AAA.L Regulatory News (AAA)

16 Sep 2005 07:00

Adastra Minerals Inc16 September 2005 16th September 2005 ADASTRA MINERALS INC. THREE AND NINE MONTHS ENDED JULY 31, 2005 AND 2004 (Unaudited - Prepared by Management) MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion and analysis should be read in conjunction with theConsolidated Financial Statements of Adastra Minerals Inc. (the "Company") forthe three and nine month periods ended July 31, 2005 and 2004, and related notes(the "Consolidated Financial Statements"). The following discussion andanalysis highlights significant changes since the discussion and analysis in the2004 Annual Report, which should also be referred to for additional information.The discussion is based on events that have occurred up to September 9, 2005.Except as otherwise noted, all dollar amounts contained in this discussion andanalysis and the Consolidated Financial Statements are stated in U.S. dollars.Additional information relating to the Company, including the Company's AnnualInformation Form ("AIF"), is available on SEDAR at www.sedar.com. Results of Operations The Company incurred a net loss for the three months ended July 31, 2005 of$485,774, or $0.01 per share, compared to a net loss of $601,173, or $0.01 pershare, for the three months ended July 31, 2004. The Company incurred a net loss for the nine months ended July 31, 2005 of$2,034,874, or $0.03 per share, compared to a net loss of $3,780,845, or $0.06per share, for the nine months ended July 31, 2004. The results for the three and nine months ended July 31, 2005, reflect thefollowing factors: • Administration costs were lower overall than in the three and nine months ended July 31, 2004. For the three months ended July 31, 2005, administration costs decreased to $397,080, compared with $973,368 for the three months ended July 31, 2004. Forthe nine months ended July 31, 2005, administration costs decreased to$2,193,295, compared with $4,162,348 for the nine months ended July 31, 2004.The decreases were principally due to reductions in costs for stock-basedcompensation and for salaries and wages. • Decreases in stock-based compensation, compared with the correspondingperiods of 2004, were due to the lower number of options granted during therelevant periods (60,000 options in the three, and 90,000 options in the nine,months ended July 31, 2005; compared with 3,459,846 options granted in thethree, and 4,109,846 in the nine, months ended July 31, 2004) and to the timingof the vesting of these options. • Salaries and wages costs have decreased compared with thecorresponding periods of last year. This is mainly because a higher proportionof salary costs has been capitalized to mineral properties and mineral propertyevaluation costs, due to employees spending more time on the mining projectsthan in the corresponding periods of the previous year. In addition, there wereno cash bonuses paid during the current periods. • During the nine months ended July 31, 2005, investor relationexpenditures reduced to $254,846, from $294,375 for the corresponding period in2004. This was primarily due to advancing the date of the Company's annualgeneral meeting ("AGM") in Toronto to coincide with one of the Company's majorregular investor relations events in that city, and to reductions in other costsassociated with the AGM. • The increase in regulatory authorities filing fees, compared to thenine months ended July 31, 2004, was mainly the consequence of higher OntarioSecurities Commission and Toronto Stock Exchange ("TSX") fees, resulting from anincrease in the Company's market capitalization. Fees in the three months endedJuly 31, 2005 were lower than in the corresponding period of the prior year -when there were fees relating to revisions to the Company's stock option planand to share capital issuances. • Higher interest rates obtained on cash balances, and the timing of theprivate placement of equity in January 2004, resulted in higher interest incomeduring the nine months ended July 31, 2005 than in the corresponding nine monthperiod of 2004. Average cash balances throughout the three months ended July31, 2005 were lower than in the corresponding period of 2004, and resulted in adecrease in interest income. • The Company holds some of its cash in Canadian dollars and poundssterling in anticipation of expenditures to be incurred in these currencies.For the three months ended July 31, 2005, the Company reported a foreignexchange loss of $169,954, due to the strengthening of the U.S. dollar againstboth the Canadian dollar and the pound sterling during the period. The U.S.dollar also strengthened against both these currencies during the nine monthsended July 31, 2005, and the