AAA.L Regulatory News (AAA)

14 Jun 2005 07:00

Adastra Minerals Inc14 June 2005 14th June 2005 ADASTRA MINERALS INC. Interim Results ended April 30, 2005 and 2004 (Unaudited - Prepared by Management) MANAGEMENT'S DISCUSSION AND ANALYSIS Results of Operations The Company incurred a net loss for the three months ended April 30, 2005, of$807,283, or $0.01 per share, compared to a net loss of $2,465,791, or $0.04 pershare, for the three months ended April 30, 2004. The Company incurred a net loss for the six months ended April 30, 2005, of$1,549,100, or $0.02 per share, compared to a net loss of $3,179,672, or $0.05per share, for the six months ended April 30, 2004. The results for the three and six months ended April 30, 2005, reflect thefollowing factors: • Administration costs for the three and six months ended April 30, 2005were lower overall than in the three and six months ended April 30, 2004. Forthe three months ended April 30, 2005, administration costs decreased to$894,322, compared with $2,321,152 for the three months ended April 30, 2004.For the six months ended April 30, 2005, administration costs decreased to$1,796,215 compared with $3,188,980 for the six months ended April 30, 2004.The decreases were principally due to reductions in costs for stock-basedcompensation and for salaries and wages. • The lower professional fees during the three months ended April 30,2005, compared to the corresponding three month period of 2004, were mainly dueto the fees associated with filing the Company's Annual Report on Form 20-Fbeing incurred during the first quarter of 2005, whereas last year this form wasfiled in the second quarter. Over the six month period as a whole, professionalfees were very similar to those for the six month period ended April 30, 2004. • During the three months ended April 30, 2005, investor relationexpenditures reduced to $128,489 from $179,532. Similarly, for the six monthsended April 30, 2005, investor relations expenditure reduced to $206,624 from$252,748. This was primarily due to being able to bring forward the date of theAGM to coincide with the week when one of the Company's major regular investorrelations events was taking place in Toronto, and to various reductions in othercosts associated with the AGM. • The increase in regulatory authorities filing fees compared to the sixmonths ended April 30, 2004, was mainly the consequence of higher OntarioSecurities Commission and TSX fees, reflecting the Company's higher marketcapitalization. Fees in the three months ended April 30, 2005, were lower thanin the corresponding period of the prior year when there were fees relating torevisions to the Company's Stock Option Plan and also to share capital issuance. • The decreases in stock-based compensation for the three and six monthperiods ended April 30, 2005, compared with the corresponding periods of 2004were due to the lower number of options granted during the relevant periods(30,000 options in the three and six months ended April 30, 2005, compared with3,459,846 options granted in the three months, and with 4,109,846 in the sixmonths, ended April 30, 2004) and to the timings of the vestings of theseoptions. • Salaries and wages costs have decreased mainly because a higherproportion of salary costs has been capitalized to mineral properties andmineral property evaluation costs. This reflects employees spending more timeon the mining projects than in the corresponding quarters of the previous year. • Higher interest rates obtained on cash balances, and the timing of theprivate placement of equity in January 2004, resulted in higher interest incomeduring the six months ended April 30, 2005 than in the corresponding six monthperiod of 2004. Average cash balances throughout the three months ended April30, 2005, were lower than in the corresponding period of 2004, and resulted in adecrease in interest income. • The Company holds some of its cash balances in Canadian dollars andU.K. Pounds in anticipation of expenditures to be incurred in these currencies.During the six months ended April 30, 2005, the US dollar weakened against boththese currencies and the Company recorded a foreign exchange gain of $37,860.For the three months ended April 30, 2005, the Company has reported a foreignexchange loss of $12,044, due to the US Dollar strengthening slightly againstthese currencies during the three month period. Liquidity and Capital Resources As at April 30, 2005, the Company had cash and cash equivalents of $11,321,857,compared to $16,264,314 at October 31, 2004, and had working capital of$10,312,823 compared to $15,113,846 at October 31, 2004. The decreases in cash and cash equivalents, and in working capital, as at April30, 2005, when compared with the corresponding figures as at October 31, 2004,mainly resulted from expenditures on mineral properties during the six monthsended April 30, 2005, and from the