AAA.L Regulatory News (AAA)

14 Jun 2006 07:01

Adastra Minerals Inc14 June 2006 14th June 2006 ADASTRA MINERALS INC.Interim Results ended April 30, 2006 and 2005(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 six month periods ended April 30, 2006 and 2005, and related notes(the "Consolidated Financial Statements") prepared in accordance with Canadiangenerally accepted accounting principles. The following discussion and analysishighlights significant changes since the discussion and analysis in the 2005Annual Report, which should also be referred to for additional information. Thediscussion is based on events that have occurred up to June 2, 2006. Except asotherwise noted, all dollar amounts contained in this discussion and analysisand 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. Change of Control On January 18, 2006 First Quantum Minerals Ltd. ("First Quantum") announced anunsolicited offer to acquire all the outstanding common shares of the Company.Under the terms of the offer, the Company's stockholders would receive one FirstQuantum share for every 17.5 of the Company's shares held. On April 11, 2006,the Company's then Board of Directors entered into a definitive supportagreement with First Quantum with regard to an improved offer for all of theCompany's shares. This improved offer was for either: (a) Cdn.$2.92 in cash perAdastra common share or; (b) one First Quantum share plus Cdn.$0.265 in cash forevery 14.76 Adastra common shares tendered, subject to pro-ration based on amaximum of approximately 4.9 million First Quantum shares and a maximum ofapproximately Cdn.$41 million. After considering the terms of the improvedoffer, the then Board of Directors unanimously recommended that the Company'sshareholders accept the improved offer. When the latter expired on April 28,2006, a total of 61,191,821 of the Company's common shares had been tenderedinto the First Quantum improved offer. On May 1, 2006, First Quantum announcedthat it had acquired control of the Company. Following the change of control,Mr. Bernard Vavala resigned from the offices of Director and Chairman of theCompany, and Messrs. John Bentley, Etienne Denis and Patrick Walsh each resignedfrom the office of director of the Company. With effect from May 4, 2006, Mr.Philip Pascall was appointed Director and Chairman of the Company, and Messrs.Andrew Adams, Clive Newall, and Martin Rowley were each appointed as a Directorof the Company. Results of Operations The Company incurred a net loss for the three months ended April 30, 2006, of$8,672,434, or $0.11 per share, compared to a net loss of $807,283, or $0.01 pershare, for the three months ended April 30, 2005. The Company incurred a net loss for the six months ended April 30, 2006, of$11,865,227, or $0.16 per share, compared to a net loss of $1,549,100 or $0.02per share, for the six months ended April 30, 2005. The results for the three and six months ended April 30, 2006, reflect thefollowing factors: • The Company incurred $6,244,700 of costs during the three months ended April 30, 2006, in addition to the $2,741,627 incurred during the three months ended January 31, 2006, as a result of the offer by First Quantum Minerals Ltd. ("First Quantum") to acquire all the common shares of the Company. In order fully to assess the unsolicited offer and the revisions made thereto, the Company appointed a special committee and engaged advisors, which resulted in these costs being incurred. There were no equivalent expenditures in the first and second quarters of 2005. • Administration costs for the three and six months ended April 30, 2006 increased on an overall basis, compared to the three and six months ended April 30, 2005. For the three months ended April 30, 2006, administration costs increased to $2,503,140, compared with $894,322 in the corresponding period of 2005. For the six months ended April 30, 2006, administration costs increased to $3,237,455, compared with $1,796,215 in the corresponding six months of financial year 2005. The increases were principally due to increases in salaries and wages, stock based compensation, office and administration, and professional fees incurred during the periods. • Salaries and wages increased primarily due to United Kingdom employer taxes associated with the exercise or termination of stock options. No options were exercised or terminated during the first six months of 2005; whereas 582,500 options were during the first quarter, and a further 7,171,209 during the second quarter, of 2006. Reflecting the increasing workload of the Head Office, there was also one additional staff member and more temporary help used compared to the comparable period of the prior year. • No options were granted during the six months ended April 30, 2006, whereas 30,000 options were granted during the corresponding period in 2005. Stock-based compensation for the three and six months ended April 30 was, however, higher in 2006 than for the corresponding periods in 2005 as a