UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
[ x ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29,
2012
[ ] TRANSITION REPORT UNDER SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to _____
Commission File Number:
000-50907
HANDENI GOLD INC.
(Exact
name of registrant as specified in its charter)
Nevada
|
98-0430222
|
(State or other jurisdiction of incorporation or
organization)
|
(I.R.S. Employer Identification No.)
|
|
|
228 Regent Estate
|
|
Dar es Salaam, Republic of Tanzania
|
V6C 3P6
|
(Address of principal executive offices)
|
(Zip Code)
|
011-255-222-70-00-84
(Registrants telephone
number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [ x ] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes[ x ] No [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer, non-accelerated filer, and smaller reporting company in
Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]
|
Accelerated filer [ ]
|
Non-accelerated filer [ ]
(Do not check if a smaller
reporting company)
|
Smaller reporting company [
x ]
|
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [ x ]
State the number of shares outstanding of each of the issuers
classes of common equity, as of the latest practicable date.
307,416,654
shares of common stock as of April 12, 2012.
1
HANDENI GOLD INC. (FORMERLY DOUGLAS LAKE MINERALS INC.)
Quarterly Report On Form 10-Q
|
For The Quarterly Period Ended
|
February 29, 2012
|
|
INDEX
|
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking
statements that involve risks and uncertainties. Forward-looking statements in
this quarterly report include, among others, statements regarding our capital
needs, business plans and expectations. Such forward-looking statements involve
risks and uncertainties regarding the market price of copper, availability of
funds, government regulations, permitting, common share prices, operating costs,
capital costs, outcomes of ore reserve development, recoveries and other
factors. Forward-looking statements are made, without limitation, in relation to
operating plans, property exploration and development, availability of funds,
environmental reclamation, operating costs and permit acquisition. Any
statements contained herein that are not statements of historical facts may be
deemed to be forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as may, will, should,
expect, plan, intend, anticipate, believe, estimate, predict,
potential or continue, the negative of such terms or other comparable
terminology. Actual events or results may differ materially. In evaluating these
statements, you should consider various factors, including the risks outlined in
our annual report on Form 10-K for the year ended May 31, 2011, and, from time
to time, in other reports that we file with the Securities and Exchange
Commission (the SEC). These factors may cause our actual results to differ
materially from any forward-looking statement. Given these uncertainties,
readers are cautioned not to place undue reliance on such forward-looking
statements.
2
PART I FINANCIAL INFORMATION
Item 1.
|
Financial Statements
|
The following unaudited interim consolidated financial
statements of Handeni Gold Inc. (formerly Douglas Lake Minerals Inc.) (sometimes
referred to as we, us or our Company) are included in this quarterly
report on Form 10-Q:
3
Handeni Gold Inc. (formerly Douglas Lake Minerals Inc.)
|
(An Exploration Stage Company)
|
Consolidated Balance Sheets
|
(Expressed in U.S. dollars)
|
|
|
February 29, 2012
|
|
|
May 31, 2011
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
2,032,499
|
|
$
|
6,795,474
|
|
Amounts receivable
|
|
375,752
|
|
|
654,614
|
|
Marketable
securities (Note 3)
|
|
2,640,000
|
|
|
4,000,000
|
|
Prepaid expenses and deposits
(Note 4)
|
|
263,365
|
|
|
2,036,011
|
|
Total Current Assets
|
|
5,311,616
|
|
|
13,486,099
|
|
|
|
|
|
|
|
|
Restricted cash equivalent (Note 5)
|
|
28,843
|
|
|
-
|
|
Mineral licenses (Note 7 and 8(f))
|
|
1,650,000
|
|
|
-
|
|
Property and equipment, net (Note 6)
|
|
516,989
|
|
|
305,936
|
|
TOTAL ASSETS
|
$
|
7,507,448
|
|
$
|
13,792,035
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Accounts payable
|
$
|
161,506
|
|
$
|
179,102
|
|
Accrued
liabilities (Note 9)
|
|
78,914
|
|
|
312,848
|
|
Due to related parties (Note 8)
|
|
-
|
|
|
1,112
|
|
Total Current Liabilities
|
|
240,420
|
|
|
493,062
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Notes 1, 7
and 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
Common stock (Note 10)
Authorized: 500,000,000 shares, $0.001 par value
Issued and outstanding: 307,416,654 shares
(May 31, 2011 292,416,654 shares)
|
|
307,417
|
|
|
292,417
|
|
Additional paid-in capital (Note 10)
|
|
114,855,961
|
|
|
111,925,974
|
|
Subscriptions received (receivable)
|
|
100,000
|
|
|
(13,814
|
)
|
Common stock issuable (Note 10)
|
|
-
|
|
|
2,253,000
|
|
Donated capital
|
|
109,000
|
|
|
109,000
|
|
Accumulated other comprehensive (loss)
income
|
|
(120,000
|
)
|
|
1,240,000
|
|
Deficit accumulated during the exploration stage
|
|
(107,985,350
|
)
|
|
(102,507,604
|
)
|
Total Stockholders' Equity
|
|
7,267,028
|
|
|
13,298,973
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
|
7,507,448
|
|
$
|
13,792,035
|
|
(The accompanying notes are an integral part of these
consolidated financial statements)
4
Handeni Gold Inc. (formerly Douglas Lake Minerals Inc.)
|
(An Exploration Stage Company)
|
Interim Consolidated Statements of Operations and
Comprehensive Income (Loss)
|
(Expressed in U.S. dollars)
|
(Unaudited)
|
|
|
Accumulated from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 5, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Date of Inception) to
|
|
|
For the Three Months Ended,
|
|
|
For the Nine Months Ended,
|
|
|
|
February 29, 2012
|
|
|
February 29, 2012
|
|
|
February 28, 2011
|
|
|
February 29, 2012
|
|
|
February 28, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting fees
|
$
|
22,956,239
|
|
$
|
739,874
|
|
$
|
2,801,607
|
|
$
|
1,697,874
|
|
$
|
10,738,950
|
|
Depreciation and amortization
|
|
185,304
|
|
|
37,094
|
|
|
7,082
|
|
|
106,676
|
|
|
18,241
|
|
Exploration expenses
|
|
7,139,186
|
|
|
1,399,433
|
|
|
77,646
|
|
|
4,700,470
|
|
|
237,646
|
|
General and administrative
|
|
2,136,918
|
|
|
242,855
|
|
|
100,151
|
|
|
549,000
|
|
|
160,070
|
|
Impairment of mineral property
|
|
77,492,074
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
60,000,000
|
|
Professional
|
|
2,248,478
|
|
|
189,504
|
|
|
163,057
|
|
|
686,311
|
|
|
304,843
|
|
Rent
|
|
296,643
|
|
|
33,332
|
|
|
14,181
|
|
|
105,731
|
|
|
30,866
|
|
Travel and investor relations
|
|
1,800,803
|
|
|
66,126
|
|
|
121,016
|
|
|
256,814
|
|
|
234,914
|
|
Total Expenses
|
|
114,255,645
|
|
|
2,708,218
|
|
|
3,284,740
|
|
|
8,102,876
|
|
|
71,725,530
|
|
Loss From Operations
|
|
(114,255,645
|
)
|
|
(2,708,218
|
)
|
|
(3,284,740
|
)
|
|
(8,102,876
|
)
|
|
(71,725,530
|
)
|
Other Income (Expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on write-down of accounts
payable (Note 7e)
|
|
458,058
|
|
|
272,593
|
|
|
-
|
|
|
371,839
|
|
|
102,880
|
|
Interest income
|
|
291
|
|
|
148
|
|
|
-
|
|
|
291
|
|
|
-
|
|
Mineral property option
payments received
|
|
3,616,017
|
|
|
-
|
|
|
2,760,000
|
|
|
-
|
|
|
3,110,000
|
|
Loss on sale of investment securities
|
|
(57,071
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Recovery of mineral property
costs for stock not issuable (Note 10)
|
|
2,253,000
|
|
|
2,253,000
|
|
|
-
|
|
|
2,253,000
|
|
|
-
|
|
|
|
6,270,295
|
|
|
2,525,741
|
|
|
2,760,000
|
|
|
2,625,130
|
|
|
3,212,880
|
|
Net Loss
|
|
(107,985,350
|
)
|
|
(182,477
|
)
|
|
(524,740
|
)
|
|
(5,477,746
|
)
|
|
(68,512,650
|
)
|
Other Comprehensive Income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (loss) gain on
marketable securities
|
|
(120,000
|
)
|
|
(1,560,000
|
)
|
|
80,000
|
|
|
(1,360,000
|
)
|
|
80,000
|
|
Comprehensive Loss
|
$
|
(108,105,350
|
)
|
$
|
(1,742,477
|
)
|
$
|
(444,740
|
)
|
$
|
(6,837,746
|
)
|
$
|
(68,432,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss per Share - Basic and Diluted
|
|
|
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.02
|
)
|
$
|
(0.39
|
)
|
Basic and Diluted Weighted Average Number
of Common Shares Outstanding
|
|
|
|
|
307,416,654
|
|
|
183,650,000
|
|
|
297,453,150
|
|
|
174,474,000
|
|
(The accompanying notes are an integral part of these
consolidated financial statements)
5
Handeni Gold Inc. (formerly Douglas Lake Minerals Inc.)
|
(An Exploration Stage Company)
|
Interim Consolidated Statements of Cash Flows
|
(Expressed in U.S. dollars)
|
(Unaudited)
|
|
|
Accumulated from
|
|
|
|
|
|
|
|
|
|
January 5, 2004 (Date
|
|
|
For the Nine Months Ended,
|
|
|
|
of Inception) to
|
|
|
|
|
|
|
|
|
|
February 29, 2012
|
|
|
February 29, 2012
|
|
|
February 28, 2011
|
|
CASH AND CASH EQUIVALENTS PROVIDED BY (USED
IN):
|
|
|
|
|
|
|
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(107,985,350
|
)
|
$
|
(5,477,746
|
)
|
$
|
(68,512,650
|
)
|
Adjustments to reconcile net loss to net cash
used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
185,304
|
|
|
106,676
|
|
|
18,241
|
|
Donated services and rent
|
|
9,000
|
|
|
-
|
|
|
-
|
|
Impairment of mineral
property acquisition costs
|
|
77,492,074
|
|
|
-
|
|
|
60,000,000
|
|
Loss on sale of investment securities
|
|
57,071
|
|
|
-
|
|
|
-
|
|
Mineral property option
payments
|
|
(156,017
|
)
|
|
-
|
|
|
-
|
|
Stock-based compensation
|
|
19,352,770
|
|
|
1,294,987
|
|
|
10,342,766
|
|
Gain on unrealized
foreign exchange
|
|
-
|
|
|
-
|
|
|
-
|
|
Gain on write-down of accounts payable
|
|
(458,058
|
)
|
|
(371,839
|
)
|
|
(102,880
|
)
|
Write-off of equipment
|
|
19,053
|
|
|
15,360
|
|
|
3,693
|
|
Recovery of mineral property
costs for stock not issuable (Note 10)
|
|
(2,253,000
|
)
|
|
(2,253,000
|
)
|
|
-
|
|
Shares received from
mineral property option payment
|
|
(2,760,000
|
)
|
|
-
|
|
|
(2,760,000
|
)
|
Changes in non-cash operating working capital:
|
|
|
|
|
|
|
|
|
|
Amount receivable
|
|
(375,752
|
)
|
|
278,862
|
|
|
-
|
|
Prepaid expenses and deposits
|
|
(263,365
|
)
|
|
1,772,646
|
|
|
(242,693
|
)
|
Accounts payable and
accrued liabilities
|
|
(480
|
)
|
|
120,309
|
|
|
146,007
|
|
Due to related parties
|
|
853,943
|
|
|
(1,112
|
)
|
|
(99,202
|
)
|
Net Cash Used in Operating Activities
|
|
(16,282,807
|
)
|
|
(4,514,857
|
)
|
|
(1,206,718
|
)
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
Mineral property acquisition costs
|
|
(697,677
|
)
|
|
-
|
|
|
-
|
|
Proceeds from mineral property
options
|
|
600,000
|
|
|
-
|
|
|
-
|
|
Purchase of restricted cash equivalent
|
|
(28,843
|
)
|
|
(28,843
|
)
|
|
-
|
|
Purchase of property and equipment
|
|
(721,346
|
)
|
|
(333,089
|
)
|
|
(27,061
|
)
|
Net Cash Used in Investing Activities
|
|
(847,866
|
)
|
|
(361,932
|
)
|
|
(27,061
|
)
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
Checks issued in excess of funds on
deposit
|
|
-
|
|
|
-
|
|
|
(3,313
|
)
|
Proceeds from issuance of common stock
|
|
20,370,549
|
|
|
-
|
|
|
1,257,000
|
|
Proceeds from stock subscriptions
|
|
113,814
|
|
|
113,814
|
|
|
202,500
|
|
Share issuance costs
|
|
(1,321,191
|
)
|
|
-
|
|
|
-
|
|
Net cash provided by financing activities
|
|
19,163,172
|
|
|
113,814
|
|
|
1,456,187
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in cash and cash
equivalents
|
|
2,032,499
|
|
|
(4,762,975
|
)
|
|
222,408
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, at beginning of
the period
|
|
-
|
|
|
6,795,474
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, at end of the
period
|
$
|
2,032,499
|
|
$
|
2,032,499
|
|
$
|
222,408
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information (Note
16)
|
|
|
|
|
|
|
|
|
|
(The accompanying notes are an integral part of these
consolidated financial statements)
6
Handeni Gold Inc. (formerly Douglas Lake Minerals Inc.)
|
(An Exploration Stage Company)
|
Notes to the Interim Consolidated Financial Statements as
of February 29, 2012
|
(Expressed in U.S. dollars)
|
1.
|
Nature of Operations and Continuance of
Business
|
|
|
|
|
The Company was incorporated in the State of Nevada on
January 5, 2004. The Company is an Exploration Stage Company, as defined
by Statement of Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 915,
Development Stage Entities
. The
Companys principal business is the acquisition and exploration of mineral
resources located in Tanzania, Africa. The Company has not presently
determined whether its properties contain mineral reserves that are
economically recoverable. To date, the Company has not incurred any asset
retirement obligations.
|
|
|
|
|
These consolidated financial statements have been
prepared on a going concern basis, which implies the Company will continue
to realize its assets and discharge its liabilities in the normal course
of business. The Company has never generated revenues since inception and
has never paid any dividends and is unlikely to pay dividends or generate
earnings in the immediate or foreseeable future. The continuation of the
Company as a going concern is dependent upon the continued financial
support from its shareholders, the ability of the Company to obtain
necessary equity financing to continue operations and to determine the
existence, discovery and successful exploitation of economically
recoverable reserves in its resource properties, confirmation of the
Companys interests in the underlying properties, and the attainment of
profitable operations. As at February 29, 2012, the Company has
accumulated losses of $107,985,350 since inception. These factors raise
substantial doubt regarding the Companys ability to continue as a going
concern. These consolidated financial statements do not include any
adjustments to the recoverability and classification of recorded asset
amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
|
|
|
|
2.
|
Summary of Significant Accounting Policies
|
|
|
|
|
a)
|
Basis of Presentation
|
|
|
|
|
|
These consolidated financial statements and related notes
are presented in accordance with accounting principles generally accepted
in the United States, and are expressed in U.S. dollars. These
consolidated financial statements include the accounts of the Company and
its two Tanzanian subsidiaries described as follows. In June 2011, the
Company incorporated a new wholly-owned subsidiary, DLM Tanzania Limited
which undertakes mineral property exploration activities in Tanzania. The
Company also has a wholly- owned non-operating Tanzanian subsidiary. All
significant intercompany transactions and balances have been eliminated.
The Companys fiscal year-end is May 31.
|
|
|
|
|
b)
|
Interim Financial Statements
|
|
|
|
|
|
The interim unaudited financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States for interim financial information and with the
instructions to Securities and Exchange Commission (SEC) Form 10- Q.
They do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. Therefore, these financial statements should be read in
conjunction with the Companys audited consolidated financial statements
and notes thereto for the year ended May 31, 2011, included in the
Companys Annual Report on Form 10-K filed on September 13, 2011 with the
SEC.
|
|
|
|
|
|
The interim financial statements included herein are
unaudited; however, they contain all normal recurring accruals and
adjustments that, in the opinion of management, are necessary to present
fairly the Companys financial position at February 29, 2012, and the
results of its operations and cash flows for the interim periods ended
February 29, 2012. The results of operations for the three months and nine
months ended February 29, 2012 are not necessarily indicative of the
results to be expected for future quarters or the full year.
|
|
|
|
|
c)
|
Use of Estimates
|
|
|
|
|
|
The preparation of consolidated financial statements in
accordance with United States generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses in
the reporting period. The Company regularly evaluates estimates and
assumptions related to the recoverability and useful life of long-lived
assets, mineral prospecting licenses, stock-based compensation, deferred
income tax asset valuation allowances and contingent liabilities. The
Company bases its estimates and assumptions on current facts, historical
experience and various other factors that it believes to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities and the
accrual of costs and expenses that are not readily apparent from other
sources. The actual results experienced by the Company may differ
materially and adversely from the Companys estimates. To the extent there
are material differences between the estimates and the actual results,
future results of operations will be affected.
|
7
Handeni Gold Inc. (formerly Douglas Lake Minerals Inc.)
|
(An Exploration Stage Company)
|
Notes to the Interim Consolidated Financial Statements as
of February 29, 2012
|
(Expressed in U.S. dollars)
|
2.
|
Summary of Significant Accounting Policies
(continued)
|
|
|
|
|
d)
|
Basic and Diluted Net Income (Loss) Per Share
|
|
|
|
|
|
The Company computes net income (loss) per share in
accordance with ASC 260,
Earnings per Share
which requires
presentation of both basic and diluted earnings per share (EPS) on the
face of the income statement. Basic EPS is computed by dividing net income
(loss) available to common shareholders (numerator) by the weighted
average number of shares outstanding (denominator) during the period.
