RNS Number:2863B
Moydow Mines International Inc
10 April 2006
Moydow Mines International Inc.
Management's Discussion and Analysis of Financial Condition And Operating
Results
General
The Management's Discussion and Analysis ("MD&A") provides a detailed analysis
of Moydow's business and compares its 2005 financial results with those of the
previous year. In order to better understand the MD&A, it should be read in
conjunction with the audited consolidated financial statements of the Company
and notes thereto for the year ended December 31, 2005. The MD&A has been
prepared as at March 3, 2005. The consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting principles.
The reporting currency for the Company is the United States dollar, and all
amounts in the following discussion are in United States dollars unless
otherwise noted.
Company Overview
Moydow Mines International Inc. ("Moydow" or the "Company") is an international
exploration company with primary interests in precious and industrial minerals
and diamonds. Exploration activities are focused principally in Africa. Moydow
Mines' common shares are listed on both the Toronto Stock Exchange and the
Alternative Investment Market ("AIM") of the London Stock Exchange (symbol "MOY
"). For further information on the Company please visit our website at
www.moydow.com or view our public filings on the SEDAR website at www.sedar.com.
On September 30, 2005, Moydow's common shares were admitted to trading on "AIM".
The London listing is an integral part of Moydow's strategy to increase its
shareholders' profile in the United Kingdom and Europe.
On February 28, 2006, the Company reached an agreement with Diamond Fields
International Ltd. (Diamond Fields), pursuant to which, Moydow's common
shareholders will exchange their Moydow securities for securities of Diamond
Fields (the acquisition). Diamond Fields is engaged in mineral exploration and
development worldwide.
As a condition to the acquisition, Moydow is required to complete a private
equity placement ("the placing") to raise net proceeds of at least $1.8 million.
Upon completion of the placing and the satisfaction of all condition and
regulatory requirements, Moydow's shareholders will exchange all of their Moydow
common shares, including shares to be issued, as part of the placing for a total
of 75,412,208 Diamond Fields' shares, with warrants and options of Moydow being
exchanged for warrants and stock options of Diamond Fields in proportion to the
share exchange. Diamond Fields will acquire all the issued shares of Moydow and
the shares to be issued pursuant to the placing. Diamond Fields currently has
outstanding 113,118,312 common shares. Upon completion of the proposed
acquisition, Diamond Fields will have 188,530,520 common shares in issues of
which Moydow's shareholders (including the shareholders pursuant to the placing)
will own 40%.
The acquisition is subject to, among other things, full due diligence
examination, receipt of all necessary regulatory, court and stock exchange
approvals, Moydow's shareholder approval, a valuation and/or fairness opinion by
each company and lock-up agreements executed by the chairman and chief executive
officer of the Company under which they have agreed to vote in favour of the
merger and entry of the parties into a definite agreement. In the event that
the merger is not completed under certain circumstances, the party who
terminates the agreement will be required to pay to the other a break fee of
$0.25 million.
Subsidiaries and affiliated companies of Moydow are organized internationally so
that each has a specific geographic area or mineral project interest. Moydow
provides administrative, technical and financial assistance to these companies.
Forward-Looking Statements
This MD&A contains "forward-looking statements" that are subject to a number of
known and unknown risks, uncertainties and other factors that may cause actual
results to differ materially from those anticipated in our forward looking
statements. Factors that could cause such differences include: changes in
metal, equity markets, results of exploration and related expenses, drilling
activity, sampling and other data, currency exchange rates, change in
governments, ability to raise finances and changes to regulations affecting the
mining industry. Such forward-looking statements involve known and unknown risks
and uncertainties that could cause actual events or results to differ materially
from estimated or anticipated events or results implied or expressed in such
forward-looking statements.
Disclosure Controls and Procedures
As at December 31, 2005, an evaluation was carried out under the supervision of
and with the participation of the Company's management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
Company's disclosure controls and procedures. Based on that evaluation, the
Chief Executive Officer and the Chief Financial Officer concluded that the
design and operation of these disclosure controls and procedures were effective
as at December 31, 2005 to provide reasonable assurance that material
information relating to the Company and its consolidated subsidiaries would be
made known to them by others within those entities.
Application of Critical Accounting Estimates
Moydow's accounting policies are described in note 2 to the Consolidated
Financial Statements. Set out below is a discussion of the application of
Moydow's critical accounting policies that require the Company to make
assumptions about matters that are uncertain at the time the accounting estimate
is made, and where different estimates that could reasonably have been used in
the current period, or changes in the accounting estimate that reasonably likely
to occur from period to period would have a material impact on Moydow's
financial statements.
Carrying value of mineral properties
Acquisition costs of mineral properties, together with direct exploration and
development expenses incurred thereon, are deferred and capitalized on a
property by property basis. Upon reaching commercial production, these
capitalized costs are transferred from exploration properties to producing
properties on the consolidated balance sheets and are amortized into operations
using the unit-of-production method over the estimated useful life of the
estimated related ore reserves.
