Item
3. Key Information
|
A.
|
|
SELECTED FINANCIAL DATA
|
The following selected financial information
for the fiscal years ended December 31, 2013, 2012, 2011 and 2010 are derived from the audited financial statements of the Company
and the notes thereto, which are prepared in accordance with IFRS as issued by the IASB, and are included elsewhere in this Annual
Report and should be read in conjunction with such financial statements and with the information appearing under the heading "
Item
5: Operating and Financial Review and Prospects
".
|
|
Fiscal Year ended December 31,
|
|
|
|
2013
|
2012
|
2011
|
2010
|
|
|
|
$
|
$
|
$
|
$
|
|
|
Operations
|
|
|
|
|
|
|
Exploration expense
|
1,550,251
|
1,617,289
|
1,963,874
|
1,467,641
|
|
|
Exploration recovery
|
(622,293)
|
-
|
-
|
-
|
|
|
Operating loss
|
3,662,049
|
4,444,854
|
6,275,689
|
3,691,505
|
|
|
Finance and other income (expense)
|
1,452,290
|
614,636
|
(128,474)
|
34,006
|
|
|
Income (Loss) from continuing operations
|
(2,943,305)
|
(4,871,432)
|
862,446
|
(2,058,649)
|
|
|
Income from discontinued operations
|
-
|
-
|
-
|
1,607,301
|
|
|
Net Income (loss)
|
(2,943,305)
|
(4,871,432)
|
862,446
|
(451,348)
|
|
|
Income (Loss) per Common share
from continuing operations
|
|
|
|
|
|
|
-basic and diluted
|
(0.06)
|
(0.10)
|
0.02
|
(0.04)
|
|
|
Net Income (Loss) per Common share
|
(0.06)
|
(0.10)
|
0.02
|
(0.01)
|
|
|
Common shares used in calculations
|
|
|
|
|
|
|
Basic
|
50,348,215
|
50,348,215
|
50,228,592
|
48,582,347
|
|
|
Diluted
|
50,348,215
|
50,348,215
|
51,580,329
|
48,582,347
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Da
ta
|
|
|
|
|
|
Total assets
|
16,246,355
|
19,171,997
|
22,176,773
|
23,700,260
|
|
|
Total liabilities
|
4,304,484
|
8,707,332
|
7,715,102
|
13,469,839
|
|
|
Non-controlling interest
|
5,124,196
|
2,425,368
|
2,415,029
|
2,444,005
|
|
|
Net assets
|
11,941,871
|
10,464,665
|
14,461,671
|
10,230421
|
|
|
Share capital
|
41,758,037
|
41,758,037
|
41,758,037
|
40,335,033
|
|
|
Dividends
|
0
|
0
|
0
|
0
|
|
Exchange Rates
The following table sets forth information
as to the average period end, high and low exchange rate for Canadian dollars and US dollars for the periods indicated based on
the Bank of Canada nominal noon exchange rates (USD to CAD) in Canadian dollars (US$1.00 = $1.1057 as at March 28, 2014 ).
Year Ended December 31
|
Average
|
Period End
|
High
|
Low
|
|
2013
|
1.0299
|
1.0636
|
1.0697
|
0.9839
|
|
2012
|
0.9996
|
0.9949
|
1.0418
|
0.9710
|
|
2011
|
0.9891
|
1.0162
|
1.0604
|
0.9449
|
|
2010
|
1.0299
|
0.9931
|
1.0778
|
0.9946
|
|
2009
|
1.1420
|
1.0456
|
1.3000
|
1.0292
|
|
|
|
|
|
|
Month
|
Average
|
Period End
|
High
|
Low
|
|
February 2014
|
1.1057
|
1.1140
|
1.1140
|
1.0953
|
|
January 2014
|
1.0942
|
1.1119
|
1.1171
|
1.0614
|
|
December 2013
|
1.0637
|
1.0636
|
1.0697
|
1.0577
|
|
November 2013
|
1.0499
|
1.0594
|
1.0415
|
1.0334
|
|
October 2013
|
1.0364
|
1.0429
|
1.0456
|
1.0284
|
|
September 2013
|
1.0352
|
1.0285
|
1.0593
|
1.0237
|
|
|
|
|
|
|
|
|
|
B.
|
|
Capitalization and indebtedness
|
Not Applicable.
|
C.
|
|
Reasons for the Offer and Use of Proceeds
|
Not Applicable.
An investment in our securities should
be considered highly speculative and involves a high degree of financial risk due to the nature of our activities and the current
status of our operations. Readers and prospective investors should carefully consider the risks summarized below and all other
information contained in this Annual Report before making an investment decision relating to our shares. Some statements in this
Annual Report (including some of the following risk factors) are forward-looking statements. Please refer to the discussion of
forward-looking statements in the introduction to this Annual Report. Any one or more of these risks could have a material adverse
effect on the value of any investment in our Company and the business, financial position or operating results of our Company and
should be taken into account in assessing our activities. The risks noted below do not necessarily comprise all those faced by
us.
Risks Relating to the Company
Title to Properties
To the knowledge of the Company, none of
its property interests have been surveyed to establish boundaries. There can be no assurance that any governmental authority in
China could not significantly alter the conditions of or revoke the applicable exploration or mining authorizations held by the
Company or that the Company's interest in such properties will not be challenged or impugned by third parties or governmental authorities.
In addition, there can be no assurance
that the properties or other assets in which the Company has an interest are not subject to prior unregistered agreements, transfers,
pledges, mortgages or claims and title may be affected by undetected defects as it is difficult to verify that no agreements, transfers,
claims, mortgages, pledges or other encumbrances exist given the state of the legal and administrative systems in China.
China Political and Economic Considerations
The business operations of the Company
will be located in, and the revenues of the Company derived from activities in, China. Likewise, the Company's operations in China
are currently conducted through and with the assistance of Minco Mining (China) Co., Ltd. ("Minco China"), a Wholly Foreign-Owned
Enterprise ("WFOE"). Accordingly, the business, financial condition and results of operations of the Company could be
significantly and adversely affected by economic, political and social changes in China. The economy of China has traditionally
been a planned economy, subject to five-year and annual plans adopted by the state, which set national economic development goals.
Since 1978, China has been moving the economy from a planned economy to a more open, market-oriented system. The economic development
of China is following a model of market economy under socialism. Under this direction, it is expected that China will continue
to strengthen its economic and trading relationships with foreign countries and that business development in China will follow
market forces and the rules of market economics.
However, the Chinese government continues
to play a significant role in regulating industry by imposing industrial policies. In addition, there is no guarantee that a major
turnover of senior political decision makers will not occur, or that the existing economic policy of China will not be changed.
A change in policies by China could adversely affect the Company's interests in China by changes in laws, regulations or the interpretation
thereof, confiscatory taxation, restrictions on currency conversion, imports and sources of supplies, or the expropriation of private
enterprises. Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of mining
activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations. Amendments
to current laws, regulations and permits governing operations and activities of companies engaged in mineral resource exploration
and development, or more stringent implementation thereof, could have a material adverse impact on the Company and cause increases
in capital expenditures or production costs or reduction in levels of production at producing properties or require abandonment
or delays in development of new mining properties. Companies with a foreign ownership component operating in China may be required
to work within a framework which is different to that imposed on domestic Chinese companies. The Chinese government is opening
up opportunities for foreign investment in mining projects and this process is expected to continue. However, if the Chinese government
should reverse this trend and impose greater restrictions on foreign companies, the Company's business and future earnings could
be negatively affected.
Chinese Legal System and Enforcement
Most of the material agreements to which
the Company or its affiliates are party or will be party in the future with respect to mining assets in China are expected to be
governed by Chinese law and some may be with Chinese governmental entities. The Chinese legal system embodies uncertainties that
could limit the legal protection available to the Company and its shareholders. The outcome of any litigation may be more uncertain
than usual because: (i) the experience of Chinese judiciary in the industry in which we operate
is relatively limited, and (ii) the interpretation of PRC laws may be subject to policy changes reflecting domestic political changes.
The laws that do exist are relatively recent and their interpretation and enforcement involve uncertainties, which could limit
the available legal protections. Even where adequate laws exist in China, it may be impossible to obtain swift and equitable enforcement
of such laws or to obtain enforcement of judgments by a court of another jurisdiction. The inability to enforce or obtain a remedy
under such agreements could have a material adverse impact on the Company. Many tax rules are not published in China, and those
that are published can be ambiguous and contradictory, leaving a considerable amount of discretion to local tax authorities. China
currently offers tax and other preferential incentives to encourage foreign investment. However, the tax regime of China is undergoing
review and there is no assurance that such tax and other incentives will continue to be available. There is also no guarantee that
the pursuit of economic reforms by the State will be consistent or effective and as a result, changes in the rate or method of
taxation, reduction in tariff protection and other import restrictions, and changes in state policies affecting the mining industry
may have a negative effect on its operating results and financial condition.
Government Regulation of Mineral Resources
and Ownership
Ownership of land in China remains with
the State, and the State, at the national, regional and local levels, is extensively involved in the regulation of exploration
and mining activities. Transfers and issuances of exploration and mining rights are also subject to governmental approval. Failure
or delays in obtaining necessary approvals could have a materially adverse effect on the financial condition and results of operations
of the Company. Nearly all mining projects in China require government approval. There can be no certainty that any such approvals
will be granted (directly or indirectly) to the Company in a timely manner, or at all.
Exploration and Development is a Speculative
Business
Resource exploration and development is
a speculative business, characterized by a number of significant risks including, among other things, unprofitable efforts resulting
not only from the failure to discover mineral deposits but also from finding mineral deposits that, though present, are insufficient
in quantity and quality to return a profit from production. The marketability of minerals acquired or discovered by the Company
may be affected by numerous factors which are beyond the control of the Company and which cannot be accurately predicted, such
as market fluctuations, the proximity and capacity of milling facilities, mineral markets and processing equipment, the availability
of mining equipment, and such other factors as government regulations, including regulations relating to royalties, allowable production,
importing and exporting of minerals, and environmental protection, the combination of which factors may result in the Company not
receiving an adequate return of investment capital. The long-term profitability of the Company's operations will in part be directly
related to the costs and success of its exploration programs, which may be affected by a number of factors. Substantial expenditures
are required to establish reserves through drilling and to develop the mining and processing facilities and infrastructure at any
site chosen for mining. If our exploration costs are greater than anticipated, we will have fewer funds for our exploration activities
and for our general and administrative expenses, which in turn will adversely affect our financial condition and ability to pursue
our exploration programs. Although substantial benefits may be derived from the discovery of a major mineralized deposit, no assurance
can be given that minerals will be discovered in sufficient quantities to justify commercial operations, that commercially viable
mineral deposits exist on our properties or that funds required for development can be obtained on a timely basis.
Future Financing
The Company currently has limited financial
resources and there is no assurance that additional funding will be available to it for further exploration and development of
its projects. There can be no assurance that the Company will be able to obtain adequate financing in the future or that the terms
of such financing will be favourable. Failure to obtain such additional financing could result in delay or indefinite postponement
of further exploration and development of its projects with the possible loss of such properties.
Joint Venture Agreement
There is no guarantee that Minco Gold and
its other partners will be able to fund the Changkeng project owned by Guangzhou Mingzhong Mining Co. Ltd (“Mingzhong”).
Mingzhong, the entity that holds the Changkeng Permit, is owned in part by certain state-owned entities which require government
approvals before they are able to increase their investment in Mingzhong. It is unclear when these approvals will be granted if
at all.
Industry Specific Risks
The exploration, development, and production
of minerals are capital-intensive businesses, subject to the normal risks and capital expenditure requirements associated with
mining operations, which even a combination of experience, knowledge and careful evaluation may not be able to overcome.
Operations that we undertake will be subject
to hazardous risks incidental to exploration and test mining, including, but not limited to work stoppages, and possible environmental
damage. Liabilities resulting from such events may result in us being forced to incur significant costs that could have a material
adverse effect on our financial condition and business prospects.
Limited Experience with Development-Stage
Mining Operations
The Company has limited experience in placing
resource properties into production, and its ability to do so will be dependent upon using the services of appropriately experienced
personnel or entering into agreements with other major resource companies that can provide such expertise. There can be no assurance
that the Company will have available to it the necessary expertise if the Company places its resource properties into production.
Factors Beyond Company's Control
Discovery, location and development of
mineral deposits depend upon a number of factors, not the least of which is the technical skill of the exploration personnel involved.
The exploration and development of mineral properties and the marketability of any minerals contained in such properties will also
be affected by numerous factors beyond the control of the Company. These factors include government regulation, high levels of
volatility in market prices, availability of markets, availability of adequate transportation and refining facilities and the imposition
of new, or amendments to existing, taxes and royalties. The effect of these factors cannot be accurately predicted.
Potential Conflicts of Interest
Certain members of the Company's board
and officers of the Company also serve as officers or directors of other companies involved in natural resource exploration and
development. Consequently, there exists the possibility that those directors and officers may be in a position of conflict. In
particular, Ken Z. Cai is a director of and serves in management in each of the Company, Minco Silver and Minco Base Metals Corporation
("Minco Base Metals").
In addition, Ellen Wei serves as Chief
Financial Officer, Jennifer Trevitt serves as Corporate Secretary, Samson Siu serves as Controller, and Peter Voulgaris serves
as Vice President, Corporate Development for each of the Company, Minco Silver and Minco Base Metals. Any decision made by such
directors and officers will be made in accordance with their duties and obligations to deal fairly and in good faith with the Company
and such other companies. In addition, such directors and officers will declare, and refrain from voting on any matter in which
such directors or officers may have a conflict of interest. Nevertheless, there remains the possibility that the best interests
of the Company will not be served because its directors and officers have other commitments. Matters between the Company and Minco
Silver which put any of the directors or officers of the Company in a position of conflict are approved by the audit committee
of the board of directors which is comprised of solely independent directors.
In addition to the potential conflicts
described above, some of the directors of the Company are also directors or officers of other reporting and non-reporting issuers
who are engaged in other industry sectors. Accordingly, conflicts of interest may arise which could influence the decisions or
actions of directors or officers acting on behalf of the Company.
Scope of Business
In China, companies are granted a business
license which specifies the scope of activities that they are permitted to undertake. Although
Minco China has taken steps to ensure that all of its business activities are within the scope of its business license,
there is no assurance that the relevant Chinese authorities will agree with such assessment. If Minco China is determined
to have exceeded the scope of its business license it could be subject to penalties or other sanctions.
Uninsured Risks
The Company's mining activities are subject
to the risks normally inherent in mineral exploration, including, but not limited to, environmental hazards, industrial accidents,
flooding, periodic or seasonal interruptions due to climate and hazardous weather conditions, and unusual or unexpected formations.
Such risks could result in damage to or destruction of mineral properties or production facilities, personal injury, environmental
damage, delay in mining and possible legal liability. The Company may become subject to liability for pollution and other hazards
against which it cannot insure or against which it may elect not to insure because of high premium costs or other reasons. The
payment for such liabilities would reduce the funds available for exploration and mining activities and may have a material impact
on the Company's financial position.
Currency Exchange Rates
The Company maintains its accounts in Canadian
dollar and RMB denominations. Given that most of Minco Gold's expenditures are currently and are anticipated to be incurred in
RMB, Minco Gold is subject to foreign currency fluctuations which may affect its financial position and operating results. The
Company does not currently have a formal hedging program to mitigate foreign currency exchange risks.
Repatriation of Capital Located in China
The Company may face delays repatriating
funds held in China if at any time the Company needs additional resources to enable it to undertake projects elsewhere in the world.
There are certain restrictions on the repatriation of funds held in China as more particularly described below.
Under Chinese law, repatriation of funds
in China falls under several categories: (1) profit repatriation, (2) capital repatriation, (3) liquidation, and (4) overseas loan
repayment. The major requirements for each of the repatriation methods are as follows:
|
|
1.
|
Profit repatriation – A WFOE may repatriate its after-tax profits out of China with few restrictions.
Minco China is classified as a WFOE. Profit repatriation can only be undertaken once a year.
|
|
|
(a)
|
Capital repatriation – Under Chinese law, capital repatriation can only be made under the
following circumstances: Share/Equity Interest Sale – In the event that a foreign investor, as an assignor, intends to sell
its equity interest in the WFOE to any other foreign or domestic entities/individuals, as an assignee, the approval from the original
approving authority, such as the local Department of Commerce ("
DOC
") is required. Such governmental approval
for an equity sale is not difficult to obtain in normal circumstances and it would normally take one to two months after all of
the required documents have been submitted, subject to local practice.
|
Once the governmental approval
is obtained, the assignee is obliged to apply to the local State Administration for Foreign Exchange ("
SAFE
"),
for the approval of mailing the payment of the transfer price to the assignor, which can normally be done within 20 business days
after all of the required documents have been submitted.
|
|
(b)
|
Capital Decrease – Generally, a WFOE must not decrease its registered capital during its
operating term, however, if its registered capital needs to be decreased due to the change of the total investment amount or operation
scale or for other reasons, such decrease could be done after approval from the original approval authority has been obtained.
|
The procedures for capital decrease are
as follows:
|
|
(i)
|
The WFOE would apply to the local DOC for a preliminary approval of a capital decrease;
|
|
|
(ii)
|
After receiving the preliminary reply, the WFOE would notify all of its creditors in writing for
such capital decrease and the WFOE would publically disclose such capital decrease in provincial newspapers at least three times;
|
|
|
(iii)
|
The creditors may require the WFOE to pay off all debts or provide corresponding guarantees to
pay any outstanding debts;
|
|
|
(iv)
|
After the WFOE has made at least three public notices in provincial newspapers, it would apply
to the local DOC for formal approval of the capital decrease;
|
|
|
(v)
|
Once the DOC has approved the decrease of the registered capital, the WFOE would conduct the registration
change at the local Administration for Industry and Commerce ("
AIC
"); and
|
|
|
(vi)
|
Upon completion of the above procedures, if the then contributed capital of the WFOE exceeds the
registered capital after the decrease; the WFOE would apply for the capital repatriation approval of the decreased capital to its
investor(s) at the local SAFE. Once approval is received, the bank can remit the exceeded capital.
|
The above process takes around six months
to complete.
|
|
2.
|
Liquidation – The investor may also voluntarily liquidate the WFOE in accordance with relevant
Chinese law and the articles of association of the WFOE. The procedures for the liquidation of a foreign investment are as follows:
|
|
|
(a)
|
A resolution to liquidate the WFOE is adopted;
|
|
|
(b)
|
The WFOE applies to the local DOC for approval of the liquidation;
|
|
|
(c)
|
The WFOE sets up a liquidation committee to conduct the liquidation;
|
|
|
(d)
|
The notices to creditors and the public announcements about the liquidation must be made;
|
|
|
(e)
|
The liquidation committee would handle the sale of the assets of the WFOE and the distribution
of the liquidation proceeds and submit a distribution report to the local DOC;
|
|
|
(f)
|
The deregistration of the WFOE must be conducted with the local AIC and local tax, customs, foreign
exchange and other authorities; and
|
|
|
(g)
|
Upon completion of the above procedures, the investor would apply to the local SAFE for repatriation
of the liquidated proceeds. Once approval is received, the bank can remit the liquidated proceeds.
|
The above process takes approximately six
months to complete.
|
|
3.
|
Overseas Loan Repayment - Under Chinese law, a WFOE may borrow overseas loans from its investors
or other overseas companies or financial institutions, provided that the overseas loan amount shall not exceed the balance
|
between the total investment
amount and the registered capital of the WFOE. The procedures for registration and repayment of such overseas loans are as follows:
|
|
(a)
|
The WFOE would register the overseas loan with the local SAFE and obtain loan registration certificates
issued by the local SAFE;
|
|
|
(b)
|
After registration, the WFOE would open a special foreign exchange cash account with domestic banks
to receive the overseas loan;
|
|
|
(c)
|
When the WFOE repays the overseas loan, it would apply to the local SAFE for the repayment approval;
and
|
|
|
(d)
|
Upon the issuance of the repayment approval of the local SAFE, the WFOE would submit the overseas
loan registration certificate and the repayment approval issued by the local SAFE to the banks and the banks would conduct payment
operations through the WFOE's special foreign exchange cash account for the overseas loan or the special foreign exchange cash
account for the overseas loan repayment.
|
Competition
The precious metal minerals exploration
industry and mining business are intensely competitive. The Company competes with numerous other companies and individuals in the
search for and the acquisition of attractive precious metal mining properties. Many of these competitors have substantially greater
technical and financial resources than the Company. Competition could adversely affect the Company's ability to acquire suitable
properties or prospects in the future.
Uncertainty of Estimates
Resource and reserve estimates of minerals
are inherently imprecise and depend to some extent on statistical inferences drawn from limited drilling, which may prove unreliable.
Although estimated recoveries are based upon test results, actual recovery may vary with different rock types or formations in
a way which could adversely affect operations.
Reliance on Management and Directors
The success of the Company is currently
largely dependent on the performance of its officers. The loss of the services of these persons could have a materially adverse
effect on the Company's business, prospects, and financial position. There is no assurance that the Company can maintain the services
of its officers or other qualified personnel required to operate its business. Failure to do so could have a material adverse effect
on the Company and its prospects. The Company has not purchased any "key-man" insurance with respect to any of its directors
or officers as of the date hereof.