result of the accelerated vesting of options granted in prior periods due to the change of control of the Company. • The higher professional fees during the three and six months ending April 30, 2006, compared to the corresponding periods of 2005, were mainly due to higher general corporate legal fees, and to fees associated with filing the Company's Annual Report on Form 20-F. There were also surveyor and legal fees relating to the marketing and assignment of the lease on the Company's previous office in London, England. • Office and administration fees increased primarily due to the Company's necessary relocation to larger offices during the first quarter of 2006, when the Company incurred moving costs, as well as telephone, and additional information technology costs associated with the relocation. • Lower average cash balances resulted in lower interest income during the six months ended April 30, 2006, compared with the corresponding period of 2005. The Company holds some of its cash balances in Canadian dollars and British pounds, in anticipation of expenditures to be incurred in these currencies. The foreign exchange gain of $198,675 during the six months ended April 30, 2006, arose mainly because the majority of the proceeds of a private placement of shares were received and retained in British pounds, and the U.S. dollar weakened against the British pound after the closing of the placement on December 22, 2005. Liquidity and Capital Resources As at April 30, 2006, the Company had cash and cash equivalents of $10,584,484,compared to $5,595,972 at October 31, 2005, and had working capital of$5,592,542, compared to $3,794,668 at October 31, 2005. The increase in the cash balance over the six months is mainly the result of theexercise by the Industrial Development Corporation of South Africa ("IDC") andthe International Finance Corporation ("IFC") of options to acquire interests inthe Company's Kolwezi Tailings project, and of a private placement of theCompany's shares in December 2005. In March 2006, the IDC acquired 10.0%, andthe IFC 7.5%, of the Company's subsidiary Kingamyambo Musonoi Tailings S.A.R.L.("KMT") through their option exercises, and as a result the Company's interestin KMT is now 65%. As part of those exercises, the IDC and IFC acquiredcorresponding participating interests in the other aspects of the KolweziTailings project, and the Company's subsidiary Congo Mineral Developments ("CMD") accordingly received altogether $12,069,858. The private placement inDecember 2005 generated net cash proceeds equivalent to $8,138,669. Inaddition, conventional exercises of 413,500 stock options during the six monthsended April 30, 2006, provided net cash proceeds of Cdn.$298,500; and theexercise by the IFC of 855,646 warrants in April, 2006, provided a furtherCdn.$641,734. Offsetting these cash inflows during the six month period wereexpenditures on the Kolwezi Tailings, Kolwezi Subsurface, DRC quarries, andKipushi properties, the acquisition of a lease and improvements to a new officein London, and the loss from operations excluding the non-cash stock basedcompensation and amortization expense. The Company's Consolidated Financial Statements have been prepared assuming theCompany will continue on a going-concern basis. The Company has incurred lossessince inception, and the ability of the Company to continue as a going concernover the long term depends upon its ability to develop profitable operations andto continue to raise adequate financing. On May 1, 2006, First Quantum Mineralsannounced that it had acquired control of the Company. During the six month period ended April 30, 2006, there have been no materialchanges in the critical accounting estimates as compared to those disclosed inthe Company's latest annual Management's Discussion and Analysis for the yearended October 31, 2005 contained in its October 31, 2005 Annual InformationForm, to which the reader is referred. Tabular Disclosure of Contractual Obligations The Company is committed to payments under a number of operating leases forvarious office premises and other accommodation through to May 2011. Thefollowing table lists as of April 30, 2006 information with respect to theCompany's known contractual obligations. In addition to the above, once all financing arrangements for the KolweziTailings Project to proceed with construction have been completed, CMD, IDC,IFC, and any other participating parties, are committed pro-rata to pay toGecamines the $10,000,000 balance of the consideration for the TailingsExploitations Rights ("TER"). (The initial $5,000,000 of the $15,000,000 totalwas paid during the 2004 financial year following the transfer of the TER toKMT). The Company has not accrued debts, aggregating approximately $246,000, claimedby certain former shareholders of IDAS, a subsidiary of the Company acquired in1998, as the Company has not been able to verify the debts. There remain 13,078common shares of the Company held in escrow for the same