Diluted EPS gives effect to all dilutive potential common shares
outstanding during the period using the treasury stock method and
convertible preferred stock using the if-converted method. In computing
diluted EPS, the average stock price for the period is used in determining
the number of shares assumed to be purchased from the exercise of stock
options or warrants. Diluted EPS excludes all dilutive potential shares if
their effect is anti dilutive.
|
|
|
|
|
e)
|
Comprehensive Income (Loss)
|
|
|
|
|
|
ASC 220,
Comprehensive Income
establishes
standards for the reporting and display of comprehensive loss and its
components in the financial statements. As at February 29, 2012, the
Companys components of other comprehensive income (loss) and accumulated
other comprehensive income (loss) are an unrealized fair value gain (loss)
on available for sale marketable securities.
|
|
|
|
|
f)
|
Cash and Cash Equivalents
|
|
|
|
|
|
Cash and cash equivalents are carried at fair value and
they comprise cash on hand, deposits held with banks and other highly
liquid investments. Highly liquid investments are readily convertible to
cash and generally have maturities of three months or less from the time
acquired. The Company places its cash and cash equivalents with high
quality financial institutions which the Company believes limits credit
risk.
|
|
|
|
|
g)
|
Marketable Securities
|
|
|
|
|
|
The Company reports investments in marketable equity
securities at fair value based on quoted market prices. All investment
securities are designated as available for sale with unrealized gains and
losses included in stockholders equity. Unrealized losses that are other
than temporary are recognized in earnings. Realized gains and losses are
accounted for on the specific identification method.
|
|
|
|
|
|
The Company periodically reviews these investments for
other-than-temporary declines in fair value based on the specific
identification method and writes down investments to their fair value when
an other-than-temporary decline has occurred. When determining whether a
decline is other-than-temporary, the Company examines (i) the length of
time and the extent to which the fair value of an investment has been
lower than its carrying value: (ii) the financial condition and near-term
prospects of the investee, including any specific events that may
influence the operations of the investee such as changes in technology
that may impair the earnings potential of the investee: and (iii) the
Companys intent and ability to retain its investment in the investee for
a sufficient period of time to allow for any anticipated recovery in
market value. The Company generally believes that an other-than-temporary
decline has occurred when the fair value of the investment is below the
carrying value for one year, absent of evidence to the contrary.
|
|
|
|
|
h)
|
Property and Equipment
|
|
|
|
|
|
Property and equipment consists of office equipment,
automobiles and computer software recorded at cost and depreciated on a
straight-line basis as follows:
|
Automobiles
|
3 years
|
Camp and equipment
|
3 years
|
Computer software
|
1 year
|
Office furniture and equipment
|
3 years
|
|
i)
|
Mineral Property Costs
|
|
|
|
|
|
The Company has been in the exploration stage since its
inception on January 5, 2004 and has not yet realized any revenues from
its planned operations. It is primarily engaged in the acquisition and
exploration of mining properties. Mineral property exploration costs are
expensed as incurred. Mineral prospecting licenses and mineral property
acquisition costs are initially capitalized. The Company assesses the
carrying costs for impairment under ASC 360,
Property, Plant, and
Equipment
at each fiscal quarter end. When it has been determined that
a mineral property can be economically developed as a result of
establishing proven and probable reserves, the costs then incurred to
develop such property, are capitalized. Such costs will be amortized using
the units-of- production method over the estimated life of the probable
reserve. If mineral properties are subsequently abandoned or impaired, any
capitalized costs will be charged to operations.
|
8
Handeni Gold Inc. (formerly Douglas Lake Minerals Inc.)
|
(An Exploration Stage Company)
|
Notes to the Interim Consolidated Financial Statements as
of February 29, 2012
|
(Expressed in U.S. dollars)
|
2.
|
Summary of Significant Accounting Policies
(continued)
|
|
|
|
|
j)
|
Long-Lived Assets
|
|
|
|
|
|
In accordance with ASC 360
, Property Plant and
Equipment
the Company tests long-lived assets or asset groups for
recoverability when events or changes in circumstances indicate that their
carrying amount may not be recoverable. Circumstances which could trigger
a review include, but are not limited to: significant decreases in the
market price of the asset; significant adverse changes in the business
climate or legal factors; accumulation of costs significantly in excess of
the amount originally expected for the acquisition or construction of the
asset; current period cash flow or operating losses combined with a
history of losses or a forecast of continuing losses associated with the
use of the asset; and current expectation that the asset will more likely
than not be sold or disposed significantly before the end of its estimated
useful life. Recoverability is assessed based on the carrying amount of
the asset and its fair value which is generally determined based on the
sum of the undiscounted cash flows expected to result from the use and the
eventual disposal of the asset, as well as specific appraisal in certain
instances. An impairment loss is recognized when the carrying amount is
not recoverable and exceeds fair value.
|
|
|
|
|
k)
|
Asset Retirement Obligations
|
|
|
|
|
|
The Company accounts for asset retirement obligations in
accordance with the provisions of ASC 440
Asset Retirement and
Environmental Obligations
which requires the Company to record the
fair value of an asset retirement obligation as a liability in the period
in which it incurs a legal obligation associated with the retirement of
tangible long-lived assets that result from the acquisition, construction,
development and/or normal use of the assets. The Company did not have any
asset retirement obligations as of February 29, 2012 and May 31,
2011.
|
|
|
|
|
l)
|
Financial Instruments
|
|
|
|
|
|
ASC 825,
Financial Instruments
requires an entity
to maximize the use of observable inputs and the fair value of financial
instruments, which include cash, amounts receivable, marketable
securities, and accounts payable were estimated to approximate their
carrying values due to the immediate or short-term maturities of these
financial instruments.
|
|
|
|
|
|
The Companys operations are in Canada and Africa, which
results in exposure to market risks from changes in foreign currency
rates. The financial risk is the risk to the Companys operations that
arise from fluctuations in foreign exchange rates and the degree of
volatility of these rates. Currently, the Company does not use derivative
instruments to reduce its exposure to foreign currency risk.
|
|
|
|
|
m)
|
Income Taxes
|
|
|
|
|
|
The Company accounts for income taxes using the asset and
liability method in accordance with ASC 740,
Income Taxes.
The
asset and liability method provides that deferred tax assets and
liabilities are recognized for the expected future tax consequences of
temporary differences between the financial reporting and tax bases of
assets and liabilities, and for operating loss and tax credit
carry-forwards. Deferred tax assets and liabilities are measured using the
currently enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company records a valuation
allowance to reduce deferred tax assets to the amount that is believed
more likely than not to be realized.
|
|
|
|
|
n)
|
Foreign Currency Translation
|
|
|
|
|
|
The functional and reporting currency of the Company is
the United States dollar. Monetary assets and liabilities denominated in
foreign currencies are translated to United States dollars in accordance
with ASC 740
Foreign Currency Translation Matters
, using the
exchange rate prevailing at the balance sheet date. Non-monetary assets
and liabilities denominated in foreign currencies are translated at rates
of exchange in effect at the date of the transaction. Average rates are
used to translate revenues and expenses.
|
|
|
|
|
|
Gains and losses arising on translation or settlement of
foreign currency denominated transactions or balances are included in the
determination of income. The Company has not, to the date of these
financial statements, entered into derivative instruments to offset the
impact of foreign currency fluctuations.
|
|
|
|
|
|
To the extent that the Company incurs transactions that
are not denominated in its functional currency, they are undertaken in
Canadian dollars (Cdn$) and Tanzanian shillings. The Company has not, to
the date of these financial statements, entered into derivative
instruments to offset the impact of foreign currency
fluctuations.
|
9
Handeni Gold Inc. (formerly Douglas Lake Minerals Inc.)
|
(An Exploration Stage Company)
|
Notes to the Interim Consolidated Financial Statements as
of February 29, 2012
|
(Expressed in U.S. dollars)
|
2.
|
Summary of Significant Accounting Policies
(continued)
|
|
|
|
|
o)
|
Stock-based Compensation
|
|
|
|
|
|
The Company records stock-based compensation in
accordance with ASC 718,
Compensation Stock Based Compensation
and ASC 505,
Equity Based Payments to Non-Employees
, which
requires the measurement and recognition of compensation expense based on
estimated fair values for all share-based awards made to employees and
directors, including stock options.
|
|
|
|
|
|
ASC 718 requires companies to estimate the fair value of
share-based awards on the date of grant using an option-pricing model. The
Company uses the Black-Scholes option-pricing model as its method of
determining fair value. This model is affected by the Companys stock
price as well as assumptions regarding a number of subjective variables.
These subjective variables include, but are not limited to the Companys
expected stock price volatility over the term of the awards, and actual
and projected employee stock option exercise behaviours. The value of the
portion of the award that is ultimately expected to vest is recognized as
an expense in the statement of operations over the requisite service
period.
|
|
|
|
|
|
All transactions in which goods or services are the
consideration received for the issuance of equity instruments are
accounted for based on the fair value of the consideration received or the
fair value of the equity instrument issued, whichever is more reliably
measurable.
|
|
|
|
|
p)
|
Recently Issued Accounting Pronouncements
|
|
|
|
|
|
The Company has implemented all new accounting
pronouncements that are in effect and that may impact its consolidated
financial statements and does not believe that there are any other new
accounting pronouncements that have been issued that might have a material
impact on its financial position or results of operations.
|
|
|
|
|
q)
|
Reclassification
|
|
|
|
|
|
Certain reclassifications have been made to the prior
periods financial statements to conform to the current periods
presentation.
|
|
|
|
3.
|
Marketable Securities
|
|
|
|
|
|
|
February 29, 2012
|
|
|
May 31, 2011
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Based On
|
|
|
Accumulated
|
|
|
Based On
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Quoted Market
|
|
|
Unrealized
|
|
|
Quoted Market
|
|
|
Unrealized
|
|
|
|
|
Cost
|
|
|
Price
|
|
|
Gain (Loss)
|
|
|
Price
|
|
|
Gain (Loss)
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Ruby Creek Resources Inc., 4,000,000 shares
|
|
2,760,000
|
|
|
2,640,000
|
|
|
(120,000
|
)
|
|
4,000,000
|
|
|
1,240,000
|
|
The four million restricted shares of
common stock of Ruby Creek Resources Inc. (RCR) were issued to the Company on
December 16, 2010 as partial consideration to purchase the mineral property
interests under the agreements between RCR and the Company. The fair market
value of these shares was totaling $2,760,000 based on RCRs quoted stock price
on that date (See Note 7 b), below for details). As of February 29, 2012, the
fair market value of these shares was $2,640,000 based on RCRs quoted stock
price.
4.
|
Prepaid Expenses and Deposits
|
|
|
|
The components of prepaid expenses and deposits are as
follows:
|
|
|
|
February 29,
|
|
|
May 31,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
14,648
|
|
|
264,575
|
|
|
Professional fees
|
|
5,000
|
|
|
30,616
|
|
|
Rent
|
|
162,003
|
|
|
116,472
|
|
|
Travel and
exploration expenses
|
|
81,545
|
|
|
1,624,348
|
|
|
|
|
|
|
|
|
|
|
|
|
263,196
|
|
|
2,036,011
|
|
10
Handeni Gold Inc. (formerly Douglas Lake Minerals Inc.)
|
(An Exploration Stage Company)
|
Notes to the Interim Consolidated Financial Statements as
of February 29, 2012
|
(Expressed in U.S. dollars)
|
5.
|
Restricted Cash Equivalent
|
|
|
|
The Company has pledged a $28,843 (Cdn $28,750) GIC as
security held on a corporate credit card.
|
|
|
6.
|
Property and Equipment
|
|
|
|
|
|
|
|
|
|
February 29,
|
|
|
May 31,
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
Net Book
|
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile vehicles
|
|
382,759
|
|
|
127,882
|
|
|
254,877
|
|
|
220,234
|
|
|
Camp and equipment
|
|
195,267
|
|
|
6,877
|
|
|
188,390
|
|
|
-
|
|
|
Office furniture and equipment
|
|
95,794
|
|
|
22,315
|
|
|
73,479
|
|
|
83,760
|
|
|
Software
|
|
2,987
|
|
|
2,744
|
|
|
243
|
|
|
1,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
676,807
|
|
|
159,818
|
|
|
516,989
|
|
|
305,936
|
|
7.
|
Mineral Properties
|
|
|
|
|
Tanzania, Africa
|
|
|
|
|
a)
|
Handeni Properties, Tanzania, Africa
|
|
|
|
|
|
On September 21, 2010, the Company completed a Mineral
Property Acquisition Agreement with IPP Gold Limited (IPP Gold), and the
Company acquired four prospecting licences totalling approximately 800
square kilometres, located in the Handeni District of Tanzania (the
Handeni Properties). IPP Gold retained a 2.5% net smelter royalty
(NSR) on the Handeni Properties and the Company has the option to reduce
the NSR to 1.25% by paying $5,000,000. If the NSR is reduced to 1.25% the
maximum NSR for any year is capped at $1,000,000. In any year the NSR
payment is less than $1,000,000 the difference between the actual NSR
payment and $1,000,000 will be carried forward to subsequent years. In
addition if the London spot price for gold is equal to or greater than
$1,500 then the NSR will increase from 2.5% to 3%. The Company issued
133,333,333 restricted shares of common stock to IPP Gold to acquire the
Handeni Properties and no further payments to IPP Gold in shares or cash
is required.
|
|
|
|
|
|
On September 1, 2010, the Company entered into a
Transaction Fee Agreement with a consultant for services related to
soliciting offers from and in assisting in the negotiation with potential
Company financiers, purchasers, acquisition targets and/or joint venture
development partners (each such party being a Potential Investor). The
initial term of the agreement is a period of 60 days and automatically
renews monthly unless otherwise specifically renewed in writing by each
party or terminated by the Company. Pursuant to the agreement, the Company
agreed to pay the consultant a transaction fee for each completed property
acquisition transaction in Tanzania (a Completed Transaction). The
transaction fee is 12.5% of the shares issuable under each Completed
Transaction, payable in restricted common shares at the lowest priced
security issuable under each Completed Transaction. On September 30, 2010,
the Company issued 16,666,667 restricted shares of common stock pursuant
to the Transaction Fee Agreement in relation to the acquisition of the
Handeni Properties.
|
|
|
|
|
|
The fair value of the 133,333,333 shares of the Companys
common stock issued to IPP Gold pursuant to the Acquisition Agreement and
the 16,666,667 shares of the Companys common stock issued pursuant to the
Transaction Fee Agreement totalled $60,000,000.
|
|
|
|
|
|
On November 30, 2010, the capitalized acquisition costs
of the Handeni Properties were tested for impairment by the Companys
management as required by ASC 360. Management determined that no positive
cash flows from the Handeni Properties could be identified or supported
and a full impairment loss was recognized in expenses for the $60,000,000
acquisition cost.
|
|
|
|
|
|
On August 5, 2011, the Company entered a Mineral Property
Acquisition Agreement (the 2011 Acquisition Agreement) with Handeni
Resources Limited (Handeni Resources), a limited liability company
registered under the laws of Tanzania. The Chairman of the Board of
Directors of the Company has an existing ownership and/or beneficial
interest(s) in Handeni Resources. Pursuant to the 2011 Acquisition
Agreement, the Company had an exclusive option to acquire from Handeni
Resources a 100% interest in mineral licenses covering an area of
approximately 2.67 square kilometres to the east of Magambazi Hill, which
is adjacent to the area covered by the Companys four existing prospecting
licenses (totalling approximately 800 square kilometres) in the Handeni
District.
|
11
Handeni Gold Inc. (formerly Douglas Lake Minerals Inc.)
|
(An Exploration Stage Company)
|
Notes to the Interim Consolidated Financial Statements as
of February 29, 2012
|
(Expressed in U.S. dollars)
|
7.
|
Mineral Properties (continued)
|
|
|
|
|
a)
|
Handeni Properties, Tanzania, Africa
(continued)
|
|
|
|
|
|
On November 30, 2011, the Company completed the 2011
Acquisition Agreement and issued 15,000,000 restricted common shares to
Handeni Resources as payment. As at November 30, 2011, the fair market
price of the Companys common stock was $0.11 per share; accordingly, the
Company recorded a total fair market value of $1,650,000 as the mineral
licenses acquisition cost.
|
|
|
|
|
b)
|
Mkuvia Alluvial Gold Project, Tanzania, Africa
|
|
|
|
|
|
On June 27, 2008, the Company entered into a Joint
Venture Agreement that grants the Company the right to explore for
minerals on properties in Liwale and Nachigwea Districts of Tanzania known
as the Mkuvia Alluvial Gold Project, in consideration for the payment of
$1,000,000 (paid) upon signing the agreement and $540,000 over five years
beginning July 15, 2008. The $540,000 is payable in stages on a quarterly
basis of which $80,000 must be paid in the first year, and $460,000 over
the next five years. The holder of the property licenses retains a net
smelter royalty return of 3%.
|
|
|
|
|
|
On June 5, 2009, the Company entered into a new joint
venture which reduced the area covered by the original agreement to
approximately 380 square kilometres. Pursuant to the new joint venture
agreement, the Company was required to pay $40,000 upon the signing of the
new agreement. In addition, the joint venture partner is still entitled to
receive a perpetual net smelter royalty return of 3% from any product
realized from the property underlying the prospecting licenses. By
entering into the new joint venture agreement, the Company is no longer
required to pay the balance of the $460,000 previously due under the prior
joint venture agreement. The new joint venture agreement covers
prospecting licenses No. 5673/2009, No. 5669/2009, No. 5664/2009, and No.
5662/2009, all of which were renewed on June 12, 2009 for a period of
three years.
|
|
|
|
|
|
On November 7, 2009, the Company entered into its first
agreement with Ruby Creek Resources Inc. (RCR) in which RCR has the
right to acquire a 70% interest in 125 square kilometres of the Companys
interest in the 380 square kilometres covered by the four prospecting
licenses in the Mkuvia Alluvial Gold Project in consideration for
$3,000,000 payable as follows:
|
|
i)
|
$100,000 within 5 business days of signing the agreement
(received).
|
|
ii)
|
$150,000 within 15 business days of signing the agreement
(received).
|
|
iii)
|
$100,000 upon satisfactory completion of RCR due
diligence (received).
|
|
iv)
|
$400,000 upon closing and receipt the first mining
license.
|
|
v)
|
$750,000 payable within 12 months of closing.
|
|
vi)
|
$750,000 payable within 24 months of closing,
and
|
|
vii)
|
$750,000 payable within 36 months of closing. This
payment may be made in common shares of RCR. The shares will be valued at
the 10 day average trading price of RCRs common stock prior to the
payment date.
|
During fiscal 2010 the Company
recognized $350,000 in other income for the receipt of option payments.
On May 24, 2010, in a second agreement
(fully executed on June 16, 2010) between RCR and the Company, RCR has to the
right to earn a 70% interest in the remaining 255 square kilometres of the 380
square kilometre Mkuvia Alluvial Gold Project by making additional payments
totalling $6,000,000 to the Company.
