Expenses and Other Income
Three months ended September 30, 2007
|
|
|
Three months ended September 30
|
|
|
|
2007
|
|
2006
|
|
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
$
|
1,835
|
$
|
1,118
|
$
|
717
|
|
64%
|
|
Bellavista Mine write-down
|
|
53,797
|
|
-
|
|
53,797
|
|
-%
|
|
Care and maintenance
Stock options
|
|
2,287
270
|
|
-
803
|
|
2,287
(533)
|
|
-%
(66%)
|
|
Exploration
|
|
584
|
|
137
|
|
447
|
|
326%
|
|
Other (income) expense
|
|
858
|
|
243
|
|
615
|
|
253%
|
|
Non-controlling interest
|
|
(8)
|
|
-
|
|
(8)
|
|
-%
|
|
|
$
|
59,623
|
$
|
2,301
|
$
|
57,322
|
|
2,491%
|
General and administrative expenses increased $717,000 or 64% over the same period in the previous year and includes $641,000 spent in the third quarter of 2007 on engineering costs, consulting fees and other expenditures related to the Libertad Mine mill project. Engineering and administrative costs relating to this project will be expensed until a positive final feasibility study is available for this project. The increases of the Libertad mill expenditures were partially offset by a $109,000 reduction in salaries and benefits. This was a direct result of a program of cost-cutting implemented in the third quarter of 2007.
Glencairn identified a ground movement problem in the heap leach pad occurring at its Bellavista Mine during the third quarter of 2007. Since that time, mining activities were suspended while management brought in third-party consultants to evaluate and assess the viability of a cost feasible solution. On September 30, 2007, property, plant and equipment at the Bellavista Mine were written-down to their estimated recoverable values due to the ongoing uncertainty of the mine resuming operations in the foreseeable future. A write-down of $43,512,000 was recorded against property, plant and equipment. The carrying value after the write-down reflects management’s best estimate of the residual value of the mining property. In addition, product and supplies inventories were written-down by $9,118,000 and $1,167,000, respectively.
Care and maintenance costs of $631,000 incurred at the Libertad Mine were incurred to maintain a proper state of upkeep while mining operations were suspended. These costs primarily relate to the maintenance of a basic administrative function as well as expenditures on electricity, property holding costs, and caretaking activities. Also included in care in maintenance were costs of $1,656,000 not directly related to the production of gold at the Bellavista Mine.
Stock options expense decreased by $533,000 or 66% over the same period in the previous fiscal year. During the third quarter of 2007, 150,000 options were granted. Glencairn amended its vesting policy in the third quarter of 2006 whereby options would vest over an 18 month period. Previous to the third quarter of 2006, options vested on the grant date. Total stock-based compensation amounted to $270,000 as a result of vesting options.
In the third quarter of 2007, exploration expenses were $584,000. These costs
relate mainly to work being performed on the feasibility study for the Libertad
Mill project. In late 2005, all Nicaraguan exploration activities were suspended
for an indefinite period after a three-week labour disruption at the Limon
operations. The exploration program resumed in the third quarter of 2006 after
the acquisition of the Libertad Mine, and the Cerro Quema and Mestiza properties
in the third quarter of 2006.
11
In the third quarter of 2007 the Company made a decision to dispose of all non-core assets and liquidated a significant portion of its marketable security holdings. A gain of $829,000 was recognized, for proceeds of $1,223,000, on the disposition of the securities. These gains on the sale of marketable securities were included in other income.
Other components of income and other expenses included: interest and other miscellaneous gains of $136,000; $1,104,000 in losses from the settlement of various litigation matters, most notably the Blue Hill litigation. In August 2007, the Company reached a final settlement of litigation in both the State of Maine and in Ontario regarding remediation of the Blue Hill site in Maine. The Company has expensed an amount of $1,000,000 relating to this settlement. The Company has also recorded a provision of $847,000 related to uncollectible tax receivables.
Non-controlling interest represents 40% of Cerro Quema owned by a minority interest.