previously discussed loss on operationsexcluding the non-cash stock-based compensation expense. Issued share capital remained unchanged during the six months ended April 30,2005, with 70,735,925 common shares outstanding throughout. During the sixmonths ended April 30, 2005, the Company granted 30,000 options to purchasecommon shares, which increased the total to 6,156,000 options outstanding as atApril 30, 2005. Outstanding warrants to purchase common shares remainedunchanged throughout the six month period at 1,679,656. The Company believes it has sufficient cash and cash equivalents on hand to fundthe Company's short term development activity. The Company will need to raiseadditional financing to achieve its long term development plans. Therecoverability of amounts shown for mineral properties and mineral propertyevaluation costs, are dependent on the ability of the Company to obtainnecessary financing and on other Exploration and Development and Financing RiskFactors discussed in the Company's 2004 Annual Report. During the six months ended April 30, 2005, there have been no material changesin the contractual obligations and critical accounting estimates as compared tothose disclosed in the Company's 2004 Annual Report. Mineral Property Projects As at April 30, 2005, amounts capitalized in respect of mineral propertiesincreased to $16,142,560 from $12,129,625 at October 31, 2004, reflecting$14,974,864 in costs incurred on the Company's Kolwezi Project and $1,167,695 incosts on the Angola Project. Capitalized mineral property evaluation costs increased to $4,428,009 from$4,397,126 at October 31, 2004, reflecting costs incurred on the Company'sKipushi Project. Kolwezi Project, DRC During the six months ended April 30, 2005, the Company primarily concentratedon progressing its Kolwezi Project. The first phase of the DefinitiveFeasibility Study ("DFS") - a scoping study analyzing different productionlevels - was completed. It was concluded that the initial design capacity ofthe plant should be to produce 5,500 tonnes of cobalt and 30,000 tonnes ofcopper annually, and work is now underway to complete the DFS on that basis.Work continued on the second stage of the Environmental and Social ImpactAssessment ("ESIA"), and, in May, an Environmental Adjustment Plan was submittedto the Direction chargee de la Protection de l'Environnement Minier in theDemocratic Republic of Congo. Work also continued throughout the six months onnegotiating long term sales agreements and marketing arrangements for the cobaltto be produced, and on preparations for project financing. 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, it would be exercising in full its option to acquire 10% of the Project.On May 16, 2005, the Company announced that the World Bank Group's Board ofExecutive Directors had approved a proposed investment by its private sectorarm, and as a result the International Finance Corporation ("IFC") would also beexercising its option and would acquire a 7.5% equity interest in the Project.The IFC, as is also the case with the IDC, will acquire its equity interest at aprice based on the allowable expenditures on the Project up to the date ofexercising its option, and will pre-fund its proportion (as a financiallycontributing shareholder) of the estimated costs of progressing the Project to afinanced go-ahead decision. On completion of the IDC and IFC option exercises,the Company's wholly owned subsidiary Congo Mineral Developments Limited,expects to receive approximately US$12 million in cash. During the six month period ended April 30, 2005, the Company appointed Sullivan& Cromwell to advise on the legal aspects of the project financing. Kipushi Project, DRC In financial year 2003, the Company and Gecamines agreed that priority should begiven to finalizing the Kolwezi Contract of Association ("CoA"). Following theexecution of the Kolwezi "CoA" in March 2004, negotiations on the proposedrevisions to the Gecamines Agreement were planned to recommence. Meetings were,however, postponed until after the end of financial year 2004, pendingGecamines' detailed review of, and response to, the proposals previouslysubmitted by the Company. Gecamines' response was received during the quarter ended January 31, 2005, andnegotiations, as to the appropriate way to take the Project forward, continuedthroughout the quarter ended April 30, 2005. It is now planned to carry out aScoping Study before finalizing the revisions to the Gecamines Agreement. Onceagreement on the revisions has been reached, and necessary GDRC approvals havebeen obtained, the Company anticipates that the feasibility study will commence.Kumba Base Metals, who in accordance with the Zincor Joint Venture Agreement("ZJVA") could earn a 50% shareholding in the Company's interest in the KipushiProject, were fully involved in the negotiations with Gecamines until the ZJVAexpired