences acquired through prospecting and option agreements. The Company is required to fund all exploration costs of the properties. | |||
(f) | Tulawaka: | ||
The Tulawaka property consists of eight prospecting licences (2003 - eight prospecting licences). Four of the licences are held by the Company and through prospecting and option agreements has options to acquire interests ranging from 65% to 90% in the other four licences. Four licences are subject to an option agreement with Northern Mining Explorations Ltd. ("Northern") (note 4(l)). | |||
During the year ended August 31, 2003, the Company entered into a prospecting mining option agreement to acquire a 90% interest in a prospecting license. The Company must make payments of US$117,000 over nine years, (US$19,000 paid to date) and is required to fund all exploration costs of property to maintain its option. |
12
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
4. | Mineral properties and deferred exploration costs (continued): | |||||||||
(g) | Ushirombo and Ushirombo West: | |||||||||
The Ushirombo and Ushirombo West properties consist of twelve prospecting licences (2003 - eight prospecting licences). The Company holds 100% interest in two of these licences and through prospecting and option agreements has options to acquire interests ranging from 65% to 80% in the other six licences. The Company is required to fund all exploration costs of the properties. Two licences are subject to the option agreement with BEAL (note 4(k)) and one licence is subject to the option agreement with Northern (note 4(l)). | ||||||||||
(h) | Mbogwe: | |||||||||
The Mbogwe property consists of seven licences. The Company, through prospecting and option agreements, has options to acquire interests ranging from 51% to 80% in these licences. The Company is required to fund all exploration costs of the properties. One of the licences is subject to the option agreement with BEAL (note 4(k)). | ||||||||||
(i) | Biharamulu: | |||||||||
The Biharamulu property consists of six prospecting licences. The Company has a 100% interest in two of these licences and through prospecting and option agreements has options to acquire interests ranging from 51% to 65% in the other four licences. The Company is required to fund all exploration costs of the properties. Four of the licences are subject to the option agreement with Northern (note 4(l)). | ||||||||||
(j) | Other: | |||||||||
The twenty-two other properties consist of several prospecting licences. The Company has options to acquire interests in these properties ranging from 51% to 100%. To maintain these licences, the Company must make the following future payments to maintain its options: | ||||||||||
2005 | $ 159,000 | |||||||||
2006 | 164,000 | |||||||||
2007 | 184,000 | |||||||||
2008 | 204,000 | |||||||||
2009 | 204,000 | |||||||||
Thereafter | 757,000 | |||||||||
$ 1,672,000 | ||||||||||
13
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
4. | Mineral properties and deferred exploration costs (continued): | ||||||
(k) | Joint venture with Barrick Exploration Africa Ltd. ("BEAL"): | ||||||
On December 14, 2001, including subsequent modifications, Barrick Exploration Africa Ltd. ("BEAL") closed an agreement with Tanzam 2000 granting BEAL the option to acquire the total rights, titles and interests of the Company in twelve prospecting licences in different properties, herein called the BEAL project. In exchange for this option, BEAL was required to pay US$100. To maintain and exercise the option, BEAL was required to incur US$250,000 in exploration and development on the BEAL project within a year of closing the agreement (completed), and thereafter, BEAL must expend US$50,000 each year for each retained prospecting licence. In addition, BEAL must make the following annual payments to the Company for each retained prospecting licence: | |||||||
December 2002 | US$ | 10,000 | |||||
December 2003 | 20,000 | ||||||
December 2004 | 30,000 | ||||||
December 2005 and subsequent years | 40,000 | ||||||
Within thirty days after commercial production, BEAL must pay the Company US$1,000,000 and an additional US$1,000,000 on each of the next two years. BEAL will also pay the owner of the licence 1.5% of net smelter returns. | |||||||