Nine months ended September 30, 2007
|
|
|
Nine months ended September 30
|
|
|
|
2007
|
|
2006
|
|
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
$
|
4,655
|
$
|
3,249
|
$
|
1,406
|
|
43%
|
|
Bellavista Mine write-down
|
|
53,797
|
|
-
|
|
53,797
|
|
-%
|
|
Care and maintenance
Stock options
|
|
3,052
933
|
|
-
1,017
|
|
3,052
(84)
|
|
-%
(8%)
|
|
Exploration
|
|
1,761
|
|
237
|
|
1,524
|
|
643%
|
|
Other expense (income)
|
|
(6,189)
|
|
(187)
|
|
(6,002)
|
|
(3,210%)
|
|
Non-controlling interest
|
|
(91)
|
|
-
|
|
(91)
|
|
-%
|
|
|
$
|
57,918
|
$
|
4,316
|
$
|
53,602
|
|
1,242%
|
General and administrative expense increased by $1,406,000 or 43% over the same period in the previous fiscal year. Of this increase, $995,000 was spent in 2007 on engineering, consulting and other expenditures related to the assessment and preparation of a scoping and feasibility study for a conventional milling circuit at the Libertad Mine. Management’s active cost control plans resulted in decreases to salaries and benefits, legal fees, investor relations expenditures, and travel costs totaling approximately $575,000.
Stock options expense decreased by $84,000 over the same period in the previous fiscal year. As part of Glencairn’s compensation program, stock options are granted to employees and directors from time-to-time. During the nine months ended September 30, 2007, a total of 3,931,000 stock options were granted and the Company recognized an expense of $933,000 using the Black-Scholes option pricing model.
Exploration expense increased by $1,524,000 in 2007 compared with 2006. Nicaraguan exploration activities were suspended from November 2005 to August 2006. In July of 2006, the Company acquired the Libertad Mine and Cerro Quema property and closed a financing that provided the funds to resume exploration work on the properties. Exploration work in the first half of 2007 consisted mainly of drilling at Libertad, exploration drilling and trenching at Limon and Mestiza, and ongoing holding costs. Exploration activities during the third quarter of 2007 were necessary to support the Libertad Mill feasibility report. The balance in 2006 consisted mainly of land holding costs.
Other income totalled $6,189,000 in 2007, an increase of $6,002,000 from 2006.
The Company earned interest and other gains totalling $615,000. Glencairn sold
marketable securities during the first nine months of 2007 resulting in a gain
of $960,000. During the second quarter, the Company recorded a combined gain of
$6,548,000 from the receipt of 2,500,000 Independent Nickel Corp. shares valued
at Cdn$0.79 per share and cash of $4,694,000 (Cdn$5,000,000) related to the sale
of Glencairn’s sliding
12
scale 1-3% net smelter royalty on Victory Nickel
Inc.’s Minago nickel deposit, as well as the 2% net smelter royalty on the
Lynn Lake property, both located in Manitoba. The Company incurred interest
charges of $313,000 on a long-term debt which was fully repaid on June 30, 2007.
The Company recorded $1,104,000 related to the settlement of the Blue Hill
litigation in Maine and other smaller lawsuits stemming from the Nicaraguan
operations. The Company has also recorded a provision of $847,000 related to
uncollectible tax receivables.
Non-controlling interest represents 40% of Cerro Quema owned by a minority interest.
Cash Flows
Three months ended September 30, 2007
Operating activities used $4,598,000 in 2007, compared to $2,978,000 in 2006. Since the Libertad Mine ceased mining operations earlier in the year, only 1,454 ounces of gold were sold from the continued leaching in the third quarter. Expenditures were incurred at the Libertad Mine with respect to consulting and engineering costs related to the mill project and care and maintenance costs being incurred since the temporary cessation of mining activities. The Company’s Bellavista Mine also ceased operations during the quarter, selling 4,136 ounces gold from the residual leaching process. Amounts totalling $543,000 were expended on consulting and engineering costs to assess the ground movement situation during the third quarter. Since the cessation of mining operations on July 25, 2007, the mine started incurring care and maintenance costs. In August 2007, the Company settled the outstanding Blue Hill
litigation for $1,000,000 and made an initial payment of $500,000 during the quarter and the final $500,000 was paid at the end of October 2007.
Glencairn extinguished its long-term debt obligation at June 30, 2007. Additionally, there were no exercises of stock options into common shares during the third quarter of 2007. Financing activities were nil for the quarter.
Investing activities consisted of $1,223,000 in proceeds from the sale of marketable securities in the third quarter in 2007. Acquisitions for property, plant and equipment used $2,592,000. The Limon Mine, Bellavista Mine, and Libertad Mine acquired assets totalling $460,000, $213,000 and $1,632,000, respectively. The Mestiza acquisition totalled $300,000 less minor dispositions. In the comparative period in 2006, investing activities utilized cash of $2,209,000. Of this balance, $283,000 was attributable to payments for the Mestiza property. The remaining balance consisted mainly of capitalized expenditures for the Bellavista Mine’s grinding mill.