on March 31, 2005, and continue to be kept fully informed. Angola Project 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. Filing of the suit was,however, temporarily postponed pending the outcome of representations at seniorgovernment levels. No response was forthcoming; and accordingly on May 18,2005, the Company filed a legal suit against Endiama in the United States ofAmerica. Related Party Transactions During the six months ended April 30, 2005, the Company paid or accrued anaggregate of $85,952 (2004 - $101,980) for legal services to a law firm in whicha director of the Company is a partner. In addition, the Company has paid oraccrued $1,000 (2004 - $-nil) for consulting services to a non-executivedirector, and $7,860 (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 annual Management's Discussion & Analysis contained in theCompany's 2004 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 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Interest income $ $ $ $ $ $ $ $ 99,126 110,172 101,794 99,765 111,048 51,962 13,821 3,007 Loss for period $ $ $ $ $ $ $ $ 807,283 741,817 429,328 601,173 2,465,791 713,881 2,112,281 407,712 Basic and diluted $ $ $ $ $ $ $ $loss per share 0.01 0.01 0.01 0.01 0.04 0.01 0.05 0.01 The main factors underlying the variations in these quarterly results relate tothe timing of the granting of options, exchange rate fluctuations (particularlyin the value of the U.S. dollar against the Canadian dollar and U.K. pound), andthe incurring of mineral property evaluation costs. The Company made relativelylarge grants of options in the second quarter of fiscal 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 Angolandiamond Project and the resource size and economic potential of those projects.These forward-looking statements are subject to a variety of risks anduncertainties which could cause actual events or results to differ materiallyfrom those reflected in the forward-looking statements, including withoutlimitation, risks and uncertainties relating to political risks involving theCompany's operations and the policies of other nations and organizations towardscompanies doing business in such jurisdictions, the inherent uncertainty ofproduction and cost estimates and the potential for unexpected costs andexpenses, commodity price fluctuations, the inability or failure to obtainadequate financing on a timely basis and other risks and uncertainties includingthose described in the Company's Annual Report on Form 20-F for the year endedOctober 31, 2004 and Reports on Form 6-K filed with the Securities and ExchangeCommission. Contact us: London Tim Read Justine Howarth / Annabel LeatherChief 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 AmericaMartti KangasThe Equicom GroupT: +1 416 815 0700 x. 243 +1 800 385 5451 (toll free)F: +1 416 815 0080E: mkangas@equicomgroup.com The discussion and analysis should be read in conjunction with the ConsolidatedFinancial Statements of Adastra Minerals Inc. (the "Company") for the three andsix month periods ended April 30, 2005 and 2004, and related notes (the "Consolidated Financial Statements"). The following discussion and analysishighlights significant changes since the discussion and analysis in the 2004Annual Report, which should also be referred to for additional information. Thediscussion is based on events that have occurred up to May 31, 2005. 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. Consolidated Financial Statements Interim Results ended April 30, 2005 and 2004 Adastra MINERALs INC. (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, 2005and for the three and six months ended April 30, 2005 and 2004, 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) Interim Results ended April 30, 2005 and 2004 April 30, October 31, 2005 2004 Assets Current assets: Cash and cash equivalents $ 11,321,857 $ 16,264,314Amounts receivable and prepaid expenses 450,832 403,220 11,772,689 16,667,534 Equipment 101,203 84,609 Mineral properties (note 2) 16,142,560 12,129,625 Mineral property evaluation costs (note 3) 4,428,009 4,397,126 $ 32,444,461 $ 33,278,894 Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 1,459,866 $ 1,553,688 Non-controlling interest 8,750 8,750 Shareholders' equity: Share capital (note 4(a)) 67,069,511 67,069,511Contributed surplus (note 4(d)) 5,585,274 4,776,785Deficit (41,678,940) (40,129,840) 30,975,845 31,716,456 $ 32,444,461 $ 33,278,894 Subsequent Event (note 2(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) Interim Results ended April 30, 2005 and 2004 Three months ended April 30, Six months ended April 30, 2005 2004 2005 2004 Administration costs: Amortization $ 2,887 $ 4,032 $ 5,797 $ 7,819 Bank charges and interest 1,235 1,526 2,801 3,533 Investor relations 128,489 179,532 206,624 252,748 Office and administration 86,660 89,336 178,662 176,592 Professional fees 36,613 96,564 112,039 110,546 