Fluctuating Mineral Prices
Factors beyond the control of the Company
may affect the marketability of metals discovered, if any. Metal prices have fluctuated widely, particularly in recent years. The
effect of these factors cannot be predicted. Fluctuations in the price of gold may also adversely affect our ability to obtain
future financing to fund our planned exploration programs.
The Mining Industry Is Highly Speculative
The Company is engaged in the exploration
for minerals which involves a high degree of geological, technical and economic uncertainty because of the inability to predict
future mineral prices, as well as the difficulty of determining the extent of a mineral deposit and the feasibility of its extraction
without incurring considerable expenditures.
Environmental Considerations
Although China has enacted environmental
protection legislation to regulate the mining industry, due to the very short history of this legislation, national and local environmental
protection standards are still in the process of being formulated and implemented. The legislation provides for penalties and other
liabilities for the violation of such standards and establishes, in certain circumstances, obligations to rehabilitate current
and former facilities and locations where operations are being or have been conducted.
Although the Company intends to fully comply
with all environmental regulations, there is a risk that permission to conduct exploration and development activities could be
withdrawn temporarily or permanently where there is evidence of serious breaches of such standards.
The operation of the Fuwan Project and the
underlying property is generally determined by Minco Silver and we have no decision making power as to how the property is operated.
In addition, we have no or very limited access to technical or geological data respecting the property including as to resources.
Minco Silver's failure to perform or other decisions made by Minco Silver, including as to scaling back or ceasing operations,
could have a material adverse effect on our revenue, results of operations and financial condition.
We have a material interest in the Fuwan Project
held by Minco Silver through its subsidiary. Minco Silver generally has the power to determine the manner in which the Fuwan Project
is or will be operated, including decisions to explore the property and put it into production. The interests of Minco Silver and
our Company may not always be aligned. Our inability to control the operations of the
Fuwan Project can adversely affect our profitability, results of operations and financial condition. Similar adverse effects may
result from any other interests we may acquire that are primarily operated by another company. In addition, we have no or very
limited access to technical, geological data relating to the mine, including data as to reserves, nor have we received a NI 43-101
compliant technical report in respect of the Fuwan Project addressed to us. As such, we cannot independently determine reserve
or resource amounts and are instead wholly dependent on the determination of the reserves and resources by Minco Silver. We can
provide no assurances as to the level of reserves or resources on the property. If Minco Silver determines there are insufficient
reserves to economically operate a mine, it may determine not to commence mining operations on the property, which could have a
material adverse effect on our profitability, results of operations and financial condition.
Item
4. Information on the company
|
A.
|
|
HISTORY AND DEVELOPMENT OF THE COMPANY
|
Name, Address and Incorporation
Minco Gold was incorporated under the
Business
Corporations Act
(British Columbia) on November 5, 1982, under the name "Caprock Energy Ltd." The Company changed
its name to "Minco Gold Corporation" on January 29, 2007. The Company has subsidiaries which are also engaged in
the acquisition and exploration of mineral projects in China. See "
Item 4: Organizational Structure
".
The principal executive office and registered
office of the Company is located at Suite #2772, 1055 West Georgia Street, Vancouver, British Columbia, Canada,
V6E 3R5,
telephone number 604-688-8002, fax number 604-688-8030 and email address info@mincomining.ca. The Company's shares trade on the
Toronto Stock Exchange (the "
TSX
") under the trading symbol "MMM". The Company began trading on the
NYSE MKT on November 22, 2005 under the trading symbol "MMK". On February 1, 2007 the trading symbol on the NYSE MKT
was changed from "MMK" to "MGH".
The Company is in the exploration stage
and had no operating revenue during the years ended December 31, 2013, 2012 and 2011. Since the signing of the Company's first
co-operation agreement in China in 1995, the Company has been active in mineral exploration, property evaluation and acquisition
in China and plans to build a portfolio of precious metals properties in China. Over the years, the Company has established strong
ties with Chinese governmental bureaus and also with Chinese mining enterprises. The Company's senior management has in-depth experience
with the intricacies of Chinese mining laws, permitting and licensing procedures. The Company's goal is to develop its portfolio
of high-quality properties in China, as well as maintaining strategic relationships with premier mining enterprises in China.
At present, the Company is an exploration-stage
company and further exploration will be required on its properties before final evaluations as to commercial feasibility can be
determined. Other than the Company's interest in the Fuwan Silver Project owned by Minco Silver discussed below, none of the mineral
properties owned by the Company have known reserves, nor are any such properties at the commercial development or production stage.
No assurance can be given that any of the Company's properties will become commercially viable. Further, the Company's interest
in joint ventures that own properties will be subject to dilution if the Company fails to expend further funds on the project.
The Company has not generated cash flows from operations. These facts increase the uncertainty and risks faced by investors in
the Company. See "
Item 3: Key Information – D. Risk Factors
".
Overview for 2013
Longnan Project - the Company engaged an
independent consultant to conduct a detailed review of the Yejiaba project in April 2013, in particular to focus on the Baimashi
North and East Targets. The sample work performed on the Yejiaba project during 2013 consisted of 912 rock chip samples, 818 soil
samples, 41 stream sediment samples and 339 trench channels. The detailed results at the Baimashi North and East Targets are described
under “Description of Properties” below.
Changkeng Gold Project - in May 2013, Mingzhong
paid the remaining balance of RMB 29 million ($4.92 million) to the No. 757 Exploration Team of Guangdong Geological Bureau (“757
Exploration Team”) for the Changkeng Exploration Permit. The Company did not conduct any exploration activities in the past
three years for the Changkeng Gold Project except for maintaining the exploration permit. The renewed Changkeng Exploration Permit
expires on September 10, 2015.
Gold Bull Mountain Project - Yuanling Minco
owns the Gold Bull Mountain Project which was acquired with a mining license, covering 0.18 km2 and an exploration permit (12.53
km2), covering the strike extension of the Jinniushan Gold Mine by Minco China on November 14, 2006. Minco China incorporated Yuanling
Minco and transferred all assets related to Gold Bull Mountain to Yuanling Minco in 2007. The Company made the decision to cease
its exploration program at GBM in June 2008 and is considering to sell this project. As of the date of this Annual Report, the
project hasn’t been sold.
Equity Investment in Minco Silver - as
at December 31, 2013, the Company owned a 21.91% equity interest in Minco Silver, a publicly traded company listed on the TSX under
the symbol “MSV”, which indirectly holds the title to the Fuwan Silver Project in Guangdong Province, China. The discussion
respecting the Fuwan Silver Project held by Minco Silver is based on Minco Silver's public disclosure record available on SEDAR
at www.sedar.com.
Chinese Mining Regulations
Government Regulations of Mineral
Resources and Ownership
Exploration for and exploitation of mineral
resources in China are governed by the
Mineral Resources Law of China
of 1986, amended effective January 1, 1997, and the
Implementation Rules for the Mineral Resources Law of China
, effective March 26, 1994. In order to further implement
these laws, on February 12, 1998, the State Council issued three sets of regulations: (i)
Regulation for Registering to Explore
Mineral Resources Using the Block System
, (ii)
Regulation for Registering to Mine Mineral Resources
, and (iii)
Regulation
for Transferring Exploration and Mining Rights
(together with the mineral resources law and implementation rules referred to
herein as the "
Mineral Resources Law
"). Under the Mineral Resources Law, Ministry of Land and Resources (“MOLAR”)
is charged with supervision nationwide of mineral resources prospecting and development.
The Mineral Resources Law provides for
equal legal status for domestic enterprises and enterprises with foreign investment, security and transferability of mineral titles
as well as the exclusivity of mining rights. The right to explore and exploit minerals is granted by way of exploration and mining
rights. The holder of an exploration right has the privileged priority to obtain the mining right to the mineral resources in the
exploration area provided the holder meets the conditions and requirements specified in the law.
Foreign Investment
Direct foreign investment in China usually
takes the form of equity joint ventures ("
EJVs
"), cooperative joint ventures ("
CJVs
") and WFOEs.
These investment vehicles are collectively referred to as foreign investment enterprises ("
FIEs
"). An EJV is a
Chinese legal person and consists of at least one foreign party and at least one Chinese party. The EJV generally takes the form
of a limited liability company. It is required to have registered capital to which each party to the EJV subscribes. Each party
to the EJV is liable to the EJV up to the amount of the registered capital subscribed by it.
Mineral Resources Permits
The
Provisions in Guiding Foreign Investment
and the Industrial Catalogue in Guiding Foreign Investment
, which was updated on April 1, 2002, January 1, 2005, October 31,
2007 and December 2011 (the "
Investment Guiding Regulations
") govern foreign investment in China and categorize
industries into three types where foreign investment is: (i) encouraged, (ii) restricted, or (iii) prohibited, industries not listed
in any of the three categories will be deemed permitted.
In mining industries, "encouraged"
projects include the exploration and mining of coal (and its derived resources), iron, manganese, copper and zinc minerals, etc.
"Restricted" projects include the exploration and mining of the minerals of tin, antimony and other noble metals including
gold and silver, etc. "Prohibited" projects include the exploration and mining of radioactive minerals and rare earth.
Foreign investment is "permitted" if the exploration and mining of the minerals is not included in the other three categories.
Subject to the Investment Guiding Regulations, foreign investment in the exploration and mining of minerals is generally encouraged,
in particular in relation to minerals in the western region of China.
Until January 2000, the production, purchasing,
distributing, manufacturing, using, recycling, import and export of silver was strictly regulated by the
Regulations of the
People's Republic of China on the Control of Gold and Silver
. Since then, China's silver market has been fully opened and silver
is now treated as a commodity not subject to any special control or restrictive regulation by the state. However, foreign investment
in the exploration and mining of silver remains restricted. China has adopted, under the Mineral Resources Law, a licensing system
for the exploration and exploitation of mineral resources. MOLAR and its authorized provincial or local departments are responsible
for approving applications for exploration permits and mining permits. The approval of MOLAR is also required to transfer those
rights.
Applicants must meet certain conditions
for qualification set by the state. Pursuant to the Mineral Resources Law, the applicant for a mining right must present stated
documents, including a plan for development and use of the mineral resources and an evaluation report of the environmental impact
thereof. The Mineral Resources Law allows individuals to excavate sporadic resources, sand, rocks and clay for use as materials
for construction and a small quantity of mineral resources for sustenance. However, individuals are prohibited from mining mineral
resources that are more appropriate to be mined in scale by an enterprise, the specified minerals that are subject to protective
mining by the state and certain other designated mineral resources, as may be determined by MOLAR. Once granted, all exploration
and mining rights are protected by the state from encroachment or disruption under the Mineral Resources Law. It is a criminal
offence to steal, seize or damage exploration facilities, or disrupt the working order of exploration areas.
Exploration Rights
Exploration permits are registered and
issued to "licensees". The period of validity of an exploration permit can have a maximum term of three years. The exploration
permit is described by a "basic block". An exploration permit for metallic and non-metallic minerals has a maximum of
40 basic blocks.
When a mineral that is capable of economic
development is discovered, the licensee may apply for the right to develop such mineral. The period of validity of an exploration
permit can be extended by application and each extension can be no more than two years in duration. During the term of the exploration
permit, the licensee has the privileged priority to obtain the mining right to the mineral resources in the exploration area covered
by the exploration permit provided it meets the conditions of qualification for mining rights holders. Further, the licensee has
the rights to, among other things, to: (i) explore without interference within the area under permit during the permit term, (ii)
construct exploration facilities, and (iii) pass through other exploration areas and adjacent ground to access the permitted area.
After the licensee acquires the exploration permit, the licensee is obliged
to, among other things: (i) start exploration within the prescribed term, (ii) explore according to a prescribed exploration work
scheme, (iii) comply with state laws and regulations regarding labor safety, water and soil conservation, land reclamation and
environmental protection, (iv) make detailed reports to local and other licensing authorities, (v) close and occlude the wells
arising from prospect work, (vi) take other measures to protect against safety concerns after the prospect work is completed, and
(vii) complete minimum exploration expenditures as required by the
Regulations for Registering to Explore or Mineral Resources
Using the Block System
.
Transferring Exploration and Mining
Rights
A mining enterprise may transfer its exploration
or mining rights to others, subject to the approval of MOLAR or its authorized departments at the provincial or local level, as
the case may be. An exploration permit may only be transferred if the transferor has: (i) held the exploration permit for two years
as of the issue date, or discovered minerals in the exploration block, which are able to be explored or mined further, (ii) a valid
and subsisting exploration permit, (iii) completed the stipulated minimum exploration expenditure, (iv) paid the user fees and
the price for prospect rights pursuant to the relevant regulations, and (v) obtained the necessary approval from the authorized
department in charge of the minerals. Mining rights may only be transferred if the transferor needs to change the ownership of
such mining rights because it is: (i) engaging in a merger or split, (ii) entering into equity or cooperative joint ventures with
others, (iii) selling its enterprise assets, or (iv) engaging in a similar transaction that will lead to the alteration of the
property ownership of the enterprise. A mining permit may only be transferred if the transferor has: (i) commenced production for
no less than one year, (ii) a valid and subsisting mining permit without title dispute, and (iii) paid the user fees, the price
for the mining right, resource tax and mineral resource compensation pursuant to applicable laws.
Environmental Laws
In the past ten years, laws and policies
for environmental protection in China have moved towards stricter compliance and stronger enforcement. The basic laws in China
governing environmental protection in the mineral industry sector of the economy are the
Environmental Protection Law
, the
Environment Impact Assessment Law
and the
Mineral Resources Law
. The State Administration of Environmental Protection
and its provincial counterparts are responsible for the supervision of implementation and enforcement of environmental protection
laws and regulations. Provincial governments also have the power to issue implementing rules and policies in relation to environmental
protection in their respective jurisdictions. Applicants for mining rights must submit environmental impact assessments and those
projects that fail to meet environmental protection standards will not be granted licenses.
In addition, after exploration the licensee
must perform water and soil maintenance and take steps towards environmental protection. After the mining rights have expired or
the concessionaire stops mining during the permit period and the mineral resources have not been fully developed, the concessionaire
shall perform water and soil maintenance, land recovery and environmental protection in compliance with the original development
scheme, or must pay the costs of land recovery and environmental protection. After closing, the mining enterprises shall perform
water and soil maintenance, land recovery and environmental protection in compliance with mine closure approval reports, or must
pay the costs of land recovery and environmental protection.
|
C.
|
|
Organizational Structure
|
The following chart sets forth the Company's
corporate structure, including its significant subsidiaries, related parties and their jurisdictions of incorporation along with
the various mineral properties held by each of them, as at the date of this Annual Report:
The Company has wholly-owned and less than
wholly-owned subsidiaries as follows: Wholly-owned subsidiaries
-
Minco China, Yuanling Minco Mining Ltd. ("Yuanling
Minco"), Huaihua Tiancheng Mining Ltd. ("Huaihua Tiancheng"), Minco Resource Limited. The Company, through Minco
China, established Tibet Minco Mining Co Ltd (“Tibet Minco”) on January 29, 2013 for the purpose of potential future
transactions.
Less than wholly-owned subsidiaries
–
the Company through Minco China and Tibet Minco owns 51% of a company formed and known as "Guangzhou Mingzhong Mining Co.,
Ltd." - the holding company for the Changkeng Gold property and the Changkeng Exploration Permit.
During 2013, Minco Gold transferred its
interest in Minco China to Minco Resources, a 100% subsidiary of Minco Gold that resulted in Minco China becoming a wholly owned
subsidiary of Minco Resources.
Minco Silver, incorporated on August
20, 2004, is a related party to the Company through common management. This company was incorporated to acquire and develop silver
projects in China and is currently involved with the development of the Fuwan Silver Project, in Guangdong Province, China.
The chart above shows that Mingzhong owns
100% of the silver mineralization on the Changkeng Property. The Company assigned its 51% interest in the Silver Mineralization
to Minco Silver. The remaining 49% interest in the silver mineralization on the Changkeng property remains with the other minority
shareholders of Mingzhong.
Foshan Minco, a subsidiary of Minco China
and the Company, is beneficially owned by Minco Investment Holdings HK Limited (“Minco HK”), a subsidiary of Minco
Silver pursuant to a confirmation agreement between Minco Silver, Minco Gold and Minco China dated August 24, 2006 (the "
Confirmation
Agreement
") and subsequent assignments and transfers to Minco HK. Foshan Minco is subject to a 10% beneficial interest
held by Guangdong Geological Bureau, a Chinese government owned entity. Pursuant to the agreements between Minco Gold and its subsidiaries
and Minco Silver and its subsidiary, Minco Gold and Minco China agreed to hold all licenses, permits and other assets held by Minco
China in respect of the Fuwan Project and all licenses, permits and other assets acquired subsequent to the date of the Confirmation
Agreement in trust for Foshan Minco. Foshan Minco is consolidated into Minco Silver for accounting purposes.
The legal structure described above reflects
restrictions under Chinese law for foreign companies to invest in registered Chinese entities. Funding from Minco Silver to Foshan
Minco must pass through Minco China. Minco China is a WFOE for the purposes of Chinese law and is the parent company of Foshan
Minco under Chinese law. This transaction flow will be necessary until such time as Foshan Minco becomes Minco Silver's legal subsidiary
in China when Minco Silver incorporates a WFOE to allow it to pass funds directly to Foshan Minco. As Foshan Minco is consolidated
into Minco Silver for accounting purposes, loans or funds advanced from Minco Silver to Minco Gold or Minco China are discharged
when such funds are advanced from Minco China to Foshan Minco as the funds have moved back inside the Minco Silver consolidated
group. Minco Gold and Minco China are used by Minco Silver as conduits to transfer funds to Foshan Minco; however, they have no ongoing obligation with
respect to funds advanced through to Foshan Minco and are not subject to repayment obligations.
|
D.
|
|
DESCRIPTION OF PROPERTIES
|
The following consists of a discussion
of the properties that Minco Gold holds through its subsidiaries and its equity investment in the Fuwan Silver Project of Minco
Silver.
|
I.
|
|
Changkeng Gold PROJECT
|
The following is a brief description
of the Company's Changkeng Gold Project. Technical Information respecting the Changkeng Gold Project is primarily derived from
the NI 43-101 technical report entitled "
Technical Report and Updated Resource Estimate on the Changkeng Gold Project Guangdong
Province, China
", dated effective February 21, 2009 and prepared by Tracy Armstrong, P. Geo Ontario, Eugene Puritch, P.
Eng. Ontario and Antoine Yassa, P.Geo. Québec, all of P&E Mining Consultants Inc., and all qualified persons for the
purposes of NI 43-101. This technical report includes relevant information regarding the data, data validation and the assumptions,
parameters and methods of the mineral resource estimates on the Changkeng Project.
LOCATION
The Changkeng gold deposit is located
approximately 45 km southwest of Guangzhou, the fourth largest city in China with 13 million people and the capital city of Guangdong
Province. The project is adjacent to Minco Silver's Fuwan Silver Deposit and situated close to well established water, power, and
transportation infrastructure.
OWNERSHIP
The Company signed a 30-year joint venture
contract with four Chinese companies for the exploration and development of the Changkeng Gold Project in late 2004. A business
license was granted on March 30, 2007 to Mingzhong, a joint venture company established for pursuing the Changkeng Gold Project
and a subsidiary of the Company.
Mingzhong, a cooperative joint-venture
established among Minco China, Guangdong Geological Bureau, Guangdong Gold Corporation, and two private Chinese companies to jointly
explore and develop the Changkeng Property, signed a purchase agreement in January 2008 to buy a 100% interest in the Changkeng
Exploration Permit on the Changkeng Project from the 757 Exploration Team.
The transfer of the Changkeng Exploration
Permit from 757 Exploration Team to Mingzhong was approved by the MOLAR in 2009. This exploration permit was renewed for a two-year
period ending on September 10, 2015. The purchase price of the Changkeng Exploration Permit was set at RMB 48 million (approximately
$7.6 million). As of December 31, 2008, the Company paid the first payment of RMB 19 million (approximately $3.22 million) for
the Changkeng Exploration Permit to the 757 Exploration Team. The remaining balance of RMB 29 million ($4.92 million) was settled
in May 2013.
Pursuant to the terms of an agreement with
Minco Silver, the Company has assigned its right to earn a 51% interest in the Changkeng Silver Mineralization to Minco
Silver. As a result, Minco Silver is responsible for 51% of the total costs in relation to the Changkeng Silver Mineralization.
EXPLORATION ACTIVITIES
The Company has not conducted any
exploration activities on the Changkeng gold project in the past three years, except for maintaining the exploration permits with
respect of the project.
On April 18, 2013, Minco China and 757
Exploration Team entered into a loan agreement in which Minco China agreed to loan RMB 10 million ($1,641,900) with an annual interest
rate of 6% to 757 Exploration Team for a two month period ending June 18, 2013. The loan has been repaid on the scheduled date
and the Company recorded RMB 65,753 ($10,919) of interest income during the year ended December 31, 2013.
According to a Supplementary Agreement
signed between 757 Exploration Team and Mingzhong, 757 Exploration Team agreed to refund RMB 3.8 million ($622,293) to Mingzhong
for certain exploration costs incurred during the early stages of the Changkeng project. The refunded amount was recorded as an
exploration cost recovery during the year ended December 31, 2013. On July 31, 2013, Mingzhong paid RMB 1.03 million ($169,669)
to 757 Exploration Team for the completed hydro-geological program on the Changkeng Gold Project a few years ago.