The schedule by which RCR is to pay
such $6,000,000 to the Company is as follows:
|
i)
|
$200,000 due within seven days of execution of the
Agreement (received) with $100,000 applied towards costs of environmental
permitting and the initial mining license (applied);
|
|
ii)
|
$150,000 (received) plus the issuance of four million
restricted shares of common stock of RCR, with an agreed upon value of
$0.80 per share for a deemed valuation of $3,200,000, within 30 days of
the receipt of Certificates of Acknowledgement for all underlying and
related Agreements from the Commissioner for Minerals in Tanzania as
required by the Mining Act of Tanzania (Certificates of Acknowledgement
received August 12, 2010). The four million restricted shares of common
stock of RCR were issued to the Company on December 16, 2010 and had a
fair market value totaling $2,760,000 based on RCRs quoted stock price on
that date.
|
|
iii)
|
$450,000 on June 1, 2011 (unpaid);
|
|
iv)
|
$1,000,000 on June 1, 2012; and
|
|
v)
|
$1,000,000 on June 1, 2013 (which may be satisfied by the
issuance of stock by RCR).
|
12
Handeni Gold Inc. (formerly Douglas Lake Minerals Inc.)
|
(An Exploration Stage Company)
|
Notes to the Interim Consolidated Financial Statements as
of February 29, 2012
|
(Expressed in U.S. dollars)
|
7.
|
Mineral Properties (continued)
|
|
|
|
|
b)
|
Mkuvia Alluvial Gold Project, Tanzania, Africa
(continued)
|
|
|
|
|
|
Thus, the combined payments under the November 7, 2009
and the May 24, 2010 agreements provide for a total commitment of
$9,000,000 payable to the Company by RCR to purchase a 70% interest in the
entire 380 square kilometre Mkuvia Alluvial Gold Project. The ownership
structure of the interest in the Mkuvia Alluvial Gold Project shall be a
70% interest RCR, a 25% interest for Douglas Lake, and a 5% interest for
Mr. Mkuvia Maita, the original owner of the underlying prospecting
licenses. In addition, Mr. Maita retains a 3% net smelter
royalty.
|
|
|
|
|
|
On June 3, 2010, the Company and RCR incorporated Ruby
Creek Resources (Tanzania) Limited (Ruby Creek Tanzania) to manage the
mining operations in the Mkuvia Gold Project in Tanzania. Ruby Creek
Resources (Tanzania) Limited, a joint venture company (the Joint Venture
Company), is owned by Ruby Creek Resources (70%), the Company (25%) and
Mr. Mkuvia Maita (5%).
|
|
|
|
|
|
During fiscal 2011 the Company recognized a total of
$3,110,000 in other income for the receipt of the shares at fair market
value and the option payments (i) and (ii). The Company has not yet
received the $450,000 subsequent option payment (iii) which is overdue and
the agreement is in default. Prospecting licenses numbered 5664/2009 and
5669/2009, which form a part of the joint venture project, have been
registered to a third party without the Companys approval.
|
|
|
|
|
|
RCR filed a lawsuit against the Company in the Supreme
Court, State of New York, on February 8, 2012, alleging the Companys
involvement in a fraudulent transfer and breach of agreement. The Company
is of the view that such allegations are without merit and has and intends
to vigorously contest the action. On February 23, 2012, the Company filed
a lawsuit against RCR in the Supreme Court of British Columbia, seeking
relief for RCRs breach of its payment obligations under these agreements
and seeking an order that RCR remove the U.S. restrictive legend from RCR
shares issued to the Company under the agreements (see Note
13c).
|
|
|
|
|
c)
|
On April 27, 2006, the Company entered into a Strategic
Alliance Agreement with Canaco Resources Inc. (Canaco), a Canadian
public company. Under the terms of the agreement, Canaco paid $350,000
(received during fiscal 2007) to the Company. In connection with this
agreement, the Company was required to issue 200,000 restricted shares of
common stock with a fair value of $88,000. As at May 31 and November 30,
2011, the 200,000 was not issued and $88,000 is included in common stock
subscribed. During the quarter ended February 29, 2012, the Company has
determined that the Company no longer has any obligations under this
agreement, including the obligation to issue such 200,000 shares, and
therefore $88,000 was recorded as a recovery of mineral property costs for
stock not issued.
|
|
|
|
|
d)
|
On November 17, 2006, the Company entered into an Asset
Purchase Agreement with Atlas to acquire Prospecting License No. 3920/2006
known as Shinyanga or Magembe, which covers an area of approximately
46 square kilometres in Tanzania. The Licenses were transferred to the
Companys name on signing the agreement for an aggregate purchase price of
$200,000 (paid) and 4,500,000 restricted shares of common stock. The
Company determined the fair value of the shares to be $3,172,500. As at
May 31, 2007, the Company issued 1,500,000 shares at the fair value of
$1,057,500. During fiscal 2010, the Company decided to focus on other
properties and has let the Magembe prospecting license lapse. As at May 31
and November 30, 2011, the remaining 3,000,000 shares at the fair value of
$2,115,000 is included in common stock subscribed. During the quarter
ended February 29, 2012, the Company determined that the Company no longer
has any obligations under this agreement, including the obligation to
issue such 3,000,000 shares, and therefore the $2,115,000 was recorded as
a recovery of mineral property costs for stock not
issued.
|
13
Handeni Gold Inc. (formerly Douglas Lake Minerals Inc.)
|
(An Exploration Stage Company)
|
Notes to the Interim Consolidated Financial Statements as
of February 29, 2012
|
(Expressed in U.S. dollars)
|
7.
|
Mineral Properties (continued)
|
|
|
|
|
e)
|
On November 17, 2006, the Company entered into an Asset
Purchase Agreement with Hydro Geos to acquire six Prospecting Licenses,
which covered an area of approximately 2,388.79 square kilometres in
Tanzania. Prospecting License No.s 3868/2006, 3671/2005, 3398/2005,
3105/2005, 3211/2005, and 2961/2004 had been transferred to the Companys
name on signing the agreement for a then aggregate and proposed purchase
price of $600,000 (the Cash Payments) and the proposed issuance of
4,000,000 restricted shares of the Companys common stock at a fair value
of $2,820,000. An initial cash payment of $150,000 was made on the signing
of the agreement, however, no further Cash Payments were made and no
common shares of the Company were issued due to the fact that the
underlying Prospecting Licenses were allowed to lapse by Hydro Geos. As at
May 31, 2011 and November 30, 2011, $250,000 is included in accrued
liabilities. During the three months ended February 29, 2012, the Company
has determined that the Company no longer has any obligations under this
agreement, including the obligation to pay such $250,000, and therefore,
the accrued $250,000 liability was written off.
|
|
|
|
8.
|
Related Party Transactions and Balances
|
|
|
|
|
a)
|
During the nine months ended February 29, 2012, the
Company paid $128,000 (2011 - $Nil) of consulting and professional
services fees to a director, the current President and Chief Executive
Officer (CEO). The Company also paid $28,000 (2011 - $Nil) of geological
service fees to a private company controlled by a person who is related to
CEO. During the nine months ended February 29, 2012, the Company granted
the CEO 1,500,000 stock options at a price of $0.45 per share exercisable
for 10 years (2011: 4,000,000 stock options at a price of $0.20 per share
exercisable for 10 years).
|
|
|
|
|
b)
|
During the nine months ended February 29, 2012, the
Company paid $132,000 (2011 - $Nil) of consulting fees to the former
President and CEO who resigned effective on November 22, 2011 and remains
as a director. During the nine months ended February 29, 2012, the Company
granted to the former CEO 3,000,000 stock options at a price of $0.45 per
share exercisable for 10 years (2011: 4,500,000 stock options at a price
of $0.20 per share exercisable for 10 years).
|
|
|
|
|
c)
|
During the six month ended November 30, 2011, the Company
paid $39,758 (2011 - $Nil) of consulting fees to the Companys Chief
Financial Officer (CFO) who resigned effective on December 12, 2011.
Subsequent to November 30, 2011, the Company paid $9,726 of consulting
fees for consulting services up to January 31, 2012 and granted 750,000
stock options at a price of $0.45 per share.
|
|
|
|
|
d)
|
During the nine months ended February 29, 2012, the
Company paid consulting fees of $15,441 (2011 - $115,000) to the former
CEO who resigned effective on June 21, 2011. The Company also paid $5,147
for June 2011 and $39,963 from July 2011 to February 29, 2012 (Nine Months
ended February 28 2011 - $14,867) of investor relations service fees to a
person related to the former CEO.
|
|
|
|
|
|
On September 20, 2010, the former CEO converted $616,186
of related party debt into 5,000,000 units. Each unit consisted of one
share of the Companys common stock and one share purchase warrant to
purchase an additional share of common stock at $0.25 for two years. Due
to an error, the Company issued units for $133,814 more than owed. During
the year ended May 31, 2011, the former CEO paid the additional cash of
$120,000 of subscriptions for the shares and the remaining $13,814
subsequent to May 31, 2011. The Company recorded stock based compensation
of $3,035,505, equal to the difference between the fair value of the units
of $3,785,505 and the $750,000 sum of debt settled and subscription
receivable.
|
|
|
|
|
|
On November 29, 2010, the Company granted to this former
CEO 9,000,000 stock options exercisable at a price of $0.20 per share,
such options were forfeited during the nine months ended February 29,
2012.
|
|
|
|
|
e)
|
During the four months ended September 30, 2011, the
Company paid $26,738 (Nine months ended February 28, 2011 - $56,781) of
consulting fees to the former CFO who resigned effective on September 22,
2011. Subsequent to September 22, 2011 to the quarter ended February 29,
2012, the company paid $31,781 of continuing consulting services. As at
February 29, 2012, the Company was indebted to the former CFO for $Nil
(May 31, 2011 $1,112). The amounts due are non-interest bearing,
unsecured and due on demand. On November 29, 2010, the Company granted to
this former CFO 1,000,000 stock options exercisable at a price of $0.20
per share.
|
|
|
|
|
f)
|
On November 30, 2011, the Company completed its
acquisition of a 100% interest in mineral licenses covering the area of
approximately 2.67 square kilometres located in the Handeni District of
Tanzania from Handeni Resources. The Chairman of the Board of Directors of
the Company (the Chairman) has an existing ownership and/or beneficial
interest(s) in Handeni Resources. On November 30, 2011, the Company issued
15,000,000 shares of restricted common stock at a fair market price of
$0.11 per share to Handeni Resources in connection with the acquisition
(see Note 7a).
|
|
|
|
|
|
On November 29, 2010, the Company granted to the Chairman
10,000,000 stock options at a price of $0.20 per share exercisable for 10
years.
|
14
Handeni Gold Inc. (formerly Douglas Lake Minerals Inc.)
|
(An Exploration Stage Company)
|
Notes to the Interim Consolidated Financial Statements as
of February 29, 2012
|
(Expressed in U.S. dollars)
|
9.
|
Accrued Liabilities
|
|
|
|
The components of accrued liabilities are as
follows:
|
|
|
|
February 29,
|
|
|
May 31,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Mineral property expenditures
|
|
-
|
|
|
250,000
|
|
|
Professional fees
|
|
78,529
|
|
|
52,848
|
|
|
General and administrative expenses
|
|
385
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
Total Accrued Liabilities
|
|
78,914
|
|
|
312,848
|
|
10.
|
Common Stock and Additional Paid-in Capital
|
|
|
|
The authorized common stock of the Company consists of
500,000,000 shares, with $0.001 par value. The following is a summary of
the Companys issued and outstanding common stock during the nine months
ended February 29, 2012 and the fiscal year ended May 31,
2011:
|
|
|
|
Common Stock
|
|
|
Additional Paid-In
|
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
Capital
|
|
|
|
|
#
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at May 31, 2010
|
|
72,313,282
|
|
|
72,314
|
|
|
26,154,556
|
|
|
Shares Issued for Private Placement
|
|
49,173,372
|
|
|
49,173
|
|
|
13,278,844
|
|
|
Shares Issued for Debt Settlement @0.42
|
|
5,000,000
|
|
|
5,000
|
|
|
3,780,505
|
|
|
Shares Issued for Mineral Property Acquisition
|
|
150,000,000
|
|
|
150,000
|
|
|
59,850,000
|
|
|
Shares Issued for Exercise of Cashless
Options
|
|
13,800,000
|
|
|
13,800
|
|
|
(13,800
|
)
|
|
Shares Issued for Exercise of Stock Options
|
|
130,000
|
|
|
130
|
|
|
38,870
|
|
|
Shares Issued for Exercise of warrants
|
|
2,000,000
|
|
|
2,000
|
|
|
148,000
|
|
|
Value Assigned to Options Granted or Vested
|
|
|
|
|
|
|
|
9,675,441
|
|
|
Value Assigned to Warrants Issued as
Finders Fees
|
|
-
|
|
|
-
|
|
|
490,960
|
|
|
Share Issuance
Costs (Cash and Finders Fee Warrants)
|
|
-
|
|
|
-
|
|
|
(1,477,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at May 31, 2011
|
|
292,416,654
|
|
|
292,417
|
|
|
111,925,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Issued for Mineral Licenses
|
|
15,000,000
|
|
|
15,000
|
|
|
1,635,000
|
|
|
Value Assigned to Options Granted or Vested
|
|
-
|
|
|
-
|
|
|
1,294,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at February 29, 2012
|
|
307,416,654
|
|
|
307,417
|
|
|
114,855,961
|
|
Pursuant to the terms of the
acquisition agreement described in Note 7(a), above, on November 30, 2011, the
Company closed on the acquisition and issued 15,000,000 restricted common shares
to Handeni Resources at a fair market price of $0.11 per share for a total fair
market value of $1,650,000.
During the nine months ended February
29, 2012, the Company received $13,814 from the former CEO related to a share
issuance during the fiscal year ended May 31, 2011 (see Note 8d).
During the nine months ended February
29, 2012, the Company also received $100,000 pursuant to a stock subscription
agreement for 1,000,000 shares of the Companys common stock at $0.10 per share,
the stock subscription of which relates to the Companys Tanzanian and East
African fund raising. Such shares have not been issued at February 29, 2012.
During the three months ended February
29, 2012, the Company determined it no longer has any obligations to issue
$2,203,000 in shares for lapsed mineral property agreements (see Notes 7c) and
7d)) and $50,000 in shares for an expired mineral property consulting agreement.
Therefore, a total of $2,253,000 was recorded as a recovery of mineral property
costs for stock not issuable.
15
Handeni Gold Inc. (formerly Douglas Lake Minerals Inc.)
|
(An Exploration Stage Company)
|
Notes to the Interim Consolidated Financial Statements as
of February 29, 2012
|
(Expressed in U.S. dollars)
|
11.
|
Stock Options
|
|
|
|
The Company adopted a Stock Option Plan dated October 20,
2008 (the 2008 Stock Option Plan), under which the Company is authorized
to grant stock options to acquire up to a total of 10,000,000 shares of
common stock. On August 11, 2010, the Company granted stock options to
acquire 3,800,000 common shares at a price of $0.05 per share exercisable
for 10 years. Such options were exercised during the fiscal year ended May
31, 2011. During the nine months ended February 29, 2012, the option
holders forfeited 2,993,333 options granted and vested prior to July
2009.
|
|
|
|
The Company adopted an additional Stock Option Plan dated
August 11, 2010 (the August 2010 Stock Option Plan), under which the
Company is authorized to grant stock options to acquire up to a total of
10,000,000 shares of common shares. On August 11, 2010, the Company
granted stock options to acquire 6,000,000 common shares at a price of
$0.05 per share exercisable for 10 years and on October 21, 2010, the
Company granted stock options to acquire 4,000,000 common shares at a
price of $0.30 per share exercisable for 10 years. Such options were
exercised during the fiscal year ended May 31, 2011. At February 29, 2012,
the Company had no shares of common stock available to be issued under the
August 2010 Stock Option Plan.
|
|
|
|
The Company adopted an additional Stock Option Plan dated
November 29, 2010 (the November 2010 Stock Option Plan), under which the
Company is authorized to grant stock options to acquire up to a total of
40,000,000 shares of common shares. On November 29, 2010, the Company
granted stock options to acquire 33,500,000 common shares at a price of
$0.20 per share exercisable for 10 years, and the Company also granted
stock options to acquire 4,500,000 common shares on November 30, 2011 and
750,000 common shares on December 14, 2011 at a price of $0.45 per share
exercisable for 10 years. During nine months ended February 29, 2012,
4,780,000 vested options and 5,520,000 unvested options were forfeited. At
February 29, 2012, the Company had 11,550,000 shares of common stock
available to be issued under the November 2010 Stock Option
Plan.
|
|
|
|
There were no stock options exercised during the nine
months ended February 29, 2012. There were no intrinsic values of
outstanding options at February 29, 2012 and May 31, 2011.
|
|
|
|
The following table summarizes the continuity of the
Companys stock options:
|
|
|
|
Number of
|
|
|
Weighted
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
Options
|
|
|
Average
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
|
#
|
|
|
Exercise Price
|
|
|
Remaining
|
|
|
Value
|
|
|
|
|
|
|
|
$
|
|
|
Contractual
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, May 31, 2011
|
|
36,493,333
|
|
|
0.21
|
|
|
8.93
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
5,250,000
|
|
|
0.45
|
|
|
8.37
|
|
|
-
|
|
|
Forfeited
|
|
(13,293,333
|
)
|
|
0.22
|
|
|
7.17
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
February 29, 2012
|
|
28,450,000
|
|
|
0.25
|
|
|
8.68
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
February 29, 2012
|
|
15,795,000
|
|
|
0.23
|
|
|
8.41
|
|
|
-
|
|
16
Handeni Gold Inc. (formerly Douglas Lake Minerals Inc.)
|
(An Exploration Stage Company)
|
Notes to the Interim Consolidated Financial Statements as
of February 29, 2012
|
(Expressed in U.S. dollars)
|
11.
|
Stock Options (continued)
|
|
|
|
A summary of the status of the Companys non-vested stock
options as of February 29, 2012, and changes during the nine months ended
February 29, 2012 are presented below:
|
|
|
|
|
|
|
Weighted
|
|
|
Non-vested stock options
|
|
|
|
|
Average
|
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
#
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Non-vested at May 31, 2011
|
|
20,100,000
|
|
|
0.36
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
4,500,000
|
|
|
0.45
|
|
|
Forfeited
|
|
(5,520,000
|
)
|
|
0.34
|
|
|
Vested
|
|
(6,425,000
|
)
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
Non-vested at February 29, 2012
|
|
12,655,000
|
|
|
0.26
|
|
|
As at February 29, 2012, there was $1,025,588 of total
unrecognized compensation cost related to non-vested stock option
agreements. That cost is expected to be recognized over a weighted average
period of 0.75 year.
|
|
|
|
The stock options outstanding are exercisable for cash or
on a cashless exercise basis using a prorated formula whereby the number
of shares issuable is equal to (a) the average closing price for the five
days prior to exercise date (ACP) in excess of the exercise price,
divided by (b) the exercise price multiplied by (c) the number of options
exercised. During the nine months ended February 29, 2012, no cashless
stock options were exercised (2011 13,800,000).
|
|
|
12.
|
Common Stock Purchase Warrants
|
|
|
|
Pursuant to a release and indemnification agreement, the
Company granted 300,000 stock purchase warrants on July 7, 2011 to acquire
300,000 common shares at a price of $0.30 per share exercisable for one
year period. The fair value of the granted warrants was $81,158 estimated
at the date of grant using the Black-Scholes option-pricing model. The
following table summarizes the continuity of the Companys share purchase
warrants:
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
Contractual
|
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
Term
|
|
|
|
|
#
|
|
|
$
|
|
|
(years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 31, 2011
|
|
53,416,417
|
|
|
0.33
|
|
|
1.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
300,000
|
|
|
0.30
|
|
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, February 29, 2012
|
|
53,716,417
|
|
|
0.33
|
|
|
0.93
|
|
As at February 29, 2012, the following
common share purchase warrants were outstanding:
|
|
Remaining
|
|
|
Contractual Life
|
Number of Warrants
|
Exercise Price
|
(years)
|
|
$
|
|
5,000,000
|
0.25
|
0.56
|
20,000,000
|
0.075
|
0.87
|
11,285,494
|
0.52
|
0.53
|
3,576,768
|
0.52
|
0.56
|
13,554,155
|
0.52
|
1.58
|
300,000
|
0.30
|
0.35
|
|
|
|
53,716,417
|
|
|
17
Handeni Gold Inc. (formerly Douglas Lake Minerals Inc.)
|
(An Exploration Stage Company)
|
Notes to the Interim Consolidated Financial Statements as
of February 29, 2012
|
(Expressed in U.S. dollars)
|
13.
|
Commitments and Contingency
|
|
|
|
|
a)
|
The Company is committed to the payment of a cash fee of
7% within 48 hours of the receipt of proceeds from the exercise of any
warrants attached to the 17,757,777 units sold by Rodman & Renshaw in
the March 2011 private placements.
|
|
|
|
|
b)
|
The Company is committed to the payment of a cash fee of
7% of the purchase price and the issuance of warrants equal to 7% of the
shares issued with respect to any public or private financing provided by
investors whom Rodman & Renshaw introduced, directly or indirectly, in
the March 2011 private placements within 24 months of the closing of the
March 2011 private placements.
|
|
|
|
|
c)
|
On February 8, 2012, Ruby Creek Resources Inc. (RCR)
filed a lawsuit against the Company in the Supreme Court, State of New
York, in which RCR alleges that the Company participated in a fraudulent
transfer of certain mineral property interests in Tanzania that RCR had
the right to purchase pursuant to a series of agreements with the Company
(see Note 7b).
|
|
|
|
|
|
On February 23, 2012, the Company filed a lawsuit against
RCR in the Supreme Court of British Columbia, seeking relief for RCRs
breach of its payment obligations under these agreements and seeking an
order that RCR remove the U.S. restrictive legend from RCR shares issued
to the Company (see Note 3) under the agreements. As of February 29, 2012,
RCR is in default with respect to over $1.3 million in scheduled payments
due to the Company under the agreements.
|
|
|
|
|
|
The Company is of the view that RCRs allegations are
without merit and intends to continue to vigorously defend against the RCR
lawsuit and to pursue its claims against RCR. No future legal costs that
may be incurred have been accrued as an expense and no loss or gain from
the lawsuit and claim can be reasonably estimated or recorded at this
time.
|
|
|
|
14.
|
Fair Value Measurements
|
|
|
|
|
ASC 820 requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when
measuring fair value. ASC 820 establishes a fair value hierarchy based on
the level of independent, objective evidence surrounding the inputs used
to measure fair value. A financial instruments categorization within the
fair value hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. ASC 820 prioritizes the inputs
into three levels that may be used to measure fair
value:
|
Level 1
Level 1 applies to assets or
liabilities for which there are quoted prices in active markets for identical
assets or liabilities.