Company recorded an overall foreign exchange lossfor the nine months of $132,094, compared to a foreign exchange gain of $119,497for the nine month period ended July 31, 2004. Liquidity and Capital Resources As at July 31, 2005, the Company had cash and cash equivalents of $8,535,468,compared to $16,264,314 at October 31, 2004, and had working capital of$6,660,527, compared to $15,113,846 at October 31, 2004. The decreases in cash and cash equivalents, and in working capital, as at July31, 2005, compared with the corresponding amounts as at October 31, 2004, mainlyresulted from expenditures on mineral properties during the nine months endedJuly 31, 2005, and from the previously-discussed loss on operations, excludingthe non-cash stock-based compensation expense. Issued share capital remained unchanged during the nine months ended July 31,2005, at 70,735,925 common shares. During the nine months ended July 31, 2005,the Company granted 90,000 options to purchase common shares, which increasedthe total outstanding to 6,216,000 options, as at July 31, 2005. Outstandingwarrants to purchase common shares remained unchanged throughout the nine monthperiod, at 1,679,656. The Company believes it has sufficient cash and cash equivalents on hand to fundits short term development activity. It will need to raise additional financingto achieve its long term development plans. The recoverability of amounts shownfor mineral properties and mineral property evaluation costs are dependent onthe ability of the Company to obtain necessary financing and on other factorsdiscussed under the heading "Exploration and Development and Financing RiskFactors" in the Company's 2004 Annual Report. During the nine months ended July 31, 2005, there was no material change in thecontractual obligations and critical accounting estimates disclosed in theCompany's 2004 Annual Report. Mineral Property Projects As at July 31, 2005, amounts capitalized in respect of mineral propertiestotalled $19,300,091, comprising $18,103,079 in costs incurred on the Company'sKolwezi Project and $1,197,011 in costs on the Angola Project - an increase froma total of $12,129,625, as at October 31, 2004. Capitalized mineral property evaluation costs increased to $4,469,691, from$4,397,126 at October 31, 2004, reflecting costs incurred on the Company'sKipushi Project during the nine months ended July 31, 2005. Kolwezi Project, DRC During the nine months ended July 31, 2005, the Company concentrated primarilyon advancing its Kolwezi Project. The first phase of the Definitive FeasibilityStudy ("DFS"), a scoping study analyzing different production levels, wascompleted. It was concluded that the initial design capacity of the plantshould be to produce 5,500 tonnes of cobalt and 30,000 tonnes of copperannually, and work is now underway to complete the DFS on that basis. Work continued on the second stage of the Environmental and Social ImpactAssessment, and, in May, an Environmental Adjustment Plan ("EAP") was submittedto the regulatory authorities in the Democratic Republic of Congo ("DRC").During August 2005, the Company received approval of the EAP from the DRCMinistry of Mines' Direction chargee de la Protection de l'Environnement Minier("DPEM"). The letter accompanying the "favourable environmental opinion" notedthat the work on the EAP had been very substantial and "particularly diligent".The approval of the EAP is the official acknowledgement that the proposeddevelopment of Kolwezi satisfies the requirements of the DRC Mining Code, andassociated regulations, and may proceed. During the nine-month period, work continued on the negotiation of long termcobalt sales agreements and marketing arrangements, and on preparations forproject financing, including the issuing of a Preliminary Information Memorandumto potential lenders to the Kolwezi Project. In late November 2004, the Industrial Development Corporation of South AfricaLimited ("IDC") informed the Company that, subject to certain conditions,including receiving exchange control permissions from the South African ReserveBank ("SARB"), it would be exercising its option to acquire 10% of the KolweziProject. On May 16, 2005, the Company announced that the World Bank Group'sBoard of Executive Directors had approved a proposed investment by its privatesector arm, and as a result the International Finance Corporation ("IFC") wouldalso be exercising its option and would acquire a 7.5% equity interest in theproject. In August 2005, the IDC informed the Company that it had received thenecessary SARB approvals. The IDC and the IFC will acquire their equity interests at prices based on theallowable expenditures on the Kolwezi Project up to the date of exercising