During the years ended August 31, 2003 and 2002, BEAL filed a notice of relinquishment for all rights, titles, and interests in eight prospecting licenses included in the option agreement. | |||||||
As at August 31, 2004, of the four remaining prospecting licences in the BEAL project, two are located in Ushirombo, one licence is located in Mbogwe and one in Itetemia. | |||||||
(l) | Option Agreement with Northern Mining Explorations Ltd. ("Northern"): | ||||||
On January 20, 2003, as amended on March 18, 2003, the Company entered into an agreement with Northern granting Northern the exclusive option to acquire the total rights, titles and interests of the Company in nine prospecting licences. In exchange for this option, Northern was required to pay US$80,000. In addition, to maintain and exercise the option, Northern must make annual payments for each retained prospecting licence, incur minimum exploration and development expenditures and certain drilling requirements, undertake all obligations of the Company in respect of the licences and complete a feasibility study by December 31, 2008. Upon exercise of the option, the Company shall retain a net smelter return royalty fluctuating between 0.5% to 2% depending on the price of gold. | |||||||
As at August 31, 2004, of the nine prospecting licences optioned to Northern, four are located in Biharamulu, four are located in Tulawaka and one is located in Ushirombo. | |||||||
14
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
5. | Equipment and leasehold improvements: | ||||||||||||
-2004 | - |
Cost
-
Accumulated
amortization
-
Net book
Value
Machinery and equipment
$
88,386
$
33,854
$
54,532
Automotive
169,300
111,231
58,069
Computer equipment
101,471
44,262
57,209
Leasehold improvements
10,770
7,076
3,694
$
369,927
$
196,423
$
173,504
Cost
Accumulated
amortization
Net book
Value
Machinery and equipment
$
256,294
$
190,330
$
65,964
Automotive
275,582
182,095
93,487
Computer equipment
113,929
78,349
35,580
Leasehold improvements
26,828
21,652
5,176
$
672,633
$
472,426
$
200,207
6.
Income taxes:
Income tax expense (recovery) differs from that calculated by applying statutory rates for the following reasons:
2004
2003
2002
35.6%
37.6%
39.6%
Expected recovery of income taxes
$
575,000
$
1,299,000
$
532,000
Tanzanian tax rate differential
(38,000)
(68,000)
(38,000)
-
(51,000)
(38,000)
Non-deductible foreign exploration costs
(133,000)
(112,000)
(409,000)
Write-off of mineral properties
-
(254,000)
(23,000)
Other
53,000
(7,000)
(17,000)
-
1,299,000
-
Change in valuation allowance
(457,000)
(1,666,000)
(7,000)
Income tax recovery
$
-
$
440,000
$
-
15
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
6. | Income taxes (continued): | |||||||||||||||||||
The tax effects of significant temporary differences which would comprise tax assets and liabilities at August 31, 2004 and 2003 are as follows: | ||||||||||||||||||||
2004 | 2003 | |||||||||||||||||||
Future income tax assets: | ||||||||||||||||||||
Equipment | $ | 173,000 | $ | 136,000 | ||||||||||||||||
Non-capital losses for tax purposes | 3,911,000 | 3,358,000 | ||||||||||||||||||
Capital losses for tax purposes | 45,000 | 45,000 | ||||||||||||||||||
Resource related deductions carried forward |
1,130,000
1,263,000
5,259,000
4,802,000
Valuation allowance
(5,259,000)
(4,802,000)
Net future income tax assets
$
-
$
-
Future income tax liabilities:
Mineral properties
$
647,565
$
647,565
Net future income tax liabilities
$
647,565
$
647,565
At August 31, 2004, the Company has approximately $7,279,000 of Canadian non-capital losses available for income tax purposes to reduce Canadian taxable income in future years that expire as follows:
2005
$
2,266,000
2006
625,000
2007
602,000
2008
694,000
2009
733,000
2010
1,508,000
2011
851,000
$
7,279,000
The Company has a capital loss carry forward of approximately $250,000 which is available indefinitely to reduce future capital gains for tax purposes.
In assessing the recoverability of future tax assets, management considers whether it is more likely than not that some portion or all of the future tax assets will not be realized. The ultimate realization of future tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. As the Company's future income tax liabilities are situated in a different tax jurisdiction than its future tax assets, the Company is not able to utilize the future tax assets as a reduction of the future tax liabilities.