Level 2
Level 2 applies to assets or
liabilities for which there are inputs other than quoted prices that are
observable for the asset or liability such as quoted prices for similar assets
or liabilities in active markets; quoted prices for identical assets or
liabilities in markets with insufficient volume or infrequent transactions (less
active markets); or model-derived valuations in which significant inputs are
observable or can be derived principally from, or corroborated by, observable
market data.
Level 3
Level 3 applies to assets or
liabilities for which there are unobservable inputs to the valuation methodology
that are significant to the measurement of the fair value of the assets or
liabilities.
Pursuant to ASC 820, the fair value of
our cash and cash equivalents and marketable securities are determined based on
Level 1 inputs, which consist of quoted prices in active markets for identical
assets. Management believes that the recorded values of all of the Companys
other financial instruments approximate their current fair values because of
their nature and respective maturity dates or durations.
As at February 29, 2012, there were no
liabilities measured at fair value on a recurring basis presented on the
Companys consolidated balance sheet.
18
Handeni Gold Inc. (formerly Douglas Lake Minerals Inc.)
|
(An Exploration Stage Company)
|
Notes to the Interim Consolidated Financial Statements as
of February 29, 2012
|
(Expressed in U.S. dollars)
|
15.
|
Stock-based Compensation
|
|
|
|
The fair values for stock options and common stock
purchase warrants granted were estimated at the date of grant using the
Black- Scholes option pricing model under the following weighted average
assumptions:
|
|
|
|
For Stock Options
|
|
|
For Stock Purchase Warrants
|
|
|
|
|
Nine Months Ended,
|
|
|
Nine Months Ended
|
|
|
|
|
February 29, 2012
|
|
|
February 28, 2011
|
|
|
February 29, 2012
|
|
|
February 28, 2011
|
|
|
Expected dividend yield
|
|
0%
|
|
|
0%
|
|
|
0%
|
|
|
Nil
|
|
|
Risk-free interest rate
|
|
1.94%
|
|
|
2.79%
|
|
|
0.20%
|
|
|
Nil
|
|
|
Expected volatility
|
|
162%
|
|
|
161%
|
|
|
136%
|
|
|
Nil
|
|
|
Expected option life (in years)
|
|
8.22
|
|
|
10.00
|
|
|
1.00
|
|
|
Nil
|
|
The weighted average fair value of
stock options granted during the nine months ended February 29, 2012 was $0.10
per share (2011 - $0.29) and the weighted average fair value of stock purchase
warrants granted during the nine months ended February 29, 2012 was $0.27 (2011
- $Nil). During the nine months ended February 29, 2012 and February 28, 2011,
the Company expensed the following stock-based compensations as consulting
fees.
|
|
|
Nine Months Ended
|
|
|
|
|
February 29, 2012
|
|
|
February 28, 2011
|
|
|
|
|
|
|
|
|
|
|
Fair value for stock options
|
$
|
1,213,829
|
|
$
|
7,307,261
|
|
|
Fair value for stock purchase warrants
|
|
81,158
|
|
|
-
|
|
|
Fair value for common stock units granted to former CEO
|
|
-
|
|
|
3,035,505
|
|
|
Total stock based
compensation
|
$
|
1,294,987
|
|
$
|
10,342,766
|
|
16.
|
Supplemental Cash Flow Information
|
|
|
|
Investing and financing activities that do not have a
direct impact on current cash flows are excluded from the cash flow
statements. A summary of non-cash transactions and other cash information
for the accumulated from January 5, 2004, the date of inception, to
February 29, 2012, and for the nine months ended February 29, 2012 and
February 28, 2011 is as follow:
|
|
|
Accumulated from
|
|
|
|
|
|
|
|
|
|
January 5, 2004 (Date
|
|
|
For the Nine Months Ended
|
|
|
|
of Inception) to
|
|
|
February 29,
|
|
|
February 28,
|
|
|
|
February 29, 2012
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
Changes in non-cash financing and investing
activities:
|
|
|
|
|
|
|
|
|
|
Amount owing pursuant to mineral
license acquisition agreements included in accrued liabilities
|
$
|
250,000
|
|
$
|
-
|
|
$
|
-
|
|
Common stock issued to
settle related party payable
|
|
619,306
|
|
|
-
|
|
|
619,306
|
|
Common stock subscribed for mineral
licenses acquired
|
|
2,203,000
|
|
|
-
|
|
|
-
|
|
Common stock issued for
mineral licenses
|
|
76,446,750
|
|
|
1,650,000
|
|
|
60,000,000
|
|
Common stock gifted to the Company to
settle liabilities
|
|
100,000
|
|
|
-
|
|
|
-
|
|
Investment securities
received and sold
|
|
79,603
|
|
|
-
|
|
|
-
|
|
Other cash flow information:
|
|
|
|
|
|
|
|
|
|
Interest paid
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Taxes paid
|
|
-
|
|
|
-
|
|
|
-
|
|
19
Handeni Gold Inc. (formerly Douglas Lake Minerals Inc.)
|
(An Exploration Stage Company)
|
Notes to the Interim Consolidated Financial Statements as
of February 29, 2012
|
(Expressed in U.S. dollars)
|
17.
|
Segment Disclosures
|
|
|
|
The Company operates in one reportable segment, being the
acquisition and exploration of mineral properties. Segmented information
has been compiled based on the geographic regions that the Company and its
subsidiary registered and performed exploration and administration
activities.
|
|
|
|
Assets by geographical segment as at February 29, 2012
are as follows:
|
|
|
|
Canada
|
|
|
Tanzania, Africa
|
|
|
Total
|
|
|
Current assets
|
$
|
4,222,702
|
|
$
|
1,088,914
|
|
$
|
5,311,616
|
|
|
Restricted cash equivalent
|
|
28,843
|
|
|
-
|
|
|
28,843
|
|
|
Mineral licenses
|
|
-
|
|
|
1,650,000
|
|
|
1,650,000
|
|
|
Equipment, net
|
|
7,515
|
|
|
509,474
|
|
|
516,989
|
|
|
Total assets, at February 29, 2012
|
$
|
4,259,060
|
|
$
|
3,248,388
|
|
$
|
7,507,448
|
|
18.
|
Subsequent Events
|
|
|
|
|
Subsequent to the nine months ended February 29, 2012,
the following events took place:
|
|
|
|
|
a)
|
On March 1, 2012, the Company appointed a new CFO and
granted stock options to acquire 1,000,000 common shares at a price of
$0.11 per share exercisable for not less than 5 years under the Companys
November 2010 Stock Option Plan.
|
20
Item 2.
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations
|
The following discussion of our financial condition, changes in
financial condition and results of operations for the three and nine months
ended February 29, 2012 and February 28, 2011 should be read in conjunction with
our unaudited interim financial statements and related notes for the three and
nine months ended February 29, 2012 and February 28, 2011. The following
discussion contains forward-looking statements that involve risks, uncertainties
and assumptions. Our actual results may differ materially from those anticipated
in these forward-looking statements.
Overview of our Business
We were incorporated on January 5, 2004 under the laws of the
State of Nevada. Effective January 21, 2009 we effected a 5 for 1 stock split of
our common stock and increased our authorized capital to 500,000,000 shares of
common stock having a $0.001 par value. Effective February 14, 2012, we changed
our name to Handeni Gold Inc.
We are an exploration stage company engaged in the acquisition
and exploration of mineral properties. We have interests in mineral claims known
as the Handeni Gold Project and the Mkuvia Alluvial Gold Project, located in on
Tanzania, Africa, through prospecting licenses issued by the government of
Tanzania.
We have conducted considerable exploration activities on all
four of our claims, including fixed wing airborne magnetics and radiometrics,
helicopter based EM electromagnetics as well as magnetics and radiometrics. In
addition to this we have covered specific targets with ground magnetic and
radiometric exploration, induced polarization ground geophysics and a large
number of analyses conducted on soil samples from regional reconnaissance,
pitting and trenching.
We have conducted 10,000m of core drilling on two targets
namely the Magambazi East and Kwandege targets and assayed approximately 14,000
samples for gold as well as other elements when applicable.
None of our mineral claims contain any substantiated mineral
deposits or reserves of minerals at this stage. Accordingly, additional
exploration of these mineral claims is required before any determination as to
whether any commercially viable mineral deposit may exist on our mineral claims.
Our plan of operations is to continue with target identification by soil,
sampling, pitting and trenching as well as ground geophysics to determine
whether the tenements possess commercially exploitable deposits of minerals. We
will not be able to determine whether or not any of our mineral claims contain a
commercially exploitable mineral deposit, or reserve, until appropriate
exploratory work is done and an economic evaluation based on that work concludes
economic viability.
We are considered an exploration or exploratory stage company
because we are involved in the examination and investigation of land that we
believe may contain valuable minerals, for the purpose of discovering the
presence of ore, if any, and its extent. There is no assurance that a
commercially viable mineral deposit exists on the properties underlying our
mineral claim interests, and a great deal of further exploration will be
required before a final evaluation as to the economic and legal feasibility for
our future exploration is determined.
Our Mineral Claims
Handeni District Prospecting Licenses
Currently, our primary focus is on the Handeni District
Project. Effective September 21, 2010, our Board of Directors ratified the
entering into of and immediate closing of a certain Mineral Property Acquisition
Agreement (the Acquisition Agreement) dated September 15, 2010 with IPP Gold
Limited (IPP), pursuant to which we acquired an undivided 100% legal,
beneficial and registerable interest in and to four prospecting licences (the
PLs), totaling approximately 800 square kilometres, located in the Handeni
District of Tanzania and which were owned or controlled by IPP Gold and its
affiliates.
In accordance with the terms of the Acquisition Agreement
effective September 21, 2010, IPP Gold has now become a major stakeholder in our
Company. Pursuant to the terms of the Acquisition Agreement, we issued
133,333,333 restricted shares of common stock to IPP Gold in exchange for 100%
interest in the four PLs of the new Handeni Project, with no further payments in
shares or cash required.
The Commissioner for Minerals of Tanzania has confirmed the
recording in the Central Register the transfer of 100% shares of each of the
Prospecting License Nos. 6742/2010, 6743/2010, 6744/2010 and 6779/2010, which
comprise the Handeni Project, from IPP Gold Limited to our Company, and that
such transfer has been duly recorded on the terms and conditions contained in
such Prospecting Licenses.
21
Acquisition of Additional Interest in Handeni
Effective on November 30, 2011, we completed our acquisition of
a 100% interest in mineral licenses covering an area of approximately 2.67
square kilometers located in the Handeni District of Tanzania (the Mineral
Licenses) from Handeni Resources Limited (Handeni Resources), a limited
liability company registered under the laws of Tanzania.
We completed this acquisition pursuant to and in accordance
with the terms of our previously disclosed Mineral Property Acquisition
Agreement (the 2011 Acquisition Agreement) with Handeni Resources, dated
August 5, 2011, pursuant to which we had an exclusive option (the Option) to
acquire from Handeni Resources a 100% interest in the Mineral Licenses, which
are located in an area adjacent to the area covered by our four existing
prospecting licenses (totaling approximately 800 square kilometers) in the
Handeni District.
Pursuant to the terms of the 2011 Acquisition Agreement, in
order to keep the Option in good standing during the thirty-day period starting
on August 5, 2011, which was later extended to November 3, 2011 (the Option
Period), we were required to provide the following consideration to Handeni
Resources:
-
Share issuance
: issue from treasury and to the order and direction
of Handeni Resources prior to and at the end of the Option Period an aggregate
of 15,000,000 restricted common shares in the share capital of our Company at
a deemed issuance price of U.S. $0.40 per share; and
-
Maintenance payments
: pay, or cause to be paid, to or on Handeni
Resources behalf as we may determine, in the our sole and absolute
discretion, all underlying option, regulatory and governmental payments and
assessment work required to keep the mineral property interests comprising the
Mineral Licenses and any underlying option agreements respecting any of the
mineral property interests comprising the Mineral Licenses in good standing
during the Option Period.
On November 30, 2011, we closed on the acquisition and issued
Handeni Resources 15,000,000 restricted common shares.
Mr. Reginald Mengi, the Chairman of the Board of Directors of
our Company, has an existing direct and/or indirect ownership interest in
Handeni Resources and/or beneficial interest(s) in and to Handeni Resources. As
such, Mr. Mengi did not participate in any discussions by the Board of Directors
regarding the 2011 Acquisition Agreement. In addition, Mr. Mengi did not, and
was not entitled to, vote on the Board of Directors ratification of the 2011
Acquisition Agreement.
Technical Report on the Handeni Property
We obtained a Technical Report on the Handeni Property (the
Handeni Report), dated April 25, 2011, as prepared at our request by Avrom E.
Howard, MSc, FGA, PGeol (Ontario), Principal Consultant at Nebu Consulting LLC.
Mr. Howard is a Qualified Person in accordance with Canadian National Instrument
43-101 Standards for Disclosure of Mineral Projects and its Companion Policy
(NI 43-101) and is a Practicing Professional Geologist registered with the
Association of Professional Geoscientists of Ontario (registration number 0380).
The Handeni Report follows on the heels of a detailed geological compilation and
exploration report prepared in 2010 by Dr. Reyno Scheepers, a South African
professional geologist who is an officer and director of our Company. Upon
independent review by, and to the satisfaction of Mr. Howard, much of the
content from Dr. Scheeperss report has been referred to and referenced in the
Handeni Report.
Much of the information regarding the Handeni District Project
as provided below is based on information provided in the Handeni Report.
The author of the Handeni Report visited the Handeni property
on February 26, 2011, accompanied by Dr. Scheepers. Given the almost total
absence of outcrop across the property area, on the one hand, and the abundance
of district to regional scale geological data, recent exploration data,
intensive artisanal mining activity in the boundary area between the Companys
Handeni property and the adjacent Magambazi property belonging to Canaco
Resources Inc. and their well publicized news releases and developments, on the
other, the author of the Handeni Report determined that he was able to complete
a meaningful property visit within the timeframe of a single day to his
technical satisfaction, sufficient for the purpose of preparing the Handeni
Report.
Location and Access
The Handeni property lies within the historic Handeni artisanal
gold mining district, located in Tanga province, roughly 175 kilometers
northwest of Tanzanias largest city, Dar Es Salaam, and 100 kilometers
southwest of the more northerly coastal city of Tanga. The road from Dar Es
Salaam to Tanga is paved; the secondary road that heads northwest from this road
to the town of Handeni, a distance of 65 kilometers, is currently being upgraded
and paved. The Handeni property is located roughly 35 kilometers south of the
town of Handeni. From this point, a number of dirt roads head south across various portions of the Handeni property and beyond. Driving
time from Dar Es Salaam is approximately five hours, depending on traffic and
the weather.
22
Access during the dry season is not difficult and does not even
require a 4X4 vehicle. Roads within the licenses are mostly tracks, some of
which are not accessible during the rainy season. The area experiences two rainy
seasons, namely a short wet period during November and December and the main
rain season lasting from April to June. Exploration conditions during the rainy
periods may be difficult, specifically during the April to June period. Petrol
is available at a number of points along the north-south portion of the journey
and in Handeni town itself.
The average elevation in the Companys license area is 450
meters above sea level. The area is densely vegetated with tall trees and grass
over undulating hills of gneiss that comprise the main topographic feature in
the area. Muddy, slow moving rivers and creeks crisscross the valleys and
plains; some of the larger streams may experience high flow during intense
rainfalls.
The area is scarcely populated with occasional small villages
where people are engaged in small scale mixed farming and artisanal gold mining.
Handeni town is a community of several thousand inhabitants haphazardly spread
over a series of small, rounded hills, where basic services and accommodation
are available.
LOCATION MAP: HANDENI PROPERTY IN TANZANIA
Property Description
The property comprises four Prospecting Licenses (PLs)
encompassing nearly 800 square kilometers, all of which are in good
standing.
The following table provides details about each Prospecting
License.
23
List of Prospecting Licenses, Handeni Property
PL No.
|
Area
(Sq Km)
|
Issue Date
|
Original
Recipient
|
Transfer
Date
(To
IPP)
|
Transfer Date
(To Douglas
Lake)
|
Expiry Date
|
Renewal
Date
|
6742/2010
|
197.98
|
05/10/10
|
Diamonds
Africa Ltd.
|
18/11/10
|
12/12/10
|
04/10/13
|
05/10/13
|
6743/2010
|
195.48
|
13/10/10
|
Gold Africa
Ltd.
|
18/11/10
|
12/12/10
|
12/10/13
|
13/10/13
|
6744/2010
|
198.70
|
13/09/10
|
M-Mining Ltd.
|
18/11/10
|
12/12/10
|
12/09/13
|
13/09/13
|
6779/2010
|
197.74
|
13/09/10
|
Tanzania Gem
Center Ltd.
|
18/11/10
|
12/12/10
|
12/09/13
|
13/09/13
|
Within the property PL 6743/2010 are several smaller areas that
belonged to small scale artisanal miners or to a company called Handeni
Resources Ltd as described above. The areas found within PL 6742/2010 predate
the arrival of IPP and remain in the hands of the local artisanal miners to whom
Primary Licenses, or what are informally known as Primary Mining Licenses or
PMLs have been issued. Artisanal gold mining activity remains ongoing in some
of these areas.
License Map, Handeni Property Prospecting Licenses, showing
excluded areas in red
Toward the western edge of PL 6743/2010 are several more PMLs
that do not belong to the Company. The area colored in green in the figure below
is a unitized block of four PMLs that were acquired by CRI from their owners;
this is where the most intensive artisanal gold mining activity is currently
taking place, with well over one hundred laborers working at a variety of mining
and milling sites adjacent to and up the hill from a shanty town of huts that is
found just north of Magambazi hill. It is the Companys understanding that CRI
has reached an agreement with the original owners of these PMLs and the people
currently working there, which will lead to their ceasing artisanal operations
and vacating the site.
Ownership of a single, isolated claim block, depicted in
fuchsia below remains uncertain, something IPP and the Company are attempting to
ascertain. Ownership of the smaller, rectangular red block that overlies the
CRI-Handeni boundary remains unknown, as well, another matter that IPP and the
Company are currently pursuing. The remaining block of 31 PMLs, shown as a grid
of blue lines, below, belongs to IPP. At present, there is no formal agreement
between the Company and IPP covering these licenses; however, IPP has granted
the Company permission to traverse the area and conduct operations across it.