As at December 31, 2013, the Company had
received funds of RMB $960,000 ($167,920) from two minority shareholders of Mingzhong. This was classified as a current liability,
pending approval of a capital injection from the remaining non-controlling shareholders.
Technical Information of the
Changkeng Gold Project
GEOLOGY
The Changkeng Project is located at the
northwest margin of a triangular upper paleozoic fault basin, at the margin with the northeast trending Shizhou fault to the northwest,
the east-west trending Dashi fault to the south and the northwest trending Xijiang fault to the northeast. Precious and base metal
occurrences and deposits are known to occur predominantly along the margins of the 550 km² basin. The Changkeng Gold Property
is covered by the 1.18km
2
area over the Changkeng permit.
The major structural control at Changkeng
is an upright, open syncline with its axis trending northeast. The syncline is composed of Lower Carboniferous limestone and Triassic
siliciclastic rocks. A low-angle fault zone is developed along the contact between the Lower Carboniferous unit and the Upper Triassic
unit. The fault zone is from several meters to tens of meters in width and is occupied by lenticular, brecciated and silicified
rocks, brecciated limestone, and silicified sandy conglomerate. The fault zone may have acted as both a feeder conduit and as a
host structure for the gold and silver mineralization in the area. A set of second-order faults parallel to the major fault were
developed in the limestone at the footwall, and silver mineralization is known to occur in the second-order faults on the Fuwan
Property to the south. Gold was discovered at Changkeng in early 1990 by systematic follow up of stream sediment and soil geochemical
anomalies identified from surveys completed by the Guangdong Provincial government. Illegal, small scale mining began in 1991 and
removed most of the oxidized, near surface mineralization. Based on 13 surface trenches and 81 diamond drill holes, P&E Mining
Consultants Inc. ("P&E") of Brampton, Ontario, prepared an initial NI 43-101 compliant resource estimate on the deposit
in March of 2008 with a resource update in March 2009 (collectively, the "Technical Reports"). The Technical Reports
can be found on SEDAR and are incorporated by reference herein. The detailed resource estimates are provided below.
The Changkeng Project is comprised of three
mineralized zones, termed the CK1, CK2 and CK3 Zones. The overall strike length of the deposit, incorporating these zones, is approximately
1200 meters in a N065° direction, with a cross-strike width of between 110 to 380 meters. The deposit outcrops on surface and
the deepest zone of mineralization intersected by drilling to date is approximately 280 meters below surface. The average width
of a mineralized intersection is 10.4 meters (apparent thickness).
The Changkeng Project falls into the broad
category of sediment hosted epithermal deposits. Gold mineralization occurs as lenticular bodies in the brecciated Triassic classic
rocks at the upper portion of the synform zone. The gold zone tends to pinch out toward the hinge of the syncline where it is replaced
by silver mineralization at the Fuwan Silver Deposit.
DRILLING PROGRAM
The Company
completed a comprehensive exploration program on the Changkeng Gold Project during late 2007 to the end of 2008. The exploration
program consisted of drilling of 66 diamond holes and an extensive hydrological study as well as a geotechnical survey.
The drilling program was designed to expand the known resources through step-out drilling, as well as increase the indicated resources
through in-fill drilling, with the first 22 holes mainly testing the wider spaced drill targets throughout the entire property.
Drilling was conducted on an approximately 40 meter section spacing with holes on section between 20 meters and 80 meters apart.
At the completion of the 2008 drilling
program, the known gold mineralization at the Changkeng Property was extended by approximately 400 meters along strike to the east-northeast;
from just less than 900 meters to approximately 1200 meters in length. Mineralization was also extended down dip in localized areas
along the eastern end of the known mineralization.
RESOURCE ESTIMATES
A resource estimate was made by P&E
for the Changkeng Gold Project by utilizing diamond drill data from a total of 127 drill holes and 13 surface trenches. On March
25, 2009, the Company reported an updated NI 43-101 resource estimate for the Changkeng project, including the calculations of
the distinct and separate gold dominant and silver dominant zones.
The following is a summary of the updated
resource calculation prepared for the Changkeng Property. The definitions of Indicated and Inferred Resources are in compliance
with the Canadian Institute of Mining Metallurgy and Petroleum CIM Definitions and Standards on Mineral Resources and Mineral Reserves,
December 11, 2005.
Minco Gold has 51% ownership of the Changkeng
Project which has 2 distinct and separate mineralized zones (a gold ("Au") dominant zone and a silver ("Ag")
dominant zone). The gold portion of the resource estimate has been expanded and upgraded to contain indicated resources of 4.0
million tonnes @ 4.89 geop Au for a total of 623,100 oz Au. This represents a 65% increase in gold ounces for the indicated resource
category. The estimate also contains inferred resources of 4.0 million tonnes @ 3.01 g/t Au for a total of 386,800 oz Au.
March 2009 P&E Gold Dominant
Portion of Resource Estimate @ 1.2 g/t AuEq Cut-Off
|
Classification
|
Tonnes
|
Au
(g/t)
|
Au
(oz)
|
Ag
(g/t)
|
Ag
(oz)
|
AuEq **
(g/t)
|
AuEq **
(oz)
|
|
Indicated
|
3,961,000
|
4.89
|
623,100
|
11.2
|
1,423,000
|
5.08
|
646,800
|
|
Inferred
|
4,001,000
|
3.01
|
386,800
|
9.5
|
1,218,000
|
3.16
|
407,000
|
**The AuEq grade was calculated from Au
US$800/oz and Ag US$14/oz with respective recoveries of 95% and 90%. The calculated Au:Ag ratio was 60:1 Pb and Zn values were
too low to be of economic interest for resource reporting purposes.
The Changkeng Project also contains
a portion of a second distinct deposit which is silver dominant. Minco Gold assigned its 51% ownership in these resources to Minco
Silver pursuant to the assignment agreement dated August 20, 2004. The deposit contains indicated resources of 5.6 million tonnes
@ 170 g/t Ag for a total of 30,708,000 oz Ag and inferred resources of 1.1 million tonnes @ 220 g/t Ag for a total of 7,517,000
oz Ag. This represents a 70% increase in silver ounces for the indicated resource category. The increase is due to the recent drilling
which upgraded inferred resources and outlined new resources.
March 2009 P&E Silver Dominant
Portion of Resource Estimate @ 35 g/t Ag Cut-Off
|
Classification
|
Tonnes
|
Ag
(g/t)
|
Ag
(oz)
|
Au
(g/t)
|
Pb
(%)
|
Zn
(%)
|
|
Indicated
|
5,622,000
|
170
|
30,708,000
|
0.33
|
0.35
|
1.02
|
|
Inferred
|
1,063,000
|
220
|
7,517,000
|
0.24
|
0.61
|
1.36
|
|
|
1.
|
Mineral resources which are not mineral reserves do not have demonstrated economic viability.
The estimate of mineral resources may be materially affected by environmental, permitting, legal, title, taxation, socio-political,
marketing, or other relevant issues.
|
|
|
2.
|
The quantity and grade of reported inferred resources in this estimation are uncertain in nature
and there has been insufficient exploration to define these inferred resources as an indicated or measured mineral resource and
it is uncertain if further exploration will result in upgrading them to an indicated or measured mineral resource category.
|
The resource estimate prepared on the
Changkeng Silver Project also includes minor amounts of lead (Pb) and zinc (Zn).
LOCATION
The Longnan projects are located at the
southern part of Gansu province, 30km north-east from Longnan (Wudu) city and 250km south-west from the nearest railway station
and the airport in Tienshui city. The area is connected with the provincial center Lanzhou and major cities
with paved roads. A new highway and a railway are under construction to connect Longnan city with Chengdu and Lanzhou. Construction
is expected to be completed in 2014. The project area lies in the transition area of China's steppes with the Southern Gansu Plateau
in the west, Sichuan Basin in the south, Qinling Mountains and Hanzhong Basin in the east, as well as the Loess Plateau in the
north. The terrain is higher in the northwest and lower in the southeast. High Peneplenized Mountains and deep valleys interweave
with hills and basins. Elevations vary from 1900m to 2600m above the sea level. Longnan area has a temperate, monsoon-influenced
semi-arid climate with chilly winters and hot, moderately humid summers. Due to the protected valley location and the southerly
location within the province, the area is one of the warmest in Gansu, with annual temperatures ranging from 10 to 15 °C (50 to
59 °F). The annual precipitation is 400 to 1000 mm, while there are between 160 to 280 frost free days and the annual
mean sunshine total is 1,850 sunlight hours. Rainfall tends to be greatest during the summer.
The population of Longnan district is
540,000 (estimated in 2004). The area surrounding the Yejiaba Project is sparsely populated by people in small scattered villages.
Labor is available locally. The area is rich with building materials. To the Company’s knowledge no formal exploration work
had previously been undertaken on the Longnan Project.
OWNERSHIP
The focus of the Company's activities over
the past three years has been the exploration of its projects in the Longnan region, in particular in the Yejiaba Project. Minco
China, the Company’s wholly-owned subsidiary, presently holds ten exploration permits in the Longnan region in the south
of Gansu Province in China. The Longnan region consists of three projects according to their geographic distribution, type and
potential of mineralization within the southwest Qinling gold field.
Yejiaba: Includes four exploration permits
along a regional structural belt parallel to the Yangshan gold belt. The potential in this area is for polymetallic mineralization
(gold-silver-iron-lead-zinc). The Company completed a NI 43-101 technical report on Yejiaba, prepared by Calvin R. Herron, P. Geo.
Ontario, a consultant to the Company and a qualified person for the purposes of NI-31-101, dated effective April 29, 2012 and which
has been filed on SEDAR. This report summarizes the work conducted on the Yejiaba project to April 2012 and includes independent
check sampling.
Yangshan: Includes five exploration permits
located in the northeast extension of the Yangshan gold belt and its adjacent area. The primary potential in this area is for gold.
Xicheng East: Includes one exploration
permit for the east extension of the Xicheng Pb-Zn mineralization belt. The potential in this area is for polymetallic mineralization
(gold-silver-lead-zinc).
Minco China entered into two agreements
with FengxianXin Kun Mining Corporation ("FXKM") in September 2010 and March 2012 respectively, in which the Company
agreed to sell two exploration permits in Xicheng East for a total of RMB 2.8 million. As at September 30, 2012, the Company received
RMB 2.8 million ($442,796) and recognized a gain of $442,796 upon the receipt of approval from MOLAR to transfer legal titles of
the two exploration permits to FXKM.
On December 13, 2013, Minco China entered
into an agreement with Gansu Yuandong Investment Co., Ltd (“YDIC”) pursuant to which the Company agreed to sell two
exploration permits in the Xicheng East and Yangshan area to YDIC for RMB 0.8 million ($140,000). The process of transferring the
titles to the two permits to YDIC was pending approval by Gansu province and the proceeds has not been received as at December
31, 2013.
EXPLORATION ACTIVITIES
Yejiaba Project
The Yejiaba Project is located along the
collisional boundary separating the Huabei and Yangtze Precambrian cratons. This major E-W trending collision zone has localized
a number of large gold and polymetallic deposits within a geologic province that is often referred to as the Qinling Orogenic Belt.
Gold and polymetallic mineralization on the Company’s lease package is generally hosted in Silurian-Devonian, thin-bedded
limestone interbedded with phyllite. Mineralization is associated with shears and quartz veins, with higher grades typically found
along sheared contacts separating massive limestone from the thin-bedded limestone and phyllite unit. Granite porphyry and quartz
diorite dykes tend to be spatially associated with mineralization. Alteration accompanying mineralization consists of weak silicification
and pyritization with carbonate veining and secondary carbon. Small quartz veinlets are noted in several places. Associated metals
consist of silver, lead, antimony and arsenic.
Semi-regional geochemical anomalies were
first delineated by the Company in 2005, extending 10 km along a hydrothermally altered zone that follows a NE trending thrust
and regional unconformity.
Subsequent work between 2006 and 2012 has
included traverse-line investigations, soil sampling, geologic mapping, geophysical surveys (ground magnetic and IP), trenching
and drilling.
To date, several targets have been identified
and tested including: Shanjinba (Zone 1 and 2), Yaoshang, Fujiawan, Baimashi, Bailuyao, Baojia and Paziba.
The Company engaged an independent consultant
to conduct a detailed review of the Yejiaba Project in April 2013, in particular to focus on the Baimashi North and East Targets.
The sample work performed on the Yejiaba project during 2013 consisted of 912 rock chip samples, 818 soil samples, 41 stream sediment
samples and 339 trench channels. The detailed results at the Baimashi North and East Targets are described in below.
Sampling and assaying
The channel samples taken in the trenches
are generally 10 cm wide; 5 cm deep, lengths are typically 1m but can be slightly longer or shorter to match geological boundaries.
Only significant channel sample results are reported below, where composited gold grades are over 0.50 g/t. Reported composites
may comprise individual samples with gold assays lower than 0.5g/t if it is deemed that the geology and mineralization is continuous
over the interval. Channel sample intervals may not necessarily represent true thickness of the mineralization. Sample preparation
was performed by independent laboratory SGS-Tianjin, at their laboratory in Xian (PRC). Pulps are then analyzed at the SGS-Tianjin
assay facility in Tianjin. Sample QAQC methods consisted of insertion of blank and duplicates in the field (one in twenty samples),
while SGS-Tianjin inserted analytical duplicates and reference standards into the sample stream at their laboratory.
2013 Exploration Activities
Baimashi Target
The Baimashi gold-antimony mineralization
was discovered on the boundary between Weiziping-Baimashi and Shajinba-Yangjiagou permits and includes the Baimashi North Target
that was identified in 2013, located approximately 1km north of the Baimashi Target; and the Baimashi East Target.
During 2013, the samples in Table 1 were
collected within the Baimashi North and East Target. Out of total samples, 118 trench, 75 soil and 37 rock samples were collected
from Baimashi East, but the results of these samples demonstrated the gold values in the Baimashi East are tightly confined to
narrow structure and thereby effectively diminished the target’s size and significance. The Company has no further exploration
planned on this target.
All of the exploration to date conducted
during 2013 indicates the Baimashi North Target is the only target that hosts sufficient size and grade potential to produce a
substantial gold deposit. The Company decided to drill-test this target in early 2014 with a scout drilling program to determine
whether or not sufficient lateral and vertical continuity of gold mineralization exists to support a large scale, low-grade open
pit operation.
|
Table 1. Summary of sample types collected within the Baimashi Targets
|
|
|
# of Samples
|
Gold Range (ppm)
|
Average Au (ppm)
|
|
Rock Chip
|
912
|
<0.005 – 47.115
|
0.729
|
|
Soil
|
818
|
<0.005 – 3.968
|
0.055
|
|
Trench Channels
|
339
|
<0.005 – 14.250
|
0.190
|
|
Stream Sediment
|
41
|
<0.005 – 0.226
|
0.015
|
Baimashi North Target
Gold Mineralization Observed within
the Baimashi North Target
The Rock Gold Zone shown in Figure 1
represents the distribution of rock chip gold values exceeding 0.100ppm, and the zone boundaries were defined by combining the
rock chip and soil sample results together with the structural data. The gold-in-soil distribution fairly represents the gold zone.
Figure1. Outline of Baimashi North Gold
Mineralization Zone relative to soil samples results
In Figure 2, the same Rock Gold Zone
is shown relative to the distribution of rock chip sample results together with the mapped mineralized structures (shears, veins,
dikes). Here again, the sample data fits well within the zone boundaries, which suggests that the soil sample values generally
do a fair job of reflecting the rock sample data. The dominantly northeast-trending Rock Gold Mineralization Zone is approximately
1,200m long by 600m wide. It measures 317,000m2 in plain view and is open to the north. The Baimashi North Target certainly possesses
sufficient size for hosting a large gold deposit but will need sufficient gold grade as well.
Figure 2. Outline of Baimashi North Gold
Mineralization Zone relative to rock chip results and mineralized structures.
Samples collected within the Baimashi
North Target
Following the encouraging results found
in the third quarter of 2013 described below, a total of 589 soil samples and 39 rock samples were collected within this target
during the fourth quarter of 2013. The soil sample results show a gold range from 0.005 to 3.968 ppm (refer to Table 1).
During the year ended December 31, 2013,
247 rock chip samples, 125 soil samples and 41 stream sediment samples within Baimashi North Target were collected.
The 247 rock samples collected within the
Rock Gold Mineralization Zone run from 0.005 to 47.115ppm Au and average 1.49ppm, which is a potentially economic grade for an
open-pit operation if this grade can be maintained. A rough analysis of the rock sample data is presented in Table 2, where we
see a high percentage of samples (39%) carrying gold values exceeding 0.5 g/t, while 68% run in excess of 0.1 g/t. Six samples
included in the >3.0 ppm Au category in Table 2 exceed 10ppm Au. If these six high-grade samples are taken out, the overall
average grade drops to 1.00ppm, which illustrates the weight carried by high-grade numbers in this zone.
|
Table 2. Summary of rock chip sample results
(excludes dumps).
|
|
Sample Ranges
|
Number of Samples
|
% of Total Samples
|
Average Au (ppm)
|
Average As (ppm)
|
Average Sb (ppm)
|
|
>3.0 ppm Au
|
22
|
8
|
8.391
|
4292
|
99
|
|
1.0-3.0 ppm Au
|
48
|
17
|
1.764
|
2358
|
66
|
|
0.5-1.0 ppm Au
|
41
|
14
|
0.691
|
1797
|
54
|
|
0.1-0.5 ppm Au
|
83
|
29
|
0.276
|
1340
|
25
|
|
<0.1 ppm Au
|
94
|
32
|
0.027
|
241
|
8
|
The overall gold grade distribution is summarized
in Table 3. This is obviously a low grade system, and the amount of high grade found within the low-grade blanket will determine
whether or not this target can be economical.
|
Table 3. Distribution of gold grades in 247 rock samples collected at Baimashi North Target
|
|
Grade Range (ppm Au)
|
<0.1
|
0.1 -- 0.5
|
0.5 -- 2
|
2 -- 4
|
4 -- 6
|
6 -- 8
|
>8
|
|
% of Total
|
18
|
32
|
33
|
9.3
|
3.2
|
1.6
|
2.4
|
The rock samples collected within
this zone tested a variety of geologic features and they can be grouped into vein/fault, dike-related, and altered rock types.
The carbonate veins and altered faults usually range from 0.1m to1.0m wide, and the sampling often includes some of the surrounding
low-grade wallrock. Altered dikes and dike margins were also sampled as a separate rock type, as were several zones of altered
phyllitic limestone (the “altered rock type”) hosting stockwork-type carbonate veinlets.
Averaged Au-As sample results for these
three rock groups are compared in Table 4. Based on the As:Au ratios, arsenic values look to be following the intrusive dikes and
sills, which suggests a congenetic relationship between the intrusive plumbing and Au-As mineralization. In contrast, the lower
As:Au ratio seen in the vein/fault type is attributed to post-intrusion mineralization in younger, more dilatant zones.
|
Table 4. Comparison of Au-As mineralization in major sample types at Baimashi North Target
|
|
Sample Type
|
Ave. Au (ppm)
|
Ave. As (ppm)
|
As/Au Ratio
|
|
V: Vein/Fault type
|
2.190
|
2185
|
997
|
|
D: Dike related
|
0.951
|
1726
|
1815
|
|
R: Altered rock type
|
0.958
|
1325
|
1383
|
Yangshan and Xicheng East
During 2013, the Company did not conduct
any exploration activities on these two projects except for maintaining the exploration permits in respect of the projects.
On December 13, 2013, Minco China
entered into an agreement with YDIC pursuant to which the Company agreed to sell two exploration permits in the Xicheng East and
Yangshan area to YDIC for RMB 0.8 million ($140,000). The process of transferring the titles of the two permits to YDIC had not
been completed as at December 31, 2013 due to the pending approval by Gansu province.
2012 Exploration Activities
During 2012, the Company completed
an extensive surface trenching program at the Shajinba target on the Yejiaba project including 72 trenches for an aggregate length
of 2,396.3 m and three diamond drill holes for an aggregate total of 1,260.2 m. The rock chip sample results at Shajinba indicated
there was no significant mineralization within the target area. A comprehensive discussion and data compilation of previous exploration
work up to the end of 2012 for the Shanjinba target were included in the Company’s Annual MD&A for the year ended December
31, 2012, dated April 1, 2013, available on SEDAR at www.sedar.com.
Another significant result in the Yejiaba
in 2012 was the discovery of a mineralized zone in the center part of the Shajinba-Baimashi Gold Trend during the third quarter
2012. Two drill holes were completed at Shajinba Zone 2: the polymetallic portion of the Shajinba mineralized system; SJB-009 and
SJB-010. Hole SJB–009 did not find any significant mineralization. Hole SJB-010 intersected a zone of calcification and pyritization
over the down hole interval from 92.36m to 115.56m and returned 0.38g/t Au over 1.0 m and 39.03g/t Ag over 4.0 m.
Five trenches completed in the area revealed
mineralization of the same style which dominates in the Baimashi and Shajinba Targets: zones of shearing with superimposed pyrite
and hematite near the contact between thin-bedded argillaceous limestone and massive limestone. With this important finding, the
Company has demonstrated that the Shajinba-Baimashi Gold Trend is continuous over the distance of 7.0km.