Nine months ended September 30, 2007
Operating activities used $880,000 for the nine months ended September 30, 2007, compared to cash inflows of $1,107,000 in the same period in 2006. Operating cash flows decreased as mining costs increased in 2007, however, this was mitigated by an increase in the average realized selling price for gold increasing to $663 in 2007 from $597 in 2006. Cash outflows also included care and maintenance charges at the two non-operating mines totaling $3,052,000. The Libertad Mine mill project also resulted in cash payments totalling $995,000 in non-capital expenditures. In August 2007, the Company settled the outstanding Blue Hill litigation for $1,000,000 and made an initial payment of $500,000 during the quarter.
In 2007, financing activities used $2,185,000. This consisted of $2,500,000 expended on the repayment of a long-term debt which was partially offset by $315,000 received on the issuance of common shares. For the comparative period in 2006, Glencairn repaid $2,500,000 of the long-term debt and received $16,158,000 on the issuance of common shares.
13
Investing activities used $2,434,000 in 2007. Investments in property, plant, and equipment totalled $8,291,000. The Limon Mine, Bellavista Mine, and Libertad Mine acquired assets totalling $1,741,000, $1,589,000 and $4,667,000, respectively. Of the Libertad Mine expenditures, $4,899,000 was from payments for a used mill which is expected to be installed at the Libertad Mine in 2008. The Mestiza acquisition consisted of an option payment of $300,000 towards the purchase of the property. The Company received $4,694,000 in proceeds from the sale of Manitoba nickel royalties. Additionally, the Company sold marketable securities which generated net proceeds of $1,406,000. In early 2007, the Company had its Costa Rican bank accounts seized, which stemmed from the loss of an arbitration case. These bank accounts are currently unavailable for operations and have cash balances of approximately $243,000. In the
comparative period in 2006, purchases and deferred costs relating to property, plant, and
equipment were made in amounts totaling $1,390,000, $5,411,000, and $125,000 for the Limon Mine, Bellavista Mine, and Libertad Mine, respectively. Option payments of $230,000 were made towards the acquisition of the Mestiza property in the first nine months of 2006.
|
Liquidity and Capital Resources
|
The Company had cash of $4,068,000 (December 31, 2006 - $9,567,000) and working capital deficit of $2,576,000 at September 30, 2007 (December 31, 2006 - $13,634,000).
In February 2007, the Company announced its conversion/expansion program to install a conventional milling circuit at the Libertad Mine. A feasibility study is expected in the first quarter of 2008. At September 30, 2007, the Company has made payments totalling $4,899,000 on the acquisition of a used mill which will be re-assembled at the Libertad site. Additional amounts of $1,672,000 were paid to November 7, 2007. Future payments of $3,024,000, which includes costs of dismantling, shipping and principal component refurbishing, are committed for the used mill acquisition. Engineering and consultant fees to September 30, 2007 have totalled $995,000 for this project. The Libertad Mine was placed in care and maintenance mode at the beginning of the second quarter of 2007 and has incurred expenses of $1,396,000 for the nine month period ended September 30, 2007. Gold sales from the Libertad Mine were only
15,747 ounces for the period as a result of the cessation of mining activities on March 31, 2007. Only residual ounces will be recovered from the heap leach operation.
On July 25, 2007, Glencairn suspended mining operations at the Bellavista Mine in Costa Rica due to ground movements in the heap leach pad. After initial review by a number of external consultants, the Company believed that this movement was in part caused by water saturation due to abnormally high rain fall during the past several years. The results of engineering and consulting studies for a cost feasible solution have been ongoing and inconclusive. It is not likely the mine will resume operations in the foreseeable future. For the nine month period in 2007, 22,996 ounces of gold have been sold from the Bellavista Mine. As the residual heap leach operation ended August 31, 2007, there will not be any future gold production. Ongoing care and maintenance costs will be incurred. Reclamation activities for the site are anticipated to begin in 2008 and are estimated to take four years. Total undiscounted
expenditures are expected to be approximately $7,520,000 over the next four years.
In June 2007, the Company closed an agreement with Independent Nickel Corp. (“INI”) to sell its sliding scale 1% - 3% net smelter return royalty (“NSR”) on Victory Nickel Inc.’s Minago nickel deposit, as well as the 2% NSR on the Lynn Lake property, both located in northern Manitoba, to INI. Under the terms of the purchase agreement, INI paid Cdn$5,000,000 in cash and issued 2,500,000 INI shares to Glencairn, in exchange for the two royalties. The shares are subject to a contractual escrow agreement and will be released on a graduated basis over two years.