24
In addition to the property described in this section entitled
Property Description, as of February 29, 2012, the Company has acquired a 100%
interest in the Mineral Licenses described above under the heading Acquisition
of Additional Interest in Handeni.
History
General.
Mining in Tanzania in the modern era dates back
over one hundred years, first under German colonial rule; during the First World
War a number of military engagements took place there. After the war ended
control of the area was ceded to the British, under whose colonial authority
mining and other activities continued and expanded. Mining focused on gold,
diamonds and a variety of colored gemstones, notably including the discovery and
development of the worlds largest diamondiferous kimberlite pipe (to date), by
Canadian geologist John Williamson, a deposit that remains in production to this
day. Shortly after achieving independence from the British, in 1961, Tanzania
veered left, leading to the nationalization of most private sector industries,
in turn resulting in the inevitable a mass exodus of foreign investment and
private capital and the consequent decline in economic activity in all sectors,
including mining. Finally, beginning in the 1990s, in line with many other
developing countries around the world, the Tanzanian government instituted
several reforms to return to a free market economy, privatize the mining
industry and encourage both domestic and foreign investment in all economic
sectors. In the case of the mining industry, this was supplemented, in 1998,
through the passage of a new, more industry-friendly mining code.
Currently, Tanzania is a significant producer of gold, diamonds
and a variety of colored gemstones including tanzanite, the trade name for
generally heat treated, bluish-purple epidote. The Merelani Hills, east of
Arusha, is the only place where this gemstone variety of epidote is found in
commercial quantities. Tanzania also hosts a significant metamorphic ruby (in
zoisite) district near Longido, north of Arusha and near the border with Kenya
where a variety of small scale producers are active. A recently discovered
uranium deposit is currently under development, as well, in the southeast area
of the country. Tanzania is Africas third leading gold producer, after Ghana
and South Africa, with several major and junior companies producing and
exploring for gold, mostly in northwestern Tanzania, south of Lake Victoria, in
an area informally known as the Lake Victoria gold belt.
The Handeni Property.
Gold has been known in the Handeni
area for many years with some attributing its discovery to the Germans prior to
World War One; however, it was the increase in gold prices and consequent
increase in artisanal gold mining activity in the Handeni area that led to the
discovery of larger deposits of placer gold, in turn leading in 2003 to a
classic gold rush. The discovery and mining of lode deposits followed, soon
after, along with the growth of a shanty mining town at the northern base of
Magambazi Hill.
In 2005, the Companys predecessor, IPP, entered into
negotiations with a group of thirty-four local artisanal miners that
collectively controlled four PMLs on and near Magambazi Hill, site of the areas
known lode mineralization, and upon failing in this endeavor acquired a number
of PMLs east of Magambazi Hill from other local owners as well that portion of a
large Prospecting Reconnaissance License (PLR) belonging to Midlands Minerals
Tanzania Limited.
Between 2005 and 2010, IPP carried out exploration over its PLR
leading to the upgrading of its holdings from one PLR to four PLs, in August
2010. Exploration work included airborne magnetic and radiometric surveys,
ground magnetic surveys, reconnaissance geological mapping, soil sampling, pitting and
trenching. It is these four PLs that were acquired by the Company from IPP and
are the subject of this report.
25
Geological Setting
Regional Geology.
The geological framework of Tanzania
reflects the geologic history of the African continent as a whole. Its present
appearance is a result of a series of events that began with evolution of
Archean shield, followed by its modification through metamorphic reworking and
accretion of other continental rocks, in turn covered by continentally derived
sediments. Pre-rift magmatism followed by active rifting has also left a major
mark upon the Tanzanian landscape.
Several regional geological mapping programs have been carried
out across the country over the past one hundred plus years, which has led to
the recognition of several major litho-structural provinces from Archean to
recent age. The Archean craton covers most of the western two thirds of the
country, roughly bounded to the east by the East African Rift. Archean rocks
host all of the countrys kimberlite pipes and contained lode diamond deposits,
and most of its lode gold deposits. The Archean basement terrain is bounded to
the east and west by a series of Proterozoic mobile belts; this area,
particularly that to the east, hosts most of the countrys wide variety of
colored gemstone deposits. Some recent research suggests that portions of this
assumed Proterozoic terrane may actually consist of Archean crust that has
undergone a later phase of higher grade metamorphism.
The Phanerozoic is represented by a series of sedimentary units
of Paleozoic to Mesozoic age, in turn followed by a pre-rift period of
kimberlitic and related, alkalic, mantle-derived intrusive and extrusive
activity that presaged active rifting. Rocks related to this event intrude up to
Upper Mesozoic and Lower Cenozoic sedimentary formations. Next came a period of
rift-related intrusive and extrusive activity concentrated in the Arusha area
to the northeast and Mbeya area to the southwest, which is responsible for
mountain-sized volcanoes such as Mt. Meru and Mt. Kilimanjaro. Finally, a wide
variety of recent and largely semi- to un-consolidated wind, water and
weathering-derived recent formations are found across the country, a number of
which host placer gold, diamond, and colored gemstone deposits.
Property Geology.
The geology of Handeni area comprises
granulite to amphibolite facies metamorphic rocks interpreted to originally have
formed a sequence of ultramafic to felsic volcanic flows, black shales and
quartz-bearing sedimentary rocks. High grade metamorphism has converted these
original lithologies to a variety of metamorphic equivalents including:
biotite-hornblende-garnet-pyroxene gneiss, migmatitic augen garnet-
hornblende-pyroxene gneiss, quartzo-feldspathic hornblende-biotite-pyroxene
gneiss, pyroxene-hornblende-biotite-garnet granulite, and others. The entire
assemblage has been folded into a synform with a northwest-southeast axis,
complicated by numerous faults, some of which are spatially associated with gold
mineralization.
Recent research by geologists from the University of Western
Australia suggests that much of what has previously been considered to be of
Proterozic age (Usagaran System) may in fact be overprinted Archean crust. This
hypothesis has been invoked to help interpret the geology within which gold in
this area is found and as the basis for an analogy between this gold
mineralization and that found in less metamorphosed, bona fide Archean rocks in
the Lake Victoria gold district, a few hundred km to the northwest. However,
this is a hypothesis, only, one that may be used for exploration modeling
purposes but one that still requires more work.
Mineralization
The Handeni property is at an early stage of exploration. There
are no known mineral resources or reserves on the Handeni property, nor are
there any known deposits on the property.
Insufficient work has been completed on the Companys property
to be able to comment to any significant extent about the nature of gold
mineralization found and that may be found therein. However, comments regarding
mineralization may be made upon the basis of information released by CRI, the
company that owns the immediately adjacent Magambazi gold deposit, a deposit
that remains the subject of an ongoing drilling program and geological studies
and which is considered to be the type occurrence/deposit for the evolving
Handeni district. The hill within which this deposit is found extends southeast
onto the Companys property.
According to the aforementioned report prepared by Dr.
Scheepers, gold is found within garnet-amphibolite zones within biotite-feldspar
gneiss at three locations in the Companys property, locations where historical
lode gold occurrences have been documented. Gold occurs in quartz veins as well
as within the garnet amphibolites adjacent to the quartz veins. Proof of this
association is informally corroborated by the testimony of local, artisanal
miners, who apparently recover gold both from quartz veins and gold-bearing
gneiss that is not quartz vein bearing. Gold in the Companys property has also
been documented in soils and placers, at a variety of locations, as well.
26
Prior Exploration Activities
Whereas gold was known in the Handeni area prior to the arrival
in 2005 of the Companys predecessor, IPP, there is no history of any formal
exploration in the area aside from limited work at Magambazi Hill itself. IPPs
initial work consisted of soil sampling and a ground magnetic survey over an
area of 200 square kilometers covering the area now located within PL6743/2010
immediately east of Magambazi Hill. Over the five years that ensued, this was
followed by a series of exploration campaigns involving a variety of exploration
methods, in turn followed by interpretation and further work in an iterative
fashion. A table summarizing the work completed by IPP (much of which was
completed under the supervision of Dr. Scheepers) may be found below.
Summary of Historical Exploration Work, Handeni Property
Work
|
Year
|
Location(s)
|
Worker
|
Trenching, Pitting &
Sampling
|
2009
|
Magambazi Hill
|
IPP
|
Stream Sediment
Sampling
|
2008
|
Northeast quadrant of
PL6744/2010
|
IPP
|
Soil Sampling
|
2009
2010
|
East of Magambazi Hill
Over
geophysically delineated zones
in PL6779/2010 & PL6742/2010
|
IPP
IPP
IPP
|
Airborne Magnetic &
Radiometric
Survey
|
2009
|
PL6744/2010, PL6744/2010 &
PL6779/2010
|
South African Council
for
Geoscience
|
Geological Mapping
|
2008
2010
|
Over geochemically anomalous
and
artisanal mining areas
|
IPP
IPP
|
Ground Magnetic
Survey
|
2009
2010
|
PL6743/2010
|
IPP
|
Regional Structural
Interpretation
|
2009
2010
|
Entire property
|
IPP
Douglas Lake
|
Several exploration targets were delineated on the basis of the
aforementioned work either based upon anomalous gold soil geochemical results
alone, or other features singly or in combination, that based upon gold deposit
models have been deemed significant. Paramount among these are structural
features folds, shear zones, faults and thrust faults that have been
interpreted on the basis of the magnetic and radiometric data, particularly
where they have been seen to be coincident with anomalous gold in soils or
locations of historical artisanal mining. Regardless of the gold deposit model
one favors, structure is of fundamental significance as a conduit for and host
to gold bearing solutions and in this light, therefore, all locations where
anomalous gold has been found coincident with interpreted structures must be
considered significant, particularly at this early stage of exploration on the
Handeni property and in the district as a whole.
Conclusions and Recommendations
The author of the Handeni report indicated that the most
important conclusions to be derived at this juncture are:
|
1.
|
Based upon CRIs public disclosure, it appears as if a
bona fide gold deposit has been discovered at Magambazi Hill, a deposit
where ongoing drilling is finding more gold;
|
|
|
|
|
2.
|
The southeast extension of Magambazi Hill and,
presumably, gold mineralization found within, continues onto the Companys
license PL6743/2010;
|
|
|
|
|
3.
|
Historical placer and lode artisanal mining was a guide
to Magambazis potential;
|
|
|
|
|
4.
|
There are a number of other locations where intensive
placer and artisanal gold mining took place within the Handeni property,
notably the Kwandege and Mjembe areas;
|
|
|
|
|
5.
|
Processed airborne magnetic and radiometric data have
delineated linear features that have been interpreted to represent a
variety of structures shears, thrust faults and cross faults;
|
|
|
|
|
6.
|
Limited soil geochemical surveying, carried out across
some of these interpreted northwest-southeast trending structural
features, has revealed several locations hosting anomalous gold in soils
(statistically established to be gold values exceeding 10 parts per
billion);
|
|
|
|
|
7.
|
Additionally, gold appears to be further concentrated at
the intersection between the northwest-southeast trending structural
features and northeast-southwest trending structural features, interpreted
to represent later cross faults;
|
27
|
8.
|
These associations suggest a relationship between
structures and gold, in turn providing a basis upon which to select
additional areas within the Handeni property for more detailed gold
exploration.
|
Taking these observations and interpretations into account, the
company has identified twelve target areas. Additionally, there is the Kwandege
area, the location of intensive recent artisanal placer and shallow lode mining.
Along with Magambazi itself, Kwandege is perhaps the most immediate and
significant gold target identified on the Handeni property, to date.
The author of the Handeni Report indicated that at Magambazi,
Kwandege and Mjembe, detailed ground work consisting of mapping of the
historical workings, geological mapping, pitting, trenching and sampling, along
with detailed geochemical and geophysical surveys should be completed, in order
that drill targets can be accurately delineated. In areas where gold soil
anomalies have been located, detailed ground follow up should be completed,
consisting of whatever combination of the methods referred to above are
appropriate, once again in order that drill targets can be accurately
delineated. On a larger property wide scale, PL 6743/2010 remains to be covered
by airborne magnetic and radiometric surveys, something that needs to be
completed. Additional airborne surveys such as electromagnetic surveys may be
considered, as well, should additional research suggest that the gold targets
have a commensurate geophysical signature. A property wide, widely spaced
reconnaissance soil grid should be completed, as well, with analysis for gold
and pathfinder elements. Finally, once targets have been accurately delineated
and confirmed on the ground, they need to be drilled.
This represents a considerable body of work remaining to be
done, work that will require up to two years to complete. A generalized budget
for this program is set forth in the following table:
EXPLORATION WORK
|
BUDGET (US$)
|
Airborne Geophysics
|
1,250,000
|
Ground Geophysics
|
250,000
|
Mapping, trenching, sampling,
etc.
|
750,000
|
Drilling
|
2,250,000
|
Sundry & contingencies
|
500,000
|
TOTAL
|
$5,000,000
|
The Companys Recent Exploration Activities
During the quarter ended August 31, 2011, we conducted soil
sampling and ground geophysical work on the Handeni West Kwandege target, and we
commenced diamond drilling in July 2011. A total of 5,000 meters were drilled on
each of the Kwandege and Magambazi prospects. In August 2011, we completed a
ground IP (Induced Polarization / Resistivity) and ground magnetic geophysical
survey over an approximately 4 square kilometer surveyed grid on the Handeni
East Magambazi target and we commenced diamond drilling. A total of 5,000 meters
of drilling is planned for the first phase of exploratory drilling within an
area of approximately 6 square kilometres. In August 2011, we commenced a
helicopter-borne Electromagnetic and Radiometric Survey on all 800 square
kilometres of the Handeni property, which we completed in October 2011.
As at February 29, 2012, we completed 100% of the first phase
of the Kwandege and Magambazi East targets by completing a total of 10,343m of
core drilling.
Mkuvia Alluvial Gold Project
Our other primary property of interest is the Mkuvia Alluvial
Gold Project. We entered into a Joint Venture Agreement dated June 27, 2008 with
Mkuvia Maita (Mr. Maita), the registered holder of certain prospecting
licenses over certain areas covering approximately 430 square kilometers located
in the Liwale and Nachigwea Districts of Tanzania. Pursuant to this agreement,
we had the right to enter, sample, drill and otherwise explore for minerals on
the property underlying the prospecting licenses as granted by the Government of
Tanzania under the Mining Act of 1998 (revised 2010), subject to a perpetual net
smelter royalty return of 3% payable to Mr. Maita.
Effective on July 14, 2009, our Board of Directors ratified,
confirmed and approved our entering into of a new Joint Venture Agreement (the
New Mkuvia Agreement) with Mr. Maita. The New Mkuvia Agreement covers a
slightly smaller area than the original agreement, covering an area of
approximately 380 square kilometers located in the Liwale and Nachigwea
Districts of Tanzania, and more particularly described as follows:
28
-
Prospecting License No. 5673/2009;
-
Prospecting License No. 5669/2009;
-
Prospecting License No. 5664/2009; and
-
Prospecting License No. 5662/2009
The New Mkuvia Agreement, which is dated for reference June 5,
2009, supersedes and replaces the prior joint venture agreement as entered into
by and between our Company and Mr. Maita (the Prior Agreement) regarding prior
prospecting licenses held by Mr. Maita over substantially the same area, known
as the Mkuvia Project, which is the focus of our current exploration and
development efforts.
Pursuant to the terms of the New Mkuvia Agreement we shall
continue to have the right to enter, sample, drill and otherwise explore for
minerals on the property underlying the New Prospecting Licenses as granted by
the Government of Tanzania under the Mining Act and any other rights covered by
the prospecting licenses listed above.
In consideration for the entry into of the New Mkuvia
Agreement, we were required to pay Mr. Maita US$40,000 upon signing of the New
Mkuvia Agreement. In addition, and upon commencement of any production on the
property underlying the prospecting licenses, Mr. Maita is entitled to receive a
perpetual net smelter royalty return of 3% from any product realized from the
property underlying the prospecting licenses under the New Mkuvia Agreement. By
entering into the New Mkuvia Agreement, we are no longer required to pay Mr.
Maita the balance of approximately US$460,000 in aggregate yearly cash payments
previously due under the Prior Agreement in consideration, in part, of our
Company reducing the current unexplored property area underlying the prospecting
licenses under the New Mkuvia Agreement by approximately 50 square kilometers.
The prospecting licenses were renewed on June 12, 2009 for the
period of three years.
The property has several overlying primary mining licenses
(PMLs) that have mineral rights that lie within the boundaries of the Mkuvia
property. Generally, PMLs represent limited mining rights which allow the small
scale exploration of minerals by local miners and must predate the establishment
of a prospecting license. PMLs are retained exclusively for Tanzanian citizens.
The maximum size of the demarcated area for a PML for all minerals other than
building materials is 10 hectares. The PML is granted for a period of five
years, renewable once upon request. When a PML expires, the mineral rights
succeed to the underlying prospecting license and cannot be renewed or re-staked
thereafter, so long as the prospecting license remains valid. Specifically, the
PMLs on the Mkuvia property consist of approximately 115 licenses owned by Mr.
Maita, and have been provided for in the New Mkuvia Agreement. Upon a successful
mining permit application and receipt, the PMLs will be collapsed and superseded
by the prospecting license rights.
We obtained a Technical and Recourse Report on the Mkuvia
Alluvial Gold Project, dated July 24, 2009, as prepared by Laurence Stephenson,
P. Eng., and Ross McMaster, MAusIMM. This report was prepared in accordance with
Canadian National Instrument 43-101 Standards for Disclosure of Mineral Projects
and its Companion Policy (NI 43-101). Much of the information regarding the
Mkuvia Alluvial Gold Project as provided below is based on information provided
in the 43-101 Report.
Effective November 7, 2009, we entered into a purchase
agreement with Ruby Creek Resources, Inc. (Ruby Creek), pursuant to which Ruby
Creek has the right to purchase a 70 percent interest in 125 square kilometres
of our 380 square kilometre Mkuvia Alluvial Gold Project upon payment of
$3,000,000 over a three-year period. The schedule by which Ruby Creek is to pay
such $3,000,000 to our Company is as follows:
-
$100,000 within five business days of signing of the Agreement (received);
-
$150,000 within 15 business days of signing of the Agreement (received);
-
$100,000 upon satisfactory completion of Ruby Creeks due diligence
(received);
-
$400,000 upon closing under the Agreement and receipt of the first mining
license;
-
$750,000 within 12 months of closing;
-
$750,000 within 24 months of closing and
-
$750,000 within 36 months of closing (this final payment may be made, in
Ruby Creeks discretion, in cash or shares of Ruby Creek).
29
In a further purchase agreement between our Company and Ruby
Creek dated for reference May 19, 2010 and fully executed on June 16, 2010, Ruby
Creek agreed to purchase 70% of the remaining 255 sq km of the Mkuvia Alluvial
Gold Project in accordance with the terms of such further purchase agreement.
Under the terms of the further purchase agreement, Ruby Creek will earn a 70 percent interest in the remaining 255 square
kilometres of our 380 square kilometre Mkuvia Alluvial Gold Project by making
payments totaling $6,000,000 to us. The schedule by which Ruby Creek is to pay
such $6,000,000 to us is as follows:
-
$200,000 due within seven days of execution of the agreement (received);
-
$150,000 (received) plus the issuance of 4 million restricted shares of
common stock of Ruby Creek, with an agreed upon value of $0.80 per share for a
stated valuation of $3.2 million, within 30 days of the receipt of
Certificates of Acknowledgement for all underlying and related Agreements from
the Commissioner for Minerals in Tanzania as required by the Mining Act of
Tanzania (Certificates of Acknowledgement received August 12, 2010, and shares
issued on December 16, 2010);
-
$450,000 on June 1, 2011 (unpaid);
-
$1,000,000 on June 1, 2012; and
-
$1,000,000 on June 1, 2013 (which may be satisfied by the issuance of stock
by Ruby Creek).