reason. Mineral Property Projects As at April 30, 2006, amounts capitalized in respect of mineral propertiesdecreased to $16,362,833, from $21,760,738 at October 31, 2005, reflecting$5,932,246 in costs incurred, less $11,368,638 of contributions received towardscosts, on the Company's Kolwezi Tailings Project; $13,791 on the Company'sKolwezi Subsoil licence; and $24,696 on the Company's DRC Quarry licences. Capitalized mineral property evaluation costs increased to $4,642,232, from$4,538,897 at October 31, 2005, reflecting $103,335 of costs incurred on theCompany's Kipushi Project. Kolwezi Tailings Project, DRC During the six months ended April 30, 2006, the Company continued to advance itsKolwezi Tailings Project. In February 2006, the Company announced that, subjectinter alia to negotiation of definitive documentation and approval of bothcompanies' Board of Directors, it had reached an agreement under whichMitsubishi Corporation was to purchase a 14.9% state in the Kolwezi TailingsProject. Negotiations ceased when the Company's then Board of Directorsrecommended that shareholders should accept First Quantum Minerals' improvedoffer for the Company. As a result of the acquisitions from CMD of interests in the Kolwezi TailingsProject that were completed by IDC and IFC in March 2006, the shareholdings inKMT are now: CMD 65.0% Gecamines 12.5% IDC 10.0% IFC 7.5% Government of DRC 5.0% The Kolwezi Tailings Project Definitive Feasibility Study ("DFS") was completedin early March 2006. The projected annual production capacities ofapproximately 5,900 tonnes of cobalt and 33,200 tonnes of copper are more than7% higher for cobalt, and 10% higher for copper, than the estimates Adastraannounced in December 2004. Total project capital costs (including owners'costs, engineering, procurement and construction fees and contingencies,insurance, first-fill, and spares) are anticipated to be $305 million in October2005 terms. The higher projected production levels more than offset theoperating and capital cost increases when calculating the net present value ofthe Kolwezi Tailings Project. Following the approval of the Environmental Assessment Plan by the DRC Ministryof Mines' Direction chargee de la Protection de l'Environnement Minier ("DPEM")in August 2005, work continued on an Environmental & Social Impact Assessment ("ESIA") meeting Equator Principles and World Bank Guidelines: key requirements of project finance lenders. The ESIA was completed and released in conjunctionwith the DFS in early March 2006; and the IFC confirmed that it had beencompleted to "international best practice on social and environmental assessment". In parallel with the DFS and ESIA, negotiations continued on a long termelectricity supply contract for the Project, on long term sales agreements andmarketing arrangements for the Project's output of cobalt and copper, and onpreparations for project financing. In December 2005, the Company announced that it had mandated the Royal Bank ofScotland as a senior arranger for an untied commercial bank tranche of theKolwezi Tailings Project financing for US$60-75 million with an eight yearmaturity; and, in January 2006, that it had mandated Investec Bank Limited andthe Industrial Development Corporation of South Africa Limited to co-arrange aSouth African export credit tranche of the project financing for $80-120 millionwith a ten year maturity. Progression into lender due diligence and detaileddocumentation was suspended near the end of the second quarter of financial year2006 when the Company's then Board of Directors recommended that shareholdersshould accept First Quantum Minerals' improved offer for the Company. Kipushi Project, DRC In fiscal year 2003, the Company and Gecamines agreed that priority should begiven to finalising the Kolwezi Contract of Association. Following theexecution of the latter in March 2004, negotiations on the proposed revisions tothe Kipushi Framework Agreement were planned to recommence. Meetings were,however, postponed until after the end of fiscal year 2004, pending Gecamines'detailed review of, and response to, the proposals previously submitted by theCompany. 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. The results of this reassessment formedthe basis for a proposal to progress the project that was submitted to Gecaminesduring the second quarter of financial year 2006. Once agreement on a revisedframework has been reached with Gecamines, and necessary approvals have beenobtained from the government of the DRC, the Company expects that a fullfeasibility study of the project will be undertaken. Kumba Base Metals Limitedcan earn up to 50% of the Company's interest in the Kipushi Project by incurring$3,500,000 (less already recognized expenditure by Kumba of $300,000) ofexpenditures on the Project, including the conducting of feasibility studies. Angolan Projects During the year ended October 31, 2004, the Company found it impossible toprogress matters further with Endiama in relation