Regulatory authorities filing fees 30,554 61,246 87,785 73,876 Salaries and wages 207,875 264,874 375,026 471,159 Stock-based compensation (note 4) 389,436 1,612,654 808,489 2,075,319 Transfer agent 6,473 7,840 7,733 9,808 Travel and accommodation 4,100 3,548 11,259 7,580 894,322 2,321,152 1,796,215 3,188,980 Other items: Interest income (99,126) (111,048) (209,298) (163,010) Mineral property evaluation costs 43 - 43 731 Foreign exchange loss (gain) 12,044 255,687 (37,860) 152,971 (87,039) 144,639 (247,115) (9,308) Loss for the period (807,283) (2,465,791) (1,549,100) (3,179,672) Deficit, beginning of period (40,871,657)(36,633,548) (40,129,840) (35,919,667) Deficit, end of period $(41,678,940)$(39,099,339) $(41,678,940) $(39,099,339) Basic and diluted loss per share $ (0.01) $ (0.04) $ (0.02) $ (0.05) Weighted average number ofcommon shares outstanding 70,735,925 70,067,869 70,735,925 66,656,696 See accompanying notes to consolidated financial statements. Adastra Minerals Inc. Consolidated Statements of Cash Flows(Unaudited - Prepared by Management)(Expressed in United States dollars) Interim Results ended April 30, 2005 and 2004 Three months ended April 30, Six months ended April 30, 2005 2004 2005 2004 Cash provided by (used in): Operations: Loss for the period $ (807,283) $ (2,465,791) $ (1,549,100) $ (3,179,672) Items not involving cash: Amortization 2,887 4,032 5,797 7,819 Stock-based compensation 389,436 1,612,654 808,489 2,075,319 (414,960) (849,105) (734,814) (1,096,534) Changes in non-cash operating working capital: Decrease (increase) in amounts receivable and prepaid expenses (120,041) (260,629) (47,612) (226,686) Increase (decrease) in accounts payable and accrued liabilities 182,269 245,354 (93,822) 47,011 (352,732) (864,380) (876,248) (1,276,209) Investments: Purchase of property, plant and equipment (18,248) (5,212) (24,664) (32,208) Proceeds on sale of property plantand equipment - - - - Expenditures on mineral properties (2,325,986) (716,444) (4,010,782) (1,559,802) Expenditures on mineral property evaluation costs (5,522) (6,451) (30,763) (16,044) (2,349,756) (728,107) (4,066,209) (1,608,054) Financing: Issue of share capital, net - 673,144 - 7,227,073 Investments by non-controlling interests - 8,750 - 8,750 - 681,894 - 7,235,823 Increase (decrease) in cash and cashequivalents (2,702,488) (910,593) (4,942,457) 4,351,560 Cash and cash equivalents, beginningof period 14,024,345 24,529,642 16,264,314 19,267,489 Cash and cash equivalents, end of period $ 11,321,857 $ 23,619,049 $ 11,321,857 $ 23,619,049 Cash is defined as cash and cash equivalents and joint venture cash. Supplementary disclosure: Interest received, net $ 99,126 $ 111,048 $ 209,298 $ 163,010 Non-cash investing and financingactivities: Stock-based compensation formineral property expenditures $ - $ 194,333 $ - $ 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) Interim Results ended April 30, 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 Total Balance, October 31, 2004 $ 11,007,601 $ 1,122,023 $ 1 $ 12,129,625 Amortization 2,153 - - 2,153 Consulting 2,096,861 600 - 2,097,461 Geology 221,479 - - 221,479 Interest received (10,681) - - (10,681) Legal 402,938 (2,808) - 400,130 Exploration office and accounting 237,354 15,857 - 253,211 Salaries 633,046 30,852 - 663,898 Site management 2,607 - - 2,607 Travel 381,506 1,171 - 382,677 3,967,263 45,672 - 4,012,935 Balance, April 30, 2005 $ 14,974,864 $ 1,167,695 $ 1 $ 16,142,560 (a) 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 Musonol Tailings S.A.R.L. ("KMT"), the companyincorporated earlier that month in the Democratic Republic of Congo to own themining 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 affiliate 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 November 2004, the IDC informed theCompany that, subject to certain conditions, including receiving exchangecontrol permissions from the South African Reserve Bank, it would be exercisingin full its option to acquire 10% of KMT. In accordance with the CoA, the Tailings Exploitation Rights to the Project havebeen transferred to KMT. CMD owns 82.5% of KMT (which will reduce to 72.5% ifthe IDC completes the exercise of its option, as mentioned above; and to 65% ifthe IFC also completes its option exercise as mentioned below), and Gecaminesand GDRC own 12.5% and 5.0%, respectively. Under the CoA, KMT is to payGecamines a total of $15,000,000, as consideration for the Tailings ExploitationRights ("TER"). Of this amount, $5,000,000 was paid following the transfer toKMT of the TER on May 27, 2004, and $10,000,000 will be paid following thecompletion of all financing arrangements for the Project. The $15,000,000 is tobe provided to KMT by CMD and/or IFC and IDC (or other participating parties)based on their pro rata ownership of the Project, excluding Gecamines and GDRC'spercentage ownership. Gecamines is to receive an