Thus, the combined payments under the November 2009 and the
June 2010 Agreement provide for a total commitment of $9,000,000 payable to our
Company by Ruby Creek to purchase a 70% interest in the entire 380 square
kilometre Mkuvia Alluvial Gold Project.
The ownership structure of the interest in the Mkuvia Alluvial
Gold Project shall be a 70% interest for Ruby Creek, a 25% interest for Douglas
Lake, and a 5% interest for Mr. Mkuvia Maita, the original owner of the
underlying prospecting licenses. In addition, Mr. Maita retains a 3% net smelter
royalty. However, the Agreement also provides that Ruby Creek may increase its
ownership position from a 70% interest to 75%, reducing our position to 20%, by
giving Notice to us and paying $1,000,000 to us by June 1, 2011 (not paid).
On June 3, 2010, the Company and Ruby Creek incorporated Ruby
Creek Resources (Tanzania) Limited (Ruby Creek Tanzania) to manage the mining
operations in the Mkuvia Gold Project in Tanzania. Ruby Creek Resources
(Tanzania) Limited, a joint venture company (the Joint Venture Company), is
owned by Ruby Creek (70%), the Company (25%) and Mr. Mkuvia Maita (5%).
Prospecting licenses numbered 5664/2009 and 5669/2009, which form a part of the
current Joint Venture Company project, have been registered to a third party
without the Companys approval.
Location and Access
The 380 square kilometres Mkuvia Project is located in the
Nachingwea District, Lindi Region of the United Republic of Tanzania, and
approximately 140 kilometres west of Nachingwea town. Lindi Region is one of the
three regions forming Southern Zone of United Republic of Tanzania, the other
regions being Mtwara and Ruvuma. The Mtwara and Ruvuma regions border northern
Mozambique and eastern Malawi. A central point in the mining license is located
at 361600 mE, 8856946 mN, UTM Zone 37 Southern Hemisphere (WGS 84)
The Lindi Region is one of the 20 Regions in Tanzania Mainland.
The Region lies between South latitude 08o30 and 10o30 and East longitude
37o30 and 39o30. It is bordered by four other regions, the Coastal and
Morogoro regions to the North, the Ruvuma region to the West, the Mtwara region
to the South and the Indian Ocean to the East.
The main road from Dar es Salaam to the southern regions passes
through the Coastal, Lindi, Mtwara and Ruvuma regions. The road connects to
northern Mozambique and eastern Malawi via the Mtwara and Ruvuma regions.
Recently funding from external donors and the central government have
significantly improved the road from Dar Es Salaam to the Lindi and Mtwara
regions from gravel to tarmac level, covering a total distance of about 700
kilometres, including the construction of 1 kilometre long bridge across the
Rufiji River.
The Lindi Region is served by 4 airstrips, in Lindi,
Nachingwea, Liwale and Kilwa Masoko. These gravel strips are capable of
supporting small to medium size planes only. There is no commercial air service
to the region.
30
LOCATION MAP: MKUVIA PROPERTY IN TANZANIA
The Mkuvia Property is accessible by dirt gravel road from
Nachingwea town via Mbondo, Kilimarondo and Kiegeyi villages. However, during
intense rain, access to the property from Kiegeyi village can only be achieved
by using 4 x 4 trucks. Operations for the exploration of the Mkuvia Property
would be based out of the town of Nachingwea located 140 kilometres east of the
property and about 600 kilometres southwest of Dar es Salaam, the capital of
Tanzania. Nachingwea town, which is one of the districts within Lindi Region,
has an airstrip facility on which up to medium size aircrafts can safely be
utilized.
Access to the property is via main Tanzanian highways to the
village of Kiegeyi and then by field road to our main field camp. Field roads
exist throughout the property.
Although the electrical power grid is reaching most areas of
Tanzania it does not extend to the area of the Mkuvia property and will not
likely be available in the near future. Since Tanzania has a vibrant mining
community, a large pool of experienced mining personnel and equipment is
available, some of it locally.
There are no waste treatment plants in the immediate area.
31
Topography and Climate
The topography of the area ranges between 480 to 760 metres and
is relatively moderately rugged to the central, west and the southwest, and flat
to the eastern part. Many of the rivers and streams which are flowing to the
south, north and east directions are seasonally dry. The main Mbwemkuru River
flows all year round and water availability for all aspects of the exploration
and development program will not be a problem. The area is dense vegetated with
thick bushes along the rivers and streams valleys.
There are four main climatic zones that can affect the whole of
Tanzania: the coastal area where conditions are tropical; the central plateau,
which is hot and dry; the semi-temperate highland areas; and the high, moist
lake regions. There are two rainy seasons in the north, from November to January
and from March through May. In the Lindi Region, annual rainfall ranges from
600mm in low lands to 1200mm in the highland plateau. Most parts of the coastal,
central and north eastern highlands are currently experiencing extreme drought
conditions after a prolonged period of below average annual rainfall in
consecutive seasons. Plans to develop water resources could not only facilitate
operations but might provide a local resource that will attract government
approval and funding.
The mean annual temperatures vary with altitude from the valley
bottom to the mountain top. The average annual temperature varies between 18
degrees C on the mountains to 30 degrees C in river valleys. In most parts of
the region, the average temperatures are almost uniform at 25 degrees C. In
general the hot season runs from July to September.
History
Gold mineralization in the area was first discovered at the
time of the governments Geological Survey of Tanzania, a countrywide
geochemical survey program conducted in the 1990s. The property is part of a
previously described gold district, the Kitowero Prospect, in which a State
Mining Corporation reported mineral concentrates in the current rivers,
including the Mbwemkuru River. The authors of the 43-101 Report have advised
that they have not been able to verify this information, and no historical
estimates or details is available on the source of this information.
Small scale artisanal mining activities commenced in 2002 by
local miners, with the aim of exploring and mining gemstone along the main
Mbwemkuru River and its tributaries. However, gold was recovered from the
concentrates and hence the area turned from gemstone to alluvial gold mining.
The current production from artisanal mining work by local miners, as reported
by them averages between 1.5 to 2 kilograms of gold per month, recovered from
loose sands and gravels. The authors of the 43-101 Report have not been able to
verify this information.
Geological Setting
Tanzania has a geological environment representing all the
known chronostratigraphical units of the world ranging from Archaean,
Proterozoic, Phanerozoic to Quarternary ages. These geological formations host a
variety of minerals such as gold, base metals, diverse types of gemstones
(including tanzanite, diamonds, emerald, sapphires, colored quartz, ruby, beryl,
tourmaline, garnet), various industrial minerals, building materials, phosphate,
coal, salt, kaolin, tin, water and hydrocarbons.
Regional Geology
. Much of the central and northern part
of the country is underlain by the Tanzania Archaean Craton. The central part of
the country is composed of the high grade metamorphic terrain (the Dodoman
Supergroup dominated by rafts of amphibolite to granulite facies metamorphic
rocks in migmatitic granite terrain), whereas the northern part is covered by
the Greenstone Belt (the Nyazian Kavirondian Supergroup comprising sequences
of mafic to felsic volcanics, chert/banded iron formation and clastic
sediments). The Tanzania Archaean Craton is well known as a host for world-class
gold deposits similar to other Archaean Cratons around the world. The Craton is
also intruded by a number of diamondiferous kimberlite pipes.
The Tanzania Archaean Craton is engulfed to southeast and
southwest by Palaeaproterozoic Usagaran and Ubendian mobile belts respectively,
with high grade crystalline metamorphic rocks with a number of postorogenic
gabbroic and granitic intrusives hosting base metals, shear zone hosted gold,
various types of gemstones and industrial minerals. The eastern part of the
Usagaran Belt is mobilized by the Neoproterozoic Pan African Orogeny forming the
Mozambique Belt with lithological, structural and metallurgical characteristics
similar to that of the Usagaran - Ubendian Belt.
The Palaeoproterozoic Ubendian mobile belt is bound to the west
by the mildly metamorphosed Mesoproterozoic Fold Belt (the Kibaran Bukoban -
Karagwe-Ankolean Supergroup
).
The supercrustal rocks of this Belt (mainly
meta argillites, phyllites, low-grade sericite schists and quartzites) are
intruded by post orogenic granites which have alteration haloes containing veins
with tin and tungsten mineralization. The Belt is also characterized by post
orogenic basic intrusives hosting platinum group metals (PGMs).
The Uha - Malagarasi Neoproterozoic to early Palaeozoic age is
an intracratonic formation consisting of sedimentary volcanic depositional
sequences of sandstones, quartzites, shales, red beds, dolomitic limestones,
cherts and amygdaloidal lavas with indications of strata-bound copper deposits and
various industrial minerals.
32
Phanerozoic formations in Tanzania include the following:
-
The Karoo Supergroup of Late carboniferous to Jurassic age made up of
continental sedimentary rocks famous for hosting good-quality coal resources
occurring in several isolated coalfields located in south west of Tanzania.
-
Marin Formations that are dominated by shelf-facies clay bound sands, marls
and some isolated coral reefs good for production of portland cement, lime and
construction aggregates. The marls and sands are respectively, good source and
reservoir rocks of hydrocarbons. At Mandawa there are salt domes made up of
gypsums and other evaporates salts that can be used for various industrial
purposes.
-
Neogene to Quarternary continental formations in isolated basins and river
channels composed of clays (red soils, ochre, kaolin, bentonites, meerschaum,
bauxite), limestone, evaporates (gypsum, nitrates and halides) and sands;
volcanic rocks ranging in composition from lavas (basalts, andesites, and
phonolites) good for aggregates, apatite and niobium bearing carbonatites
(good for fertilizers), tuffs, ash and pumice (good for production of
pozzolana cement) and dimension stones; volcanic fumarolic exhalative deposits
(mainly sulphur and fluorites).
Property Geology.
The Mkuvia Project is situated at the
eastern margin of the Selous Basin where Karoo and young sedimentary rock are in
fault contact with low to high-grade metamorphosed rocks of Neoproterozoic age
belonging to the Mozambique Belt. The Proterozoic basement rocks are bounded by
Palaeozoic, Mesozoic and Cenozoic basins to the east, north and west. The
dominant rocks are biotite schist and gneiss, granitic gneiss, garnetiferous
amphibolites, quartzite, pegmatite dyke and mafic sills which are unconformably
overlain by palaeo-placer sand and pebble beds and recent superficial deposits.
The regional structural trends that control the deposition appear to be trending
at northwest and northeast.
The geology of the property is dominated by thick (up to 10 m)
of transported cover consisting of palaeo-placer sand, gravel and pebble beds
derived from Karoo to the west and younger sedimentary rocks. The sand horizon
is massive, graded from fine to coarse grained, characterized by orange-yellow
sands, well exposed at Old Matandani Prospect, and white-grey sands which cover
the large part of the property. The basal conglomerate pebbles (auriferous
pebbles and cobbles beds) are well rounded, well sorted, dominantly made of
quartzite, quartz rocks, and other basement rocks.
The thickness of palaeo-placer sandpebble beds and the
overlaying black clays material increase toward the eastern part of Mbwemkuru
River as observed at Mkilikage Prospect. This would be expected if the source of
the deltaic or beach placer material is from the west. At Mkilikage Prospect, a
thick layer of medium to coarse grained sandy bed (~ 2.5 m thick) resulted from
modern river deposition is overlaying palaeo-placer sand-pebble beds. This sandy
bed is characterized by well developed cross bedding sedimentary structures with
minimal gold content until the lower reaches.
The red-brown sands are massive with no obvious bedding. They
comprise subangular quartz grains with a matrix of hematite clay. They range
from <1 m up to 3 m thickness, and generally appear to be thicker upslope,
particularly at the western extremity of the property, well exposed at Old
Matandani workings. They have been reworked in the current river bed, with
removal of the clay, to produce white friable sands that extend for up to 300 m,
but generally less, upslope. These are clearly gold-bearing as they have been
extensively mined by artisanals, but panning suggests that they are low grade.
The sands overlie a polymictic conglomerate sequence that
comprises several clay-rich, horizontally bedded units interlayered with sandy
beds. The clasts range from pebbles through cobbles to boulders, the latter
being only sporadically developed, but suggesting that there may be distinct
channels in the conglomerate sequence upslope from the present river. Artisanal
activity and panning indicate that the conglomerates have higher gold grades
than the overlying sands. This feature would be anticipated in a delta or beach
placer forming river fan.
Most of the Neoproterozoic basement rocks are exposed on the
NE-SW trending ridge located in the central-eastern portion of the property with
few outcrops observed in the south part, exposed on the river banks and beds.
The basement geology consists of granite-gneisses, biotite gneiss, schists and
quartzo-feldspathic gneiss and quartzite, which have been intruded by pegmatite
veins and mafic dykes and quartz veins.
The quartzite has a bedded sugary texture. The biotite gneiss
is fine grained, well bedded with biotite, feldspar and quartz. Quartz-feldspar
gneiss additionally contains minor biotite and was also observed to contain some
large augen like feldspar crystals. Pegmatite was generally seen to have graphic
texture with very coarse grained feldspar and smaller quartz crystals, and with
only biotite or chlorite as an accessory mineral. The granite-gneiss
characterized by granoblastic texture and weakly developed foliation fabrics.
33
Mineralization
Thus far, the known gold mineralization in Mkuvia Property
occurs as placer deposits comprising of a significant, but unquantified
accumulation of gold in alluvium hosted by: 1) reworked palaeo-placer by the
Mbwemkuru River and its tributaries, and 2) an over 10 m thick zone of
palaeo-placer sand and pebble beds non-conformably overlying biotite schist,
gneiss, quartzite, garnet-amphibolite and granitoids. The latter comprises a
poorly sorted palaeo-beach placer plateau extending over 29 km along a NW-SE
direction and ~5 km wide along a NE-SW direction. In addition there are
extensive troughs with similar continental alluvium further west in the Karroo
Basin. It is however notable that at the highest point on the property, pebble
conglomerates were noted on the surface that have been worked sporadically by
the artisanal miners (due to lack of water resources) suggesting that gold is
present. This is consistent with the proposition that the mineralization is
associated with a wide spread beach placer environment.
Gold-bearing alluvium along the Mbwemkuru River occurs within a
0.35 to 2.0 m thick zone between the bedrock and sandy-gravelly material related
to present drainage active channels and terraces. This zone contains an
estimated 1.0 grams per cubic metre that the small-scale miners are currently
reportedly recovering.
Gold is very fine-grained in general, suggesting a distal
source, although some coarser-grained flakes are present. The gold is associated
with the black sands that comprise fine-grained ilmenite and pink garnet and
minor magnetite. These may be represented by distinct ferruginous layers in the
conglomerate sequence. The minerals in the black sand are consistent with the
beach placer model.
Artisanal miners have been active since 2002 exploiting these
deposits using simple sluice techniques and hence dependant on water for
treatment. Placer type gold occurs as very fine flat pieces implying reworking
or a distal source. Other elements (such as Pt, Pd, Ag, U and Th) in the placer
are of passing interest only. Pt and Pd do not appear to be a consistent
constituent.
The area was loosely defined by the surface inspection of the
beach placer type gravel formations in place. The wide spread area remains to
definitively be surveyed to confirm that the boundaries indicated are correctly
delineated. This delineation should be treated as speculative and will need
further exploration work to define.
Exploration Activities
The Mkuvia Property is without known reserves and our
activities to date have been exploratory in nature.
An estimated total of US$2.1 million has been spent on Mkuvia
Property during the period from April to December 2008 for various exploration
activities, which include casual labour salaries, transport, field costs, office
and administration and hardware. Reconnaissance exploration work on the project
to date has consisted of pitting and sampling, geological mapping and bedrock
sampling, and stream and sediments sampling, as described below.
Pitting and Sampling.
Pitting work commenced in June
2008 and continued throughout to March 2009. The initial pit sampling program on
the Mkuvia property was undertaken at the Matandani Main workings, along the
Mbwemkuru River. A total of 161 pits consisting of 498 samples were completed
from 10 sections during the period from June to December 2008. These pits were
deepened and sampled trying to reach bedrock (12-15 m estimate, bedrock was not
encountered) where possible. Analysis of the gold content in the pit samples
continued through to May 2009.
Lines were run north south across the area on a line spacing of
500 m and with a pit being dug to the bedrock refusal at 50 m intervals along
the line. The sampling was done volumetrically from the surface, where a 100
litre sample was collected from each cubic meter of material recovered. The pit
sampling was done based on the geological control. Each individual horizon
(sand, gravel, pebble) was sampled separately, maintaining a 100 litre sample
size.
The pit samples were then treated using a Knelson Concentrator
on site in September 2008.
The compilation of all heavy mineral and gold results was
completed by TMEx staff in laboratory conditions at Arusha, Tanzania, which
included separating and weighing the gold recovered from each sample where
measurable gold was observed. Each sample was taken from a designated and mapped
stratigraphy as a measured volume of loose material (e.g.: sands, gravel) and
usually were 100 litres in field estimated volume. Sample treatment was by a 7.5
inch Knelson concentrator to produce a heavy mineral concentrate. After further
hand panning in the TMEx laboratory reduced the concentrate, it was dried and
the gold was finally separated from all other minerals, described and weighed to
give a result in g/Lcm. (A loose cubic metre (Lcm) is defined as the expansion
of the in situ measurement of material that once excavated increases by a 20-30%
factor that will be determined exactly in further test work.) TMEx is a company
controlled by Mr. McMaster took charge of the concentrate from the Knelson
concentrator and proceeded to calculate the weight of gold.
34
All pits were geologically mapped, level surveyed and generated
cross sections. Of significance is that where the test pits were able to
penetrate below the pebble conglomerate the encountered clay rich units were
significantly devoid of gold colour counts and assay analysis.
The pit sampling has successfully identified the sand and
pebble conglomerates as auriferous in the area of the Matandani Main workings,
along the Mbwemkuru River.
Geological Mapping and Bedrock Sampling.
Geological
mapping work is ongoing in the Mkuvia Project. The mapping is conducted at scale
of 1:20,000. However, most of the Mkuvia Property lies under superficial covers,
with outcrops being exposed on the NE-SW trending Mbwemkuru ridge located in the
central - eastern portion of the property and along rivers and streams beds
flowing in the southern portion. The dominant basement lithologies encountered
during the mapping, stream sampling and pitting activities are
biotite-hornblende gneiss, which developed strong foliation fabrics and
compositional banding and weakly foliated to massive quartzo-feldspathic gneiss
referred as granite-gneiss, with granular igneous texture being preserved. The
granite-gneiss is characterized by granoblastic texture and weak foliation
fabrics. Quartz-magnetite subcrops and rubbles are exposed on the northern part
along Mbwemkuru ridge. The rock is characterized by alternating narrow
bands/layers of quartz and magnetite. The basement rocks have been intruded by
the late pegmatite dykes and veins and quartz veins.
The superficial covers which dominated the western part of the
project consist of palaeo-sands, gravels, pebbles and cobbles deposition, with
recent river deposition and clayey material. The pebbles and cobbles are well
rounded, made up of mainly quartzite and quartz vein.
Calcrete formations have been observed, mostly formed in the
swamps.
Bedrock sampling work is taking place concurrently with the
geological mapping. Thus far, a total of 60 bedrock samples were collected for
gold and base metals assaying and references. The samples for assaying were sent
to SGS Laboratory, Mwanza for analysis. Many of the bedrock samples were
collected from the central-eastern portion of the property where basement rocks
are well exposed along Mbwemkuru Hill and river beds.