The following table provides a summary
of the significant results:
|
Trench ID
|
Au
(g/t)
|
Length
|
Comments
|
|
YJB-12-15
|
1.6
|
1.0
|
One channel sample
|
|
YJB-12-16
|
1.05
|
8.0
|
One channel sample
|
|
YJB-12-16
|
12.81
|
0.8
|
Six channel samples, including 5.17 g/t Au over 1.0 m
|
|
YJB-12-22
|
1.26
|
1.0
|
One channel sample
|
|
YJB-12-22
YJB-12-31
|
1.23
0.82
|
1.0
2.0
|
One channel sample
Two channel samples
|
The Paziba Target is a continuous fault
zone which divides silicic metasediments in the footwall and thick-bedded to massive limestone in the hangingwall and contains
discontinuous lenses of ferriferous gouge and veinlets of hematite. In the third quarter of 2012 six trenches were completed to
test the zone of highly hematitic mineralization with gold at the contact between metasediments and limestone. The best intersections
averaged 2.66 g/t Au over 3.0 m in trench YJB-12-58 and 0.77g/t Au over 7.8 m in trench YJB-12-59.
Traverses carried out in third quarter
of 2012 in the northern part of the Shajinba-Yangjiagou permit approximately 4.0km north from the Shajinba Zone discovered a continuous
fault zone. A majority of the samples taken from the zone returned less than 0.1 g/t Au but two grab samples from massive hematite
with superimposed silicification returned 18.9 g/t Au and 23.4 g/t Au. The width of the hematite veinlet is 0.3 m. Another grab
sample from decarbonatized ferrif
erous breccia returned 39.5 g/t Au.
|
III.
|
|
TUGURIGE
GOLD PROJECT
|
On December 16, 2010, Minco China entered
into a JV agreement with the 208 Team, a subsidiary of China National Nuclear Corporation, to acquire a 51% equity interest in
the Tugurige Gold Project located in Inner Mongolia, China. The 208 Team did not comply with certain of its obligations under the
JV Agreement, including its obligation to set up a new entity (the “JV Co”) and the transfer of its 100% interest in
the Tugurige Gold Project to the JV Co. As a result, Minco China commenced legal action in China seeking compensation.
On March 25, 2013, Minco China settled
its claim against the 208 Team relating to the JV Agreement for an amount of RMB 14 million ($2.4 million). The Company received
RMB 5 million ($801,395) during 2013 and had recognized a receivable of RMB 4 million ($699,688) (settled subsequent to year end)
as at December 31, 2013. The Company recorded a gain on legal settlement, net of accrued legal fees of RMB 900,000 ($157,425) during
the year ended December 31, 2013.
As at December 31, 2013, the remaining
RMB 5 million ($874,575) balance due under the legal settlement were not recognized due to the uncertainty of collectability.
Minco China has
reserved the right to take further legal action.
|
IV
.
|
|
Fuwan
Silver Project of Minco Silve
r
|
Current Developments on the Fuwan Silver
Project
Minco Silver has made great efforts to
regain the support of local communities for the development of the Fuwan Silver Project before the submission of the revised Environmental
Impact Assessment (“EIA”) report. Minco Silver has had productive communication with the Zhaoqian District government
and the Gaoyao County government. Due to the fact that the last public survey was carried out in 2008, Minco Silver conducted a
new extensive public survey among local communities concerning the development of the Fuwan Silver Project, and obtained a very
strong support from the locals. On May 26, 2013, the Gaoyao County government issued an official approval of the development of
the Fuwan Silver Project to Foshan Minco.
Minco Silver successfully renewed the
Fuwan Exploration Permit for a two-year period ending on July 20, 2015. The Preliminary Mine Design for the Fuwan Project was completed
by China Nerin Engineering Co. Ltd in 2013.
Several large mining groups in China have expressed
an interest in the Fuwan Silver Project in late 2012. Minco Silver hosted site visits, data reviews, and preliminary discussions
with those groups; however no definitive agreements have been concluded as at the date hereof. Minco Silver’s strategy is
to secure a large Chinese mining group as a business partner.
Minco Silver has continued its focus on
the EIA report and the permitting process in order to apply for a mining license for the Fuwan Silver Project.
Minco Silver engaged the Guangdong Nuclear
Design Institute (“GNDI”) to complete the Chinese Regulatory EIA report in 2010. The EIA report was reviewed by a technical
panel appointed by the Department of Environmental Protection Administration of Guangdong Province in principle on March 7, 2010
with certain comments. Minco Silver submitted the revised report to the Department in December 2010 after addressing the comments
received from the panel.
Minco Silver engaged General Station for
Geo-Environmental Monitoring of Guangdong Province (“GSGEM”) for a water monitoring study to comply with the new water
regulations issued by the Ministry of Environmental Protection of China effective on June 1, 2011. GSGEM carried out the required
monitoring study and prepared all reports required for compliance with the new National Water Guidelines. Minco Silver successfully
completed the field work in January 2012 and received the comprehensive water monitoring report from GSGEM in April 2012. The report
concluded that Minco Silver is in compliance with the requirements of the new National Water Guidelines.
The revision of the EIA report has been
completed incorporating the results from the water monitoring survey report. The revised EIA report will be submitted to the Department
of Environmental Protection of Guangdong (“EPA”) as soon as they accept new application of EIA reports. The delay in
approval of the EIA report on the Fuwan Silver Project has been due to the negative impact caused by the collapse of the tailing
dam of an operating mine in Guangdong Province three years ago. The preliminary mine design is near completion and will be released
after the requirements from the approved EIA report are met. Minco Silver has otherwise
made significant progress in permitting on the Fuwan Silver Deposit. The progress is summarized as follows:
-
The Chinese Preliminary Feasibility Study was completed by Changsha Non-Ferrous Mine Design Institute
and approved by an expert panel.
-
The Mining Area Permit covers approximately 0.79 km
2
, defines the mining limits of the Fuwan
Silver Deposit and restricts the use of this land to mining activities. The Permit was approved by MOLAR and renewed subsequent
to the original approval in October 2009. The current permit expires on April 10, 2014. The Company is in the process of renewing
this permit with the MOLAR.
-
The Soil and Water Conservation Plan was completed and approved.
-
The Land Usage Permit was approved by Gaoming County, Foshan City and Guangdong provincial governments.
It was renewed for a one year period until December 31, 2014.
-
The Geological Hazard Assessment was completed and approved in September 2009.
-
The Mine Geological Environment Treatment Plan was reviewed and approved by the Environment Committee
of China Geology Association.
-
The preliminary Safety Assessment draft report was completed in December 2011 and submitted to the Safety
Bureau of Guangdong Province for approval.
Disclosure of information of a technical
or scientific nature for the Fuwan Project has been disclosed in two Technical Reports and a news release describing the results
of a resource update, filed on SEDAR and can be accessed at www.sedar.com or on Minco Silver’s website at www.mincosilver.com.
They are as follows:
The NI 43-101 compliant technical report
entitled “Technical Report and Updated Resource Estimate on the Fuwan Property Guangdong Province, China”, dated January
25, 2008, prepared by Eugene Puritch, P. Eng. Ontario, Tracy Armstrong, P. Geo Ontario, and Antoine Yassa, P.Geo. Québec,
all of P&E Mining Consultants Inc, includes relevant information regarding the data, data validation and the assumptions, parameters
and methods of the mineral resource estimates on the Fuwan Project.
“Minco Silver announces a 31% increase
in the Indicated Resource on its Fuwan Silver Project” Minco Silver Corporation News Release, May 12, 2008.
“Fuwan Silver Project Feasibility
Study Technical Report” effective date September 1, 2009 prepared by John Huang, P.Eng., S. Byron V. Stewart, P.Eng., Aleksandar
Živković, P.Eng. and Scott Cowie, B.Eng, MAusIMM all of Wardrop and Eugene Puritch, P.Eng. of P&E Mining Consultants
Inc. and all qualified persons for NI 43-101. This technical report includes relevant information regarding the data, data validation
and the assumptions, parameters and methods used in determining the ore reserves on the Fuwan Project.
All other disclosure of a scientific or
technical nature in this Annual Report was reviewed and approved by Thomas Wayne Spilsbury, an independent director of Minco Silver,
a Member of the Australian Institute of Geoscientists and a Fellow of the Australasian Institute of Mining and Metallurgy CP (Geo)
and a “qualified person”, as defined in NI 43-101.
LOCATION
The Fuwan Silver deposit is adjacent to
the Company’s Changkeng Gold Project, approximately 45 km southwest of Guangzhou, the capital city of Guangdong Province.
Access to the property is via the Guangzhou - Zhuhai highway, which passes through Gaoming City. The property is located 2 km via
gravel road northwest of the town of Fuwan (population 30,000). The town of Fuwan is well connected by paved highway and expressways
to major cities, including Guangzhou (70 km), Gaoming (15 km), and Jiangmen (60 km). The Fuwan property is also accessible by water
on the Xijiang River to major cities like Guangzhou, Zhaoqing and Jiangmen, as well as to international waterways in the South
China Sea. Electrical power, water, telephone service, and supplies are available in Fuwan. The proposed mine site is large enough
to accommodate tailings and waste disposal areas, and processing plant sites.
OWNERSHIP
On July 2005, MOLAR approved the transfer
of Exploration Permit for the Fuwan project ("Exploration Permit") to Minco China from the 757 Exploration Team. The
cost of the Exploration Permit in respect of the Fuwan Silver Project was independently appraised at approximately $1.47 million
(RMB10,330,000). Minco Silver paid the entire amount for the Exploration Permit to the 757 Exploration Team.
The Company has four reconnaissance survey
exploration permits on the Fuwan Silver Deposit, having a total area of 153.04 sq. km, covering a major part of the northeast-trending
Fuwan silver belt which hosts the known gold and silver occurrences in the Sanzhou basin, including the Fuwan silver and Changkeng
gold deposit in which Minco Gold owns a 51% interest. The exploration permit for the Fuwan main deposit area is the Luoke-Jilinggang
(57.16 sq. km.). This was renewed by MOLAR for a two-year period ending on July 20, 2015. Another three silver exploration permits
on the Fuwan belt, referred to as Guyegang (55.88 sq. km.), Hecun (12.7 sq.km.), and Guanhuatang (27.3 sq.km.), are held by Minco
China in trust for Foshan Minco. These three permits were renewed for a two year period ending on April 7, 2014. Minco Silver has
a 90% beneficial interest in Foshan Minco, the operating company and permits holder for the Fuwan project, subject to a 10% beneficial
interest held by Guangdong Geological Bureau.
EXPLORATION PROGRAM
Minco Silver conducted a comprehensive
exploration program on the Fuwan Project between 2005 and 2008. The exploration program includes a six phases of drilling totaling
260 drill holes comprising 69,074 meters of diamond drilling over both the Fuwan Silver Deposit and the surrounding regional area,
detailed hydrological studies for the Fuwan deposit area, metallurgical testing, and geotechnical studies. An exploration report
was prepared on the Fuwan deposit at the end of the exploration program and was approved by MOLAR.
RESOURCE ESTIMATES
Diamond drill data from a total of 422
holes was used for the resource calculation in the updated resource estimate. These programs were conducted on a 60m x 60m diagonal
spacing within the existing 80m x 80m rectangular drill grid spacing. The Fuwan Silver Deposit remains open along strike to the
southwest and up and down its relatively flat dip to the northwest and southeast.
The resource estimate for the Fuwan Silver
Deposit includes Au, Pb and Zn credits and has an indicated resource of approximately 16.0 million tonnes at 182g/t Ag, 0.20g/t
Au, 0.20% Pb and 0.57% Zn and an inferred resource of 11.2 million tonnes at 174g/t Ag, 0.26g/t Au, 0.27% Pb and 0.73% Zn. Details
of the resources for the silver mineralization of the Changkeng and Fuwan properties are shown in the following table.
Resource Estimate
1
@ 40g/t
Ag Cut-Off Grade.
|
Resource Area & Classification
|
Tonnes
|
Ag (g/t)
|
Ag (oz)
|
Au (g/t)
|
Pb (%)
|
Zn (%)
|
|
Fuwan Permits Indicated
|
13,948,000
|
188
|
84,268,000
|
0.17
|
0.20
|
0.56
|
|
Changkeng Permit Indicated*
|
2,027,000
|
142
|
9,235,000
|
0.40
|
0.20
|
0.61
|
|
Total Indicated
|
15,975,000
|
182
|
93,503,000
|
0.20
|
0.20
|
0.57
|
|
|
|
|
|
|
|
|
|
Fuwan Permits Inferred
|
10,241,000
|
171
|
56,147,000
|
0.26
|
0.26
|
0.72
|
|
Changkeng Permit Inferred **
|
1,049,000
|
212
|
7,136,000
|
0.29
|
0.37
|
0.86
|
|
Total Inferred
2
|
11,290,000
|
174
|
63,283,000
|
0.26
|
0.27
|
0.73
|
Notes:
|
|
*
|
The indicated resources reported on the Changkeng permit represent 51% of the actual indicated
resources which reflects the proportion of ownership by Minco Silver. Total Changkeng indicated silver resources are 4,054,000
tonnes and 18,470,000 ounces of silver.
|
|
|
**
|
The inferred resources reported on the Changkeng permit represent 51% of the actual inferred resources
which reflects the proportion of ownership by Minco Silver. Total Changkeng inferred silver resources are 2,098,000 tonnes and
14,272,000 ounces of silver.
|
|
|
1
|
Mineral resources which are not mineral reserves do not have demonstrated economic viability. The
estimate of mineral resources may be materially affected by environmental, permitting, legal, title, taxation, sociopolitical,
marketing, or other relevant issues.
|
|
|
2
|
The quantity and grade of reported inferred resources in this estimation are conceptual in nature
and there has been insufficient exploration to define these inferred resources as an indicated or measured mineral resource and
it is uncertain if further exploration will result in upgrading them to an indicated or measured mineral resource category.
|
For the purposes of the resource update
report, the resource was defined using the April 2008, 24 month trailing average metal prices of US$13.69/oz Ag, US$710/oz Au,
US$1.01/lb Pb and US$1.48/lb Zn. Costs of $12.00/tonne for mining, $11.50/tonne for processing/tailings management and $5.50/tonne
for G&A for a total of $29.00/tonne and a process recovery of 97% for Ag, along with Au, Pb & Zn credits of approximately
$10.00/tonne were utilized to derive a cut-off grade of 40 g/t Ag.
FEASIBILITY STUDY
The Fuwan silver deposit (the "
Deposit
")
falls into the broad category of sediment-hosted epithermal deposits and is characterized by 8 zones of vein and veinlet mineralization
within zones of silicification. Zones 7 and 8 are not included in the reserve estimate. The predominant sulphide minerals are sphalerite
and galena with lesser pyrite, as well as rare arsenopyrite, chalcopyrite, and bornite.
On September 1, 2009, the Feasibility Study
was completed by Wardrop. The results of this study were released to the public through a press release on September 28, 2009.
The Study defines an operation based on underground mining and milling of the ore producing a silver/lead
concentrate and a zinc concentrate on site in the township of Fuwan, approximately 45km southwest of the provincial capital of
Guangzhou, China.
Detailed technical information on the Fuwan
Project, including project description and location, climate, local resources, infrastructure, physiography, history, geological
setting, exploration, mineralization, drilling sampling and mineral resource estimates, can be found in the Fuwan Technical Report,
the entirety of which is incorporated by reference herein.
The following summary has been extracted
from the technical reports respecting the Fuwan Silver Project referenced at the beginning of this section.
The Fuwan silver-gold-lead-zinc deposit
is owned by Minco Silver and is located in Guangdong province of southern China, about 45 km southwest of the provincial capital
Guangzhou. The deposit was tested with 422 holes up to May 2008 with an aggregate length of approximately 96,000 m.
In November 2007, SRK Consulting Canada
Inc. ("
SRK
") completed a Preliminary Economic Assessment of the Fuwan deposit, "Preliminary Economic Assessment
– Fuwan Silver Deposit", filed on SEDAR.
In May 2008, Changsha Engineering and Research
Institute of Nonferrous Metallurgy ("
CINF
") completed a Pre-feasibility Study (Chinese language, non NI 43-101
compliant).
In October 2009 Wardrop produced a NI 43-101
compliant Feasibility Study of the Fuwan property, "Fuwan Silver Project Feasibility Study Technical Report" which has
been filed on SEDAR,
The principal consultants utilized by Minco
Silver in the preparation of the Fuwan Technical Report are as follows:
|
|
·
|
Wardrop – mining, processing, capital cost (mining) and financial analysis
|
|
|
·
|
P&E – geology and resource estimation
|
|
|
·
|
Environmental Resources Management – environmental
|
|
|
·
|
China Nerin Engineering Co. Ltd. ("
NERIN
")/Wardrop – infrastructure, overall
site water management, hydrogeology, tailings and waste rock disposal, and capital cost (excluding mining).
|
GEOLOGY & RESOURCE ESTIMATION
The Fuwan silver deposit is located at
the northwest margin of a triangular Upper Paleozoic fault basin at the juncture of the northeast-trending Shizhou fault to the
northwest, the east-west trending Dashi fault to the south, and the northwest trending Xijiang fault to the northeast. There are
known precious and base metal occurrences and deposits that occur predominantly along the margins of the basin.
The basin contains Lower Carboniferous
limestone and unconformable overlying Triassic siliciclastic rocks. A low-angle fault zone (from several to tens of metres in thickness)
is developed along the contact between the Lower Carboniferous unit and the Upper Triassic unit, and is occupied by lenticular
zones of brecciated limestone and silicified sandy conglomerate. The fault zone may have acted as both a conduit for mineralizing
fluids and as a host for the silver mineralization in the area. Second order faults, parallel to the major fault and also containing
silver mineralization, occur in the footwall limestone.
The Fuwan silver deposit falls into the
broad category of sediment-hosted epithermal deposits and is characterized by vein and veinlet mineralization within zones of silicification.
The predominant sulphide minerals are sphalerite and galena with lesser pyrite, as well as rare arsenopyrite, chalcopyrite, and
bornite. The deposit is poor in gold (typically <0.2 ppm).
Diamond drill data from 231 out of a total
of 422 holes were used for the resource calculation. Most holes were drilled at 80 m spaced sections and the central portion of
the deposit was drilled at 40 m spaced sections that gave an effective 60 m x 60 m diagonal drill pattern.
Eight zones of silver mineralization have
been identified:
|
|
·
|
Zone 1, lying entirely within the fault plane, contains a relatively large volume of silver
|
mineralization particularly
in the west part.
|
|
·
|
Zone 2, partially within the brecciated and silicified fault zone, contains the greatest volume
of silver mineralization.
|
|
|
·
|
Zone 3 occurs in the footwall of the main fault zone.
|
|
|
·
|
Zones 4, 5, and 6 are situated entirely within the footwall along planar fractures in the limestone.
|
|
|
·
|
Zone 7 is located in the Luzhou area, along strike to the southwest of the main Fuwan silver deposit.
|
|
|
·
|
Zone 8 is located on the east side of the Xijiang River, along strike to the north east of the
main
|
Fuwan silver deposit.
Zones 7 and 8 are not included in the Fuwan
resource estimate. The following is a summary of the May 2008 Fuwan resource estimate prepared by P&E at a cutoff of 40 g/t
silver.
Table 1.1 Resource Estimate Summary at a
40 g/t Silver Cutoff – May 2008
|
Resource Area & Classification
|
Tonnes
|
Ag
(g/t)
|
Au
(g/t)
|
Pb
(%)
|
Zn
(%)
|
|
Fuwan Permit Indicated
|
13,948,000
|
188
|
0.17
|
0.20
|
0.56
|
|
Fuwan Permit Inferred
|
10,241,000
|
171
|
0.26
|
0.26
|
0.72
|
Notes:
|
|
·
|
Mineral resources which are not mineral reserves do not have demonstrated
economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, title. Taxation,
socio-political, marketing, or other relevant issues.
|
|
|
·
|
The quantity and grade of reported inferred resources in this estimation
are conceptual in nature and there has been insufficient exploration to define these inferred resources as an indicated or measured
mineral resources and it is uncertain if further exploration will result in upgrading them to an indicated or measured mineral
resources category.
|
|
|
·
|
The mineral resources in this report were estimated using the Canadian
Institute of Mining, Metallurgy and Petroleum ("CIM"), CIM Standards on Mineral Resources and Reserves, Definitions and
Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by CIM Council December 11, 2005.
|
MINING
Reserve Estimate
The resource estimate provided by P&E
classified the resources for the Fuwan Zones 1 to 4 as indicated and inferred (Table 1.1). Only indicated mineral resources as
defined in NI 43-101 were used to establish the probable mineral reserves. No reserves were categorized as proven.
Some of the wireframes for the resources
provided geologically improbable shapes in the indicated resources in the May 2007 block model that would be difficult to mine.
The mine design battery limit was to accept the resource estimate and interpretation at face value and prepare a mine design around
it.
It will be essential for infill drilling
to be undertaken during the basic engineering and detailed mine design phases for the production of detailed stope and development
layouts for construction and mining. It is also Wardrop's opinion that there appeared to be no marker horizons to follow high grade
zones within the limestone. It will be difficult if not impossible to follow economic mineralization visually during mining. Infill
drilling will be essential to define the true ore body outlines ahead of development and stoping.
In order to obtain the mining permits in
China, it is necessary to use an official Chinese resource estimate prepared according to Chinese codes. The Chinese resource may
not be the same as the NI 43-101 resource used for this study.
Wardrop received the block model that was
used for the P&E resource estimate then applied mining and economic parameters to the model in order to form the basis of the
reserve estimate. Since the deposit is polymetallic, it was decided to estimate the net smelter return (NSR) for each block in
the model in order to design the stope outlines and evaluate economic viability.