to its rights with regard totwo mineral properties in Angola. In September 2004, it became clear thatEndiama had repudiated its contractual obligations. Consequently, the Companyannounced that it would be seeking legal redress. The Company filed a legalsuit against Endiama in Texas, United States of America in May 2005 citingbreach of contract, negligent misrepresentations and other causes of action, andrequesting damages including loss of benefits, costs and expenses incurred inconnection with IDAS's efforts to acquire and develop the licences, andprofessional fees. The case was transferred from a Texas State court to a TexasFederal court on application by Endiama's lawyers, following which the Company'slawyers withdrew the legal suit in Texas and re-filed suit with a US Federalcourt in Washington D.C.. In mid-May 2006, the Company's lawyers served asummons on Endiama and another party. Although the Company has been advised bycounsel that it has a strong case, the outcome of litigation can never bepredicted with certainty. The Company's presence in Angola remains at a minimal level pending the outcomeof the legal action being taken in the United States of America, and the Companyhas expensed all costs incurred in connection with Angola since the end of the2005 Financial Year. Kolwezi Subsoil, DRC The Company's wholly owned subsidiary, Roan Prospecting and Mining Sprl, holdsthe subsurface copper and cobalt exploration rights under the whole of theKolwezi Tailings Project licence area in the DRC. In March, the Companyannounced encouraging results from initial reconnaissance sampling work; and adrilling programme to be undertaken during the dry season is being prepared. DRC Quarries During the quarter ended January 31, 2006, the Company announced that it hadacquired ten quarry licences in the DRC (two for aggregates, located close toKolwezi; and eight for limestone, located approximately 45 km north-east ofKolwezi). Work has begun on evaluating these licences, and in particularregarding the quarries' potential to supply aggregate for use duringconstruction of the Kolwezi Tailings plant, and to supply limestone and limeduring the plant's operations. Related Party Transactions During the six months ended April 30, 2006, the Company paid or accrued anaggregate of $204,252 for legal and offer assessment services (2005 - $85,952for legal services) to a law firm in which a director of the Company is apartner. In addition, the Company has paid or accrued $nil (2005 - $1,000) forconsulting services to a non-executive director, and $nil (2005 - $7,860) forconsulting services to a company in which a then director has an interest. Risk Factors The risk factors affecting the Company are substantially unchanged from thosedisclosed in the October 31, 2005 annual Management's Discussion & Analysiscontained in its October 31, 2005 Annual Information Form, to which the readeris referred. Summary of quarterly results A summary of quarterly results for each of the eight most recently completedquarters is as follows: 2006 2005 2004 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Interest income $ 87,586 $ 72,454 $ 61,045 $ 81,339 $ 99,126 $ 110,172 $ 101,794 $ 99,675 Loss for period $ 8,672,434 $ 3,192,793 $ 583,602 $ 485,774 $ 807,283 $ 741,817 $ 429,328 $ 601,173 Basic and diluted loss per share $ 0.11 $ 0.04 $ 0.01 $ 0.01 $ 0.01 $ 0.01 $ 0.01 $ 0.01 The main factors underlying the variations in these quarterly results are theunsolicited offer for all of the Company's common shares that was announced byFirst Quantum in the first quarter, and that continued throughout the secondquarter of 2006 (significant costs were incurred in evaluating the offer andrevisions thereof), exchange rate fluctuations (particularly in the value of theU.S. dollar against the Canadian dollar and British pound), and the timing ofthe vesting of options (all those outstanding at the time of the close of theFirst Quantum offer vested due to the change in control). 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 Tailings Project, Kipushi Project, AngolanProjects, Kolwezi Subsoil, and DRC Quarries, and the resource size and economicpotential of those projects. These forward-looking statements are subject to avariety of risks and uncertainties which could cause actual events or results todiffer materially from those reflected in the forward-looking statements,including without limitation, risks and uncertainties relating to politicalrisks involving the Company's operations and the policies of other nations andorganizations towards companies doing business in such jurisdictions, theinherent uncertainty of production and cost estimates and the potential forunexpected costs and expenses, commodity price fluctuations, the inability orfailure to obtain adequate financing on a timely basis, and other risks anduncertainties, including those described in the Company's Annual Report on Form20-F for the year ended October 31, 2005 and Reports on Form 6-K filed with