theirrespective options, and will pre-fund their proportions (as financiallycontributing shareholders) of the estimated costs of progressing the project toa financed go-ahead decision. On completion of the IDC and IFC optionexercises, the Company's wholly-owned subsidiary, Congo Mineral DevelopmentsLimited, expects to receive approximately US$12 million in cash. During the nine-month period ended July 31, 2005, the Company appointed Sullivan& Cromwell to advise on the legal aspects of the financing of the KolweziProject, and Aon to advise on the insurance aspects of the project. During August 2005, the Company announced that the Board of Directors of itssubsidiary Kingamyambo Musonoi Tailings S.A.R.L. ("KMT"), in DRC, hadunanimously resolved that KMT become a signatory of the Extractive IndustriesTransparency Initiative ("EITI"). The EITI's objective is improved governancein resource-rich countries through the full publication and verification of allpayments to governments by companies in the oil, gas and mining sectors and acorresponding publication of all receipts from the natural resource sectors bygovernments. The DRC Government has endorsed the EITI and is currentlyconsidering how best to implement the initiative. KMT will be the first miningcompany in the DRC to join the EITI. Kipushi Project, DRC In the 2003 financial year, the Company and La Generale des Carrieres et desMines ("Gecamines") agreed that priority should be given to finalizing theKolwezi Contract of Association ("CoA"). Following the execution of the Kolwezi"CoA" in March 2004, negotiations on the proposed revisions to the Company'sagreement with Gecamines with respect to the potential re-development of theKipushi zinc/copper mine (the "Gecamines Agreement") were planned to recommence.Meetings were, however, postponed until after the end of financial year 2004,pending Gecamines' detailed review of, and response to, the proposals previouslysubmitted by the Company. Gecamines' response was received during the quarter ended January 31, 2005, and,following discussion as to the appropriate way to take the Kipushi Projectforward, the Company began a technical and economic reassessment of the projectduring the quarter ended July 31, 2005. This reassessment will be followed bynegotiations to finalize the revisions to the Gecamines Agreement. Onceagreement on the revisions has been reached, and necessary approvals have beenobtained from the government of the DRC, the Company expects that a fullfeasibility study of the project will be undertaken. In August 2005, the ZincorJoint Venture Agreement ("ZJVA") with Kumba Base Metals Limited ("Kumba"), thathad expired on March 31, 2005, was renewed, with effect from March 31, 2005.Under the ZJVA, Kumba can earn a 50% shareholding in the Company's interest inthe Kipushi Project. Angola Project During the year ended October 31, 2004, the Company found it impossible toprogress matters further with Endiama E.P. ("Endiama") in relation to theCompany's rights with regard to two mineral properties in Angola. In September2004, it became clear that Endiama had repudiated its contractual obligationsand the Company announced that it would seek legal redress. The filing of thesuit was delayed pending the outcome of representations at senior governmentlevels. When no response was received, the Company filed a legal suit againstEndiama in the United States of America, on May 18, 2005. The U.S. courtrequires service of the suit on Endiama in Portuguese, sent through officialpostal channels. Although the requisite documents were sent to Endiama byinternational registered mail, no confirmation of delivery has been receivedfrom the Angolan postal service, and the Company has now applied to the courtfor substituted service, via courier. Related Party Transactions During the nine months ended July 31, 2005, the Company paid or accrued anaggregate of $110,091 (2004 - $133,227) for legal services to a law firm inwhich a director of the Company is a partner. In addition, the Company has paidor accrued $3,000 (2004 - $nil) for consulting services to a non-executivedirector, and $9,860 (2004 - $607) for consulting services to a company in whicha director has an interest. Risk Factors The risk factors affecting the Company are substantially unchanged from thosedisclosed in the Management's Discussion & Analysis contained in the Company's2004 Annual Report. Summary of Quarterly Results A summary of quarterly results for each of the eight most recently completedquarters is as follows: 2005 2004 2003 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Interest income $ 81,339 $ 99,126 $ 110,172 $ 101,794 $ 99,765 $ 111,048 $ 51,962 $ 13,821 Loss for period $ 485,774 $ 