During the first three quarters of 2007, and especially during the third
quarter, Glencairn liquidated various holdings in marketable securities. Total
proceeds of $1,406,000 were received in the disposition of shares. The remaining
securities at September 30, 2007 have a market value of $1,916,000. Of this
balance, 2,000,000 shares of Independent Nickel Corp. were subject to a
contractual escrow agreement
14
with the release of blocks of shares in intervals
up to June 2009. In addition, 4,000,000 shares of Carlisle Goldfields Limited
are also subject to a regulatory escrow agreement with the release of blocks of
shares in intervals up to July 2008.
As a result of two of Glencairn’s three mines being placed in care and
maintenance, there have been significant declines in gold production for the
combined Company. In response to the situation, the Company has temporarily
restricted exploration activities, reduced the number of employees, cut capital
expenditure programs and eliminated discretionary expenditures. Cash on hand at
September 30, 2007 and cash flows expected from operations, the sale of its
Cerro Quema gold property and the cash proceeds received on the October 22, 2007
financing closing would not be sufficient to fund the Company’s ongoing and future expansion needs for the next twelve months if disinterested shareholder approval is not obtained on November 29, 2007.
On September 28, 2007, the Company entered into a letter of intent with Bellhaven Copper & Gold, Inc. to sell its interest in the Cerro Quema advanced development project located in Panama for aggregate consideration of $6,000,000, payable as follows: (i) an initial payment of $100,000 upon entering into the letter of intent; (ii) $400,000 paid at closing of the transaction; (iii) $2,500,000 within 30 days of the closing; (iv) $1,000,000 on June 30, 2008; and (v) $2,000,000 on December 31, 2008. This sale closed on October 31, 2007.
On October 22, 2007 the Company closed a private placement financing for gross proceeds of Cdn$26,050,000. A syndicate of underwriters, purchased 40,000,000 units and 133,670,000 subscription receipts at a price of Cdn$0.15 per unit or subscription receipt. Each unit is comprised of one common share and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to purchase one common share at a price of Cdn$0.18 until October 22, 2010.
The proceeds from the sale of the subscription receipts will be held in escrow pending satisfaction of certain conditions, including receipt of disinterested shareholder approval for the issuance of the common shares and common share purchase warrants upon exercise of the subscription receipts. Upon satisfaction of such conditions, each subscription receipt will be automatically converted into one unit (without any further action by the holders thereof, including payment of additional consideration). If such conditions are not satisfied by December 31, 2007, the Company will repurchase the subscription receipts at a redemption price per subscription receipt equal to the issue price of Cdn$0.15 plus interest.
The net proceeds from the sale of the non-core Cerro Quema property and the financing will be used by the Company for development of the Libertad Mine, resumption of an exploration program on the Company’s mineral properties, and for general working capital purposes.
The company does not have any off balance sheet arrangements.
Related Party Transactions
During September 2007, 500,000 shares of Independent Nickel Corp. (“INI”) were sold to a company owned by the Chairman of Glencairn at the time of the transaction. These escrowed shares were sold at market value. A gain of $171,000 was recognized for the transaction and $213,000 in proceeds were received. This gain on sale of marketable securities is included in other income.
Outlook
Gold sales in 2007 are expected to be approximately 75,000 ounces at a cash operating cost of approximately $500 per ounce. The decrease from an earlier production estimate of 90,000 to 105,000 ounces is attributable to the suspension of operations at the Bellavista Mine on July 25, 2007. Many production inputs, such as fuel and hydro have been increasing over the past few years but gold prices have increased significantly more and are predicted by many analysts to increase beyond current levels.
15
The Company temporarily suspended mining operations at the Libertad Mine effective March 31, 2007, until such time as a conventional mill circuit is commissioned. In July 2007, Glencairn exercised an option agreement with a third-party vendor to purchase a previously owned and operated mill. The Company has made payments of $6,571,000 to date towards the purchase of this mill, of which, $1,672,000 was paid in October 2007. Additional future payments of $3,024,000, which includes costs of dismantling, shipping and principal component refurbishing, are committed for the used mill acquisition. It is expected that the total cost of the project including the feasibility study will be between $25 and $30 million dollars however final numbers will only be known once the feasibility study is completed. In opting to refurbish an existing mill as opposed to acquiring a new one, the Company is optimistic that the
Libertad Mine can be returned to full production in a shorter time frame and at a lower capital cost. A mill operation is expected to result in higher recovery rates and lower costs per ounce compared to heap leaching. Dismantling of the mill from its current site is expected to be completed early in the fourth quarter and re-assembly in Libertad would be done, expected in 2008. Completion of the Libertad mill plan is dependent on completion of the announced financing and permits being obtained on a timely basis.