In the event that the long-term expectation is that the net carrying amount of
these capitalized exploration costs will not be recovered, the carrying amount
is written down accordingly and the write-down amount charged to operations.
Such would be indicated where:
* Exploration activities have ceased;
* Exploration results are not promising such that exploration will not be
planned for the foreseeable future;
* Lease ownership rights expire; or
* Insufficient funding is available to complete the exploration program.
The amount shown for mineral properties represents costs incurred to date net of
recoveries from option or joint venture participants and write-downs, and does
not necessarily reflect present or future values.
Overview of Exploration Activities, Contractual Obligations and Commitments
Dala project, Angola
The Company is party to two separate exploration projects with the same partners
on the Dala property in Angola, relating to the exploration for alluvial and
kimberlite diamonds.
Alluvial diamonds
On October 1, 2004, the company signed an agreement with Empressa Nacional De
Diamantes De Angola (Endiama), the Angolan state diamond mining company and
Cimader-Comercio Geral Limitada (Cimader), a local Angolan company, to explore
for alluvial diamonds on the Dala concession, located near the town of Saurimo,
in north-east Angola. The concession comprises 3,000 square kilometres. To
obtain a 33% interest, the Company will have to incur expenditures of not less
than $5 million on or before October 1, 2007. Cimader and Endiama have a free
carried interest in the project.
The Company entered into a separate agreement with Concord Minerals LLC ("
Concord"), a private Nevada company, whereby Concord has the right to earn up to
50% of Moydow's interest in the concession by funding exploration expenditures
under Moydow's agreement with Endiama and Cimader. The Company's cumulative
expenditures to December 31, 2005 amounted to $1,838,615 of which $1,466,775 was
incurred during 2005. Concord's cumulative expenditures to December 31, 2005
amounted to $688,797.
Kimberlite diamonds
On December 16, 2005, the Company signed another agreement with Endiama and
Cimader to explore for kimberlite (primary) diamonds on the Dala concession.
Under the terms of the agreement, the Company can earn 40% interest in the
concession with the remaining percentages held by Endiama and Cimader. To
obtain its interest, the Company will have to incur expenditures of not less
than $10 million on or before January 14, 2009. Cimader and Endiama have a free
carried interest in the project. The granting of the licence is subject to the
receipt of Angolan regulatory approval.
The Company also has an agreement with Concord, whereby Concord has the right to
earn up to 50% of Moydow's interest in the kimberlite concession, by funding
exploration expenditures under Moydow's agreement with Endiama and Cimader. No
amounts had been expended by Moydow or Concord to December 31, 2005.
During the third quarter of 2005, the Company completed an aeromagnetic and
topographic survey on the Dala diamond concession. The survey identified 70
targets on the property, which warrant follow up work.
On January 14, 2006, pursuant to the agreement with Endiama signed on December
16, 2005, the Company paid $1 million to the Angolan state diamond mining
Company. In order for the deposit to be refunded the Company must incur
expenditures of $1 million within six months of making the deposit.
Port Loko property, Sierra Leone
In September 2004, the Company entered into an option agreement, with Gondwana
Investments Limited ("Gondwana"), a company incorporated in Luxembourg. The
agreement allows Moydow to acquire up to a 60% interest in the Port Loko bauxite
deposit by incurring exploration expenditure of $1 million and produce and
deliver a feasibility study on or before June 30, 2006. The agreement only
covers bauxite and no other minerals on the property. Cumulative expenditures to
December 31, 2005 amounted to $1.64 million of which $1.37 million was incurred
during 2005.
On October 24, 2005, the Company appointed Chlumsky Armbrust & Meyer ("CAM") to
prepare a Bankable Feasibility Study on the Port Loko Bauxite Deposit in Sierra
Leone, West Africa. CAM estimated the cost for the Bankable Feasibility Study to
be $0.15 million of which $0.02 million was incurred during 2005.
Ntotoroso property, Ghana
On December 8, 2003, the Company sold its wholly owned subsidiary, Moydow
Limited (Isle of Man), which, following an internal restructuring, owned the
Company's 50% joint venture interest in the Ntotoroso gold property in Ghana but
no other mineral properties, to Newmont Mining Corporation (Newmont).
In connection with the sale, the Company entered into a royalty agreement
whereby the company acquired the right to a net smelter return royalty of 2% on
all recovered ounces of gold and silver produced from the Ntotoroso property
after the first 1.2 million gold equivalent ounces for a consideration for $0.25
million. No value has been ascribed to the royalty rights acquired.