annual dividend of the greaterof its ordinary dividend and 2.5% of free cash flow (as defined) for each yearfrom start-up, until senior debt and subordinated loans have been fullyreimbursed. Thereafter, Gecamines will be entitled to an annual dividend basedon 10% of the average price realized for cobalt sold in a year in excess of$10.00 per pound (adjusted for inflation), in addition to any ordinary dividendreceived by Gecamines, 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 transfer date of the mining rights). Subsequent to April 30, 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 IFC would also be exercising its option andwould acquire a 7.5% equity interest in the KMT. The IFC, as is also the casewith the IDC, will acquire its equity interest at a price based on the allowableexpenditures on the Project up to the date of exercising its option, and willpre-fund its proportion (based on ownership of Class C shares of KMT) of theestimated costs of progressing the Project to a financed go-ahead decision. OnCompletion of the IDC and IFC option exercises, the Company's wholly ownedsubsidiary, CMD, is expected to receive approximately US$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 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 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. These covered areas whichinclude 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. 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, in September 2004, Endiama made it clear that it had repudiated itscontractual obligations. Consequently, the Company announced that it would beseeking legal redress. Filing of the suit in the United States was, however,temporarily postponed pending the outcome of representations at seniorgovernment levels. No response was forthcoming; and, accordingly, on May 18,2005, the Company filed a legal suit in the United States against Endiama.Although the Company has been advised by counsel that its case is strong, theoutcome of litigation can never be predicted with certainty. 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, 2004 $ 4,397,126 Amortization 120 Contribution from joint venture partner (12,500) Legal 107 Exploration office and accounting 5,768 Salaries 34,259 Travel 3,129 30,883 Balance, April 30, 2005 $ 4,428,009 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 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 until aperiod of up to 12 months after the completion of this definition phase, suchstarting date to be agreed upon by the Company and Gecamines. This startingdate has not yet commenced. 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 interests inthe Kipushi mine. The Company will only acquire interests in the Kipushimine if satisfactory results are obtained from the feasibility studies and ifagreements, both satisfactory and conforming with the New Mining Code, can benegotiated 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. 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. Kumba werefully involved, until March 31, 2005, in the on-going negotiations withGecamines, and continue to be kept fully informed. 4. Share capital: (a) Share capital: Number of shares Amount Balance, October 31, 2004 and April 30, 2005 70,735,925 $ 67,069,511 (b) Share purchase warrants: Warrants outstanding at April 30, 2005: Balance Balance October 31, April 30, 2004 Issued Exercised 2005 Exercise price Expiry date 1,679,656 - - 1,679,656 CDN$0.75 February 12, 2008 (c) Share options: Weighted average price (CDN $) Options outstanding, October 31, 2004 6,126,000 $ 1.46 Granted 30,000 1.95 Cancelled / expired - - Exercised - - Options outstanding, April 30, 2005 6,156,000 $ 1.46 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 remaining amounts vesting one year from the date of grant. For the 30,000 options granted during the six months ended April 30, 2005, theCompany has recorded stock-based compensation expense of $19,324. The fairvalue of each option grant has been calculated using the Black-Scholes optionpricing model with an expected life of three years, volatility of 101%, nodividend yield and a risk free interest rate 3.25%. In addition to the expense recorded on the options granted during the six monthsended April 30, 2005, the Company recorded stock-based compensation expense of$789,165 as a result of the vesting of options granted in previous periods. (d) Contributed surplus: Balance, October 31, 2004 $ 4,776,785 Stock-based compensation (note 4(c)) 808,489 Balance, April 30, 2005 $ 5,585,274 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: April 30, October 31, 2005 2004 Capital assets by geographic area: Democratic Republic of Congo $ 19,468,557 $ 15,448,141 Angola 1,167,695 1,122,023 Zambia 1 1 United Kingdom 35,519 41,195 $ 20,671,772 $ 16,611,360 This information is provided by RNS The company news service from the London Stock Exchange