The Company suspended mining operations at the Bellavista Mine on July 25, 2007, due to ground movements in the heap leach pad, which were believed to be in part caused by water saturation due to abnormally high rainfall during the past several years. Extensive ground monitoring was undertaken along with rinsing of the cyanide solution from the heap leach pad. Sampling of solution discharge from the heap leach pad as well as solid sampling of the leach pad has confirmed that cyanide concentrations have been reduced to acceptable levels that pose no threat to the environment. It is not likely that the Bellavista Mine will resume operations. The Company anticipates reclamation activities on the property to commence in the following fiscal year.
As a result of the cessation of activities at two of the Company’s three operating mines, an aggressive cost control program was implemented which included the suspension of all exploration activities, reducing the number of employees, cutting planned capital expenditures, where possible, and elimination of discretionary expenditures. Cash on hand at September 30, 2007 and cash flows expected from operations, the sale of its Cerro Quema gold property and the cash proceeds received on the October 22 finance closing would not be sufficient to fund the Company’s ongoing and future expansion needs for the next twelve months if disinterested shareholder approval is not received on November 29, 2007. In October 2007, the Company made the $500,000 final payment in the Blue Hill litigation.
In January 2007, the Company and the Province of Manitoba reached an agreement as to the final work to be carried out in the Lynn Lake area under which the Company will complete certain work for which it is responsible and will pay an aggregate of Cdn$2,000,000 in four annual payments commencing when the formal agreement is signed. Final documentation is in progress. Until signing of the formal agreement, ongoing water treatment costs will be shared between the Company and the Manitoba government.
During October 2007, the Company announced a restructuring program which resulted in or contemplates the following:
|
•
|
The Cerro Quema property was sold for $6,000,000 in a transaction that closed on October 31, 2007. Of this amount, $100,000 was received on acceptance of the offer, $400,000 was received on October 31, 2007, and the remaining $5,500,000 will be received in three payments, up to December 31, 2008. All amounts are non-refundable once paid.
|
|
•
|
On October 22, 2007, the Company closed a private placement financing for gross
proceeds of Cdn$26,050,000, of which Cdn$5,672,000 was received and
Cdn$19,269,000 was held in escrow and will be released upon shareholder
approval. A syndicate of underwriters purchased 40,000,000 units and 133,670,000
subscription receipts at a price of Cdn$0.15 per unit or subscription receipt.
Each unit
|
16
|
|
is comprised of one common share and one-half of one common share
purchase warrant. Each whole common share purchase warrant entitles the holder
to purchase one common share at a price of Cdn$0.18 until October 22, 2010. The
proceeds from the sale of the subscription receipts will be held in escrow
pending satisfaction of certain conditions, including receipt of disinterested
shareholder approval for the issuance of the common shares and common share
purchase warrants upon exercise of the subscription receipts. An additional
6,849,750 compensation warrants will be issued to the underwriters, with each
compensation warrant being exercisable to acquire one unit of the Company,
having the same attributes as the units being sold under the private placement.
As a result of this offering and assuming all subscription receipts are
exercised, Yamana will own 55,355,833 common shares of the Company, representing
approximately 13.3% of the issued and outstanding common shares of the Company.
As a result of this offering and assuming all subscription receipts are
exercised, Aberdeen International Inc. will own 46,333,001 common shares of the
Company, representing approximately 11.2% of the issued and outstanding common
shares of the Company.
|
|
•
|
The appointment of Messrs. Stan Bharti, George Faught, and Joe Milbourne to the Company’s Board of Directors and Mr. Stan Bharti as Chairman of the Board.
|
|
•
|
The resignation of Messrs. Donald Charter, Ian McDonald and Kerry Knoll from the Board of Directors.
|
|
•
|
Dr. Bill Pearson P.Geo., joining the Company as Executive Vice President, Exploration, effective October 01, 2007.
|
|
•
|
A capital restructuring through a share consolidation on a seven-for-one basis.
|
|
•
|
A change in the Company’s name to Central Sun Mining Inc.
|
The Company has scheduled a special meeting of its shareholders to be held on November 29, 2007. At this meeting, the Company intends to seek shareholder approval to (i) change its name to reflect its new strategic plan; (ii) consolidate its outstanding common shares on a seven-for-one basis; and (iii) complete the subscription receipt portion of the above-mentioned private placement which is over and above the maximum allowed by the Toronto Stock Exchange without obtaining shareholder approval.