Stream and Sediments Sampling.
Reconnaissance
stream sediments sampling work commenced in September 2008 in all prioritized
rivers and streams within the Mkuvia Property. The objective of the program was
to quickly define the pattern and limit of the placer gold mineralization within
the property. The program was undertaken in the eastern and northeast part of
the property. The stream samples were taken from at least one meter deep pits
dug to the base of the selected part of the stream where gravels and heavy
minerals are concentrated. A total of 73 stream sediments samples were collected
during the period from September to December 2008.
From September 2008, sample treatment was by a 7.5 inch Knelson
Concentrator to produce a heavy mineral concentrate. This concentrate was dried
and examined under a binocular microscope to identify heavy minerals of interest
and gold. The gold was recovered, described, and gold grain counts were recorded
to guide exploration in the reconnaissance stream samples.
A preliminary review heavy mineral stream sampling, field
observations and interpretation of available aerial photography has resulted in
the identification of substantial additional areas of recent palaeo-alluvial
deposits in the Mkuvia project area. The initial reconnaissance heavy mineral
sampling has highlighted several drainages and gravel ridges that warrant
exploration and further evaluation.
Of the 256 stream samples, over a hundred had gold colours of
more then 10 with 16 having over 100. With reference to the work done in the
pits, and since the samples taken from the stream sediments were done with the
same volumetric procedure, the high colour counts suggest that other zones with
grade potential could be identified on the property.
Results and Recommendations
The authors of the 43-101 report concluded that the Mkuvia
Property is a significant property of exploration merit and have recommended a
two-phase exploration program, as described below, which we intend to implement,
subject to sufficient funding.
Phase I has a budget of $2.58 million and will lead directly to
the implementation of Phase II. Phase II is contingent on positive results that
show the presence of gold in measurable quantities throughout the units
identified and tested in Phase I. A decision will be made at the completion of
Phase I as to whether to proceed to Phase II.
Phase II is recommended to expand on the results of Phase I
with a full test mining program which will include development and resource
definition and consisting of further Auger or a reverse circulation drilling
program, a further local test mining pit sampling along sections of newly
selected areas, and full scale test placer operation. Phase II has a budget of
$7.42 million.
35
A break-down of the budgets for each of Phase I and Phase II
are as follows:
PHASE I
|
|
|
|
|
|
|
Action
|
|
|
Budgeted Cost
|
|
1.
|
|
Quaternary Surface geological
mapping and drill site selection
|
|
$
|
25,000
|
|
2.
|
|
Additional Pit Sampling on Cross section
|
|
$
|
150,000
|
|
3.
|
|
Drilling 3000 metres @
$125/metre (15 to 20 metres /hole)
|
|
$
|
375,000
|
|
4.
|
|
Assaying (Pan cons, soil, etc.)
|
|
$
|
30,000
|
|
5.
|
|
Permitting and bonding
|
|
$
|
20,000
|
|
6.
|
|
Support, logistical and operational, travel
& supplies
|
|
$
|
250,000
|
|
7.
|
|
Drill Site preparation
|
|
$
|
100,000
|
|
8.
|
|
Test Pit Equipment and Operation
|
|
$
|
1,000,000
|
|
9.
|
|
Supervision, report writing
& contingency (20%)
|
|
$
|
430,000
|
|
Total:
|
|
|
|
$
|
2,580,000
|
|
|
|
|
|
|
|
|
PHASE II
|
|
|
|
|
|
|
Action
|
|
|
Budgeted Cost
|
|
1.
|
|
Drilling 6000 metres @ $125/ metre (15 to 20
metres /hole
|
|
$
|
750,000
|
|
2.
|
|
Quaternary Surface geological
mapping and drill site selection
|
|
$
|
40,000
|
|
3.
|
|
Test Pit Operation
|
|
$
|
250,000
|
|
4.
|
|
Large Scale Test Pit Equipment
and Operation
|
|
$
|
2,500,000
|
|
5.
|
|
Support logistical and operational, travel
& supplies
|
|
$
|
2,500,000
|
|
6.
|
|
Supervision, report writing
& contingency (25%)
|
|
$
|
1,380,000
|
|
Total:
|
|
|
|
$
|
7,420,000
|
|
Compliance with Government Regulation
We are subject to local laws and regulation governing the
exploration, development, mining, production, importing and exporting of
minerals; taxes; labor standards; occupational health; waste disposal;
protection of the environment; mine safety; toxic substances; and other matters.
We require licenses and permits to conduct exploration and mining operations.
Amendments to current laws and regulations governing operations and activities
of mining companies or more stringent implementation thereof could have a
material adverse impact on our Company. Applicable laws and regulations will
require us to make certain capital and operating expenditures to initiate new
operations. Under certain circumstances, we may be required to close an
operation once it is started until a particular problem is remedied or to
undertake other remedial actions. This would have a material adverse effect on
our results and financial condition.
Our mineral interests in Tanzania are held under prospecting
licenses granted pursuant to the Mining Act, 1998 (as revised 2010) for an
initial period of three years and a prospecting license reconnaissance issued
for initial periods of two years, and are renewable in two successive periods of
two years only. We must pay annual rental fees for our prospecting licenses at a
rate of $20 per square kilometer. There is also an initial one-time preparation
fee of $200 per license. Upon renewal, we pay a fee of $200 per license.
Renewals of our prospecting licenses can take many months and even years to
process by the regulatory authority in Tanzania.
All prospecting licenses in Tanzania require the holder to
employ and train local residents, typically amounting to $5,000 per year, and
make exploration expenditures, as set out in the Mining Act. At each renewal, at
least 50% of our licensed area must be relinquished. If we wish to keep the
relinquished one-half portion, we must file a new application for the
relinquished portion.
The geographical area covered by a prospecting license (PL)
may contain one or more previously granted primary mining licenses (a PML). A
PLM is a mining license granted only to a Tanzanian citizen consisting of an
area of not to exceed 10 hectares. Once a PL is granted, no additional PMLs can
be granted within the geographical area covered by the PL. The PL is subject to
the rights of previously granted and existing PMLs. The holder of a PL will have
to work around the geographical area of the PML unless the PL holder acquires
the PML and any rights to the land covered by the PML.
We must hold a mining license to carry on mining activities,
which are granted only to the holder of a prospecting license covering a
particular area. A mining license is granted for a period of 25 years or the
life of the mine. It is renewable for a period not exceeding 15 years. We do not
hold any mining licenses, only prospecting licenses. Prospecting and mining
license holders must submit regular reports in accordance with mining
regulations. Upon commercial production, the government of Tanzania imposes a
royalty on the gross value of all production at the rate of 3% of all gold
produced. The applicable regulatory body in Tanzania is the Ministry of Energy
and Minerals.
36
In July 1999, environmental management and protection
regulations under the Mining Act came into force. An environmental impact statement and an environmental management plan must
accompany special mining license, mining license and gemstone mining license
applications for mineral rights. In addition to the establishment of
environmental regulations, the Tanzanian government has improved management
procedures for effective monitoring and enforcement of these regulations by
strengthening the institutional capacity, especially in the field offices. The
government has provided rules for the creation of reclamation funds to reinstate
land to alternative uses after mining and it has developed guidelines for mining
in restricted areas, such as forest reserves, national parks, near sources of
water and other designated areas. These regulations have not had any material
effect on our operations to date.
Competition
We operate in a highly competitive industry, competing with
other mining and exploration companies, and institutional and individual
investors, which are actively seeking minerals exploration properties throughout
the world together with the equipment, labour and materials required to exploit
such properties. Many of our competitors have financial resources, staff and
facilities substantially greater than ours. The principal area of competition is
encountered in the financial ability to cost effectively acquire prime minerals
exploration prospects and then exploit such prospects. Competition for the
acquisition of minerals exploration properties is intense, with many properties
available in a competitive bidding process in which we may lack technological
information or expertise available to other bidders. Therefore, we may not be
successful in acquiring, exploring and developing profitable properties in the
face of this competition. No assurance can be given that a sufficient number of
suitable minerals exploration properties will be available for acquisition,
exploration and development.
Employees
We have no significant employees other than our officers and
directors. We plan to retain independent geologists and consultants on a
contract basis to conduct the work programs on our mineral properties in order
to carry out our plan of operations.
Research and Development Expenditures
We have not incurred any research or development expenditures
since our incorporation.
Subsidiaries
The Company has two subsidiaries: (i) Douglas Lake Tanzania
Limited (Tanzania); and (ii) DLM Tanzania Limited (Tanzania). A third
subsidiary, Handeni Gold Ltd. is currently being registered in Tanzania.
Patents and Trademarks
We do not own, either legally or beneficially, any patent or
trademark.
Plan of Operations
Our plan of operations through to May 31, 2013 is to focus on
the exploration of our mineral properties in Tanzania, particularly on the
Handeni property. We anticipate that we will require approximately $5,000,000
for our plan of operations from now until the end of our fiscal year ending May
31, 2013, as follows:
|
(a)
|
approximately $3,800,000 for work on the Handeni
Property, as follows:
|
|
|
|
|
|
(i)
|
analytical cost: $500,000.
|
|
|
(ii)
|
ground geophysics: $250,000;
|
|
|
(iii)
|
mapping, trenching, sampling and related activities:
$550,000;
|
|
|
(iv)
|
drilling: $2,000,000
|
|
|
(v)
|
sundry and contingencies: $200,000; and
|
|
|
(vi)
|
Running costs: $300,000.
|
|
|
|
|
|
(b)
|
approximately $1,200,000 for management, consulting,
administration and operating expenses.
|
At February 29, 2012, we had cash of $2,032,499 and a working
capital of $5,071,196. As such, we believe that we have sufficient capital to
fund our plan of operations. If we exclude $2,640,000 of the value of RCR shares
from our working capital, we estimate we will need additional $2.57 million to
fund our planned operations. In addition, our actual expenditures may exceed our
estimations such that we may need to receive additional funds during and
subsequent to our fiscal year ending May 31, 2013, either through the sale of
capital stock or from borrowing. If we are not able to obtain financing in the
amounts required or on terms that are acceptable to us, we may be forced to
scale back, or abandon, our plan of operations.
37
Results of Operations
The following table sets out our loss for the periods
indicated:
|
|
Accumulated from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 5, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Date of Inception) to
|
|
|
For the Three Months Ended,
|
|
|
For the Nine Months Ended,
|
|
|
|
February 29, 2012
|
|
|
February 29, 2012
|
|
|
February 28, 2011
|
|
|
February 29, 2012
|
|
|
February 28, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting fees
|
$
|
22,956,239
|
|
$
|
739,874
|
|
$
|
2,801,607
|
|
$
|
1,697,874
|
|
$
|
10,738,950
|
|
Depreciation and amortization
|
|
185,304
|
|
|
37,094
|
|
|
7,082
|
|
|
106,676
|
|
|
18,241
|
|
Exploration expenses
|
|
7,139,186
|
|
|
1,399,433
|
|
|
77,646
|
|
|
4,700,470
|
|
|
237,646
|
|
General and administrative
|
|
2,136,918
|
|
|
242,855
|
|
|
100,151
|
|
|
549,000
|
|
|
160,070
|
|
Impairment of mineral property
|
|
77,492,074
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
60,000,000
|
|
Professional
|
|
2,248,478
|
|
|
189,504
|
|
|
163,057
|
|
|
686,311
|
|
|
304,843
|
|
Rent
|
|
296,643
|
|
|
33,332
|
|
|
14,181
|
|
|
105,731
|
|
|
30,866
|
|
Travel and investor relations
|
|
1,800,803
|
|
|
66,126
|
|
|
121,016
|
|
|
256,814
|
|
|
234,914
|
|
Total Expenses
|
|
114,255,645
|
|
|
2,708,218
|
|
|
3,284,740
|
|
|
8,102,876
|
|
|
71,725,530
|
|
Loss From Operations
|
|
(114,255,645
|
)
|
|
(2,708,218
|
)
|
|
(3,284,740
|
)
|
|
(8,102,876
|
)
|
|
(71,725,530
|
)
|
Other Income (Expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on write-down of accounts
payable (Note 7e)
|
|
458,058
|
|
|
272,593
|
|
|
-
|
|
|
371,839
|
|
|
102,880
|
|
Interest income
|
|
291
|
|
|
148
|
|
|
-
|
|
|
291
|
|
|
-
|
|
Mineral property option
payments received
|
|
3,616,017
|
|
|
-
|
|
|
2,760,000
|
|
|
-
|
|
|
3,110,000
|
|
Loss on sale of investment securities
|
|
(57,071
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Recovery of mineral property
costs for stock not issuable (Note 10)
|
|
2,253,000
|
|
|
2,253,000
|
|
|
-
|
|
|
2,253,000
|
|
|
-
|
|
|
|
6,270,295
|
|
|
2,525,741
|
|
|
2,760,000
|
|
|
2,625,130
|
|
|
3,212,880
|
|
Net Loss
|
|
(107,985,350
|
)
|
|
(182,477
|
)
|
|
(524,740
|
)
|
|
(5,477,746
|
)
|
|
(68,512,650
|
)
|
Other Comprehensive Income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (loss) gain on
marketable securities
|
|
(120,000
|
)
|
|
(1,560,000
|
)
|
|
80,000
|
|
|
(1,360,000
|
)
|
|
80,000
|
|
Comprehensive Loss
|
$
|
(108,105,350
|
)
|
$
|
(1,742,477
|
)
|
$
|
(444,740
|
)
|
$
|
(6,837,746
|
)
|
$
|
(68,432,650
|
)
|
Three Months Ended February 29, 2012 Compared to Three
Months Ended February 28, 2011
Our expenses for the three months ended February 29, 2012
decreased to $2,708,218 from $3,284,740 for the three months ended February 28,
2011, as follows:
-
Our consulting fees decreased to $739,874 during the three months ended
February 29, 2012 (2011 - $2,801,607), primarily due to a decrease in
stock-based compensation. The stock-based compensation was $695,283 during the
three months ended February 29, 2012 (2011 - $2,560,122);
-
Our depreciation and amortization fees increased to $37,094 during the
three months ended February 29, 2012 (2011 - $7,082) mainly due to our
increased expenditures on camp and equipment;
-
Our exploration expenses increased to $1,399,433 during the three months
ended February 29, 2012 (2011 -$77,646) due to our increased exploration
activities during the period;
-
Our general and administrative expenses increased to $242,855 during the
three months ended February 29, 2012 (2011 - $100,151) primarily due to
increased operations during the period;
-
Our professional fees increased to $189,504 during the three months ended
February 29, 2012 (2011 - $163,057) primarily as a result of increased legal
costs associated with increased operations, management changes and the
November 30, 2011 acquisition of further Handeni property interests;
-
Our rent expenses increased to $33,332 during the three months ended
February 29, 2012 (2011 - $14,181);
38
-
Our travel and investor relations expenses decreased to $66,126 during the
three months ended February 29, 2012 (2011 - $121,016).
We determined we no longer have any obligations to issue
$2,203,000 in shares for lapsed mineral property agreements and $50,000 in
shares for an expired mineral property consulting agreement. Therefore, we
recorded a recovery of mineral property costs for stock not issuable of
$2,253,000 during the three months ended February 29, 2012 (2011 - $NIL).
Nine Months Ended February 29, 2012 Compared to Nine
Months Ended February 28, 2011
Our expenses for the nine months ended February 29, 2012
decreased to $8,102,876 from $71,725,530 for the nine months ended February 28,
2011, as follows:
-
Our consulting fees decreased to $1,697,874 during the nine months ended
February 29, 2012 (2011 - $10,738,950), primarily due to a decrease in
stock-based compensation. The stock-based compensation was $1,294,987 during
the nine months ended February 29, 2012 (2011 - $10,342,766);
-
Our depreciation and amortization fees increased to $106,676 during the
nine months ended February 29, 2012 (2011 - $18,241) mainly due to our
increased expenditures on camp and equipment;
-
Our exploration expenses increased to $4,700,470 during the nine months
ended February 29, 2012 (2011 -$237,646) due to our increased exploration
activities during the period;
-
Our general and administrative expenses increased to $549,000 during the
nine months ended February 29, 2012 (2011 - $160,070) primarily due to
increased operations during the period;
-
Impairment of mineral property decreased to $Nil during the nine months
ended February 29, 2012 (2011 - $60,000,000, which represented the impairment
of the Handeni Property acquisition costs);
-
Our professional fees increased to $686,311 during the nine months ended
February 29, 2012 (2011 - $304,843) primarily as a result of increased legal
costs associated with a private placement of securities and the filing of a
registration statement with the SEC with respect to such securities, increased
operations, management changes and the November 30, 2011 acquisition of
further Handeni property interests;
-
Our rent expenses increased to $105,731 during the nine months ended
February 29, 2012 (2011 - $30,866);
-
Our travel and investor relations expenses increased to $256,814 during the
nine months ended February 29, 2012 (2011 - $234,914).
Liquidity and Capital Resources
We estimate that our total expenditures for our fiscal year
ending May 31, 2013 will be approximately $5,000,000, as outlined above under
the heading Plan of Operations. At February 29, 2012, we had cash of
$2,032,499 and a working capital of $5,071,196. As such, we believe that we have
sufficient capital to fund our planed operations. If we exclude $2,640,000 of
the value of Ruby Creek Resources Inc. shares from our working capital, we
estimate we will need additional $2.57 million to fund our planned operations
through to our next fiscal year.
We have not yet generated revenues since the date of inception
on January 5, 2004 and our cash was primarily generated from the sale of our
securities. During the twelve-month period following the date of this report, we
anticipate that we will not generate any revenue. Accordingly, we will be
required to obtain additional financing in order to pursue our plan of
operations over the next twelve months. We anticipate that additional funding
will be in the form of equity financing from the sale of our common stock. We
cannot provide investors with any assurance that we will be able to raise
sufficient funding from the sale of our common stock to fund our acquisition and
exploration program going forward. In the absence of such financing, we will not
be able to continue acquisition and exploration of mineral claims and our
business plan will fail. Even if we are successful in obtaining equity financing
to fund our acquisition and exploration program, there is no assurance that we
will obtain the funding necessary to pursue any advanced exploration of any
mineral claims. If we do not continue to obtain additional funding, we will be
forced to abandon our mineral claims and our plan of operations.
39
Net Cash Used in Operating Activities
Net cash used in operating activities was $4,514,857 during the
nine months ended February 29, 2012, as compared to $1,206,718 during the nine
months ended February 28, 2011. Net cash used in operating activities from our
inception on January 5, 2004 to February 29, 2012 was $16,282,807.
Net Cash Used in Investing Activities
Net cash used in investing activities was $361,932 during the
nine months ended February 29, 2012 (primarily for the purchase of property and
equipment), as compared to $27,061 used in investing activities during the nine
months ended February 28, 2011. Net cash used in investing activities from our
inception on January 5, 2004 to February 29, 2012 was $847,866.
Net Cash from Financing Activities
During the nine months ended February 29, 2012, we received
$113,814 net cash from financing activities (receipt of stock subscriptions), as
compared to $1,456,187 during the nine months ended February 28, 2011 (mainly
due to $1,257,000 in proceeds from the issuance of our common stock and $202,500
in receipt of stock subscriptions). We have funded our business to date
primarily from sales of our common stock. From our inception on January 5, 2004
to February 29, 2012, net cash provided by financing activities was
$19,163,172.