theSecurities and Exchange Commission. Contact us: London Tim Read Justine Howarth / Annabel Leather Chief Executive Officer Parkgreen Communications T: +44 (0)20 7355 3552 T: +44 (0)20 7493 3713 F: +44 (0)20 7355 3554 F: +44 (0)20 7491 3936 E: london@adastramin.com E: justine.howarth@parkgreenmedia.com North America Martti Kangas The Equicom Group T: +1 416 815 0700 x. 243 +1 800 385 5451 (toll free) F: +1 416 815 0080 E: mkangas@equicomgroup.com Consolidated Financial Statements (Expressed in United States dollars) ADASTRA MINERALS INC. Three and six months ended April 30, 2006 and 2005(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 April 30, 2006and for the three and six months ended April 30, 2006 and 2005, were preparedby, 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) April 30, October 31, 2006 2005Assets Current assets:Cash and cash equivalents $ 10,584,484 $ 5,595,972Cash held in trust (note 7) 2,971,959 -Amounts receivable and prepaid expenses 708,652 486,538 14,265,095 6,082,510 Equipment 489,383 199,802 Mineral properties (note 2) 16,362,833 21,760,738 Mineral property evaluation costs (note 3) 4,642,232 4,538,897 $ 35,759,543 $ 32,581,947 Liabilities and Shareholders' Equity Current liabilities:Accounts payable and accrued liabilities $ 8,672,553 $ 2,287,842 Long-term debt (note 4) 1,059,280 - Non-controlling interest 17,500 8,750 Shareholders' equity:Share capital (note 5(a)) 80,262,595 67,348,642Contributed surplus (note 5(d)) 361,158 5,685,029Deficit (54,613,543) (42,748,316) 26,010,210 30,285,355 $ 35,759,543 $ 32,581,947 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 ended April 30, Six months ended April 30, 2006 2005 2006 2005 Administration costs:Amortization $ 17,595 $ 2,887 $ 21,749 $ 5,797Bank charges and interest 2,226 1,235 4,783 2,801Investor relations 148,290 128,489 202,461 206,624Office and administration 197,336 86,660 303,370 178,662Professional fees 60,963 36,613 205,797 112,039Regulatory authoritiesfiling fees 42,701 30,554 113,474 87,785Salaries and wages 1,131,838 207,875 1,367,388 375,026Stock-based compensation(note 5) 883,445 389,436 986,456 808,489Transfer agent 12,543 6,473 17,385 7,733Travel and accommodation 6,203 4,100 14,592 11,259 2,503,140 894,322 3,237,455 1,796,215 Other items:Interest income (87,586) (99,126) (160,040) (209,298)Mineral property evaluationcosts 25 43 160 43Foreign exchange loss(gain) 12,155 12,044 (198,675) (37,860)Offer assessmentcosts (note 7) 6,244,700 - 8,986,327 - 6,169,294 (87,039) 8,627,772 (247,115) Loss for the period (8,672,434) (807,283) (11,865,227) (1,549,100) Deficit, beginning ofperiod (45,941,109) (40,871,657) (42,748,316) (40,129,840) Deficit, end of period $ (54,613,543) $ (41,678,940) $ (54,613,543) $ (41,678,940) Basic and diluted lossper share $ (0.11) $ (0.01) $ (0.16) $ (0.02) Weighted average number ofcommon shares outstanding 77,562,094 70,735,925 75,685,577 70,735,925 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 ended April 30, Six months ended April 30, 2006 2005 2006 2005Cash provided by (used in): Operations:Loss for the period $ (8,672,434) $ (807,283) $ (11,865,227) $ (1,549,100)Items not involving cash:Amortization 17,595 2,887 21,749 5,797 Stock-based compensation 883,445 389,436 986,456 808,489 (7,771,394) (414,960) (10,857,022) (734,814) Changes in non-cash operating working capital:Cash held in trust (2,971,959) - (2,971,959) -Decrease (increase) in amountsreceivable and prepaid expenses (135,222) (120,041) (222,114) (47,612)Increase (decrease) in accountspayable and accrued liabilities 1,366,903 182,269 3,842,087 (93,822) (9,511,672) (352,732) (10,209,008) (876,248) Investments:Purchase of property, plant and equipment (69,433) (18,248) (314,785) (24,664)Expenditures on mineral properties (2,808,845) (2,325,986) (5,366,678) (4,010,782)Contribution towards mineral properties 11,001,828 - 11,001,828 -Expenditures on mineral property evaluationcosts (15,617) (5,522) (103,153) (30,763) 8,107,933 (2,349,756) 5,217,212 (4,066,209) Financing:Issue of share capital on privateplacement, net (21,545) - 8,138,669 -Cash settlement of taxes on option exercises - - (59,967) -Proceeds from long-term debt 1,059,280 - 1,059,280 -Issue of share capital on exercise of options and warrants 661,387 - 833,576 -Sale of interest (note 2(a)) 8,750 - 8,750 - 1,707,872 - 9,980,308 - Increase (decrease) in cash and cashequivalents 304,133 (2,702,488) 4,988,512 (4,942,457) Cash and cash equivalents, beginningof period 10,280,351 14,024,345 5,595,972 16,264,314 Cash and cash equivalents, end of period $ 10,584,484 $ 11,321,857 $ 10,584,484 $ 11,321,857 Cash is defined as cash and cash equivalents and joint venture cash. Supplementary disclosure:Interest received, net $ 87,586 $ 99,126 $ 160,040 $ 209,298Non-cash investing and financing activities:Stock-based compensation for mineralproperty expenditures 233,972 - 233,972 - 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 and six months ended April 30, 2006 and 2005 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, 2005. 