16
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
7. | Share capital: | |||||||||||
(a) | Authorized: | |||||||||||
| 91,000,000 common voting shares (2003 - 91,000,000; 2002 - unlimited number of common voting shares) | |||||||||||
(b) | Issued common shares and warrants: | |||||||||||
Number |
| Amount | ||||||||||
|
| |||||||||||
Balance, August 31, 2001 | 50,760,978 | $ | 26,747,161 | |||||||||
Stock options exercised | 1,756,000 |
| 795,995 | |||||||||
Issued on exercise of warrants | 2,197,225 |
| 1,380,550 | |||||||||
Issued on acquisition | 20,000,000 |
| 7,000,000 | |||||||||
Subscription receivable | - |
| (102,000) | |||||||||
|
| |||||||||||
Balance, August 31, 2002 | 74,714,203 |
| 35,821,706 | |||||||||
Issued for cash | 474,064 |
| 700,000 | |||||||||
Collection of previous year's subscription receivable | - | 102,000 | ||||||||||
Stock options exercised | 2,454,000 |
| 1,255,700 | |||||||||
Issued on exercise of warrants | 2,549,275 |
| 1,544,565 | |||||||||
|
| |||||||||||
Balance, August 31, 2003 | 80,191,542 |
| 39,423,971 | |||||||||
Issued for cash | 1,477,050 |
| 2,250,000 | |||||||||
Issued for share subscription previously received | 65,445 |
| 125,000 | |||||||||
Stock options exercised | 730,000 |
| 346,500 | |||||||||
|
| |||||||||||
Balance, August 31, 2004 | 82,464,037 | $ | 42,145,471 | |||||||||
The Company had no share purchase warrants outstanding at August 31, 2004. A continuity of share purchase warrants for the year ending August 31, 2003 is as follows: | ||||||||||||
|
Balance, | - | - | - | Balance, | - | - | ||
August 31, | August 31, | Exercise | ||||||
2002 | Exercised | Expired | 2003 | price | Expiry date | |||
150,000 | 150,000 | - | - | $ | 0.70 | October 9, 2002 | ||
2,362,275 | 2,237,275 | 125,000 | - | 0.60 | September 5, | |||
2002 | ||||||||
162,000 | 162,000 | - | - | 0.60 | May 30, 2003 | |||
2,674,275 | 2,549,275 | 125,000 | - | - | - | - |
17
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
7. | Share capital (continued): | |||||||
(b) | Issued common shares and warrants (continued): | |||||||
On March 5, 2003, the Company completed a private placement subscription agreement with the Company's chairman and CEO for the purchase of between $1,500,000 to $3,000,000 worth of common shares of the Company in 24 separate monthly closings. The purchase price of the common shares will be equal to the five day weighted average trading price for the last five consecutive trading days of each month immediately preceding the closing date. Each closing was to be between $62,500 to $125,000. As at August 31, 2004, the Company has issued in total 1,394,281 common shares and received $2,075,000 pursuant to this subscription agreement. During the year ended August 31, 2004, in addition to the monthly private placements, the chairman and CEO also subscribed for an additional 622,278 common shares at $1.607 per share, resulting in gross proceeds of $1,000,000 to the Company. | ||||||||
(c) | Stock options: | |||||||
The Company has a stock option plan which is administered by the board of directors and options are granted at their discretion. The number of shares reserved, set aside and available for issue under the plan should not exceed 8,109,132 or such greater number of shares as may be determined by the board and approved, if required, by the shareholders of the Company and by any relevant stock exchange or regulatory authority. Options must expire no later than five years from the date such options are granted. The purpose of granting such options is to assist the Company in compensating, attracting, retaining and motivating directors, officers and employees of the Company and to closely align the personal interests of those directors, officers and employees with those of the shareholders. Stock option activity during the three years ended August 31, 2004 was as follows: | ||||||||
Number | Weighted | |||||||
Outstanding, August 31, 2001 | 5,985,000 | $ 0.53 | ||||||
Granted | 885,000 | 0.80 | ||||||
Exercised | (1,756,000) | 0.45 | ||||||
Cancelled | (1,030,000) | 0.72 | ||||||
Outstanding, August 31, 2002 | 4,084,000 | 0.56 | ||||||
Exercised | (2,454,000) | 0.51 | ||||||
Cancelled | (375,000) | 0.79 | ||||||
Outstanding, August 31, 2003 | 1,255,000 | 0.59 | ||||||
Exercised | (730,000) | 0.47 | ||||||
Outstanding, August 31,2004 | 525,000 | 0.76 | ||||||
18
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
7. | Share capital (continued): | ||||||
(c) | Stock options: | ||||||
At August 31, 2004, the following director and employee stock options were outstanding and exercisable: | |||||||
Number of | Exercise price | Expiry date | |||||
50,000 | $ 0.50 | January 19, 2005 | |||||
15,000 | 0.51 | August 7, 2006 | |||||
400,000 | 0.79 | May 3, 2007 | |||||
10,000 | 0.96 | May 23, 2007 | |||||
50,000 | 0.83 | June 20, 2007 | |||||
525,000 | |||||||