807,283 $ 741,817 $ 429,328 $ 601,173 $ 2,465,791 $ 713,881 $,112,281 Basic and diluted loss per share $ 0.01 $ 0.01 $ 0.01 $ 0.01 $ 0.01 $ 0.04 $ 0.01 $ 0.05 The principal factors underlying the variations in these quarterly results arethe timing of the granting of options, exchange rate fluctuations (particularlyin the value of the U.S. dollar against the Canadian dollar and pound sterling),and mineral property evaluation costs. In addition, the Company made relativelylarge options grants in the second quarter of financial 2004, and, in the fourthquarter of 2003, modified its stock option plan to permit future "cashless"exercises. As a result, the Company recorded relatively higher administrationcosts and losses in those quarters. Forward Looking Statements This discussion contains forward-looking statements within the meaning of theUnited States Private Securities Litigation Reform Act of 1995 concerning theCompany's plans for its Kolwezi Project, the Kipushi Project and the AngolaProject and the resource size and economic potential of those projects. Theseforward-looking statements are subject to a variety of risks and uncertaintieswhich could cause actual events or results to differ materially from thosereflected in the forward-looking statements, including without limitation, risksand uncertainties relating to political risks involving the Company's operationsand the policies of other nations and organizations towards companies doingbusiness in such jurisdictions, the inherent uncertainty of production and costestimates and the potential for unexpected costs and expenses, commodity pricefluctuations, the inability or failure to obtain adequate financing on a timelybasis, and other risks and uncertainties, including those described in theCompany's Annual Report on Form 20-F for the year ended October 31, 2004 andReports on Form 6-K filed with the Securities and Exchange Commission. Contact us: LondonTim Read Justine Howarth / Annabel LeatherChief Executive Officer Parkgreen CommunicationsT: +44 (0)20 7355 3552 T: +44 (0)20 7493 3713F: +44 (0)20 7355 3554 F: +44 (0)20 7491 3936E: london@adastramin.com E: justine.howarth@parkgreenmedia.com North AmericaMartti KangasThe Equicom GroupT: +1 416 815 0700 x. 243 +1 800 385 5451 (toll free)F: +1 416 815 0080E: mkangas@equicomgroup.com Consolidated Financial Statements (Expressed in United States dollars) ADASTRA MINERALS INC Three months and nine months ended July 31, 2005 and 2004 (Unaudited - Prepared by Management) Notice of no auditor review of interiM financial statements Under National Instrument 51-109 Part 4 Subsection 4.3(3)(a), if an auditor hasnot performed a review of interim financial statements, they must be accompaniedby a notice indicating that the financial statements have not been reviewed byan auditor. The unaudited interim financial statements of the Company as at July 31, 2005and for the three and nine months ended July 31, 2005 and 2004 were prepared by,and are the responsibility of, the Company's management. The Company's independent auditor did not perform a review of these interimfinancial statements in accordance with the standards established by theCanadian Institute of Chartered Accountants for a review of interim financialstatements by an entity's auditor. ADASTRA MINERALS INC Consolidated Balance Sheets(Unaudited - Prepared by Management)(Expressed in United States dollars) Three months and nine months ended July 31, 2005 and 2004 July 31, October 31, 2005 2004 Assets Current assets:Cash and cash equivalents $ 8,535,468 $ 16,264,314Amounts receivable and prepaid expenses 341,315 403,220 8,876,783 16,667,534 Equipment 107,464 84,609Mineral properties (note 2) 19,300,091 12,129,625Mineral property evaluation costs (note 3) 4,469,691 4,397,126 $ 32,754,029 $ 33,278,894 Liabilities and Shareholders' Equity Current liabilities:Accounts payable and accrued liabilities $ 2,216,256 $ 1,553,688Non-controlling interest 8,750 8,750 Shareholders' equity:Share capital (note 4) 67,069,511 67,069,511Contributed surplus (note 4) 5,624,226 4,776,785Deficit (42,164,714) (40,129,840) 30,529,023 31,716,456 $ 32,754,029 $ 33,278,894 Subsequent event (note 4(c)) See accompanying notes to consolidated financial statements. ADASTRA MINERALS INC Consolidated Statements of Operations and Deficit(Unaudited - Prepared by Management)(Expressed in United States dollars) Three months and nine months ended July 31, 2005 and 2004 Three months Nine months ended July 31, ended July 31, 2005 2004 2005 2004Administration costs:Amortization $ 2,961 $ 3,791 $ 8,758 $ 11,610Bank charges and interest 1,223 640 4,024 4,173Investor relations 48,222 41,627 254,846 294,375Office and administration 106,994 98,952 