2. Mineral properties: Amounts deferred in respect of mineral properties consist of the following: DRC Kolwezi DRC Quarry Zambia Tailings Sub-surface Licenses Angola Solwezi Total Balance, October 31,2005 $ 20,546,346 $ - $ - $ 1,214,391 $ 1 $ 21,760,738 Amortization 3,273 - - - - 3,273Consulting 3,612,988 - 23,296 - - 3,636,284Contribution from IFIs (11,368,638) - - - - (11,368,638)Exploration officeand accounting 315,482 13,791 - - - 329,273Geology 10,448 - - - - 10,448Interest received (28,656) - - - - (28,656)Legal 509,485 - 1,400 - - 510,885Salaries 707,683 - - - - 707,683Site management 18,567 - - - - 18,567Travel 782,976 - - - - 782,976 (5,436,392) 13,791 24,696 - - (5,397,905) Balance, April 30,2006 $ 15,109,954 $ 13,791 $ 24,696 $ 1,214,391 $ 1 $ 16,362,833 (a) Democratic Republic of Congo - Kolwezi: Since October 1998, the Company's wholly-owned subsidiary, Congo MineralDevelopments Limited ("CMD"), has signed and/or initialled 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. In accordancewith the CoA, the Tailings Exploitation Rights to the Project have beentransferred to KMT. Adastra MINERALs INC.Notes to Consolidated Financial Statements(Unaudited - Prepared by Management)(Expressed in United States dollars) Three and six months ended April 30, 2006 and 2005 2. Mineral properties (continued): (a) Democratic Republic of Congo - Kolwezi (continued): The Company initially owned 82.5% of KMT, with Gecamines and GDRC owning 12.5%and 5.0% respectively. The CoA recognizes the framework agreement that wasentered into by the Company in February 2003 for the Industrial DevelopmentCorporation of South Africa Limited ("IDC") and the International FinanceCorporation ("IFC") to participate in the Project. During the quarter ended April 30, 2006, the IDC and IFC exercised options andacquired 10% and 7.5% interests respectively in KMT. As a result, the IFC andIDC paid combined proceeds of $8,750 for the purchase of their interests,$1,059,280 for their participation in loans to KMT, and $11,368,638 as theircontributions towards expenditure on the Project. The contributions towardsexpenditure on the Project have been applied against the mineral propertiesexpenditure relating to the Project. Under the CoA, KMT is to pay Gecamines atotal of $15,000,000 as consideration for the Tailings Exploitation Rights ("TER"): $5,000,000 was paid following the transfer to KMT of the TER on May 27,2004, and $10,000,000 will be paid following the completion of all financingarrangements for the Project. The $15,000,000 is to be provided to KMT by CMDand other participating parties such as the IDC and IFC based on their pro rataownership of the Project excluding Gecamines and GDRC's percentage ownership.Gecamines is to receive an annual dividend of the greater of its ordinarydividend and 2.5% of free cash flow (as defined) for each year from start-upuntil senior debt and subordinated loans (including all interest thereon) havebeen fully reimbursed. Thereafter, Gecamines will be entitled to an annualdividend based on 10% of the average price realized for cobalt sold in a year inexcess of $10.00 per pound (adjusted for inflation) in addition to any ordinarydividend received by Gecamines, providing that ordinary dividends are paid insuch 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 transfer date of the mining rights). (b) Democratic Republic of Congo - Quarries: In 2005, the Company's subsidiary, Roan Prospecting and Mining Sprl, obtainedexploration rights for quarries in the DRC. The rights cover ten concessionareas: eight for limestone, and two for aggregates. The renewable licences havean initial term of one year. During the six months ended April 30, 2006, theCompany began work on these licences. Adastra MINERALs INC.Notes to Consolidated Financial Statements(Unaudited - Prepared by Management)(Expressed in United States dollars) Three and six months ended April 30, 2006 and 2005 2. Mineral properties (continued): (c) Angola: During the year ended October 31, 2001, the Government of Angola awarded twolicences to Endiama E.P. ("Endiama"), the Angola 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 was acquired by the Company in 1998, andunder the terms of the share purchase agreement, the vendors retained a netprofits interest equal to 20% of the profits, to a maximum of $56,000,000,resulting from IDAS' share of income from operations of its then Angola mineralproperties. The covered properties include the licence areas mentioned above."Profits" means the actual and distributable proceeds received by IDAS from theproperties, to be calculated based on international generally acceptedaccounting 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. The financing of the projectwas to be undertaken by IDAS. IDAS was to own 51% of the share capital ofLuminas for the period of time that any loans to Luminas by IDAS remainedoutstanding. Endiama was to own 38% and Twins 11%. Once