(d) | Employee stock ownership plan: | ||||||
On May 1, 2003, the Company established a non-leveraged employee stock ownership plan ("ESOP") for all eligible employees, consultants, and directors. The Company matches 100 percent of participants' contributions up to 5 percent of the participants' salaries and 50 percent of participants' contributions between 5 percent and 30 percent of the participants' salaries. All contributions fully vest immediately. ESOP compensation expense for the year ended August 31, 2004 was $47,897 and is included in salaries and benefits expense. | |||||||
(e) | Escrow shares: | ||||||
As of August 31, 2004, nil (2003 - nil; 2002 - 5,000,000) of the Company's issued and outstanding shares were held in escrow pursuant to an Escrow Agreement dated April 30, 2002 relating to the acquisition of Tanzam 2000 (note 3). The escrowed shares were to be released upon the Company receiving a minimum gross amount of $3,000,000 from the sale of securities pursuant to one or more public financings or pursuant to the exercise of a pre-existing right to acquire securities of the Company before April 30, 2003. The conditions were met and the shares were released from escrow during the year ended August 31, 2003. | |||||||
8. | Related party transactions: | ||||||
In addition, to related party transactions disclosed elsewhere in these consolidated financial statements, during the year ended August 31, 2004 $22,435, (2003 - $178,894; 2002 - $143,635) was paid or payable by the Company to certain directors and a former director for consulting fees. Directors were paid $88,470 (2003 - $5,600) for director fees. | |||||||
Accounts and other receivables include $21,000 (2003 - nil) receivable from an entity related to a director. | |||||||
Accounts payable and accrued liabilities include $15,291 (2003 - $16,081) payable to certain directors and a former director for consulting fees. | |||||||
19
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
9. | Commitments: | |
The Company is committed to lease rental payments of $15,700 for the year ending August 31, 2005. In addition, the Company is committed to property payments to maintain options in certain prospecting and mining option agreements (note 4). | ||
10. | Subsequent events: | |
(a) | From September 1, 2004 to November 9, 2004, the Company entered into 28 new prospecting licenses. Twelve of these represent renewals of past licenses. Three require option payments totaling US$207,700 over eight years ($8,700 paid to date), and the remaining were acquired from the government with no option payments. | |
(b) | Subsequent to August 31, 2004, the Company entered into a new royalty agreement with Northern (note 4(l)) whereby Northern will be entitled to earn 100% of the Company's interest in three prospecting licences in the Tulawaka area. Northern is required to make staged cash payments to the Company and incur certain exploration expenditures and complete drilling on a staged basis. The Company retains a net smelter return royalty fluctuating between 0.5% and 2.0% depending on the price of gold. | |
(c) | Subsequent to August 31, 2004, the Company issued 319,518 common shares, to the chairman and CEO of the Company for cash proceeds of $375,000. | |
(d) | On November 23, 2004, the Company was informed that Barrick intends to return to the Company its rights in respect of the prospecting licences covered by the Itetemia project (note 4(a)), and that BEAL intends to return its rights in respect of the two prospecting licences in Ushirombo (note 4(k)). The Company plans to continue exploring these properties. | |
(e) | On January 13, 2005, the Company completed a private placement subscription agreement with the Company's Chairman and CEO for the purchase of an aggregate of $3,000,000 worth of common shares of the Company in eight separate quarterly tranches of $375,000 each. The price to be paid per share on each quarterly closing shall be equal to the five day weighted average trading price of the Company's common shares for the last five consecutive trading days of each quarterly period immediately preceding such closing. The initial quarterly period is to commence February 1, 2005. |
20
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
11. | Reconciliation between Canadian and United States generally accepted accounting principles: | ||
These financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). A description of United States generally accepted accounting principles ("US GAAP") and rules prescribed by the United States Securities and Exchange Commission ("SEC") that result in material measurement differences from Canadian GAAP follows: | |||
(a) | Mineral property and deferred exploration cost: | ||
Under Canadian GAAP, the Company capitalizes mineral property acquisition and exploration costs as described in note 2(e). | |||