The NSR value was calculated assuming the
three-year historical average metal prices from the London Metal Exchange (LME) as at May 31, 2009:
Factors for each contributing metal were calculated
and inputted into the block model to calculate the NSR for each block within the model. The metallurgical and smelting metal recoveries,
smelter and refining charges, and metal prices were incorporated into the following NSR formula:
NSR = (0.31 * in-situ g/t Ag grade) * (6.07
* in-situ g/t Ag grade) *
(311.66 * in-situ % Pb grade) * (1,563.94
* in-situ % Zn grade)
NSR Cutoff Value
A cutoff value of US$37.13/t NSR was used for
the reserve estimate and was selected based on estimated
operating costs as shown in Table 1.2.
Table 1.2 - Operating Costs for the Reserve
Estimate
|
Area
|
Unit Cost
(US$/t)
|
|
Mine
|
18.41
|
|
Process
|
10.77
|
|
Tailings Management
|
1.30
|
|
Surface Services
|
0.79
|
|
General & Administrative
|
5.86
|
|
Total
|
37.13
|
Wardrop used a stope recovery factor of 95%,
an average mining extraction rate of 97%, and an average 7% internal dilution, 8% external dilution, and 3% full dilution to estimate
the total amount of diluted probable mineral reserves. Ore reserve calculations conservatively assumed dilution to contain no metal.
The probable mineral reserve estimate is 9,117,980 t at 189 g/t Ag, 0.146 g/t Au, 0.196% Pb, and 0.566% Zn. Table 1.3 lists the
reserve estimate by zone.
Table 1.3 - Probable Reserve Estimate Summary
|
Zone
|
Tonnes
|
Ag
(g/t)
|
Au
(g/t)
|
Pb
(%)
|
Zn
(%)
|
|
1
|
1,327,580
|
186
|
0.180
|
0.064
|
0.324
|
|
2
|
4,806,443
|
192
|
0.167
|
0.177
|
0.568
|
|
3
|
2,451,699
|
192
|
0.105
|
0.257
|
0.636
|
|
4
|
532,259
|
150
|
0.068
|
0.421
|
0.822
|
|
Probable Mineral Reserve
|
9,117,980
|
189
|
0.146
|
0.196
|
0.566
|
Geotechnical
In general, the ground conditions within
the ore body are predicted to be good with few localized stability problems. However, at the unconformity, particularly difficult
ground conditions are expected with a fault zone that will probably be exposed in immediate stope backs.
The recommended support for waste development
is as follows:
|
|
·
|
backs – 2.4 m long bolts on 1.2 m by 1.2 m pattern
|
|
|
·
|
walls – 2.4 m long bolts on 1.5 m by 1.5 m pattern
|
|
|
·
|
allow 25% coverage with a welded wire mesh square measuring 100 mm by 100 mm with 4 mm diameter
wire
|
|
|
·
|
allow 25% coverage with shotcrete 50 mm nominal thickness.
|
Areas that intersect the unconformity will
require full bolt, mesh, and shotcrete support.
Stopes have been sized to avoid the use
of cable bolting. Drift-and-fill stopes will be 4 m wide with the unconformity in back, and 6 m wide with no unconformity. Any
stope back with the unconformity exposed will require full bolt, mesh, and shotcrete support.
Hydrogeology
Wardrop performed a hydrogeological review
of the available data. This review incorporated the results of field investigations undertaken by the local consultant 757 Exploration
Team on the Fuwan exploration area and the adjacent Changkeng exploration area in 2007 and 2008, as well as historic information
from a variety of sources.
The scope of the recent hydrogeological
investigations included the performance of 29 small scale pumping tests on a series of 13 geological exploration holes converted
to groundwater monitoring and test wells. These tests were undertaken on multiple formations within each monitoring well, or at
multiple pumping rates in order to allow for assessment of the hydrogeological characteristics of the various geological units.
The results of these test indicated that the sandstone unit was in general a low conductivity unit, with limited potential for
groundwater production. In some boreholes, high conductivities were noted, potentially due to interconnectivity with the underlying
carbonate unit. The carbonate unit, which has been extensively affected by a shallow fault zone passing along the sandstone/ carbonate
interface (referred to as the unconformity), demonstrates karst conditions (i.e., solution enlarged fracturing and void spaces).
Pumping tests performed on this unit suggested a moderate rate of groundwater production.
Two large scale pumping tests were subsequently
undertaken, one in the Fuwan exploration area and one in the Changkeng exploration area. These tests involved the long term pumping
(4 to 7 days) of a reamed out exploration borehole at rates of 15 to 24 L/s, and the regular monitoring of water levels in a series
of surrounding monitoring wells completed in both the carbonate unit and the overlying sandstone. Analysis of the resulting pumping
test data showed the carbonate unit to have a relatively high conductivity (1.1. x 10-5 m/s) and good hydraulic connectively over
a large area (drawdown cone 9 m deep at the pumping well and extending at least 1.5 km in all directions). This pumping test data
also suggests that the geological faults in the area do not have any significant influence on the drawdown cone so likely do not
act as a source of groundwater recharge.
Although this testing did not identify
any significant concern with respect to the faults, the scale of the pumping test response indicates that the karst formation is
highly connected over a significant area with a transmissivity at the high end of the published range for carbonate systems.
Preliminary estimates for groundwater inflow
into a simplified single stope running along the base of the mineral deposit (260 m below sea level) over its entire length (1100
m) were developed using a variety of standard formulas. These formulas applied to dewatering of a linear excavation, relative comparison
to local recorded dewatering requirements, simplified water balance, and general inflow into a tunnel excavation. These preliminary
estimates suggested that groundwater inflow could potentially be in the range of 4,550 to 27,011 m3/day. Due to the natural heterogeneity
of the subsurface conditions, inflow rates within certain excavation areas may be higher or lower than this average rate, with
initial rates also being higher than later stage flow rates. There remain some unknown areas and further work is required to better
understand the underground hydrogeology.
In order to refine the potential groundwater
inflow rates, the existing geological and hydrogeological information, along with surface water and meteorological data, as collected
by various parties should be compiled into a detailed hydrogeological model of the area, and calibrated against the existing large
scale pumping test data set. Supplementary pumping test in the area of the F3 Fault should also be considered in order to complete
the data set.
Due to the potential for large volume groundwater
inflows into the proposed mine excavations, predictive and mitigations measures such as probe hole advancement in all proposed
excavation areas, the installation of groundwater collection and drainage galleries, and the installation of water tight doors
or bulkheads at regular intervals will be required.
The potential for interconnection with
the Xijiang River and proposed underground mine workings have been evaluated qualitatively from a geological point of view by the
757 Exploration Team. Their interpretation was that the fine river bottom sediments (clay and silt) and low conductivity T3 unit
underlying the river area would minimize direct hydraulic connection between the river and the Fx1 + C1 water bearing unit. The
primary potential source of connection was therefore the apparent Changkeng, F2 and F3 fault traces which appear to extend out
under the river. The SRK report indicated that the Xijiang River appears to be poorly connected hydraulically with the proposed
underground mine envelope in the areas tested.
Mining Methods
Minco Silver will develop a mechanized
mine at the Fuwan deposit. A 2 m minimum mining height was adopted for mechanized mining. The selection of a mining method is dependent
upon ore body geometry, ground conditions, and ore grade.
Drift-and-fill mining, and a small amount
of room-and-pillar mining, will be used for flat lying zones. As the ore body has reasonably good grades, a trade-off study was
undertaken to assess at what grade it would be worth backfilling with cemented fill and carrying out a primary/secondary drift-and-fill
type mining method allowing 100% extraction without leaving any ore pillars.
Ore zones with lower grades will be mined
by the room-and-pillar method. This method is selective and zones of low grade can be left as pillars. A variation of this method
is post pillar cut-and-fill: where the ore height is greater than 6 to 7 m, the panel is taken in two cuts. The first cut is taken
and backfilled, then a second cut is taken over the top of the first cut working off the backfill.
Stope and pillar dimensions, ground support
in development headings, and stopes will depend on ore body geometry and ground condition.
The cut-and-fill method will be used for
ore zones dipping between 15° and 50°. In order to minimize waste development, Wardrop recommends using in-ore twin ramp
development. Each panel will be about 100 m long and typically 60 m vertically. Twin ramps will be driven in ore from top and bottom
access to meet in the middle of the stope. A minimum 3 m-wide pillar (or a 1:1 ore to pillar width) will be left between the ramps.
The ramp below the pillar must always remain open for air passage and provide through-ventilation. After the ventilation airway
is no longer needed, the pillar could be recovered; however, any estimate should only assume an effective 50% recovery of the pillar.
Backfill
All stopes will be backfilled after mining
is completed. Free draining hydraulic backfill was selected as the most appropriate method due to the flat-lying and relatively
large horizontal extent of the ore body, coupled with the distant location of the process plant and difficulties with access above
the ore body. This backfilling method will allow up to 45 to 50% of the tailings to be disposed of as hydraulic backfill underground,
reducing the required size of the surface tailings pond.
Backfill will be prepared from tailings
produced in the plant and distributed to the underground stopes by a pipeline through the main access ramp. For primary stope filling
in drift-and-fill, 5% cement will be added. Backfill for cut-and-fill, room-and pillar, and secondary stopes of drift-and-fill
mining will not be cemented.
Mine Access
The mine will be accessed by a single decline
developed at gradient of -15%. It will be used for access of personnel, equipment, materials, and services; it will also be utilized
as an intake airway.
The location of the decline portal was
selected on the south-west side of the deposit near the process plant. The size of the decline was selected at 4.5 m wide by 4.5
m high to accommodate the mining equipment and provide required clearances.
The four levels will be developed for haulage
and for provision of fresh air supply to mining blocks. Ventilation access drifts will be excavated to connect the level development
and ramps to the ventilation raises.
The 4.0 m diameter central south fresh
air intake ventilation raise will have a manway equipped with ladders and platforms to provide an auxiliary exit from the mine
in case of emergency. Two 4.0 m diameter exhaust raises will be developed on the east and north side of the ore body and will be
connected to the level development to provide flow-through ventilation. They will also be equipped with ladders.
Another 3.0 m diameter fresh air ventilation
raise will be constructed in Year 6 of production on the west side of the deposit to provide intake air for mining block #201,
and will be equipped with a man-way for emergency exit.
Development headings will be driven with
electro-hydraulic twin boom jumbos. Ventilation raise development will be done by raise boring crews.
The broken rock will be mucked from the
face by a 7 t load-haul-dump (LHD) and hauled by 25 t trucks to the surface waste dump. The same equipment will be used for mucking
broken ore from the production stopes and hauling to the mill for processing.
A 7 t capacity LHD with a 4.0 m3 bucket
and a 25 t underground mine truck with a 13.0 m3 box were selected for ore and waste haulage.
A summary of ore and waste production is
provided in Table 1.4.
Table 1.4 Production by Material Type
|
Year
|
Ore (tonnes)
|
Waste (tonnes)
|
Total (tonnes)
|
|
-2
|
|
83,515
|
83,515
|
|
-1
|
|
226,832
|
226,832
|
|
1
|
990,0000
|
83,486
|
1,073,486
|
|
2
|
990,0000
|
83,720
|
1,073,720
|
|
3
|
990,0000
|
63,183
|
1,053,183
|
|
4
|
990,0000
|
52,480
|
1,042,480
|
|
5
|
990,0000
|
57,452
|
1,047,452
|
|
6
|
990,0000
|
43,329
|
1,033,329
|
|
7
|
990,0000
|
11,932
|
1,001,932
|
|
8
|
990,0000
|
20,108
|
1,010,108
|
|
9
|
990,0000
|
19,887
|
1,009,887
|
|
10
|
207,981
|
|
207,981
|
|
Total
|
9,117,981
|
745,924
|
9,863,905
|
Personnel requirement estimates are based
on the mine production rate and mine schedule. A mining contractor will begin work in the pre-production development stage to allow
time for the owner to recruit staff for the project. The contractor will continue mine access development during production.
Underground staffing requirements peak
at 54 personnel during full production, including 9 mine operating and 5 mine maintenance salaried dayshift personnel, 32 shift
technical staff, and 8 shift supervisors. Underground hourly labor requirements peak at 312 in Year 5 during full production, including
248 mine operating and 64 mine maintenance hourly personnel. The personnel requirements do not include the labor required for access
development performed by the contractor.
Mine Services
A two-bay sump will be located at the bottom
of the mine and will be constructed to allow suspended solids to settle out of the ground water before pumping. The sump will be
equipped with four high-pressure pumps: two working and two on stand-by. A 300 mm (12″) diameter steel dewatering pipe will
be installed in the main access decline to pump water from the sump to the final tailing pump box on surface.
Industrial-quality water will be distributed
in 4″ and 2″ diameter pipelines throughout the underground workings for drilling equipment, dust suppression, and firefighting.
The major electrical power consumption in the mine will be from the main and auxiliary ventilation fans, drilling equipment, and
mine dewatering pumps A high voltage cable will enter the mine via the main access decline and will be distributed from the main
underground substation via boreholes to electrical substations located on each sublevel. High voltage power will be reduced to
600 V at electrical sub-stations. All power will be three-phase; lighting and convenience receptacles will be single phase 127
kV power.
A leaky feeder communication system will
be installed throughout the mine. The system will interface with the surface communication system. It will be also used for centralized
blasting. Telephones will be located at key infrastructure locations such as the underground electrical sub-stations, refuge areas,
lunchrooms, and pumping stations. Key personnel and mobile equipment operators will be supplied with an underground radio.
The mobile drilling equipment such as jumbos,
rock bolters, and scissor lifts with ammonium nitrate and fuel oil (ANFO) loaders will be equipped with their own compressors.
No reticulated compressed air system will be required. Six portable compressors will be used to satisfy compressed air consumption
for miscellaneous underground operations.
Explosives will be stored on surface in
permanent magazines. Detonation supplies (non-electric [NONEL] and electrical caps, detonating cords, etc.) will be stored in a
separate magazine on the surface.
The underground mobile equipment has an
estimated average fuel consumption rate of approximately 8,556 L/d during the production period. Haulage trucks and all auxiliary
vehicles will be fuelled at fuel stations on surface. The fuel/lube cassette will be used for the fuelling/lubing of LHDs and face
equipment.
The personnel carriers will be used to
shuttle employees from the surface to the underground workings and back during shift changes. Supervisors, engineers, geologists,
and surveyors will use diesel-powered trucks as transportation underground. Mechanics and electricians will use the mechanics'
truck and maintenance service vehicles.
A boom deck with a 10-t crane will be used
to move supplies, drill parts, and other consumables from surface to active underground workings.
A mine service crew will perform mine maintenance
and construction work, ground support control and scaling, mine dewatering, and safety work.
Mobile underground equipment will be maintained
in a mechanical shop located on the surface outside of main ramp access portal. A small underground maintenance shop with an overhead
crane will also be constructed underground to provide maintenance for drilling equipment. A mechanics truck will be used to perform
emergency repairs underground. Major rebuild work will be conducted off site.
Development Schedule
The mine development is divided into two
periods: pre-production development and ongoing development.
The pre-production development period runs
from the start of the project to when the first ore is fed to the process plant. Pre-production development will be scheduled to,
among other things:
|
|
·
|
provide access for trackless equipment
|
|
|
·
|
provide ventilation and emergency egress
|
|
|
·
|
establish ore and waste handling systems
|
|
|
·
|
install mining services (backfill distribution, power distribution, communications, explosives
storage, fuel storage and distribution, water supply, mine dewatering)
|
|
|
·
|
provide sufficient level development in advance of start-up to develop sufficient ore reserves
to support the mine production rate.
|
All underground pre-production development
will be done by contractor with the use of a contractor's equipment, personnel, and supervision. A 130 m per month advance rate
was assumed for a jumbo crew developing a 4.5 m wide by 4.5 m high heading, and 90 m per month for a raise boring crew to drill
a pilot hole and ream it to the 4.0 m diameter.
Underground infrastructure development,
such as dewatering sumps, maintenance shop, and explosives storage, will be completed prior to production.
It is estimated that pre-production development
will be completed in two years. Ore development is not included in the development schedule as it will be part of ore production.
Ongoing sustaining development will continue
to be performed by a contractor during the production stage. The contractor will demobilize from the site in Year 9 when all main
access development is completed.
Table 1.5 - Mine Development Schedule
|
Production Year
|
Unit
|
Pre-production
|
Year
|
Total
|
|
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
9
|
10
|
|
Annual Metres (Horizontal)
|
m
|
5,420
|
1,497
|
1,437
|
1,132
|
950
|
1,040
|
765
|
216
|
364
|
360
|
0
|
13,181
|
|
Annual Metres (Vertical)
|
m
|
462
|
45
|
214
|
37
|
0
|
0
|
61
|
0
|
0
|
0
|
0
|
819
|
|
Total Development
|
m
|
5,882
|
1,542
|
1,651
|
1,169
|
950
|
1,040
|
826
|
216
|
364
|
360
|
0
|
14,000
|
Production Schedule
The annual ore production rate of 990,000
t (including ore from development and stopes) was scheduled based on 330 mine operating days per year with three 8-h shifts.
Criteria for scheduling production included
targeting the mining blocks with higher grade ore in the early stages of mine life in order to improve project economics. The production
sequence of the mining blocks will be from the top down. The number of mining blocks in production will vary from 8 to 10 in most
production years. On average, there will be five stopes in production for drift-and-fill mining and four in production for cut-and-fill.
The only room-and-pillar block will be mined in Year 9.
Table 1.6 - Production Schedule
|
|
Unit
|
Year
|
Total
|
|
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
9
|
10
|
|
Operating Days Per Year
|
d/a
|
330
|
330
|
330
|
330
|
330
|
330
|
330
|
330
|
330
|
70
|
|
|
Mill Feed
|
t
|
990,000
|
990,000
|
990,000
|
990,000
|
990,000
|
990,000
|
990,000
|
990,000
|
990,000
|
990,000
|
9,117,981
|
|
Grade
|
|
Ag
|
g/t
|
214
|
217
|
217
|
205
|
183
|
182
|
177
|
167
|
148
|
137
|
189
|
|
Au
|
%
|
0.171
|
0.169
|
0.158
|
0.157
|
0.150
|
0.157
|
0.151
|
0.138
|
0.079
|
0.076
|
0.146
|
|
Pb
|
%
|
0.194
|
0.194
|
0.146
|
0.148
|
0.120
|
0.189
|
0.235
|
0.242
|
0.263
|
0.372
|
0.196
|
|
Zn
|
%
|
0.584
|
0.614
|
0.506
|
0.541
|
0.483
|
0.487
|
0.615
|
0.595
|
0.637
|
0.709
|
0.566
|
MINERAL PROCESSING AND METALLURGICAL
TESTING
Four main metallurgical testing programs
were carried out on the multiple metal (silver/lead/zinc) mineralization samples from the Fuwan silver deposit in Guangdong province,
China. Samples from different drill holes were composited for the metallurgical testing programs. The test work includes ore hardness
determination, mineralogical determination, flotation concentration, gravity separation, hydrometallurgical process, and ancillary
tests including settling tests and acid base accounting (ABA) tests.
The dominant sulphide minerals in the mineralization
are: pyrite, sphalerite, galena, argentiferous tennantite, tetrahedrite, miargyrite, proustite-pyrargyrite, marcasite, native gold,
bournonite, stephanite, chalcopyrite, and covellite.
The flotation tests included open batch
flotation condition optimization tests, locked cycle tests, and variability tests. The tests indicated that the mineralization
responded well to conventional differential flotation: silver-lead flotation followed by zinc flotation. Although silver hydrometallurgical
extraction was high when the head samples or the concentrate samples were pre-treated by roasting and ultrafine regrinding, the
hydrometallurgical processes had not been considered in the study due to high operating costs and potential environment issues.
A 3,000 t/d process plant has been designed
for the Fuwan Project to process silver bearing lead and zinc sulphide mineralization. The deposit consists of eight major mineralization
zones. The main value metals in the mineralization are silver, lead, zinc, and gold. The process plant will operate 330 d/a at
an annual process rate of 990,000 t/d and three shifts per day. Overall process plant availability will be approximately 90%.
The run-of-mine (ROM) from the underground
mine will be crushed by an 800 mm by 1,100 mm jaw crusher to 80% passing 150 mm, and then ground to 80% passing 100 μm in
a semi-autogenous grinding (SAG, 5.5 m Dia x 3.0 m EGL, 1,250 kW)-ball mill (3.96 Dia x 6.56 L, 1,650 kW)-pebble crushing circuit
(SABC). The silver, lead, and zinc minerals will be recovered by a conventional differential flotation process:
|
|
·
|
silver-lead bulk rougher flotation followed by zinc rougher flotation
|
|
|
·
|
the silver-lead rougher flotation concentrate will be reground and subject to three stages of cleaner
flotation
|
|
|
·
|
the zinc rougher flotation concentrate will be upgraded by three stages of cleaner flotation as
well without regrinding.
|
The tailings produced from the zinc rougher
scavenger flotation circuit will be sent to the tailings management facility (TMF) for the storage and to the underground mine
for hydraulic backfilling. The produced silver-lead concentrate and zinc concentrate will be thickened and then pressure filtered
separately prior to being transported to smelters. Depending on the lead head grade, the silver-lead concentrate may be further
processed to produce a silver concentrate and a lead-silver concentrate.