285,656 275,544Professional fees 53,457 48,185 165,496 158,731Regulatory authorities filing fees 29,435 31,455 117,220 105,331Salaries and wages 147,432 282,996 522,458 754,155Stock-based compensation (note 4) 3,864 455,938 812,353 2,531,257Transfer agent 1,081 3,854 8,814 13,662Travel and accommodation 2,411 5,930 13,670 13,510 397,080 973,368 2,193,295 4,162,348 Other items:Interest income (81,339) (99,765) (290,637) (262,775)Mineral property evaluation costs 79 38 122 769Foreign exchange loss (gain) 169,954 (272,468) 132,094 (119,497) 88,694 (372,195) (158,421) (381,503) Loss for the period (485,774) (601,173) (2,034,874) (3,780,845)Deficit, beginning of period(41,678,940) (39,099,339) (40,129,840) (35,919,667)Deficit, end of period $ (42,164,714) $(39,700,512) $ (42,164,714) $ (39,700,512) Basic and diluted loss per share $ (0.01) $ (0.01) $ (0.03) $ (0.06) Weighted average number ofcommon shares outstanding 70,735,925 70,735,925 70,735,925 68,026,364 See accompanying notes to consolidated financial statements. ADASTRA MINERALS INC Consolidated Statements of Cash Flows(Unaudited - Prepared by Management)(Expressed in United States dollars) Three months and nine months ended July 31, 2005 and 2004 Three months Nine months ended July 31, ended July 31, 2005 2004 2005 2004Cash provided by (used in): Operations:Loss for the period $ (485,774) $ (601,173) $ (2,034,874) $ (3,780,845)Items not involving cash:Amortization 2,961 3,791 8,758 11,610Stock-based compensation 3,864 455,938 812,353 2,531,257 (478,949) (141,444) (1,213,763) (1,237,978) Change in non-cash operatingworking capital:Decrease (increase) in amountsreceivable and prepaid expenses 109,517 228,009 61,905 1,323Increase (decrease) in accountspayable and accrued liabilities 756,390 (532,483) 662,568 (485,472) 386,958 (445,918) (489,290) (1,722,127) Investments: Purchase of property, plant andequipment (10,358) (24,821) (35,022) (57,029)Expenditures on mineral properties(3,121,366) (5,896,312) (7,132,148) (7,456,114)Recoveries (expenditures) onmineral property evaluation costs, net (41,623) (9,495) (72,386) (25,539) (3,173,347) (5,930,628) (7,239,556) (7,538,682) Financing: Issue of share capital, net - - - 7,227,073Investments by non-controllinginterests - - - 8,750 - - - 7,235,823 Increase (decrease) in cash andcash equivalents (2,786,389) (6,376,546) (7,728,846) (2,024,986) Cash and cash equivalents,beginning of period 11,321,857 23,619,049 16,264,314 19,267,489 Cash and cash equivalents,end of period $ 8,535,468 $ 17,242,503 $ 8,535,468 $ 17,242,503 Cash is defined as cash and cash equivalents and joint venture cash. Supplementary disclosure:Interest received, net $ 81,339 $ 99,765 $ 290,637 $ 262,775Non-cash investing and financingactivities: Stock-based compensation formineral property expenditures 35,088 - 35,088 197,313 See accompanying notes to consolidated financial statements. ADASTRA MINERALS INC Notes to Consolidated Financial Statements(Unaudited - Prepared by Management)(Expressed in United States dollars) Three months and nine months ended July 31, 2005 and 2004 1. Significant accounting policies: These consolidated financial statements of Adastra Minerals Inc. (the "Company")do not include all disclosures required by Canadian generally acceptedaccounting principles for annual financial statements, and, accordingly, theseconsolidated financial statements should be read in conjunction with theCompany's most recent annual consolidated financial statements. Theseconsolidated financial statements follow the same accounting policies andmethods of application used in the Company's annual audited consolidatedfinancial statements as at, and for the year ended, October 31, 2004. 2. Mineral properties: Amounts deferred in respect of mineral properties consist of the following: Zambia DRC Kolwezi Angola Solwezi TotalBalance, October 31, 2004 $ 11,007,601 $ 1,122,023 $ 1 $ 12,129,625 Amortization 3,230 - - 3,230Consulting 3,818,612 900 - 3,819,512Exploration office and accounting 333,696 22,729 - 356,425Geology 214,634 - - 214,634Interest received (13,254) - - (13,254)Legal 1,158,078 4,787 - 1,162,865Salaries 1,026,866 45,347 - 1,072,213Site management 5,371 - - 5,371Travel 548,245 1,225 - 549,470 7,095,478 74,988 - 7,170,466 Balance, July 31, 2005 $ 18,103,079 $ 1,197,011 $ 1 $ 19,300,091 (a) Kolwezi: Since October 1998, the Company's wholly-owned subsidiary, Congo MineralDevelopments Limited ("CMD"), has signed and/or initialed various agreementswith La Generale des Carrieres et des Mines ("Gecamines") and/or the Governmentof the Democratic Republic of Congo ("GDRC"), governing the terms of the KolweziTailings Project (the "Project"). In March 2004, CMD, GDRC and Gecamines signeda Contract of Association (the "CoA") governing the Project and the ownershipand management of Kingamyambo Musonoi Tailings S.A.R.L. ("KMT"), the companyincorporated earlier that month in the Democratic Republic of Congo ("DRC") toown the mining title to the tailings and develop the Project. 