For US GAAP purposes, exploration and land use costs (including option payments) on mineral properties are expensed as incurred for US GAAP purposes, until commercially minable deposits are determined to exist within a particular property. Property acquisition costs are capitalized as incurred and are subject to impairment analysis on occurrence of a triggering event, which is effectively a negative event that differs from the Company's original expectations made at the time of the acquisition. During the year ended August 31, 2004, the Company determined that it had previously incorrectly applied its accounting policy for US GAAP purposes and had included property acquisition costs in the amounts to be expensed under US GAAP. Such acquisition costs are now capitalized and will be amortized on a unit of production basis once production commences. The correction of the error in the application of the Company's US GAAP accounting policy has been applied retroactively and has changed the amounts previously reported for US GAAP purposes as follows: increased the mineral property and total assets amounts by $8,009,146, increased the future income tax liability and total liabilities by $515,159 and decreased the deficit by $7,493,987, all as at August 31, 2003; decreased the loss for the year ended August 31, 2003 by $416,854 or nil per share; and decreased the loss for the year ended August 31, 2002 by $7,077,133 or $0.12 per share. | |||
For Canadian GAAP purposes, cash flows relating to mineral property exploration and land use costs are reported as investing activities in the consolidated statements of cash flows. For US GAAP purposes, these costs would be characterized as operating activities in the consolidated statements of cash flows. | |||
During the years ended August 31, 2003 and 2002, the Company wrote down mineral property and deferred exploration costs in its consolidated financial statements prepared in accordance with Canadian GAAP (note 4). The mineral property exploration costs incurred would previously have been expensed for US GAAP and, as such, have been added back to loss from operations under US GAAP for the years ended August 31, 2003 and 2002. | |||
(b) | Income taxes: | ||
As described in note 2(h), the Company follows the asset and liability method of accounting for income taxes. This is consistent with the method used for US GAAP purposes. However, differences to amounts recorded for future income taxes arise on the application of US GAAP to the financial statements due to the differences in accounting for mineral property exploration and land use costs under the different GAAPs. |
21
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
11. | Reconciliation between Canadian and United States generally accepted accounting principles (continued): | ||||||||||
(c) | Stock-based compensation: | ||||||||||
The Company adopted the new recommendations of the Canadian Institute of Chartered Accountants with respect to the accounting for stock-based compensation on September 1, 2002. Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") became effective for US GAAP purposes for fiscal years beginning after December 15, 1995. The statement encourages entities to adopt a fair value methodology of accounting for all stock-based compensation. | |||||||||||
As allowed by SFAS 123, the Company continues to follow the intrinsic value principles of APB Opinion 25, "Accounting for Stock Issued to Employees", in measuring compensation expense for employee options. Under the intrinsic value method, compensation cost is the excess, if any, of the quoted market value of the stock at the measurement date, which is generally the grant date, over the amount an employee must pay to acquire the stock. The application of APB 25 resulted in compensation expense of $61,850 being recognized for stock-based compensation plans for employees prior to August 31, 2001, and no material expense for any of the other periods presented. | |||||||||||
SFAS 123 requires the fair value of the stock options granted to non-employees to be expensed. During the years ended August 31, 2004, 2003 and 2002, this expense was estimated using the Black-Scholes option-pricing model and the following weighted average assumptions: | |||||||||||
Years ended August 31, | |||||||||||
2004 | 2003 | 2002 | |||||||||
Expected dividend yield | - | - | Nil | ||||||||
Expected stock price volatility | - | - | 109% | ||||||||
Risk-free interest rate | - | - | 3.6% | ||||||||
Expected life of options | - | - | 2 years | ||||||||
The cumulative effect of stock options granted to non-employees for the period from implementation of SFAS 123 to August 31, 2001 would have been a $351,555 increase in the deficit and share capital and an expense for each of the years ended August 31, 2004, 2003 and 2002 of nil, nil and $41,523, respectively. |
22
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