the loans had beenrepaid in full, IDAS was to own 49%, Endiama 38% and Twins 13%. IDAS alsoverbally agreed, and subsequently completed formal drafting of, arrangementswith Twins to ensure IDAS' continued voting control of Luminas. The Heads ofAgreement and a subsequent agreement entered into by the parties set out therepayment terms of the loans from cash flows and called for a minimum investmentof $1,500,000 by IDAS for each of the two licences. IDAS was to pay 10% of itsdividends to Endiama during the first eighteen months of production. The boardof directors of Luminas was to be comprised of five members of whom three wereto be nominated by IDAS. However, IDAS was unable to progress matters further,and the Company believes that Endiama has repudiated its contractualobligations. Consequently, the Company filed a legal suit against Endiama inTexas, USA, on May 18, 2005 citing breach of contract, negligentmisrepresentation and other causes of action, and requested damages includingloss of benefits, costs and expenses incurred in connection with IDAS's effortsto acquire and develop the licences, and professional fees. Legal actioncontinues to be pursued in the United States of America. (d) Zambia: The Company held a prospecting licence, which covered approximately 950 km2 inthe Solwezi District in the Republic of Zambia. The Company applied for renewalof the licence in relation to a reduced area of 441 km2. This was received inOctober 2005 and is valid until September 30, 2006. Adastra MINERALs INC.Notes to Consolidated Financial Statements(Unaudited - Prepared by Management)(Expressed in United States dollars) Three and six months ended April 30, 2006 and 2005 3. Mineral property evaluation costs: Amounts deferred in respect of mineral property evaluation costs consist of thefollowing: Democratic Republic of Congo - Kipushi evaluation costs: Amount Balance, October 31, 2005 $ 4,538,897 Amortization 182 Consulting 57,427 Contribution from joint venture partner (7,500) Exploration office and accounting 9,602 Legal 303 Salaries 40,312 Travel 3,009 103,335 Balance, April 30, 2006 $ 4,642,232 During the year ended October 31, 1996, the Company entered into a two-yearexclusive 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 DRC. During the year ended October 31,1998, the Company received confirmation from Gecamines that, because delays hadoccurred in the research of the definition of the mining and metallurgicaltreatment phase of the project, requirements for the completion of feasibilitystudies by the Company would be delayed until a period of up to 12 months afterthe completion of this definition phase, such starting date to be agreed upon bythe Company and Gecamines, and which the Company now expects to be in 2006. 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 Project, various options for processing thecopper-zinc ore, and an examination of the viability of the re-treatment ofexisting tailings. The Gecamines Agreement gives the Company the exclusiveright to examine the Kipushi Project, to enter into joint ventures for oreprocessing and tailings processing, and to make suitable arrangements for theresumption of production. The Gecamines Agreement does not give the Company anyinterests in the Kipushi Project. The Company will only acquire interests inthe Kipushi Project if satisfactory results are obtained from the feasibilitystudies and if agreements, both satisfactory and conforming with the New MiningCode, can be negotiated with 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. Adastra MINERALs INC.Notes to Consolidated Financial Statements(Unaudited - Prepared by Management)(Expressed in United States dollars) Three and six months ended April 30, 2006 and 2005 3. Mineral property evaluation costs (continued): 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 and September2005, amended, a joint venture agreement with Kumba, whereby Kumba could earn upto 50% of the Company's interest in the Kipushi Project by incurring $3,500,000of expenditures 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 must be no later than October 31, 2006,otherwise the agreement will terminate. 4. Long-term debt: During the quarter ended April 30, 2006, the IDC and IFC paid combined proceedsof $1,059,280 for their participation in the loans made by CMD to KMT. Theloans currently bear interest at 12% per annum and are repayable after KMTcommences production on the Kolwezi project and generates adequate positive cashflow. 