Significant Accounting Policies
On January 1, 2007, the Company adopted three new accounting standards that were issued by the Canadian Institute of Chartered Accountants (“CICA”): Handbook Section 1530,
Comprehensive Income
, Handbook Section 3855,
Financial Instruments – Recognition and Measurement
, and Handbook Section 3865,
Hedges
. The Company adopted these standards prospectively; accordingly, comparative amounts for prior periods have not been restated. See the Company’s financial statements for full disclosure.
Summary of Quarterly Results
(in thousands except per share amounts)
|
|
|
2007
Q3
|
|
2007
Q2
|
|
2007
Q1
|
|
2006
Q4
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
9,072
|
$
|
14,313
|
$
|
20,297
|
$
|
14,123
|
|
Net income (loss)
|
$
|
(60,238)
|
$
|
3,260
|
$
|
(1,173)
|
$
|
(8,045)
|
|
Income (loss) per share – basic
|
|
|
|
|
|
|
|
|
|
and diluted
|
$
|
(0.25)
|
$
|
0.01
|
$
|
0.00
|
$
|
(0.05)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
Q3
|
|
2006
Q2
|
|
2006
Q1
|
|
2005
Q4
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
14,075
|
$
|
12,441
|
$
|
11,511
|
$
|
5,766
|
|
Net income (loss)
|
$
|
(3,182)
|
$
|
2,051
|
$
|
1,770
|
$
|
(1,463)
|
|
Income (loss) per share - basic and diluted
|
$
|
(0.01)
|
$
|
0.01
|
$
|
0.01
|
$
|
(0.01)
|
17
Non-GAAP Performance Measures
“Total cash cost” figures and “cash operating cost” figures are calculated in accordance with standards developed by The Gold Institute, which was a worldwide association of suppliers of gold and gold products and included leading North American gold producers. The Gold Institute ceased operations in 2002, but the standard is the accepted standard of reporting cash costs of production in North America. Adoption of the standard is voluntary and the cost measures presented below may not be comparable to other similarly titled measures of other companies. Cash operating costs include mine site operating costs such as mining, processing and administration, but are exclusive of amortization, reclamation, capital, development and exploration costs. These costs are then divided by ounces sold to arrive at the cash operating cost per ounce. Total cash costs include cash operating costs,
royalties and production taxes. Total cash costs are then divided by ounces sold to arrive at the total cash costs per ounce. These measures are considered to be a key indicator of a company’s ability to generate operating earnings and cash flow from its mining operations. These data are furnished to provide additional information and is a non-GAAP measure. It should not be considered in isolation as a substitute for measures of performance prepared in accordance with GAAP and is not necessarily indicative of operating costs presented under GAAP.
Cash Operating Cost per ounce:
|
|
Three months ended September 30
|
|
|
2007
|
2006
|
|
|
Limon
Mine
|
Bellavista
Mine
|
Libertad
Mine
|
Consol.
|
Limon
Mine
|
Bellavista
Mine
|
Libertad
Mine
|
Consol.
|
|
|
|
|
|
|
|
Statement of Operations (000’s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
$
|
4,947
|
|
$
|
1,449
|
|
$
|
1,156
|
|
$
|
7,552
|
|
$
|
3,830
|
|
$
|
3,052
|
|
$
|
5,144
|
|
$
|
12,026
|
|
|
Gold sales (ounces)
|
|
|
|
7,678
|
|
|
4,136
|
|
|
1,454
|
|
|
13,268
|
|
|
8,568
|
|
|
8,400
|
|
|
5,819
|
|
|
22,787
|
|
|
Cash operating cost per ounce
|
|
|
$
|
644
|
|
$
|
350
|
|
$
|
795
|
|
$
|
569
|
|
$
|
447
|
|
$
|
363
|
|
$
|
884
|
|
$
|
528
|
|
Total Cash Cost per ounce:
|
|
Three months ended September 30
|
|
|
2007
|
2006
|
|
|
Limon
Mine
|
Bellavista
Mine
|
Libertad
Mine
|
Consol.
|
Limon
Mine
|
Bellavista
Mine
|
Libertad
Mine
|
Consol.