2. Mineral properties (continued): (a) Kolwezi (continued): The CoA recognizes the framework agreement entered into by the Company inFebruary 2003 for the International Finance Corporation ("IFC") and theIndustrial Development Corporation of South Africa Limited ("IDC") toparticipate in the Project. Under the framework agreement, each of IFC and IDChas an option to acquire from the Company up to 10% of the Project on a farm-inbasis. The price of the farm-in will be related to the accumulated expendituresof the Company and its affiliates up to the time of the exercise of the option.If one of IFC or IDC does not exercise its option, the other will have a rightof first refusal over that option. In accordance with the CoA, the Tailings Exploitation Rights ("TER") to theProject have been transferred to KMT. CMD owns 82.5% of KMT (which will reduceto 65% if the IDC and IFC both complete their option exercises, as mentionedbelow), and Gecamines and GDRC own 12.5% and 5.0%, respectively. Under the CoA,KMT is to pay Gecamines a total of $15,000,000, as consideration for the TER.Of this amount, $5,000,000 was paid following the transfer to KMT of the TER onMay 27, 2004, and $10,000,000 will be paid following the completion of allfinancing arrangements for the Project. The $15,000,000 is to be provided toKMT by CMD and/or IFC and IDC (or other participating parties) based on theirpro rata ownership of the Project, excluding Gecamines' and GDRC's percentageownership. Gecamines is to receive an annual dividend of the greater of itsordinary dividend and 2.5% of free cash flow (as defined) for each year fromstart-up, until senior debt and subordinated loans have been fully reimbursed.Thereafter, Gecamines will be entitled to an annual dividend based on 10% of theaverage price realized for cobalt sold in a year in excess of $10.00 per pound(adjusted for inflation), in addition to any ordinary dividend received byGecamines, providing that ordinary dividends are paid in such year. CMD and the participating parties are to complete feasibility studies, carry outan environmental impact study, draw up an environmental management plan, andobtain commitments for financing the Project by November 27, 2007 (a time periodof three years and six months from the transfer date of the mining rights). InMay 2005, an Environmental Adjustment Plan ("EAP") was filed with the DRCauthorities. Subsequent to July 31, 2005, the Company announced that formalapproval of the EAP had been received from the DRC Ministry of Mines' Directionchargee de la Protection de L'Environnement Minier ("DPEM"), thereby fulfillingall legislative requirements of the DRC's Mining Code and associated MiningRegulations. 2. Mineral properties (continued): (a) Kolwezi (continued): In November 2004, the IDC informed the Company that, subject to certainconditions, including receiving exchange control permissions from the SouthAfrican Reserve Bank (which were received in August 2005), it would beexercising its option to acquire 10% of KMT. In May 2005, the Company announcedthat the World Bank Group's Board of Executive Directors had approved a proposedinvestment by its private sector arm, and, as a result, the IFC would also beexercising its option and would acquire a 7.5% equity interest in KMT. The IDCand IFC will acquire their equity interests at prices based on the allowableexpenditures on the Project up to the date of exercising their respectiveoptions, and will pre-fund their proportions (based on ownership of Class Cshares of KMT) of the estimated costs of progressing the Project to a financedgo-ahead decision. On completion of the IDC and IFC option exercises, theCompany's wholly-owned subsidiary, CMD, is expected to receive approximatelyUS$12 million in cash. (b) Angola: During the year ended October 31, 2001, the Government of Angola awarded twolicences to Endiama E.P. ("Endiama"), the Angolan state mining company, forproperties to be explored and developed with the Company's wholly-ownedsubsidiary, IDAS Resources N.V. ("IDAS"), a Netherlands Antilles company. Theseproperties are a prospecting licence, which comprises approximately 2,690 km2 inthe Cuango River floodplain, and an adjacent exploitation licence ("Camutue"),which comprises approximately 246 km2. Both licences are in the Provinces ofLuanda-Norte and Malange, Angola. IDAS had been acquired by the Company in 1998, and under the terms of the sharepurchase