There are no assurances that we will be able to achieve further
sales of our common stock or any other form of additional financing. If we are
unable to achieve the financing necessary to continue our plan of operations,
then we will not be able to continue our exploration of the property underlying
our mineral claim interest and our venture will fail.
Going Concern
We have not attained profitable operations and are dependent
upon obtaining financing to pursue any extensive exploration activities. For
these reasons our auditors stated in their report on our audited financial
statements for the year ended May 31, 2011 that they have substantial doubt we
will be able to continue as a going concern.
Future Financings
We anticipate continuing to rely on equity sales of our common
shares in order to continue to fund our business operations. Issuances of
additional shares will result in dilution to our existing shareholders. There is
no assurance that we will achieve any additional sales of our equity securities
or arrange for debt or other financing to fund our planned exploration
activities.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to stockholders.
Related Party Transactions
The details of related party transactions are disclosed in
footnote 8 of our companys interim unaudited consolidated financial statements
for the fiscal quarter ended February 29, 2012 (Item 1, above).
Segment Disclosures
The Company operates in one reportable segment, located in
Tanzania Africa, being the acquisition and exploration of mineral properties.
The details of segment disclosures are disclosed in footnote 17 of our companys
interim unaudited consolidated financial statements for the fiscal quarter ended
February 29, 2012 (Item 1, above).
Critical Accounting Policies
Our financial statements and accompanying notes have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis. The preparation of financial
statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods.
40
We regularly evaluate the accounting policies and estimates
that we use to prepare our financial statements. In general, managements
estimates are based on historical experience, on information from third party
professionals, and on various other assumptions that are believed to be
reasonable under the facts and circumstances. Actual results could differ from
those estimates made by management.
We believe the following critical accounting policies require
us to make significant judgments and estimates in the preparation of our
consolidated financial statements.
Basic and Diluted Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance
with ASC 260,
Earnings per Share
which requires presentation of both
basic and diluted earnings per share (EPS) on the face of the income statement.
Basic EPS is computed by dividing net income (loss) available to common
shareholders (numerator) by the weighted average number of shares outstanding
(denominator) during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during the period using the treasury stock
method and convertible preferred stock using the if-converted method. In
computing diluted EPS, the average stock price for the period is used in
determining the number of shares assumed to be purchased from the exercise of
stock options or warrants. Diluted EPS excludes all dilutive potential shares if
their effect is anti dilutive.
Comprehensive Income (Loss)
ASC 220,
Comprehensive Income
establishes standards for
the reporting and display of comprehensive loss and its components in the
financial statements. As at February 29, 2012, the Companys components of other
comprehensive income (loss) and accumulated other comprehensive income (loss)
are an unrealized fair value gain (loss) on available for sale marketable
securities.
Cash and Cash Equivalents
Cash and cash equivalents are carried at cost and they comprise
cash on hand, deposits held with banks and other highly liquid investments.
Highly liquid investments are readily convertible to cash and generally have
maturities of three months or less from the time acquired. The Company places
its cash and cash equivalents with high quality financial institutions which the
Company believes limits credit risk.
Marketable Securities
The Company reports investments in marketable equity securities
at fair value based on quoted market prices. All investment securities are
designated as available for sale with unrealized gains and losses included in
stockholders equity. Unrealized losses that are other than temporary are
recognized in earnings. Realized gains and losses are accounted for on the
specific identification method.
The Company periodically reviews these investments for
other-than-temporary declines in fair value based on the specific identification
method and writes down investments to their fair value when an
other-than-temporary decline has occurred. When determining whether a decline is
other-than-temporary, the Company examines (i) the length of time and the extent
to which the fair value of an investment has been lower than its carrying value:
(ii) the financial condition and near-term prospects of the investee, including
any specific events that may influence the operations of the investee such as
changes in technology that may impair the earnings potential of the investee:
and (iii) the Companys intent and ability to retain its investment in the
investee for a sufficient period of time to allow for any anticipated recovery
in market value. The Company generally believes that an other-than-temporary
decline has occurred when the fair value of the investment is below the carrying
value for one year, absent of evidence to the contrary.
Property and Equipment
Property and equipment consists of office equipment,
automobiles and computer software recorded at cost and depreciated on a
straight-line basis as follows:
Automobiles
|
3 years
|
Camp and equipment
|
3 years
|
Computer software
|
1 year
|
Office furniture and equipment
|
3 years
|
Mineral Property Costs
The Company has been in the exploration stage since its
inception on January 5, 2004 and has not yet realized any revenues from its
planned operations. It is primarily engaged in the acquisition and exploration
of mining properties. Mineral property exploration costs are expensed as
incurred. Mineral prospecting licenses and mineral property acquisition costs
are initially capitalized. The Company assesses the carrying costs for
impairment under ASC 360,
Property, Plant, and Equipment
at each fiscal
quarter end. When it has been determined that a mineral property can be
economically developed as a result of establishing proven and probable reserves,
the costs then incurred to develop such property, are capitalized. Such costs
will be amortized using the units-of-production method over the estimated life
of the probable reserve. If mineral properties are subsequently abandoned or
impaired, any capitalized costs will be charged to operations.
41
Long-Lived Assets
In accordance with ASC 360
, Property Plant and Equipment
the Company tests long-lived assets or asset groups for recoverability when
events or changes in circumstances indicate that their carrying amount may not
be recoverable. Circumstances which could trigger a review include, but are not
limited to: significant decreases in the market price of the asset; significant
adverse changes in the business climate or legal factors; accumulation of costs
significantly in excess of the amount originally expected for the acquisition or
construction of the asset; current period cash flow or operating losses combined
with a history of losses or a forecast of continuing losses associated with the
use of the asset; and current expectation that the asset will more likely than
not be sold or disposed significantly before the end of its estimated useful
life. Recoverability is assessed based on the carrying amount of the asset and
its fair value which is generally determined based on the sum of the
undiscounted cash flows expected to result from the use and the eventual
disposal of the asset, as well as specific appraisal in certain instances. An
impairment loss is recognized when the carrying amount is not recoverable and
exceeds fair value.
Asset Retirement Obligations
The Company accounts for asset retirement obligations in
accordance with the provisions of ASC 440 Asset Retirement and Environmental
Obligations which requires the Company to record the fair value of an asset
retirement obligation as a liability in the period in which it incurs a legal
obligation associated with the retirement of tangible long-lived assets that
result from the acquisition, construction, development and/or normal use of the
assets. The Company did not have any asset retirement obligations as of February
29, 2012 and May 31, 2011.
Financial Instruments
ASC 825,
Financial Instruments
requires an entity to
maximize the use of observable inputs and the fair value of financial
instruments, which include cash, amounts receivable, marketable securities, and
accounts payable were estimated to approximate their carrying values due to the
immediate or short-term maturities of these financial instruments.
The Companys operations are in Canada and Africa, which
results in exposure to market risks from changes in foreign currency rates. The
financial risk is the risk to the Companys operations that arise from
fluctuations in foreign exchange rates and the degree of volatility of these
rates. Currently, the Company does not use derivative instruments to reduce its
exposure to foreign currency risk.
Income Taxes
The Company accounts for income taxes using the asset and
liability method in accordance with ASC 740,
Income Taxes.
The asset and
liability method provides that deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences
between the financial reporting and tax bases of assets and liabilities, and for
operating loss and tax credit carry-forwards. Deferred tax assets and
liabilities are measured using the currently enacted tax rates and laws that
will be in effect when the differences are expected to reverse. The Company
records a valuation allowance to reduce deferred tax assets to the amount that
is believed more likely than not to be realized.
Foreign Currency Translation
The functional and reporting currency of the Company is the
United States dollar. Monetary assets and liabilities denominated in foreign
currencies are translated to United States dollars in accordance with ASC 740
Foreign Currency Translation Matters
, using the exchange rate prevailing
at the balance sheet date. Non-monetary assets and liabilities denominated in
foreign currencies are translated at rates of exchange in effect at the date of
the transaction. Average rates are used to translate revenues and expenses.
Gains and losses arising on translation or settlement of
foreign currency denominated transactions or balances are included in the
determination of income. The Company has not, to the date of these financial
statements, entered into derivative instruments to offset the impact of foreign
currency fluctuations.
To the extent that the Company incurs transactions that are not
denominated in its functional currency, they are undertaken in Canadian dollars
(Cdn$) and Tanzanian shillings. The Company has not, to the date of these
financial statements, entered into derivative instruments to offset the impact
of foreign currency fluctuations.
42
Stock-based Compensation
The Company records stock-based compensation in accordance with
ASC 718,
Compensation Stock Based Compensation
and ASC 505,
Equity
Based Payments to Non-Employees
, which requires the measurement and
recognition of compensation expense based on estimated fair values for all
share-based awards made to employees and directors, including stock options.
ASC
718 requires companies to estimate the fair value of share-based awards on the
date of grant using an option-pricing model. The Company uses the Black-Scholes
option-pricing model as its method of determining fair value. This model is
affected by the Companys stock price as well as assumptions regarding a number
of subjective variables. These subjective variables include, but are not limited
to the Companys expected stock price volatility over the term of the awards,
and actual and projected employee stock option exercise behaviours. The value of
the portion of the award that is ultimately expected to vest is recognized as an
expense in the statement of operations over the requisite service period.
All transactions in which goods or services are the
consideration received for the issuance of equity instruments are accounted for
based on the fair value of the consideration received or the fair value of the
equity instrument issued, whichever is more reliably measurable.
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements
that are in effect and that may impact its consolidated financial statements and
does not believe that there are any other new accounting pronouncements that
have been issued that might have a material impact on its financial position or
results of operations.
Item 3.
|
Quantitative and Qualitative Disclosures
About Market Risk
|
Not required because we are a smaller reporting company.
Item 4.
|
Controls and Procedures
|
Disclosure Controls and Procedures
Reyno Scheepers, our principal executive officer and Melinda
Hsu, our principal financial officer, have concluded that our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) were not effective as of the end of the period covered by this
report, based on the evaluation of these controls and procedures required by
paragraph (b) of Rules 13a-15 and 15d-15, due to the deficiencies in our
internal control over financial reporting as described below.
As disclosed in the Companys annual report for our fiscal year
ended May 31, 2011, management determined that, during the year ended May 31,
2011, our internal controls and procedures were not effective due to material
weaknesses. Management identified the following material weaknesses in internal
control over financial reporting as of our fiscal year ended May 31, 2011:
|
1.
|
The Company does not have a separate Audit Committee -
the entire Board of Directors acts as the Companys Audit Committee. As of
May 31, 2011 there was a lack of a majority of independent directors on
the Companys the Board of Directors, and the Company had not identified
an expert, one who is knowledgeable about reporting and financial
statement requirements.
|
|
|
|
|
2.
|
There was lack of oversight by the Companys audit
committee and board of directors in timely review and approval of the
certain financial expenses incurred by the Company.
|
|
|
|
|
3.
|
Certain entity level controls establishing a tone at the
top were considered material weaknesses. The Company has an audit
committee (the entire Board of Directors) however it is not
independent.
|
|
|
|
|
4.
|
The Company has limited segregation of duties which is
not consistent with good internal control procedures.
|
|
|
|
|
5.
|
The Company does not have a written internal control
procedurals manual which outlines the duties and reporting requirements of
the Directors and any staff to be hired in the future. This lack of a
written internal control procedurals manual does not constitute effective
internals controls over financial reporting.
|
As disclosed in the Companys annual report for our year ended
May 31, 2011, management believes that the material weaknesses set forth above
did not have a material affect on the Companys financial results for the year
ended May 31, 2011, and management believes that such material weaknesses did
not have a material effect on the Companys financial results for the quarter
ended February 29, 2012. However, management believes that the lack of a
functioning audit committee and lack of a majority of independent directors on
the Companys board of directors, resulting in ineffective oversight in the
establishment and monitoring of required internal controls and procedures, can
impact the Companys financial statements for the future years. As a result
material errors could occur.
43
The Company and its management will endeavor to correct the
above noted weaknesses in internal control over financial reporting. We intend
to establish an audit committee, appoint sufficient independent members thereto
and identify an expert for the committee to advise other members as to correct
accounting and reporting procedures. In addition, we intend to establish a
written policy manual outlining the duties of each of the officers and staff of
the Company to facilitate better internal control procedures.
Management will continue to monitor and evaluate the
effectiveness of the Companys internal controls and procedures and its internal
controls over financial reporting on an ongoing basis and are committed to
taking further action and implementing additional enhancements or improvements,
as necessary and as funds allow.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial
reporting that occurred during our fiscal quarter ended February 29, 2012 that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART II OTHER INFORMATION
Item 1.
|
Legal Proceedings
|
Except as disclosed below, management is not aware of any legal
proceedings contemplated by any governmental authority or any other party
involving us or our properties. As of the date of this quarterly report, no
director, officer or affiliate is (i) a party adverse to us in any legal
proceeding, or (ii) has an adverse interest to us in any legal proceedings.
Management is not aware of any other legal proceedings pending or that have been
threatened against us or our properties.
On February 8, 2012, Ruby Creek Resources Inc. (RCR) filed a
lawsuit against the Company in the Supreme Court, State of New York, in which
RCR alleges that the Company participated in a fraudulent transfer of certain
mineral property interests in Tanzania that RCR had the right to purchase
pursuant to a series of agreements with the Company. The Company is of the view
that such allegations are without merit and has and intends to vigorously
contest the action.
On February 23, 2012, the Company filed a lawsuit against RCR
in the Supreme Court of British Columbia, seeking relief for RCRs breach of its
payment obligations under the above-referenced agreements and seeking an order
that RCR remove the U.S. restrictive legend from RCR shares issued to the
Company under the agreements. To date, RCR is in default with respect to over
$1.3 million in scheduled payments due to the Company under the agreements.
Not required because we are a smaller reporting company.
Item 2.
|
Unregistered Sales of Equity Securities and
Use of Proceeds
|
None.
Item 3.
|
Defaults Upon Senior Securities
|
None.
Item 4.
|
(Removed and Reserved).
|
Not applicable.
Item 5.
|
Other Information
|
None.
Exhibit Number
|
Description of Exhibit
|
3.1
(1)
|
Articles of Incorporation
|
44
3.2
(12)
|
Certificate of Amendment to Articles of Incorporation
|
3.3
(3)
|
Amended Bylaws, as amended on September 5, 2006
|
3.4
(21)
|
Articles of Merger as filed with the Nevada Secretary of
State regarding name change effective February 14, 2012
|
10.1
(4)
|
Asset Purchase Agreement with KBT Discovery Group
Tanzania Ltd.
|
10.2
(4)
|
Asset Purchase Agreement with Hydro-Geos Consulting Group
Tanzania Ltd.
|
10.3
(4)
|
Asset Purchase Agreement with Megadeposit Explorers Ltd.
|
10.4
(5)
|
Amendment No. 1 to Asset Purchase Agreement with KBT
Discovery Group Tanzania Ltd.
|
10.5
(5)
|
Amendment No. 1 to Asset Purchase Agreement with
Hydro-Geos Consulting Group Tanzania Ltd.
|
10.6
(5)
|
Amendment No. 1 to Asset Purchase Agreement with
Megadeposit Explorers Ltd.
|
10.7
(6)
|
Amendment No. 2 to Asset Purchase Agreement with KBT
Discovery Group Tanzania Ltd.
|
10.8
(6)
|
Amendment No. 2 to Asset Purchase Agreement with
Hydro-Geos Consulting Group Tanzania Ltd.
|
10.9
(6)
|
Amendment No. 2 to Asset Purchase Agreement with
Megadeposit Explorers Ltd.
|
10.10
(7)
|
Strategic Alliance Agreement between the Company and
Canaco
|
10.11
(8)
|
Option Agreement between the Company and Canaco
|
10.12
(9)
|
Amendment No. 1 to Strategic Alliance Agreement between
the Company and Canaco
|
10.13
(9)
|
Kwadijava Option Agreement
|
10.14
(9)
|
Negero Option Agreement
|
10.15
(10)
|
Joint Venture Agreement with Mkuvia Maita
|
10.16
(11)
|
2007 Stock Incentive Plan
|
10.17
(14)
|
2007 Stock Incentive Plan
|
10.18
(11)
|
Consulting Agreement with Harpreet Sangha
|
10.19
(11)
|
Consulting Agreement with Rovingi
|
10.20
(13)
|
Joint Venture Agreement with Mkuvia Maita dated June 5,
2009
|
10.21
(15)
|
Agreement with Ruby Creek Resources, Inc. dated November
7, 2009
|
10.22
(16)
|
Purchase Agreement with Ruby Creek Resources, Inc., dated
for reference May 19, 2010
|
10.23
(17)
|
August 2010 Stock Incentive Plan
|
10.24
(18)
|
Mineral Property Acquisition Agreement between the
Company and IPP Gold Limited, dated September 15, 2010, ratified by the
Companys Board of Directors on September 21, 2010.
|
10.26
(20)
|
November 2010 Stock Incentive Plan
|
10.27
(19)
|
Mineral Property Acquisition Agreement between the
Company and Handeni Resources Limited, dated August 5, 2011
|
45
* Filed herewith.
|
(1) Incorporated by reference to Form SB-2 Registration
Statement filed on July 22, 2004.
|
(2) Incorporated by reference to Annual Report on Form
10-KSB for year ended May 31, 2005.
|
(3) Incorporated by reference to Annual Report on Form
10-KSB for year ended May 31, 2006.
|
(4) Incorporated by reference to Current Report on Form 8-K
filed on August 4, 2005.
|
(5) Incorporated by reference to Current Report on Form 8-K
filed on November 21, 2005.
|
(6) Incorporated by reference to Quarterly Report on Form
10-SB for quarterly period ended November 30, 2005.
|
(7) Incorporated by reference to Current Report on Form 8-K
filed on May 4, 2006.
|
(8) Incorporated by reference to Quarterly Report on Form
10-SB for quarterly period ended August 31, 2006.
|
(9) Incorporated by reference to Quarterly Report on Form
10-SB for quarterly period ended August 31, 2007.
|
(10) Incorporated by reference to Current Report on Form
8-K filed on August 6, 2008.
|
(11) Incorporated by reference to Annual Report on Form
10-KSB for year ended May 31, 2007.
|
(12) Incorporated by reference to Current Report on Form
8-K filed on January 27, 2009
|
(13) Incorporated by reference to Current Report on Form
8-K filed on July 16, 2009
|
(14) Incorporated by reference to Registration Statement
Form S-8 filed on December 30, 2008.
|
(15) Incorporated by reference to Current Report on Form
8-K filed on November 13, 2009.
|
(16) Incorporated by reference to Current Report on Form
8-K filed on June 21, 2010.
|
(17) Incorporated by reference to Annual Report on Form
10-K for the year ended May 31, 2010.
|
(18) Incorporated by reference to Current Report on Form
8-K filed on September 27, 2010.
|
(19) Incorporated by reference to Current Report on Form
8-K filed on August 10, 2011.
|
(20) Incorporated by reference to Annual Report on Form
10-K filed on September 13, 2011.
|
(21) Incorporated by reference to Current Report on Form
8-K filed on February 15, 2012.
|
(22) Incorporated by reference to Current Report on Form
8-K filed on March 2, 2012.
|
46
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
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DOUGLAS LAKE MINERALS INC.
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|
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By:
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Reyno Scheepers
|
|
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Reyno Scheepers
|
|
|
President, Chief Executive Officer, Chief
Operating Officer,
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|
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and a director
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|
|
|
|
|
|
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By:
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Melinda Hsu
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Melinda Hsu
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Secretary, Treasurer and Chief
Financial Officer
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|
|
|
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Date: April 12, 2012
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