|
|
|
|
|
|
|
|
Statement of Operations (000’s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
$
|
4,947
|
|
$
|
1,449
|
|
$
|
1,156
|
|
$
|
7,552
|
|
$
|
3,830
|
|
$
|
3,052
|
|
$
|
5,144
|
|
$
|
12,026
|
|
|
Royalties and production taxes
|
|
|
|
305
|
|
|
43
|
|
|
57
|
|
|
405
|
|
|
350
|
|
|
104
|
|
|
176
|
|
|
630
|
|
|
|
|
|
|
|
|
Cost base for calculation
|
|
|
$
|
5,252
|
|
$
|
1,492
|
|
$
|
1,213
|
|
$
|
7,957
|
|
$
|
4,180
|
|
$
|
3,156
|
|
$
|
5,320
|
|
$
|
12,656
|
|
|
|
|
|
|
|
|
Gold sales (ounces)
|
|
|
|
7,678
|
|
|
4,136
|
|
|
1,454
|
|
|
13,268
|
|
|
8,568
|
|
|
8,400
|
|
|
5,819
|
|
|
22,787
|
|
|
Total cash cost per ounce
|
|
|
$
|
684
|
|
$
|
361
|
|
$
|
834
|
|
$
|
600
|
|
$
|
488
|
|
$
|
376
|
|
$
|
914
|
|
$
|
555
|
|
Cash Operating Cost per ounce:
|
|
Nine months ended September 30
|
|
|
2007
|
2006
|
|
|
Limon
Mine
|
Bellavista
Mine
|
Libertad
Mine
|
Consol.
|
Limon
Mine
|
Bellavista
Mine
|
Libertad
Mine
|
Consol.
|
|
|
|
|
|
|
|
Statement of Operations (000’s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
$
|
13,872
|
|
$
|
8,921
|
|
$
|
9,098
|
|
$
|
31,891
|
|
$
|
11,002
|
|
$
|
9,611
|
|
$
|
5,144
|
|
$
|
25,757
|
|
|
Gold sales (ounces)
|
|
|
|
27,149
|
|
|
22,996
|
|
|
15,747
|
|
|
65,892
|
|
|
25,851
|
|
|
32,000
|
|
|
5,819
|
|
|
63,670
|
|
|
Cash operating cost per ounce
|
|
|
$
|
511
|
|
$
|
388
|
|
$
|
578
|
|
$
|
484
|
|
$
|
426
|
|
$
|
300
|
|
$
|
884
|
|
$
|
405
|
|
18
Total Cash Cost per ounce:
|
|
Nine months ended September 30
|
|
|
2007
|
2006
|
|
|
Limon
Mine
|
Bellavista
Mine
|
Libertad
Mine
|
Consol.
|
Limon
Mine
|
Bellavista
Mine
|
Libertad
Mine
|
Consol.
|
|
|
|
|
|
|
|
Statement of Operations (000’s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
$
|
13,872
|
|
$
|
8,921
|
|
$
|
9,098
|
|
$
|
31,891
|
|
$
|
11,002
|
|
$
|
9,611
|
|
$
|
5,144
|
|
$
|
25,757
|
|
|
Royalties and production taxes
|
|
|
|
1,119
|
|
|
257
|
|
|
514
|
|
|
1,890
|
|
|
965
|
|
|
377
|
|
|
176
|
|
|
1,518
|
|
|
|
|
|
|
|
|
Cost base for calculation
|
|
|
$
|
14,991
|
|
$
|
9,178
|
|
$
|
9,612
|
|
$
|
33,781
|
|
$
|
11,967
|
|
$
|
9,988
|
|
$
|
5,320
|
|
$
|
27,275
|
|
|
|
|
|
|
|
|
Gold sales (ounces)
|
|
|
|
27,149
|
|
|
22,996
|
|
|
15,747
|
|
|
65,892
|
|
|
25,851
|
|
|
32,000
|
|
|
5,819
|
|
|
63,670
|
|
|
Total cash cost per ounce
|
|
|
$
|
552
|
|
$
|
399
|
|
$
|
610
|
|
$
|
513
|
|
$
|
463
|
|
$
|
312
|
|
$
|
914
|
|
$
|
428
|
|
Outstanding Share Data
The following common shares and convertible securities were outstanding at November 7, 2007:
|
Security
|
Expiry
Date
|
Exercise Price (Cdn$)
|
Securities
Outstanding
|
Common Shares on Exercise
|
|
|
|
|
|
|
|
Common shares
|
|
|
|
281,321,698
|
|
Warrants
|
Oct. 22/10
|
0.18
|
20,000,000
|
20,000,000
|
|
Subscription Receipts
|
N/A
1
|
N/A
|
133,670,000
|
133,670,000
|
|
Warrants on above
|
N/A
1
|
N/A
|
66,835,000
|
66,835,000
|
|
Warrants
|
Nov. 26/08
|
1.25
|
33,842,220
|
33,842,220
|
|
Warrants
|
Jul. 06/08
|
0.80
|
15,000,000
|
15,000,000
|
|
Agents’ warrants
2
|
Oct. 22/09
|
0.15
|
6,849,750
|
6,849,750
|
|
Warrants on above
|
Oct. 22/10
|
0.18
|
3,424,875
|
3,424,875
|
|
Agents’ warrants
2
|
Dec. 22/07
|
0.38
|
790,000
|
790,000
|
|
Agents’ warrants
2
|
Jul. 06/08
|
0.64
|
1,800,000
|
1,800,000
|
|
Warrants on above
|
Jul. 06/08
|
0.80
|
|
900,000
|
|
Options
|
Nov. 8/07 to Jul 12/12
|
0.23 to 1.17
|
17,217,999
|
17,217,999
|
|
|
|
|
|
|
|
|
|
|
|
581,651,542
|
Note 1: The subscription receipts will be automatically exchanged into one common share and one half-share purchase warrant on satisfaction of certain conditions, including receipt of disinterested shareholder approval for the issuance of the common shares and common share purchase warrants upon exercise of the subscription receipts.