The average dry concentrate production is forecast
to be as follows:
|
|
·
|
silver-lead concentrate – 15,900 t/a, including:
|
- 154,700 kg/a (4,975,000
oz/a) silver
- 1,600 t/a lead
|
|
·
|
zinc concentrate – 9,300 t/a average, including:
|
- 4,700 t/a zinc
- 15,400 kg/a (495,400 oz/a)
silver.
TAILINGS MANAGEMENT FACILITY
The Fuwan Project includes development
of a new proposed land based tailing management facility (“TMF”) to store up to 2.6 M m3 of the tailings. The tailings
will be the fine fraction classified from the flotation tailings. The TMF will be developed in two stages:
|
|
·
|
Stage 1 Facility - capable of storing initial 8.3 years of tailings deposition through three dam
raises; and,
|
|
|
·
|
Stage 2 – Final Facility capable of storing additional 0.9 years of tailings deposition by
either raising the Stage 1 Facility or on-land storage in a separate facility.
|
Current cost estimate assumes that raising
the Stage 1 TMF Dam (subject design) to accommodate additional 0.9 years of tailings deposition is feasible. However, this is to
be confirmed by subsequent geotechnical and hydrogeological investigations.
Essentially the TMF Dam will be a 56 m
high earth/rock fill structure with a 6 m wide crest and composite HFPE /clay core lining (Zone 1 / Zone 2) on the upstream slope.
The HDPE membrane will be protected by woven bags filled with tailings (Zone 1).
The dam will be constructed in three stages:
|
|
·
|
Stage 1 (3.1 years storage capacity) will be 38 m high with crest at El. 61 m.
|
|
|
·
|
Stage 2 (2.7 years storage capacity) will add additional 10 m bringing the dam crest to El. 71
m.
|
|
|
·
|
Stage 3 (2.5 years of storage capacity) will add another 8 m for the final crest at El. 79 m.
|
Storm water around the TMF will be managed
using the following structures:
|
|
·
|
Perimeter diversion ditch
|
The subject TMF designs have been developed
in between the prefeasibility and feasibility levels. Detailed geotechnical engineering analyses have not been completed and this
may have a potential impact on the current design and cost estimate accuracy because of potential design modifications to be developed
when the results of geotechnical and hydrogeological investigations and laboratory testing have become available. It is recommended
that the geotechnical engineering analysis be conducted to confirm the design before the next phase of engineering.
It is recommended to identify the location
for storing the tailings produced during the rest of the 0.9-year operation. The potential use of the tailings for making bricks
to be included in local infrastructure projects should be further studied and confirmed.
INFRASTRUCTURE AND ANCILLARY
FACILITIES
The project site is close to the town of
Fuwan, which has a well developed paved village level road network. The town is accessible by paved public highways to Guangzhou
and other major cities. The haulage distance between the mine site and the Shanshui railway station, which connects the main stations,
Guangzhou station and Zhanjiang station, is approximately 26 km. The deposit is adjacent to the Xijiang river which is accessible
to an international waterway in the South China Sea via the Zhujiang river.
Electrical power, water, telephone service,
and supplies are available in the town of Fuwan.
The proposed mine site is large enough
to accommodate proposed processing facilities, surface service facilities, waste rock storage areas, as well as an approximately
8.3-year tailing surface storage pond. The surface service facilities will include administration buildings, workshop, explosive
magazine, power and water supply facilities, backfill station, waste water treatment facility and haulage road system.
All buildings of the project will be new
and built according to the Chinese construction codes. Power to the project will be provided via an existing 110 kV utility substation
located in Fuwan town, approximately 4 km from the mine. NERIN and Minco Silver have contacted with the Fushan Power Supply Company
of the South Grid and confirmed that the Fushan substation has sufficient capacity to provide power to the Fuwan mining project.
This substation presently has a single
incoming transmission line and will provide a single 35 kV power line to the mining project. The external 35 kV power line will
be provided by the electrical utility to the mine site. At the mine, a step-down substation (35 kV /10 kV) will be established
consisting of equipment and facilities necessary to service the connected mine loads.
CAPITAL COST ESTIMATE
This estimate has been completed partially
by NERIN and partially by Wardrop. The majority of the information used in the estimate is based on the quantities and pricing
provided by NERIN to Wardrop on March 28, 2009 and additional information and clarifications via email between April 1, 2009 and
April 8, 2009. NERIN indicated that its estimate has an accuracy range of ±25%. The estimate has sufficient detail to provide
a suitable basis for controlling the Engineering, Procurement, and Construction Management (EPCM) phase of the project.
Table 1.7 provides a summary of capital
costs for the Fuwan Project.
Table 1.7
|
Area Cost
Direct Works
|
(US$ x ‘000)
|
|
Mining (provided by Wardrop)
Primary Crushing
Crushed Ore Stockpile and Reclaim
Secondary and Tertiary Crushing
Grinding, Flotation, Dewatering, Reagents &
Service
Tailings Disposal Facilities
Plant Site, Infrastructure & Ancillary
Facilities
Temporary Services
Site/Plant Mobile Equipment
Power Lines (Included in Power Supply)
|
21,637
660
305
52
9,140
4,250
8,627
35
1,190
-
|
|
Direct Works Subtotal
|
45,896
|
|
Indirect
|
|
|
Project Indirect
Land Acquisition
Owner’s Costs
Contingency
|
13,330
2,120
5,663
6,051
|
|
Indirect Subtotal
|
27,164
|
|
TOTAL PRE-PRODUCTION CAPITAL COSTS
|
73,060
|
|
Working Capital and Pre-Production Interest
|
8,300
|
|
Sustaining Capital
|
59,900
|
OPERATING COST ESTIMATE
The operating cost estimates are based
on a process rate of 990,000 t of ore annually or 3,000 t/d of ore. All operating costs are shown in US$, unless otherwise specified.
|
Mining
|
$18.01/t
|
|
|
|
Processing
|
$9.90/t
|
|
|
|
Tailings
|
$1.13/t
|
|
|
|
G&A
|
$4.78/t
|
|
|
|
Surface Services
|
$0.60/t
|
|
|
|
Total
|
$34.42/t
|
|
|
The exchange rate for US and Canadian dollars
to Chinese currency is US$1.00 = ¥6.82 = Cdn$0.82. Mine operating costs are shown in Table 1.8.
Table 1.8 – Mine Operating Cost Summary
- LOM
|
|
Cost
|
|
Total Mine Operating Cost
|
$ 164,234,279
|
|
Average per Tonne
|
$ 18.01/t
|
|
Labour Cost
|
$ 38,124,300
|
|
Average per Tonne
|
$ 4.18/t
|
|
Mining Cost without Labour
|
$ 126,109,979
|
|
Average per Tonne
|
$ 13.83/t
|
On average, the annual process operating cost
is estimated to be approximately $9.80 M or $9.90/t milled. The estimated process operating costs are in Table 1.9.
Table 1.9 – Summary of Process Operating
Costs
|
Description
|
Personnel
|
Annual
Costs (US$)
|
Unit Cost
(US$/t Ore)
|
|
Labour
|
|
Operating Staff
|
10
|
354,240
|
0.358
|
|
Operating Labour
|
46
|
427,680
|
0.432
|
|
Maintenance
|
46
|
469,440
|
0.474
|
|
Metallurgical Laboratory
|
3
|
38,160
|
0.039
|
|
Assay Laboratory
|
13
|
131,760
|
0.133
|
|
Sub-total Labour
|
118
|
1,421,280
|
1.436
|
|
Major Consumables
|
|
Metal Consumables
|
|
2,347,140
|
2.371
|
|
Reagent Consumables
|
|
1,224,780
|
1.237
|
|
Supplies
|
|
Maintenance Supplies
|
|
597,000
|
0.603
|
|
Operating Supplies
|
|
125,000
|
0.126
|
|
Power Supply
|
|
4,085,866
|
4.127
|
|
Sub-total Supplies
|
|
8,379,787
|
8.464
|
|
Total Process
|
118
|
9,801,067
|
9.900
|
The average tailings operating cost is
estimated to be $1.13/t milled.
General and administrative ("G&A")
costs are the costs that do not relate directly to the mining or processing operating costs. The G&A costs are estimated at
approximately $4.73 M/a or $4.78/t milled. The estimated personnel requirement is 61 persons, including supervision and services.
The site service cost is estimated at $0.60/t milled or about $594,000 per annum.
FINANCIAL ANALYSIS
An economic evaluation of the Fuwan Project
was prepared by Wardrop based on a pre-tax financial model. For the 9-year mine life and 9.1 Mt reserve, the following pre-tax
financial parameters were calculated:
|
|
·
|
2.3 years payback on $73.1 M capital
|
|
|
·
|
US$111.5 M net present value (NPV) at an 6% discount value
|
The base case prices are the 3-year historical
average price from the LME as at May 31, 2009:
Sensitivity analyses were carried out to
evaluate the project economics for 2-year historical average metal prices (upside case) and the Energy and Metals Consensus Forecast
("EMCF") published by Consensus Economics Inc. (downside case).
The analyses are presented graphically
as financial outcomes in terms of NPV and IRR in Figure 1.2 and Figure 1.3. The project NPV (6% discount) is most sensitive to
silver price and, in decreasing order: operating cost, capital cost, zinc price, gold price and lead price.
ENVIRONMENTAL
Background
At the time of writing the Minco Silver
Project ESHIA Report, project design was at the Feasibility Stage and hence some mine design details were not available to the
ESHIA team and others were subject to change based on the evolving understanding of the geometry and grade distribution of the
ore body (and hence mine plan) and technical issues relating to ore processing and site facilities' configuration. There is therefore,
some uncertainty with respect some ESHIA findings and it is likely that further baseline investigations (as recommended in the
ESHIA Report) and continuing work on the mine design will necessitate future revision of the ESHIA Report, likely in the form of
an addendum, or of the Environmental, Socio-Economic and (Community) Health Management Plan ("ESHMP").
Project Setting
The mine site area is typified by commercial
plantation and secondary re-growth forest with some grassland areas. Numerous fish ponds are also located close to the mining and
associated surface facility areas, the nearest of which is the Nankeng Reservoir, southeast of the TSF (Figure 1.4). Plantation
forests and fish ponds represent primary and secondary income sources, respectively, for local communities. There are seven villages
within one kilometer of the site as depicted in Figure 1.5.
ESHIA Findings
The ESHIA process assessed the project
for all phases of its life cycle namely, development, operations and decommissioning. Broadly, the project has been assessed to
not result in significant environmental, socioeconomic or community health impacts assuming that industry best practice is implemented
during execution and that additional control measures recommended within the ESHIA are satisfactorily implemented during all project
phases.
The only issues where statutory limits
have been predicted to be exceeded are in relation to dust and transport vehicle night time noise emissions at Shangwanxin Village.
These impacts can however, be adequately mitigated by wetting down the access road during dry and windy conditions and night time
prohibition of transportation movement along the access road.
Notwithstanding the above, there are some
aspects of the mine design and proposed development for which further investigation is considered warranted to be able to fully
understand the environmental, socio-economic and (community) health issues and to confirm that there is no significant risk to
receptors. These are summarized in the following sections.
Mine Blasting
The area to be mined is in close proximity
to Luzhou and Jianggen Villages and the proposed Textile College site. Underground blasting in areas close to these receptors may
result in plumb vibration levels that cause shaking of existing buildings or buildings that may be erected in the near future (i.e.
within the college site). It is recommended that this risk be further evaluated and a blasting plan developed that prescribes and
limits the weight of explosives, the number of holes to be blasted in a single shot and the time delay between blast shots to ensure
that no adverse effects are caused.
Waste Rock and Tailings Storage Facilities
Laboratory tests have demonstrated that
tailings and waste rock have traces of heavy metals and have a low potential to generate acid drainage.
A geotechnical survey of the TSF and WSF
areas is yet to be conducted.
Geotechnical survey data from the mining
area suggests however, that the permeability of soil and rock in the general area is highly variable. There is, therefore, some
uncertainty regarding whether groundwater resources would be at risk from any leached metals or acid drainage from the TSF and
WSF.
It is recommended that a geotechnical survey
be undertaken to determine the permeability of TSF and WSF basement strata and, if found to be permeable, that natural (e.g. compacted
clay) liners be introduced. It is also recommended that groundwater monitoring wells be installed down hydraulic gradient of the
facilities and that these be sampled twice-yearly to confirm whether or not leaching of metals into groundwater or acid drainage
is occurring. These monitoring wells can also be used during decommissioning.
Groundwater Drawdown
Groundwater that enters the mine void will
be collected in a series of sumps and will be pumped to the surface for treatment and subsequent re-use in the process plant or
disposal to the Xi'an Ditch.
The project geotechnical report states
that the maximum groundwater drawdown depth will be 283.83 m and that the permeability coefficient is 0.6815 m/day. The affected
area will therefore, have a diameter of 2,343 m. Groundwater drawdown may result in surface subsidence, cave-ins or fracturing.
Existing groundwater wells within Shanwanxin
and Jianggen Villages are within the predicted groundwater drawdown area and hence, groundwater availability may be affected by
drawdown. As tap water has been provided to these villages, their reliance on the groundwater wells for potable water has reduced.
Fish ponds in Shangwanxin Village are, however, recharged using groundwater and hence may be affected if insufficient groundwater
is available due to drawdown.
It is recommended that additional investigations
into groundwater drawdown be conducted including a water balance study that assesses recharge rates against predicted draw down
rates. The identified potential effects of drawdown should be further quantified where possible.
Geological Hazards – Surface Cave-In
Geological hazards in the mining area include
landslides and surface cave-ins. A total of 19 sites where geological hazards have occurred have been identified including eight
landslide sites and 11 cave-in sites. Among these, one landslide site and two collapse sites are defined as medium-severity and
are in an unstable state.
The three sites are respectively located
near the Fuwan Water Plant, Gaoming-Gaoyao road and the mouth of the valley of the proposed Waste Rock Facility ("WRF").
While the progressive backfilling of mine
voids will assist in maintaining ground stability, it is recommended that additional work be undertaken to better understand the
geotechnical state of ground above the proposed underground mine prior to the commencement of underground mining activities. The
geo-technical survey should be aimed at identifying areas that may be prone to subsidence or cave-in and to determine what third
party properties would be at risk in such a scenario.
Item
5 Operating and Financial Review and Prospects
This discussion and analysis of the operating
results and the financial position of the Company for the financial years ended December 31, 2013, 2012 and 2011 should be read
in conjunction with the consolidated financial statements and the related notes.
General
The Company is in the exploration stage
and had no operating revenue during the years ended December 31, 2013, 2012, and 2011. Since the signing of the Company’s
first co-operative agreement in China in 1995, the Company has been active in mineral exploration, property evaluation and acquisition
in China and plans to build a portfolio of precious metals properties in China.
Results of Operations
For the year ended December
31, 2013 and 2012
Net loss for the year ended December 31,
2013 was $2,943,305 (loss of $0.06 per share) compared to net loss of $4,871,432 (loss of $0.10 per share) for the comparative
period of 2012. The decrease in net loss during the year was mainly due to the gain of $1.34 million on a legal settlement received
from the 208 Team and exploration costs recovery of $622,293 received by Minghzong from the 757 Exploration Team for certain recovery
of exploration costs incurred during the early stages of the Changkeng project.
The Company’s administrative expenses
in 2013 were $2,734,091, which was slightly lower compared to $2,827,565 for the comparative period of 2012.
For the year ended December
31, 2012 and 2011
Net loss for the year ended December 31,
2012 was $4,871,432 (loss of $0.10 per share) compared to a net income of $862,446 (income of $0.02 per share) in the year of 2011.
The Company did not participate in Minco Silver’s bought deal financing of 7,600,000 common shares completed in March 2011
(the “2011 Public Offering”). As a result, the Company recognized a dilution gain of $8,710,000, compared to a dilution
loss of $8,398 in 2012.
The Company’s administrative expenses
decreased by $1,484,250 compared to 2011. The decrease was mainly due to the decrease of share-based compensation by $1,307,504.
Exploration costs
The following is a summary of exploration
costs incurred by each project.
|
|
|
|
|
|
Accumulative to
|
|
|
|
December 31,
|
December 31,
|
December 31,
|
December 31,
|
|
|
|
2013
|
2012
|
2011
|
2013
|
|
|
|
$
|
$
|
$
|
$
|
|
|
Longnan projects
|
1,262,074
|
1,479,979
|
1,870,486
|
10,846,252
|
|
|
Changkeng gold project
|
(361,010)
|
113,207
|
66,522
|
7,918,267
|
|
|
Gold Bull Mountain
|
24,031
|
22,498
|
26,866
|
2,236,241
|
|
|
Sihui
|
2,863
|
1,605
|
-
|
4,468
|
|
|
|
927,958
|
1,617,289
|
1,963,874
|
21,005,228
|
|
|
|
|
|
|
|
|
During the year ended December 31,
2013, the Company did not conduct any exploration activities on the Changkeng Gold Project, Gold Bull Mountain or Sihui, except
for maintaining the exploration permits in respect of each projects.
During the year ended December 31, 2013,
the Company recorded a refund from 757 Exploration Team of $622,293 for certain exploration costs incurred during the early stage
of the Changkeng gold project. The refunded amount was recorded as an exploration cost recovery.
Exploration costs for the year ended December
31, 2012 were $1,617,289 compared to $1,963,874 in the comparative period of 2011. The decrease was mainly due to the delay of
drilling progress on the Longnan project.
Administrative expenses
The Company’s administrative expenses
include overhead associated with administering and financing of the Company’s development activities.
The following table is a summary of the
Company’s administrative expenses for the year ended December 31, 2013, 2012 and 2011.
|
|
December 31,
|
December 31,
|
December 31,
|
|
|
2013
|
2012
|
2011
|
|
Administrative expenses
|
$
|
$
|
$
|
|
Accounting and audit
|
111,905
|
164,843
|
246,900
|
|
Amortization
|
66,746
|
60,689
|
71,919
|
|
Consulting
|
30,453
|
85,932
|
122,654
|
|
Directors’ fees
|
49,749
|
53,000
|
48,527
|
|
Foreign exchange (gain) loss
|
19,692
|
(872)
|
(17,149)
|
|
Investor relations
|
116,814
|
182,290
|
449,813
|
|
Legal and regulatory
|
132,506
|
269,795
|
257,354
|
|
Office administration expenses
|
360,894
|
283,161
|
316,359
|
|
Property investigation
|
112,863
|
12,748
|
117,605
|
|
Salaries and benefit
|
655,585
|
679,310
|
369,242
|
|
Share-based compensation
|
993,331
|
957,305
|
2,264,809
|
|
Travel and transportation
|
83,553
|
79,364
|
63,782
|
|
|
2,734,091
|
2,827,565
|
4,311,815
|
Significant changes in administrative
expenses are as follows:
Accounting and auditing
Accounting and auditing expenses for the
year ended December 31, 2013 were $111,905 compared to $164,843 for the comparative period of 2012. The decrease was due to reduced
audit fees of the external auditor in 2013.
Accounting and auditing expenses for the
year ended December 31, 2012 were $164,843 compared to $246,900 for the comparative period of 2011. The decrease was due to the
Company not engaging its external auditor for IFRS compliance and quarterly review in 2012.
Consulting fees
Consulting fees for the year ended December
31, 2013 were $30,453 compared to $85,932 for the comparative period of 2012. The decrease was due to the departure of the Company’s
former CFO in 2012.
Consulting fees for the year ended December
31, 2012 were $85,932 compared to $122,654 for the comparative period of 2011. The decrease was due to the same reason described
above.
Investor relations
Investor relations expenses for the year
ended December 31, 2013 were $116,814 compared to $182,290 of the comparative period of 2012. The decrease was mainly due to the
reduction in the use of external consultants.
Investor relations expenses for the year
ended December 31, 2012 were $182,290 compared to expense of $449,813 for the comparative period of 2011.The decrease was primarily
driven by a reduction in the use of external consultants for investor relations activities as well as decreased attendance at industry
conferences.
Legal and regulatory
Legal, regulatory and filing expenses for
the year ended December 31, 2013 were $132,506 compared to $269,795 for the comparative period of 2012. The decrease was due to
the Company reducing use of its external legal counsel to assist with regulatory compliance.
Legal, regulatory and filing expenses for
the year ended December 31, 2012 were $269,795, which was consistent with $257,354 for the comparative period of 2011.
Office administrative expenses
Office administrative expenses for the
year ended December 31, 2013 were $360,894 compared to $283,161 for the comparative period of 2012. The increase was mainly due
to the increased in office rent for Minco China. In addition, Minco China had income of $26,000 for renting a driller to a third
party during 2012, which was offset against office administrative expense. No such miscellaneous income and rental income was generated
in 2013. Minco China also paid $19,000 Chinese tax on the sale of two exploration permits in Xicheng East during the first quarter
of 2013 (a gain recognized in 2012).
Property investigation
Property investigation expenses for the
year ended December 31, 2013 were $112,863 compared to $12,748 for the comparative period of 2012. The increase was due to the
hiring of the Vice President of Business Development in November 2012.
Property investigation expenses for the
year ended December 31, 2012 were $12,748 compared to $117,605 for the comparative period of 2011. The decrease was mainly due
to the Company focusing on its Gansu Longnan project in 2012.
Salaries and benefit
Salaries and benefit expenses for the year
ended December 31, 2013 were in line with the comparative period of 2012.