11. | Reconciliation between Canadian and United States generally accepted accounting principles (continued): | ||
(c) | Stock-based compensation (continued): | ||
With respect to escrowed shares, US GAAP generally considers escrowed shares to be a compensatory arrangement between the Company and the holder of the shares. Accordingly, the difference between the market value of escrowed shares at the time the shares are eligible for release from escrow and the consideration paid or payable on the issue of the shares is recognized and charged to operations as compensation expense in the period the escrowed shares are eligible for release from escrow. | |||
5,000,000 common shares of the Company held in escrow at August 31, 2002 became eligible for release during fiscal 2003 (note 7(e)). Based on the market price at that time, $2,300,000 has been charged to operations for US GAAP purposes in 2003. No charge was made or required under Canadian GAAP. | |||
(d) | Reconciliation: | ||
The effect of the measurement differences between Canadian GAAP and US GAAP on the consolidated balance sheets and statements of operations and cash flows is summarized as follows: | |||
(i) Assets: |
- | - | 2004 | 2003 | ||||
(Restated - | |||||||
note 11(a)) | |||||||
Assets, under Canadian GAAP | $ | 22,092,373 | $ | 21,424,565 | |||
Adjustment for mineral properties and deferred exploration | |||||||
(note 11(a)) | (11,844,150) | (10,663,300) | |||||
Assets, under US GAAP | $ | 10,248,223 | $ | 10,761,265 | |||
(ii) | Liabilities: | ||||||
- | - | ||||||
- | - | 2004 | 2003 | ||||
(Restated - | |||||||
note 11(a)) | |||||||
Liabilities, under Canadian GAAP | $ | 794,237 | $ | 1,106,565 | |||
Adjustment for future income taxes (note 11(b)) | (150,106) | (132,406) | |||||
Liabilities, under US GAAP | $ | 644,131 | $ | 974,159 |
23
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
11. | Reconciliation between Canadian and United States generally accepted accounting principles (continued): | |
(d) | Reconciliation (continued): |
- | 2004 | 2003 | ||||
Share capital, under Canadian GAAP | $ | 42,145,471 | $ | 39,423,971 | ||
Adjustment for stock-based compensation for employees | ||||||
(note 11(c)) | 61,850 | 61,850 | ||||
Adjustment for stock-based compensation for non- | ||||||
employees (note 11(c)) | 393,078 | 393,078 | ||||
Adjustment for escrow shares (note 11(c)) | 2,300,000 | 2,300,000 | ||||
Share capital, under US GAAP | $ | 44,900,399 | $ | 42,178,899 | ||
(iv) Deficit: | ||||||
2004 | 2003 | |||||
(Restated - | ||||||
note 11(a)) | ||||||
Deficit, under Canadian GAAP | $ | (20,847,335) | $ | (19,230,971) | ||
Adjustment for stock-based compensation for employees | ||||||
(note 11(c)) | (61,850) | (61,850) | ||||
Adjustment for stock-based compensation for non- | ||||||
employees (note 11(c)) | (393,078) | (393,078) | ||||
Adjustment for escrow shares (note 11(c)) | (2,300,000) | (2,300,000) | ||||
Adjustment for mineral property exploration costs (note 11(a)) | (11,844,150) | (10,663,300) | ||||
Adjustment for future income taxes (note 11(b)) | 150,106 | 132,406 | ||||
Deficit, under US GAAP | $ | (35,296,307) | $ | (32,516,793) | ||
24
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
11. | Reconciliation between Canadian and United States generally accepted accounting principles (continued): | |
(d) | Reconciliation (continued): | |
(v) Loss and loss per share: |
Years ended August 31, | |||||||||
2004 | 2003 | 2002 | |||||||
(Restated - | (Restated - | ||||||||
note 11(a)) | note 11(a)) | ||||||||
Loss for the year, under Canadian GAAP | $ | (1,616,364) | $ | (3,014,778) | $ | (1,343,958) | |||
Adjustment for mineral property | |||||||||
exploration costs (note 11(a)) | (1,180,850) | (261,619) | (1,326,552) | ||||||
Adjustment for future income taxes | |||||||||
(note 11(b)) | 17,700 | 118,582 | 13,824 | ||||||
Adjustment for stock-based compensation | |||||||||
for non-employees (note 11(c)) | - | - | (41,523) | ||||||
Adjustment for escrow shares (note 11(c)) | - | (2,300,000) | - | ||||||
Loss for the year, under US GAAP | $ | (2,779,514) | $ | (5,457,815) | $ | (2,698,209) | |||
Basic and diluted loss per share, under | |||||||||
US GAAP | $ | (0.03) | $ | (0.07) | $ | (0.05) | |||
Weighted average number of shares | |||||||||
outstanding | 81,056,126 | 78,839,344 | 56,759,051 | ||||||
(vi) Cash flows: | |||||||||
- | Years ended August 31, | ||||||||
- | 2004 | 2003 | 2002 | ||||||
Cash used in operating activities, under | |||||||||
Canadian GAAP | $ | (2,379,377) | $ | (2,046,233) | $ | (1,471,969) | |||
Adjustment for mineral properties and | |||||||||
deferred exploration (note 11(a)) | (1,180,850) | (1,151,327) | (1,370,148) | ||||||
Cash used in operating activities, under | |||||||||
US GAAP | $ | (3,560,227) | $ | (3,197,560) | $ | (2,842,117) | |||
Cash used in investing activities, under | |||||||||