Note 2: The agents’ warrants are convertible into one common share and one half-share purchase warrant. Each full warrant is exercisable into a common share at the price indicated in the table.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Management’s Discussion and Analysis of Financial Position and
Operating Results contains “forward-looking statements”, within the
meaning of the United States Private Securities Litigation Reform Act of 1995
and applicable Canadian securities legislation. Forward-looking statements
include, but are not limited to, statements with respect to the future financial
or operating performance of the Company, its subsidiaries and its projects, the
future price of gold, expectation that a solution to the ground movement at
Bellavista be found, expectation that the Libertad mill scoping and feasibility
studies will be positive, estimated recoveries under the milling plan, the
estimation of mineral reserves and resources, the realization of mineral reserve
estimates, the timing and amount of estimated future production, costs of
production, capital for the mill project, operating and exploration
expenditures, costs and timing of the development of new deposits, costs and
timing of future exploration, requirements for additional capital, government
regulation of mining operations, environmental risks, reclamation
19
expenses,
title disputes or claims, limitations of insurance coverage and the timing and
possible outcome of pending litigation and regulatory matters. Generally, these
forward-looking statements can be identified by the use of forward-looking
terminology such as “plans”, “expects” or “does not
expect”, “is expected”, “budget”,
“scheduled”, “estimates”, “forecasts”,
“intends”, “anticipates” or “does not anticipate”,
or “believes”, or variations of such words and phrases or state that
certain actions, events or results “may”, “could”,
“would”, “might” or “will be taken”,
“occur” or “be achieved”. Forward-looking statements are
subject to known and unknown risks, uncertainties and other factors that may
cause the actual results, level of activity, performance or achievements of the
Company to be materially different from those expressed or implied by such
forward-looking statements, including but not limited to: general business,
economic, competitive, political and social uncertainties; the actual results of
current exploration activities; actual results of reclamation activities;
conclusions of economic evaluations; changes in project parameters as plans
continue to be refined; future prices of gold; possible variations of ore grade
or recovery rates; failure of plant, equipment or processes to operate as
anticipated; accidents, labour disputes and other risks of the mining industry;
political instability, insurrection or war; delays in obtaining governmental
approvals or required financing or in the completion of development or
construction activities, as well as those factors discussed in the section
entitled “General Development of the Business – Risks of the
Business” in the Company’s annual information form for the year ended
December 31, 2006 on file with the securities regulatory authorities in Canada
and the Company’s Form 40-F on file with the Securities and Exchange
Commission in Washington, D.C. Although the Company has attempted to identify
important factors that could cause actual results to differ materially from
those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Company does not undertake to update any forward-looking statements that are incorporated by reference herein, except in accordance with applicable securities laws.
Additional information on the Company, including its annual information form is available on SEDAR at www.sedar.com.
November 7, 2007
20
EXHIBIT 3
EXHIBIT 4