Salaries and benefit expenses for the year
ended December 31, 2012 were $679,310 compared to $369,242 for the comparative period of 2011. In the fourth quarter of 2011, the
Company recognized a recovery of payroll taxes in China in the amount of $136,000 that reduced salaries and benefit expenses significantly.
Share-based compensation
Share-based compensation expense was $993,331
compared to $957,305 for the comparative period of 2012. The increase was due to greater number of stock options granted in 2013.
Share-based compensation expense was $957,305
compared to $2,264,809 for the comparative period of 2011. The decrease was due to the reduced value of stock options granted in
2012 versus 2011.
To date the Company has been in the
exploration stage and has not earned revenue from operations. Income earned has been interest, rental and sundry income.
Finance and other income (expense)
For the year ended December 31, 2013, the
net amount of finance and other income was $1,452,290 compared to $614,636 for the comparative period of 2012. The increase was
mainly due to the gain on legal settlement of $1,343,638 recognized in 2013.
For the year ended December 31, 2012, the
net amount of finance and other income was $614,636 compared to the finance and other expenses of $128,474 for the comparative
period of 2011. The increase was mainly from interest income and also the gain on sale of exploration permits of $442,796 recognized
in 2012.
Summary of quarterly results
|
|
2013 (unaudited)
|
2012 (unaudited)
|
|
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
|
|
$
|
$
|
$
|
$
|
$
|
$
|
$
|
$
|
|
Exploration recovery
|
-
|
-
|
(622,293)
|
-
|
-
|
-
|
-
|
-
|
|
Exploration costs
|
558,854
|
478,733
|
241,109
|
271,555
|
666,527
|
359,460
|
288,413
|
302,889
|
|
Administrative expenses
|
608,859
|
596,239
|
747,246
|
781,747
|
658,377
|
643,012
|
873,743
|
652,433
|
|
Operating loss
|
(1,167,713)
|
(1,074,972)
|
(366,062)
|
(1,053,302)
|
(1,324,904)
|
(1,002,472)
|
(1,162,156)
|
(955,322)
|
|
Gain on legal settlement
|
542,243
|
-
|
-
|
801,395
|
-
|
-
|
-
|
-
|
|
Gain on sale of exploration permits
|
|
-
|
|
|
-
|
442,796
|
-
|
-
|
|
Gain (loss) on marketable securities
|
-
|
-
|
(2,100)
|
630
|
(2,940)
|
2,310
|
(2,100)
|
(6,300)
|
|
Finance and other income
|
6,623
|
8,047
|
29,902
|
65,550
|
38,933
|
39,963
|
61,568
|
40,406
|
|
Loss for the period before loss from equity investment and dilution loss
|
(618,847)
|
(1,066,925)
|
(338,260)
|
(185,727)
|
(1,288,911)
|
(517,403)
|
(1,102,688)
|
(921,216)
|
|
Dilution loss
|
-
|
(77,123)
|
-
|
(291)
|
(86)
|
(272)
|
-
|
(8,040)
|
|
Share of loss from equity investment in Minco Silver
|
(32,687)
|
(329,818)
|
(153,515)
|
(140,112)
|
(105,098)
|
(502,705)
|
(63,944)
|
(361,069)
|
|
Net loss for the period
|
(651,534)
|
(1,473,866)
|
(491,775)
|
(326,130)
|
(1,394,095)
|
(1,020,380)
|
(1,166,632)
|
(1,290,325)
|
|
Other comprehensive income (loss)
|
426,268
|
(153,196)
|
449,719
|
130,479
|
61,989
|
(169,901)
|
112,604
|
(87,571)
|
|
Comprehensive loss for the period
|
(225,266)
|
(1,627,062)
|
(42,056)
|
(195,651)
|
(1,332,106)
|
(1,190,281)
|
(1,054,028)
|
(1,377,896)
|
|
Basic and diluted loss per share
|
(0.01)
|
(0.02)
|
(0.02)
|
(0.01)
|
(0.03)
|
(0.02)
|
(0.02)
|
(0.03)
|
|
Weighted average number of shares outstanding
|
50,348,215
|
50,348,215
|
50,348,215
|
50,348,215
|
50,348,215
|
50,348,215
|
50,348,215
|
50,348,215
|
Foreign
currency translation
(i) Functional and presentation currency
The financial statements of each
entity in the group are measured using the currency of the primary economic environment in which the entity operates (the "functional
currency"). The consolidated financial statements are presented in Canadian dollars.
The functional currency of Minco
Gold is the Canadian dollar.
The functional currency of the
Company’s Chinese subsidiaries is RMB.
The financial statements of the
Company’s Chinese subsidiaries ("foreign operations") are translated into the Canadian dollar presentation currency
as follows:
·
Assets and liabilities – at the closing rate at the date of the statement of financial position
·
Income and expenses – at the average rate of the period (as this is considered a reasonable approximation to actual
rates).
All resulting changes are recognized
in other comprehensive income as cumulative translation adjustments.
When the settlement of a monetary
item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange
gains and losses arising from the item are considered to form part of the net investment in a foreign operation and are recognized
in other comprehensive income.
When an entity disposes of its
entire interest in a foreign operation, or loses control, joint control, or significant influence over a foreign operation, the
foreign currency gains or losses accumulated in other comprehensive income related to the foreign operation are recognized in profit
or loss. If an entity disposes of part of an interest in a foreign operation which remains a subsidiary, a proportionate amount
of foreign currency gains or losses accumulated in other comprehensive income related to the subsidiary are reallocated between
controlling and non-controlling interests.
(ii) Transactions and balances
Foreign currency transactions are translated
into the functional currency of an entity using the exchange rates prevailing at the dates of the transactions. Generally, foreign
exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange
rates of monetary assets and liabilities denominated in currencies other than an operation’s functional currency are recognized
in the statement of income (loss).
Inflation
The
Company does not believe that inflation will have a materially adverse effect on its financial condition. However, no assurance
can be given that the Company will not experience a material adverse effect on its financial condition due to a substantial increase
in inflation.
Exploration
and evaluation costs
Exploration and evaluation costs include
costs to acquire the rights to explore, geological studies, exploratory drilling and sampling and directly attributable administrative
costs.
Exploration
and evaluation costs relating to non-specific projects or properties or those incurred before the Company has obtained legal rights
to explore an area are expensed in the period incurred. In addition, exploration and evaluation costs, other than direct acquisition
costs, are expensed before a mineral resource is identified as having economic potential.
Exploration
and evaluation costs are capitalized as mineral interests when a mineral resource is identified as having economic potential on
a property. A mineral resource is considered to have economic potential when it is expected that documented resources can be legally
and economically developed considering long-term metal prices. Therefore, prior to capitalizing such costs, management determines
that the following conditions have been met:
i)
There is a probable future benefit that will contribute to future cash inflows;
ii)
The Company can obtain the benefit and control access to it; and
iii)
The transaction or event giving rise to the benefit has already occurred.
Once
the technical feasibility and commercial viability of the extraction of resources from a particular mineral property has been determined,
mineral interests are reclassified to mine properties within property, plant and equipment and carried at cost until the properties
to which they relate are placed into commercial production, sold, abandoned or determined by management to be impaired in value.
Costs
relating to any producing mineral interests would be amortized on a unit of production basis over the estimated ore reserves. Costs
incurred after the property is placed into production that increase production volume or extend the life of a mine are capitalized.
Proceeds
from the sale of properties or cash proceeds received from option payments are recorded as a reduction of the related mineral interest.
Critical
Accounting Estimates
The
preparation of financial statements requires management to use judgment in applying its accounting policies and estimates and assumptions
about the future. Estimates and other judgments are continuously evaluated and are based on management’s experience and other
factors, including expectations about future events that are believed to be reasonable in the circumstances. The following discusses
the most significant accounting judgments and estimates that the Company has made:
Equity
investment in Minco Silver
The
Company reviews its equity investment in Minco Silver when there is any indication that the investment might be impaired. Management
has assessed impairment indicators on this equity investment and has concluded that there was neither a prolonged decline nor a
significant decline as at December 31, 2013.
Liquidity
risk
The
Company is exposed to liquidity risk, which is the risk that the Company may encounter difficulty in settling its commitments when
due. In managing this risk, management determined that the Company’s cash balance as at December
31,
2013 of $1.8 million combined with any cash proceeds raised through the sale of equity interests in Minco Silver would be sufficient
to meet its cash requirements for the Company’s administrative overhead and to maintain its mineral interest throughout fiscal
2014.
Share-based
payments
The Company grants stock options to directors,
officers, employees and service providers. Each tranche in an award is considered a separate award with its own vesting period.
The Company applies the fair-value method of accounting for share-based payments and the fair value is calculated using the Black-Scholes
option pricing model.
Share-based payments for employees and
others providing similar services are determined based on the grant date fair value. Share based payments for non-employees are
determined based on the fair value of the goods/services received or option granted measured at the date on which the Company obtains
such goods/services.
Compensation expense is recognized over
each tranche’s vesting period, in earnings or capitalized as appropriate, based on the number of awards expected to vest.
If stock options are ultimately exercised, the applicable amounts of contributed surplus are transferred to share capital.
Significant
Accounting Policies
The Company’s other significant accounting
policies are described in the notes to the audited financial statements for the year ended December 31, 2013.
B. LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
|
|
Year ended December 31,
|
|
|
2013
|
2012
|
|
|
$
|
$
|
|
Operating activities
|
(6,043,493)
|
(3,376,809)
|
|
Investing activities
|
5,977,656
|
(4,637,653)
|
|
Financing activities
|
1,459,417
|
1,661,832
|
Operating activities
For the year ended December 31, 2013,
the Company used $6,043,493 cash in operating activities compared to $3,376,809 cash used in 2012. The increase was primarily due
to the final payment of RMB25.2 million ($4.3 million) for the Changkeng Exploration Permit paid to the 757 Exploration Team.
Investing activities
For the year ended December 31, 2013, the
Company redeemed short-term investments of $5.2 million and received the proceeds of $801,395 from the legal settlement with the
208 Team to arrive at $5,977,656 cash generated from investing activities.
Investing activities for the year ended
December 31, 2012 included the purchase of short-term investments of $5,066,771, which was offset by proceeds of $442,796 from
the sale of two exploration permits.
Financing activities
For the year ended December 31, 2013, the
Company received $159,417 cash advanced from Mingzhong’s minority shareholders compared to $nil for the comparative period
of 2012. In addition, the Company received a $1,300,000 advance from Minco Silver compared to a $1,661,832 advance from Minco Silver
for the Comparative period of 2012. The cash advances were used for working capital purposes.
Capital Resources
As at December 31, 2013, the Company had
$1,797,809 in cash and cash equivalents which was held by the Company’s Chinese subsidiaries. The Company may face delays
repatriating funds held in China if at any time the Company requires additional resources to enable it to undertake projects elsewhere
in the world.
The Company's ability to meet its obligations
and finance exploration and development activities over the long-term depends on its ability to generate cash flow through various
debt or equity financing initiatives. Capital markets may not be receptive to offerings of new equity from treasury or debt, whether
by way of private placements or public offerings. The Company's growth and success is dependent on external sources of financing
which may not be available on acceptable terms or at all.
The Company plans on meeting any additional
working capital requirements through the sale of its equity interest in Minco Silver when necessary. In addition, the Company plans
to sell the noncore projects to generate working capital.
Liquidity risk
Liquidity risk includes the risk that the
Company cannot meet its financial obligations as they come due. The Company has in place a planning and budgeting process to help
determine the funds required to support the Company’s normal operating requirements and its exploration and development plans.
As at December 31, 2013, the Company has $1.8 million cash to fund exploration and general corporate requirement. These funds are
held primarily in the Company’s Chinese subsidiaries; therefore, the Company may face delays repatriating funds held in China
if at any time the Company needs additional resources to enable it to undertake projects elsewhere in the world.
The Company is an exploration company and
therefore has no source of revenues. As such, during the year ended December 31, 2013, the Company incurred a net loss of $2,943,305,
had accumulated deficit of $44,976,192 and a working capital deficit of $1,656,185. The Company is exposed to liquidity risk, which
is the risk that the Company may encounter difficulty in settling its commitments when due. In managing this risk, management determined
that the Company’s cash balance as at December 31, 2013 of $1.8 million combined with any cash proceeds raised through the
sale of equity interests in Minco Silver would be sufficient to meet its cash requirements for the Company’s administrative
overhead and to maintain its mineral interest throughout fiscal 2014.
Equity Investment in Minco Silver
As at December 31, 2013, the Company owns
13,000,000 common shares of Minco Silver (December 31, 2011 - 13,000,000 common shares) that were acquired in 2004 in exchange
for the transfer of the Fuwan property and the silver interest in the Changkeng property. This reflects ownership of 21.91% of
Minco Silver as at December 31, 2013.
Comprehensive
income (loss) on the investment in Minco Silver is as follows:
|
Year ended December 31,
|
2013
|
2012
|
2011
|
|
|
$
|
$
|
$
|
|
Dilution gain (loss) in Minco Silver
|
(77,414)
|
(8,398)
|
8,710,000
|
|
Equity loss of Minco Silver
|
(656,132)
|
(1,032,816)
|
(1,443,391)
|
|
Cumulative translation adjustment
|
726,975
|
(72,395)
|
287,268
|
|
Comprehensive income (loss) from investment in Minco Silver
|
(6,571)
|
(1,113,609)
|
7,553,877
|
As at December 31, 2013 the closing
share price for Minco Silver’s shares on the Toronto Stock Exchange was $0.70 (December 31, 2011 - $1.55 per share).
The following is a summary of Minco
Silver’s balance sheet and reconciliation to carrying amounts as at December 31, 2013 and 2012.
|
|
|
December 31, 2013
|
December 31, 2012
|
|
|
|
$
|
$
|
|
Current assets
|
|
64,856,555
|
66,923,816
|
|
Mineral interests
|
|
27,369,966
|
21,012,566
|
|
Property, plant and equipment
|
|
483,281
|
572,583
|
|
Current liability
|
|
523,984
|
512,604
|
|
Shareholders' equity
|
|
92,185,818
|
87,996,361
|
|
Reconciliation to carrying
amounts:
|
|
|
|
|
|
|
Minco Gold’s share in percentage
|
21.91%
|
22.02%
|
|
Minco Gold’s share in $
|
20,197,756
|
19,376,799
|
|
Differences between Minco Gold’s share and carrying value
|
(6,830,920)
|
(6,001,392)
|
|
Carrying value of investment in Minco Silver
|
13,368,836
|
13,375,407
|
|
Market value of Minco Silver shares
|
9,100,000
|
20,150,000
|
|
|
|
|
|
|
|
The following is a summary of Minco
Silver’s income statement for the year ended December 31, 2013, 2012 and 2011.
|
Year ended December 31,
|
2013
|
2012
|
2011
|
|
|
$
|
$
|
$
|
|
Administrative expenses
|
3,458,998
|
5,596,671
|
6,674,066
|
|
Net loss for the year
|
(2,987,033)
|
(4,676,550)
|
(5,970,842)
|
|
Other comprehensive income (loss) for the year
|
3,309,545
|
(327,801)
|
931,652
|
|
Comprehensive income (loss) for the year
|
322,512
|
(5,004,351)
|
(5,039,190)
|
Repatriation
of funds from China
The Company may face delays repatriating
funds held in China by its subsidiaries if at any time it needs additional resources to enable it to undertake projects elsewhere
in the world. For a discussion of the restrictions on repatriation of funds held in China please see "
Item 3:.D. Risk Factors
-Repatriation of Capital Located in China
".
|
C.
|
|
Research and Development, Patents and Licenses
|
The Company does not engage in research
and development activities and does not have any patents or licenses.
As the Company is an exploration company
with no producing properties, information regarding trends in production, sales and inventory and similar are not meaningful.
|
E.
|
|
Off-Balance Sheet Arrangements
|
The Company does not have any off-balance
sheet arrangements.
|
F.
|
|
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
|
The Company has contractual
commitments requiring payments in the amounts as follows:
|
|
Payments due by period
|
|
Contractual obligations
|
Total
|
Less than 1 year
|
1-3 years
|
4-5 years
|
After 5 years
|
|
|
$
|
$
|
$
|
$
|
$
|
|
Advanced from Mingzhong’s Minority Shareholders
|
167,920
|
167,920
|
-
|
-
|
-
|
|
Operating leases (1)
|
485,741
|
300,680
|
185,061
|
-
|
-
|
|
Other obligations (2)
|
4,136,564
|
4,136,564
|
-
|
-
|
-
|
|
Total contractual obligations
|
4,790,225
|
4,605,164
|
185,061
|
-
|
-
|
|
|
(1)
|
Office rental payments – Canada and China
|
|
|
(2)
|
Due to related parties and other financial liabilities
|
We intend that all forward-looking statements
we make will be subject to safe harbor protection of the federal securities laws pursuant to Section 27A of the
Securities
Act of 1933
, as amended (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934
,
as amended (the "Exchange Act").
Readers are referred to the Risk Factors
section of this Annual Report and the various other documents filed by the Company with the pertinent security exchange commissions,
specifically the most recent quarterly reports, annual report and material change reports, each as it may be amended from time
to time, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking
statements.
Item
10. Additional Information
Not Applicable.
|
B.
|
|
Memorandum and Articles of Association
|
Our Articles do not contain a description
of our objects and purposes.
Our Articles restrict a director's power
to vote on a proposal, arrangement or contract in which the director is materially interested unless all the directors have a disclosable
interest in that contract or transaction, in which case any or all of those directors may vote on such resolution. There is no
mandatory retirement age for our directors and our directors are not required to own securities of our company in order to serve
as directors.
Our authorized capital consists of an unlimited
number of common shares without par value.
Holders of our common shares are entitled
to vote at all meetings of shareholders, receive any dividend declared by us and, subject to the rights, privileges, restrictions
and conditions attaching to any other class of shares, receive the remaining property of our company upon dissolution.
Subject to the
Business Corporations
Act
(British Columbia), the Company may by special resolution: (i) create special rights or restrictions for, and attach those
special rights or restrictions to, the shares of any class or series of shares, whether or not any or all of those shares have
been issued; or (ii) vary or delete any special rights or restrictions attached to the shares of any class or series of shares,
whether or not any or all of those shares have been issued.
Each director holds office until the expiry
of his term or until his successor is elected or appointed, unless his office is earlier vacated in accordance with our Articles
or with the provisions of the British Columbia
Business Corporations Act
. At each annual meeting of our company, directors
are elected to hold office until the next annual meeting of shareholders. A director appointed or elected to fill a vacancy on
the board of directors holds office until the next annual general meeting of shareholders.
An annual meeting of shareholders must
be held at such time in each year that is not later than fifteen months after the last preceding annual meeting and at such place
as our board of directors may from time to time determine. The holders of not less than five percent of our issued shares that
carry the right to vote at a meeting may requisition our directors to call a meeting of shareholders for the purposes stated in
the requisition. The quorum for the transaction of business at any meeting of shareholders is two shareholders, or one of more
proxyholders representing two shareholders, or one shareholder and a proxyholder representing another shareholder. Only persons
entitled to vote, our directors and auditors and others who, although not entitled to vote, are otherwise entitled or required
to be present, are entitled to be present at a meeting of shareholders.
Except as provided in the
Investment
Canada Act
, there are no limitations specific to the rights of non-Canadians to hold or vote our common shares under the laws
of Canada or British Columbia, or in our charter documents. See the section of this Annual Report entitled "
Exchange Controls
"
below for a discussion of the principal features of the
Investment Canada Act
for non-Canadian residents proposing to acquire
our common shares.
Our Articles do not contain any provisions
governing the ownership threshold above which shareholder ownership must be disclosed.
Our Articles are not significantly different
from the requirements of the
Business Corporations Act
(British Columbia), and the conditions imposed by our Articles governing
changes in capital are not more stringent than what is required by the
Business Corporations Act
(British Colum
bia).
The only material contract not in the ordinary
course of business entered into by the Company during the most recent two financial years was:
|
|
1.
|
On April 30, 2013, the Company entered into a Trust Agreement with Minco Silver and Minco China regarding
interests in Foshan Minco held by Minco China in trust for Minco Silver. Minco Silver advanced US$20,000,000 to the Company for
the purposes of investment in Foshan Minco to increase Foshan Minco’s registered capital.
|
Except as provided in the
Investment
Canada Act
, there are no limitations specific to the rights of non-Canadians to hold or vote our common shares under the laws
of Canada or British Columbia or in our charter documents. The following summarizes the principal features of the
Investment
Canada Act
for non-Canadian residents proposing to acquire our common shares.
This summary is of a general nature only
and is not intended to be, and should not be construed to be, legal advice to any holder or prospective holder of our common shares,
and no opinion or representation to any holder or prospective holder of our common shares is hereby made. Accordingly, holders
and prospective holders of our common shares should consult with their own legal advisors with respect to the consequences of purchasing
and owning our common shares.