Canadian GAAP | $ | (699,747) | $ | (2,158,232) | $ | (1,140,097) | |||
Adjustment for mineral properties and | |||||||||
deferred exploration (note 11(a)) | 1,180,850 | 1,151,327 | 1,370,148 | ||||||
Cash provided by (used in) investing | |||||||||
activities, under US GAAP | $ | 481,103 | $ | (1,006,905) | $ | 230,051 | |||
25
TAN RANGE EXPLORATION CORPORATION (An Exploration Stage Company) Notes to Consolidated Financial Statements (Expressed in Canadian dollars) Years ended August 31, 2004, 2003 and 2002 |
11. | Reconciliation between Canadian and United States generally accepted accounting principles (continued): | |
(e) | Recent pronouncements: | |
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS No. 150"). SFAS 150 requires that certain financial instruments issued in the form of shares that are mandatorily redeemable as well as certain other financial instruments be classified as liabilities in the financial statements. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003. The adoption of SFAS 150 has not had a material affect on the Company's consolidated financial statements. | ||
In addition, the FASB and Emerging Issues Task Force ("EITF") have issued a variety of interpretations including the following interpretations with wide applicability: | ||
| ||
To date, the adoption of FIN 46 and EITF 00-21 has not impacted the Company's consolidated financial statements. | ||
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R"), which replaces FASB's SFAS No. 123, "Accounting for Stock-Based Compensation", and supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees". SFAS No. 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award - the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Employee share purchase plans will not result in recognition of compensation cost if certain conditions are met; those conditions are much the same as the related conditions in SFAS No. 123. SFAS No. 123R will be effective for the Company commencing September 1, 2005. The Company does not expect the adoption of SFAS No. 123R to have a material effect on its consolidated financial statements as the Company presently has a policy of not granting stock options. |
26
Item 18.
Financial Statements
Not Applicable.
Item 19.
Exhibits
(a)
Exhibits
(4)(a)
-
Option Agreement dated September 7, 2004 between the Company and Northern Mining Explorations Ltd.
Subscription Agreement dated January 13, 2005 between the Company and James E. Sinclair.
75
12.1
Certification of the Principal Executive Officer under the Sarbanes-Oxley Act
12.2
Certification of the Principal Financial Officer under the Sarbanes-Oxley Act
13.
Certificate under section 906.
76
SIGNATURE
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.
Dated:
January 17, 2005
TAN RANGE EXPLORATION CORPORATION
By:
"James E. Sinclair"
James E. Sinclair,
Chairman and Chief Executive Officer
EXHIBIT 12.1
CERTIFICATIONS
I, James E. Sinclair, certify that:
1.
I have reviewed this annual report on Form 20-F of Tan Range Exploration Corporation;
2.
Based on my knowledge, this 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 report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.
The Company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Omitted;
(c)
Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and
5.
The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.
Date: January 17, 2005
"James E. Sinclair"
James E. Sinclair,
Chairman and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 12.2
CERTIFICATION
I, Victoria Luis, certify that:
1.
I have reviewed this annual report on Form 20-F of Tan Range Exploration Corporation;
2.
Based on my knowledge, this 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 report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.
The Company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Omitted;
(c)
Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and
5.
The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.
Date: January 17, 2005
"Victoria Luis"
Victoria Luis,
Chief Financial Officer and Secretary
(Principal Financial Officer)
Exhibit 13
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF
TITLE 18,UNITED STATES CODE)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), each of the undersigned officers of Tan Range Exploration Corporation (the "Company"), does hereby certify with respect to the Annual Report of the Company on Form 20-F for the year ended August 31, 2004 as filed with the Securities and Exchange Commission (the "Form 20-F") that, to the best of their knowledge:
(1)
the Form 20-F fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
the information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: January 17, 2005
"James E. Sinclair"
James E. Sinclair,
Chairman and Chief Executive Officer
(Principal Executive Officer)
"Victoria Luis"
Victoria Luis,
Chief Financial Officer and Secretary
(Principal Financial Officer)