5. Share capital: (a) Share capital: Number of shares Amount Balance, October 31, 2005 70,940,022 $ 67,348,642For options exercised cashlessly 3,319,947 3,289,946For options exercised conventionally 413,500 587,582For warrants exercised conventionally 855,646 897,756For private placement, net of issuance costs 6,000,000 8,138,669 Balance April 30, 2006 81,529,115 $ 80,262,595 Adastra MINERALs INC.Notes to Consolidated Financial Statements(Unaudited - Prepared by Management)(Expressed in United States dollars) Three and six months ended April 30, 2006 and 2005 5. Share capital (continued): (b) Share purchase warrants: Warrants outstanding at April 30, 2006: Balance BalanceOctober 31, April 30, 2005 Issued Exercised 2006 Exercise price Expiry date 1,690,122 21,170 (855,646) 855,646 CDN$0.75 February 12, 2008 There were 21,170 warrants granted during the six months ended April 30, 2006. During the six months, there were 855,646 warrants exercised for total cashproceeds of CDN$641,734. The Company recorded stock-based compensation within Mineral Propertyexpenditures of $41,918 in respect of the 21,170 warrants granted during the sixmonths to April 30, 2006 and $183,282 as a result of the vesting of warrantsgranted in previous periods. (c) Share options: Weighted average price (CDN $) Options outstanding, October 31, 2005 7,991,209 CDN$ 1.47Granted - -Cancelled / expired (237,500) 1.46Exercised (7,753,709) 1.47 Options outstanding, April 30, 2006 - CDN$ - There were no stock options granted during the six months ended April 30, 2006. During the six months there were 413,500 options exercised in the conventionalmanner for total proceeds of CDN$298,500. In addition, 7,340,209 options wereexercised using the cashless exercise arrangement, and resulting in the issuingof a further 3,319,947 shares. There were also 205,000 unvested share options with an exercise price ofCDN$1.60 per share and 32,500 unvested share options with an exercise price ofCDN$0.60 per share cancelled during the six months ended April 30, 2006. The Company recorded stock-based compensation expense within Mineral Propertyexpenditures of $8,772 and stock-based compensation expense of $986,456 as aresult of the vesting of options granted in previous periods. Adastra MINERALs INC.Notes to Consolidated Financial Statements(Unaudited - Prepared by Management)(Expressed in United States dollars) Three and six months ended April 30, 2006 and 2005 5. Share capital (continued): (d) Contributed surplus: Balance, October 31, 2005 $ 5,685,029Stock-based compensation (note 5(c)) 986,456Stock-based compensation included in consulting costsdeferred in mineral properties 233,972Transferred to share capital on exercise of stock options for cash (328,265)Transferred to share capital on cashless exercise of options (6,216,034) Balance, April 30, 2006 $ 361,158 6. 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: April 30, October 31, 2006 2005 Capital assets by geographic area:Democratic Republic of Congo $ 19,961,459 $ 25,250,214Angola 1,214,391 1,214,391Zambia 1 1United Kingdom 318,597 34,831 $ 21,494,448 $ 26,499,437 7. Offer assessment costs: On January 18, 2006 First Quantum Minerals Ltd. ("First Quantum") announced anunsolicited offer to acquire all the outstanding common shares of the Company.Under the terms of the offer, the Company's stockholders would receive one FirstQuantum share for every 17.5 of the Company's shares held. In order to assessthe unsolicited offer, the Company appointed a Special Committee and engagedadvisors, which has resulted in $2,741,627 in costs being incurred during thequarter ended January 31, 2006. Adastra MINERALs INC.Notes to Consolidated Financial Statements(Unaudited - Prepared by Management)(Expressed in United States dollars) Three and six months ended April 30, 2006 and 2005 7. Offer assessment costs (continued): On April 11, 2006, the Company's then Board of Directors entered into adefinitive support agreement with First Quantum with regard to an improved offerfrom First Quantum. The improved offer to the Company's shareholders was foreither: (a) CDN$2.92 in cash per Adastra share or (b) one First Quantum shareplus CDN$0.265 in cash for every 14.76 Adastra shares tendered subject topro-ration based on a maximum of approximately 4.9 million First Quantum sharesand a maximum of approximately CDN$41 million in cash. On consideration of theterms of the improved offer, the then Board of Directors unanimously recommendedthat the Company's shareholders accept the improved offer. As a result ofconsidering this improved offer, the Company incurred a further $6,244,700 inassessment costs during the three months ended April 30, 2006. On April 28, 2006, the offer expired. As of this date, 61,191,821 Adastrashares had been tendered into the First Quantum offer. As all of the Company'soutstanding stock options vest as a result of this change in control, theCompany has recorded stock compensation expense of $986,456 for the vesting ofthese options which were granted in prior periods. As at April 30, 2006, cash of $2,971,959 had been paid into trust in respect ofoffer assessment costs, pending the outcome of the offer. These costs were paidsubsequent to April 30, 2006, with a corresponding decrease in accounts payableand accrued liabilities recorded at the time of payment. On May 1, 2006, First Quantum announced that it had acquired control of theCompany. This information is provided by RNS The company news service from the London Stock Exchange