The
Investment Canada Act
governs
the direct or indirect acquisition of control of an existing Canadian business by non-Canadians. Under the
Investment Canada
Act
, non-Canadian persons or entities acquiring "control" (as defined in the
Investment Canada Act
) of a corporation
carrying on business in Canada are required to either notify, or file an application for review with, Industry Canada, unless a
specific exemption, as set out in the
Investment Canada Act
, applies. Industry Canada may review any transaction which results
in the direct or indirect acquisition of control of a Canadian business, where the gross value of corporate assets exceeds certain
threshold levels (which are higher for investors from members of the World Trade Organization, including United States residents,
or World Trade Organization member-controlled companies) or where the activity of the business is related to Canada's cultural
heritage or national identity. No change of voting control will be deemed to have occurred, for purposes of the
Investment Canada
Act
, if less than one-third of the voting control of a Canadian corporation is acquired by an investor. In addition, the
Investment
Canada Act
permits the Canadian government to review any investment where the responsible Minister has reasonable grounds to
believe that an investment by a non-Canadian could be injurious to national security. No financial threshold applies to a national
security review. The Minister may deny the investment, ask for undertakings, provide terms or conditions for the investment or,
where the investment has already been made, require divestment. Review can occur before or after closing and may apply to corporate
re-organizations where there is no change in ultimate control.
If an investment is reviewable under the
Investment Canada Act
, an application for review in the form prescribed is normally required to be filed with Industry Canada
prior to the investment taking place, and the investment may not be implemented until the review has been completed and the Minister
responsible for the
Investment Canada
Act
is satisfied that the investment is likely to be of net benefit to Canada.
If the Minister is not satisfied that the investment is likely to be of net benefit to Canada, the non-Canadian applicant must
not implement the investment, or if the investment has been implemented, may be required to divest itself of control of the Canadian
business that is the subject of the investment. The Minister is required to provide reasons for a decision that an investment is
not of net benefit to Canada.
Certain transactions relating to our common
shares will generally be exempt from the
Investment Canada Act
, subject to the Minister's prerogative to conduct a national
security review, including:
|
|
(a)
|
the acquisition of our common shares by a person in the ordinary course of that person's business
as a trader or dealer in securities;
|
|
|
(b)
|
the acquisition of control of our Company in connection with the realization of security granted
for a loan or other financial assistance and not for a purpose related to the provisions of the
Investment Canada Act
; and
|
|
|
(c)
|
the acquisition of control of our Company by reason of an amalgamation, merger, consolidation or
corporate reorganization following which the ultimate direct or indirect control in fact of our Company, through ownership of our
common shares, remains unchanged.
|
Chinese Currency
The Renminbi currently is not a freely
convertible currency. Although the Chinese central government's policies were introduced in 1996 to reduce restrictions on the
convertibility of Renminbi into foreign currency for current account items, conversion of Renminbi into foreign exchange for capital
items, such as foreign direct investment, loans or security, requires the approval of the State Administration of Foreign Exchange
and other relevant authorities. The People's Bank of China (PBOC), sets and publishes a daily Base Exchange rate with reference
primarily to the supply and demand of Renminbi against a basket of currencies in the market during the prior day.
The PBOC also takes into account other
factors, such as the general conditions existing in the international foreign exchange markets. Since 1994, the conversion of Renminbi
into foreign currencies, including Hong Kong dollars and US$, has been based on rates set by the PBOC, which are set daily based
on the previous day's interbank foreign exchange market rates and current exchange rates in the world financial markets. From 1994
to July 20, 2005, the official exchange rate for the conversion of Renminbi to U.S. dollars was generally stable.
On July 21, 2005, China government introduced
a managed floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market
supply and demand and by reference to a basket of currencies. On the same day, the value of the Renminbi appreciated by 2% against
the U.S. dollar. China’s government has since made and in the future may make further
adjustments to the exchange rate system. The PBOC announces the closing price of a foreign currency traded against the Renminbi
in the inter-bank foreign exchange market after the closing of the market on each working day, and makes it the central parity
for the trading against the Renminbi on the following working day.
Canadian Federal Income Tax Consequences
The following summarizes the principal
Canadian federal income tax consequences applicable to the holding and disposition of common shares in the capital of the Company
by a United States resident, and who holds common shares solely as capital property (a "US Holder" as defined below).
This summary is based on the current provisions of the
Income Tax Act
(Canada) (the "Tax Act"), the regulations
thereunder, all amendments thereto publicly proposed by the government of Canada, the published administrative practices of Canada
Revenue Agency, and on the current provisions of the Canada-United States Income Tax Convention, 1980, as amended (the "Treaty").
Except as otherwise expressly provided,
this summary does not take into account any provincial, territorial or foreign (including without limitation, any US) tax law or
treaty. It has been assumed that all currently proposed amendments will be enacted substantially as proposed and that there is
no other relevant change in any governing law or practice, although no assurance can be given in these respects. Each US Holder
is advised to obtain tax and legal advice applicable to such US Holder’s particular circumstances. Every US Holder is liable
to pay a Canadian withholding tax on every dividend that is or is deemed to be paid or credited to the US Holder on the US Holder’s
common shares. The statutory rate of withholding tax is 25% of the gross amount of the dividend paid. The Treaty reduces the statutory
rate with respect to dividends paid to a US Holder for the purposes of the Treaty. Where applicable, the general rate of withholding
tax under the Treaty is 15% of the gross amount of the dividend, but if the US Holder is a company that owns at least 10% of the
voting stock of the Company and beneficially owns the dividend, the rate of withholding tax is 5% for dividends paid or credited
after 1996 to such corporate US Holder. The Company is required to withhold the applicable tax from the dividend payable to the
US Holder, and to remit the tax to the Receiver General of Canada for the account of the US Holder.
Pursuant to the Tax Act, a US Holder will
not be subject to Canadian capital gains tax on any capital gain realized on an actual or deemed disposition of a common share,
including a deemed disposition on death, provided that the US Holder did not hold the common share as capital property used in
carrying on a business in Canada, and that neither the U. S. Holder nor persons with whom the US Holder did not deal at arm's length
(alone or together) owned or had the right or an option to acquire 25% or more of the issued shares of any class of the Company
at any time in the five years immediately preceding the disposition.
United States Tax Consequences
The following summarizes the principal
U.S. federal income tax consequences to the holding and disposition of common shares in the capital of the Company by US Holders
and who holds their shares as capital assets within the meaning of Section 1221 of the U.S. Internal Revenue Code ("the Code").
US Holders
As used herein, a "US Holder"
includes a holder of Common Shares who is a citizen or resident of the United States, a corporation (including any other entity
treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or
of any political subdivision thereof, and an estate whose income is subject to US federal income taxation regardless of its source,
or a trust (a) if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the trust, or (b) that has elected to be treated as a U.S. person
under applicable U.S. Treasury Regulations. If a partnership (including for this purpose any entity treated as a partnership for
U.S. federal income tax purposes) holds common shares, the tax treatment of a partner generally will depend upon the status of
the partner and the activities of the partnership. If a US Holder is a partner in a partnership that holds the common shares, the
US Holder should consult its tax advisor regarding the specific tax consequences of owning and disposing of its shares. A US Holder
does not include: (1) those who own (directly, or indirectly by attribution) 10% or more of the share capital or voting power of
the Company; (2) are persons subject to the alternative minimum tax; (3) persons holding the shares as part of a straddle, hedging
or conversion transaction and (4) persons subject to special provisions of federal income tax laws, such as tax exempt organizations,
qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies,
broker-dealers, non-resident alien individuals or foreign corporations whose ownership of common shares is effectively connected
with the conduct of a trade or business in the United States and shareholders who acquired their stock through the exercise of
employee stock options or otherwise as compensation.
The following discussion is based upon
the sections of the Code, Treasury Regulations, published Internal Revenue Service rulings, published administrative positions
of the Internal Revenue Service and court decisions that are currently applicable, any or all of which could be materially
adversely changed, possibly on a retroactive basis, at any time. In addition, this discussion does not consider the potential effects,
both adverse and beneficial, of recently proposed legislation which, if enacted could be applied, possibly on a retroactive basis,
at any time. This discussion does not address all U.S. federal income tax matters that may be relevant to a US Holder in light
of its particular circumstances, and it does not address any state, local and non-U.S. tax consequences of purchasing, owning and
disposing of the common shares of the Company. Each US Holder should consult with his or her own tax advisor with respect to the
tax considerations relevant to such US Holder and its particular circumstances.
Dividends and
Other Distributions on the Common Shares
Subject to the passive foreign investment
company rules discussed below under "Passive Foreign Investment Company," the gross amount of all our distributions to
a US Holder with respect to the common shares (including any Canadian taxes withheld there from) will be included in the US Holder’s
gross income as foreign source ordinary dividend income on the date of receipt by the US Holder, but only to the extent that
the distribution is paid out of our current or accumulated earnings and profits (as determined under US federal income tax
principles). To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits, it will
be treated first as a tax-free return of a US Holder’s tax basis in its common shares, and to the extent the amount
of the distribution exceeds the US Holder’s tax basis, the excess will be taxed as capital gain. We do not currently,
and we do not intend to, calculate our earnings and profits, if any, under US federal income tax principles. Therefore, a
US Holder should expect that a distribution, if any, will be treated as a dividend. The dividends will not be eligible for
the dividends-received deduction allowed to corporations in respect of dividends received from other US corporations.
With respect to non-corporate US Holders
for taxable years beginning before January 1, 2012, dividends may constitute "qualified dividend income" that is
taxed at the lower applicable capital gains rate provided that (1) the common shares are readily tradable on an established
securities market in the United States or we are eligible for the benefits of the income tax treaty, (2) we are not a passive
foreign investment company (as discussed below) for either our taxable year in which the dividend was paid or the preceding taxable
year, (3) certain holding period requirements are met and (4) the US Holder is not under an obligation to make related
payments with respect to positions in substantially similar or related property. US Treasury guidance indicates that our common
shares, which are listed on NYSE MKT Equities, are readily tradable on an established securities market in the United States. There
can be no assurance that our common shares will be considered readily tradable on an established securities market in later years.
US Holders should consult their tax advisors regarding the availability of the lower rate for dividends paid with respect
to our common shares. There can be no assurance that the Company’s dividends will be qualifying dividend income because there
can be no assurance of the Company’s PFIC status in either the year of the distribution or the year preceding the distribution.
Subject to certain limitations, Canadian
taxes withheld from a distribution to a US Holder will be eligible for credit against such US Holder’s US federal
income tax liability. If a refund of the tax withheld is available to the US Holder under the laws of Canada or under the
income tax treaty between the United States and Canada, the amount of tax withheld that is refundable will not be eligible for
such credit against the US Holder’s US federal income tax liability (and will not be eligible for the deduction
against the US Holder’s US federal taxable income). If the dividends are qualified dividend income (as discussed
above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will in general
be limited to the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable
to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of
income. For this purpose, dividends distributed by us with respect to common shares generally will constitute "passive category
income" but could, in the case of certain US Holders, constitute "general category income." The rules relating
to the determination of the US foreign tax credit are complex, and US Holders should consult their tax advisors to determine
whether and to what extent a credit would be available. A US Holder that does not elect to claim a foreign tax credit with
respect to any foreign taxes for a given taxable year may instead claim an itemized deduction for all foreign taxes paid in that
taxable year.
Subject to the PFIC rules discussed below,
upon the sale, exchange or other disposition of the Company’s common shares, a US Holder generally will recognize capital
gain or loss equal to the difference between the amount realized upon the sale, exchange or other disposition of the common shares
and the US Holder’s adjusted tax basis in the common shares. The capital gain or loss generally will be long-term capital
gain or loss if, at the time of sale, exchange or other disposition, the US Holder has held the common shares for more than one
year. Net long-term capital gains of non-corporate US Holders, including individuals, are eligible for reduced rates of taxation.
The deductibility of capital losses is subject to limitations. Any gain or loss that a US Holder recognizes generally will be treated
as gain or loss from sources within the United States for purposes of the US foreign tax credit limitation discussed above.
If the Company pays distributions on the
Common Shares in Canadian dollars, the US dollar value of such distributions should be calculated by reference to the exchange
rate prevailing on the date of actual or constructive receipt of the distributions, regardless of whether the Canadian dollars
are converted into US dollars at that time. If Canadian dollars are converted into US dollars on the date of actual or constructive
receipt of such distributions, a US Holder’s tax basis in such Canadian dollars will be equal to their US dollar value on
that date and, as a result, the US Holder generally will not be required to recognize any foreign currency exchange gain or loss.
Any gain or loss recognized on a subsequent conversion or other disposition of the Canadian dollars
generally will be treated as US source ordinary income or loss for purposes of the U.S. foreign tax credit limitation discussed
above.
Passive Foreign Investment Companies
We believe we
were not a passive foreign investment company ("PFIC") for US federal income tax purposes for our taxable year ended
December 31, 2013. A non-U.S. corporation is considered to be a PFIC for any taxable year if either:
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at least 75% of its gross income is passive income which includes dividends, interest, royalties,
rents (other than rents and royalties derived in the active conduct of a trade or business and not derived from a related person),
certain gains from the sales of commodities, annuities and gains from assets that produce passive income, or
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at least 50% of the value of its assets (based on an average of the quarterly values of the assets
during a taxable year) is attributable to assets that produce or are held for the production of passive income (the "asset
test").
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There can be no
assurance that in any given year 75% or more of the Company's gross income will not be passive income and we will not become a
PFIC in that or any future taxable year.
We will be treated
as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which
we own, directly or indirectly, 25% or more (by value) of the stock.
A determination
of the Company’s PFIC status should be done on an annual basis (assuming that we can continue to be a publicly traded entity).
As a result, our PFIC status may change. In particular, because the total value of our assets for purposes of the asset test will
be calculated using the market price of our common shares (assuming that we continue to a publicly traded corporation for purposes
of the applicable PFIC rules), our PFIC status will depend in large part on the market price of our common shares. Accordingly,
fluctuations in the market price of our common shares may result in our being a PFIC for any year. If we are a PFIC for any year
during which a US Holder holds common shares, we generally will continue to be treated as a PFIC for all succeeding years
during which such US Holder holds common shares, absent a special election. For instance, if we cease to be a PFIC, a US Holder
may avoid some of the adverse effects of the PFIC regime by making a deemed sale election with respect to the common shares. If
we are a PFIC for any taxable year and any of our non-US subsidiaries is also a PFIC, a US Holder would be treated as
owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. US Holders
are urged to consult their tax advisors about the application of the PFIC rules to any of our subsidiaries. For purposes of the
PFIC provisions, passive income generally includes dividends, interest, royalties, rents (other than rents and royalties derived
in the active conduct of a trade or business and not derived from a related person), certain gains from the sales of commodities,
annuities and gains from assets that produce passive income.
If we are a PFIC for any taxable year during
which a US Holder holds common shares, such US Holder will be subject to special tax rules with respect to any "excess
distribution" that it receives and any gain it realizes from a sale or other disposition (including a pledge) of the common
shares, unless the US Holder makes a "mark-to-market" election as discussed below. Distributions received by a US Holder
in a taxable year that are greater than 125% of the average annual distributions such US Holder received during the shorter
of the three preceding taxable years or its holding period for the common shares will be treated as an excess distribution. Under
these special tax rules:
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the excess distribution or gain will be allocated ratably over the US Holder’s holding period for the common
shares,
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the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we became
a PFIC, will be treated as ordinary income, and
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the amount allocated to each other year will be subject to the highest tax rate for the US Holder in effect for that year
and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each
such year.
The tax liability
for amounts allocated to years prior to the year of disposition or "excess distribution" cannot be offset by any net
operating losses for such years, and gains (but not losses) realized on the sale of the common shares cannot be treated as capital,
even if the US Holder holds the common shares as capital assets.
Alternatively,
a US Holder of "marketable stock" (as defined below) in a PFIC may make a mark-to-market election with respect to
shares of a PFIC to elect out of the tax treatment discussed above. If a US Holder makes a valid mark-to-market election for
the common shares, the US Holder will include in income each year an amount equal to the excess, if any, of the fair market
value of the common shares as of the close of its taxable year over its adjusted basis in such common shares. The US Holder
is allowed a deduction for the excess, if any, of the adjusted basis of the common shares over their fair market value as of the
close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-market gains on the common shares
included in the U.S. Holder’s income for prior taxable years. Amounts included in a U.S. Holder’s income
under a mark-to-market election, as well as gain on the actual sale or other disposition of the common shares, are treated as ordinary
income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the common shares, as well
as to any loss realized on the actual sale or disposition of the common shares, to the extent that the amount of such loss does
not exceed the net mark-to-market gains previously included for such common shares.
A US Holder’s basis in the common shares will be adjusted to reflect any such income or loss amounts. If a US Holder
makes such an election, the tax rules that ordinarily apply to distributions by corporations that are not PFICs would apply to
distributions by us, except that the lower applicable capital gains rate for "qualified dividend income" discussed above
under "Dividends and Other Distributions on the Common Shares" would not apply.
The mark-to-market
election is available only for "marketable stock," which is stock that is traded in other than de minimis quantities
on at least 15 days during each calendar quarter on a qualified exchange, including NYSE MKT Equities, or other market, as
defined in applicable US Treasury regulations. We expect that our common shares will continue to be listed on NYSE MKT Equities
and, consequently, the mark-to-market election would be available to US Holders of common shares were we to be a PFIC.
If a non-US corporation
is a PFIC, a holder of shares in that corporation can avoid taxation under the rules described above by making a "qualified
electing fund" election to include its share of the corporation’s ordinary earnings and net capital gain income on a
current basis. However, a US Holder can make a qualified electing fund election with respect to its common shares only if
we furnish the US Holder annually with certain tax information. We intend to prepare or provide such information.
A US Holder
that holds common shares in any year in which we are a PFIC will be required to file IRS Form 8621 regarding distributions
received on the common shares and any gain realized on the disposition of the common shares.
US Holders
are urged to consult their tax advisors regarding the application of the PFIC rules to the ownership and disposition of common
shares.
Other Consequences
To the extent a shareholder is not subject
to the tax regimes outlined above with respect to foreign corporations that are PFICs, the following discussion describes the United
States federal income tax consequences arising from the holding and disposition of the Company’s common shares.
Foreign Tax Credit
A US Holder may be entitled to claim a
US foreign tax credit for, or deduct, Canadian taxes that are withheld on distributions received by the US Holder, subject to applicable
limitations in the Code. Dividends paid on the common shares will be "passive category income" or "general category
income" for US foreign tax credit purposes. The amount of foreign income taxes that may be claimed as a credit in any year
is subject to complex limitations and restrictions, which must be determined on an individual basis by each US Holder. A US Holder
that does not elect to claim a foreign tax credit with respect to any foreign taxes paid for a given taxable year may instead claim
a deduction for all foreign paid in that taxable year. US Holders are urged to consult their tax advisors regarding the availability
of the US foreign tax credit in their particular circumstances.
Information Reporting and Backup Withholding
Dividends on common shares and the proceeds
of a sale or redemption of a common share may be subject to information reporting to the IRS and possible US backup withholding
at a current rate of 28%, unless the conditions of an applicable exemption are satisfied. Backup withholding will not apply to
a US Holder who furnishes a correct taxpayer identification number and makes any other required certification or who is otherwise
exempt from backup withholding. US Holders who are required to establish their exempt status can provide such certification
on IRS Form W-9. US Holders should consult their tax advisors regarding the application of the US information reporting
and backup withholding rules.
Backup withholding is not an additional
tax. Amounts withheld as backup withholding may be credited against a US Holder’s US federal income tax liability,
and a U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the
appropriate claim for refund with the IRS and furnishing any required information.
US HOLDERS
ARE URGED TO CONSULT THEIR TAX ADVISORS ABOUT THE APPLICATION OF THE US FEDERAL TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES
AS WELL AS THE STATE AND LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF COMMON SHARES.
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Dividends and Paying Agents
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Not Applicable.
Not Applicable.
The Company files annual reports and furnishes
other information with the SEC. You may read and copy any document that we file at the SEC's Public Reference Room at 100 F St.
NE, Washington, D.C. 20549 or by accessing the SEC's website (www.sec.gov). The Company also files its annual reports and other
information with the Canadian Securities Administrators via SEDAR (www.sedar.com). Copies of the Company’s material contracts
are kept in the Company’s administrative headquarters at 2772-1055 West Georgia Street, Vancouver, BC. V6E 3P3.
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Subsidiary Information
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The Company incorporated separate Companies
with current or planned business operations, which are all created for the exploration and acquisition of mineral projects in China
as described below.
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Minco China, incorporated in China on May 12, 2004, for the purposes of managing Minco Gold’s
projects in China, enhancing the Company’s management team in China, and expanding upon certain mining activities (such as
staking) in China. This company currently has 14 full time and part time employees.
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Minco Silver, incorporated on August 20, 2004, under the laws of British Columbia. Minco Silver
was a 100% owned subsidiary of the Company. This company was incorporated to acquire and develop silver projects in China and is
currently involved with the development of the Fuwan silver property in Guangdong Province, China.
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At December 31, 2004, the Company
owned a 70% interest in Minco Silver but following a subsequent financing by Minco Silver, Minco Gold’s interest decreased
to 55.56%. On December 2, 2005, Minco Silver became a reporting issuer listed on the Toronto Stock Exchange ("TSX") under
the trading symbol "MSV". The Company currently owns 13,000,000 common shares of Minco Silver or 21.91% of the issued
and outstanding common shares of Minco Silver. Minco Silver and GGB agreed pursuant to the Amending Contract that, subject to the
payment of the applicable purchase price, Minco Silver (through Minco China) would hold a 100% interest in the Fuwan Permits, subject
to GGB retaining a 10% net profit interest in the properties subject to the Fuwan Permits.
More information on the Company's subsidiaries
can be found in Section 4.C "Organizational Structure".