agreement, the vendors retained a net profits interest equal to 20% ofthe profits, to a maximum of $56,000,000, resulting from IDAS' share of incomefrom operations of its then Angola mineral properties. The covered propertiesinclude the licence areas mentioned above. "Profits" means the actual anddistributable proceeds received by IDAS from the properties, to be calculatedbased on international generally accepted accounting principles. During the year ended October 31, 2002, IDAS entered into a Heads of Agreementwith Endiama and Twins Ltd. ("Twins"), a company representing private sectorAngolan interests. The Heads of Agreement governed the ownership structurerelating to the two licences in Angola and the obligations of the parties. Theparties agreed to the formation of a new company (later agreed to be called "Luminas") which would exercise the mining rights. 2. Mineral properties (continued): (b) Angola (continued): The financing of the project was to be undertaken by IDAS. IDAS was to own 51%of the share capital of Luminas for the period of time that any loans to Luminasby IDAS remained outstanding. Endiama was to own 38% and Twins 11%. Once theloans had been repaid in full, IDAS was to own 49%, Endiama 38% and Twins 13%.IDAS also verbally agreed, and subsequently completed formal drafting of,arrangements with Twins to ensure IDAS' continued voting control of Luminas. TheHeads of Agreement and a subsequent agreement entered into by the parties setout the repayment terms of the loans from cash flows and called for a minimuminvestment of $1,500,000 by IDAS for each of the two licences. IDAS was to pay10% of its dividends to Endiama during the first eighteen months of production.The board of directors of Luminas was to comprise five members, of whom threewere to be nominated by IDAS. However, IDAS was unable to progress mattersfurther, and, in September 2004, Endiama made it clear that it had repudiatedits contractual obligations. Consequently, the Company announced that it wouldbe seeking legal redress. Filing of the suit in the United States was delayedpending the outcome of representations at senior government levels. When noresponse was received, the Company filed legal suit in the United States againstEndiama, on May 18, 2005. Although the Company has been advised by counsel thatits case is strong, the outcome of litigation can never be predicted withcertainty. 3. Mineral property evaluation costs: Amounts deferred in respect of mineral property evaluation costs consist of thefollowing: Democratic Republic of Congo - Kipushi evaluation costs: Balance, October 31, 2004 $ 4,397,126Amortization 179Consulting 17,130Contribution from joint venture partner (12,500)Exploration office and accounting 9,397Legal 107Salaries 53,423Travel 4,829 Balance, July 31, 2005 $ 4,469,691 3. Mineral property evaluation costs (continued): During the year ended October 31, 1996, the Company entered into a two-year,exclusive framework agreement (the "Gecamines Agreement") with Gecaminesrelating to the rehabilitation of the Kipushi zinc and copper mine (the "KipushiProject"), in the southern region of the Democratic Republic of Congo. Duringthe year ended October 31, 1998, the Company received confirmation fromGecamines that, because delays had occurred in the research of the definition ofthe mining and metallurgical treatment phase of the project, requirements forthe completion of feasibility studies by the Company would be delayed for aperiod of up to 12 months after the completion of this definition phase,starting on a date to be agreed upon by the Company and Gecamines. Thisstarting date has not yet occurred. As part of the Gecamines Agreement, the Company has agreed to prepare, at itsexpense, feasibility studies covering the rehabilitation and resumption ofproduction at the Kipushi mine, various options for processing the copper-zincore, and an examination of the viability of the re-treatment of existingtailings. The Gecamines Agreement gives the Company the exclusive right toexamine the Kipushi mine, to enter into joint ventures for ore processing andtailings processing, and to make suitable arrangements for the resumption ofproduction. The Gecamines Agreement does not give the Company any interest inthe Kipushi mine. The Company will only acquire an interest in the Kipushi mineif satisfactory results are obtained from the feasibility studies and ifsatisfactory agreements, conforming with the DRC Mining Code, can be negotiatedwith Gecamines and the GDRC. The agreement also specifies that the Company and Gecamines will collaborate onexploration and development over the area of certain Gecamines concessions. On July 17, 2000, the Company entered into an option agreement (the "OptionAgreement") with the Zinc Corporation of South Africa Limited, since renamedKumba Base Metals Limited ("Kumba"). Pursuant to the Option Agreement, Kumbahad an option to elect to earn up to a 50% interest in the Kipushi Project.During the year ended October 31, 2001, following the performance of duediligence, Kumba exercised its option to participate in the Kipushi Project. Onexecution of the option, Kumba deposited the option fee of $100,000 into a jointaccount, to meet expenditures incurred in negotiating commercial agreementsbetween the Company, Kumba and Gecamines. On January 30, 2002, the Company signed, and, in November 2004, amended, a jointventure agreement with Kumba, whereby Kumba could earn up to 50% of theCompany's interest in the Kipushi Project by incurring $3,500,000 ofexpenditures on the Project, including the conducting of feasibility studies.Kumba was not obliged to conduct the feasibility studies until commercialagreements for the rehabilitation and resumption of the Kipushi mine had beenentered into between the Company, Kumba and Gecamines, security of tenureachieved via an agreement with Gecamines, and governmental approval received.During 2003, Kumba deposited a further $100,000 into the joint venture accountto meet expenditures incurred towards achieving such an agreement. Kumba wasrequired to fund the $3,500,000 of expenditures, less already recognizedexpenditures of $300,000 by Kumba, over a 28 month period commencing with thecompletion of these items, which was required to be no later than March 31,2005, otherwise the agreement would terminate, which duly occurred.Subsequent to July 31, 2005, the Company renewed the joint venture agreementwith Kumba with effect from March 31, 2005. Completion of the items mentionedabove now has to occur no later than October 31, 2006, or the agreement willterminate. 4. Share capital: (a) Share capital: Number of shares AmountBalance, October 31, 2004 and July 31, 2005 70,735,925 $ 67,069,511 (b) Share purchase warrants: Warrants outstanding at July 31, 2005: Balance BalanceOctober 31, July 31, 2004 Issued Exercised 2005 Exercise price Expiry date 1,679,656 - - 1,679,656 CDN$0.75 February 12, 2008 4. Share capital (continued): (c) Share options: Weighted average price (CDN $)Options outstanding, October 31, 2004 6,126,000 $ 1.45Granted 90,000 1.85Cancelled / expired - -Exercised - - Options outstanding, July 31, 2005 6,216,000 $ 1.45 On January 4, 2005, the Company granted 30,000 options exercisable at CDN$1.95per share expiring January 3, 2010. A total of 15,000 options vestedimmediately, with the remainder vesting one year from the date of grant. On May 27, 2005, the Company granted 60,000 options exercisable at CDN$1.80 pershare expiring May 26, 2010. Of these, 40,000 options have vested, and theremaining 20,000 will vest on achieving a milestone related to the KolweziTailings Project. For the 90,000 options granted during the nine months ended July 31, 2005, theCompany has recorded stock-based compensation expense of $23,188, and hasdeferred $35,088 of stock-based compensation as consulting costs in mineralproperties. The fair value of each option grant has been calculated using theBlack-Scholes option pricing model with an expected life of three years,volatility ranging from 97% to 101%, no dividend yield and a risk free interestrate ranging from 3.16% to 3.25%. In addition to the expense recorded on the options granted during the ninemonths ended July 31, 2005, the Company recorded stock-based compensationexpense of $789,165 as a result of the vesting of options granted in previousperiods. Subsequent to July 31, 2005, 205,000 options were granted to employees with anexercise price of CDN $1.85 and expiry date of August 2, 2010. (d) Contributed surplus: Balance, October 31, 2004 $ 4,776,785Stock-based compensation (note 4(c)) 812,353Stock-based compensation included in consulting costs deferred in mineral properties (note 4(c)) 35,088 Balance, July 31, 2005 $ 5,624,226 5. Segmented information: The Company's operations are primarily directed towards the acquisition,exploration and development of mineral resource properties and represent asingle reportable segment. All material revenues of the Company areattributable to the corporate head office. Property, plant and equipment, including mineral properties and mineral propertyevaluation costs, by geographic area are as follows: July 31, October 31, 2005 2004Capital assets by geographic area:Democratic Republic of Congo $ 22,644,119 $ 15,448,141Angola 1,197,011 1,122,023Zambia 1 1United Kingdom 36,115 41,195 $ 23,877,246 $ 16,611,360 This information is provided by RNS The company news service from the London Stock Exchange