Hwidem property, Ghana
On October 3, 2005, the Company was granted a two-year extension to its
prospecting licence with respect to the Hwidem property, by the Minister for
Lands, Forestry and Mines in Ghana. The licence area covers 24.7 square
kilometres and it adjoins the Kenyase-Ntotoroso area currently under lease to
Rank Mining Company Limited, a subsidiary of Newmont. The Company incurred
exploration expenditures on this property of $0.06 million during 2005. The
minimum exploration expenditures required to maintain the licence are $0.52
million of which $0.34 million had been spent as at December 31, 2005. If gold
mineralization does not exist in sufficient quantities in the area to warrant
completion of the work program, the Company is not liable for any shortfall on
the minimum exploration expenditures.
Kanyankaw property, Ghana
On October 3, 2005, the Company was granted a two-year extension to its
prospecting licence with respect to the Kanyankaw property, by the Minister for
Lands, Forestry and Mines in Ghana. The carrying value of the Kanyankaw property
was written off in 2005 in the amount of $0.33 million of which $0.03 million
was incurred during 2005, as exploration results are not promising such that
exploration will not be planned for the foreseeable future.
Okumpreko property, Ghana
During 2005, exploration work continued on the Okumpreko gold property in Ghana
where the Company carried out mapping, geochemical and geophysical studies with
a view to lining up drill targets. Drilling was carried out on the property in
February 2006. The results are presently being correlated. The Company can
earn a 40% interest in this gold project in return for direct expenditures of
$0.25 million incurred within one year of entering into the agreement, which was
signed in September 2004. The Company can increase its interest to 51% by
incurring additional exploration expenditure of $0.25 million within two years
of signing the agreement. Management is currently negotiating an extension to
the terms of the agreement. Cumulative expenditures to December 31, 2005
amounted to $0.24 million of which $0.21 million was incurred during 2005.
Newfoundland and Labrador, North America
Moydow has earned a 51% interest in the True Grit claims. Moydow is the
operator of the joint venture. As exploration results are not promising, the
Company decided to write off its investment in the amount of $0.87 million.
Altius Baie d'Espoir property, North America
On March 10, 2004, the Company signed an agreement with Altius Resources Inc.
(Altius) for an option to earn up to 80% interest in the Altius Baie d'Espoir
property located in south-central Newfoundland and Labrador. As exploration
results are not promising, the Company has written off its investment in the
amount of $0.04 million.
Commitments
The Company, either directly or through certain joint ventures, has obligations
to expend various amounts on its mineral properties and projects in order to
keep its mineral property rights in good standing. All agreements are in the
normal course of business.
Payments due ($ thousand) Total Less than 1 year 1 to 3 years
Exploration and development $15,918 $395 $15,523
Segmented Information
The Company has one reportable operating segment, being exploration of mineral
properties in geographic areas disclosed in note 4.
Results of Operations
Net loss for 2005 was $1.61 million or $0.06 per share compared to a loss of
$1.94 million in 2004 or $0.07 per share.
During 2005, the Company sold 95,000 Newmont common shares for proceeds of $3.98
million. The Company recognized a loss of $0.24 million on the sale of these
shares. The Company also recorded a gain of $0.22 million on the write up of
its remaining 45,000 Newmont common shares to their original cost of $49.20 per
share (market value per share on December 31, 2005 was $53.40).
During 2004, the Company sold 60,000 Newmont common shares for proceeds of $2.61
million. The Company recognized a loss of $0.31 million on the sale of these
shares. The Company also recorded a loss of $0.59 million on the write-down of
its remaining 140,000 Newmont common shares to their market value on December
31, 2004.
The carrying value of the Kanyankaw property located in Ghana was written off in
2005 in the amount of $0.33 million, as exploration results are not promising
such that exploration will not be planned for the foreseeable future.
As exploration results are not promising on the True Grit claims in Newfoundland
and Labrador, North America, the Company decided to write off its investment in
the amount of $0.87 million.
On March 10, 2004, the Company signed an agreement with Altius Resources Inc.
(Altius) for an option to earn up to 80% interest in the Altius Baie d'Espoir
property located in south-central Newfoundland and Labrador. As exploration
results are not promising, the Company has written off its investment in the
amount of $0.04 million.
During 2004, the Company decided not to continue with the renewal application of
the Botwood Basin Licence, located in central Newfoundland and Labrador, as
exploration results were not promising, and it has written off its investment in
the amount of $0.31 million.
As exploration results were not promising on the option property from Altius,
located in the Baie d'Espoir property in south-central Newfoundland and
Labrador. The Company wrote of investment in the amount of $0.07 million.
During 2004, the Company wrote off expenditures incurred on a number of other
minor projects in the amount of $0.05 million.
General and administrative expenses were $1.15 million in 2005 as compared with
$1.28 million in 2004. The decrease in 2005 compared with 2004 is a result of
operating currencies weakening against the United States dollars together with
decreased costs associated with investor relation cost and professional fees. A
significant proportion of the Company's general and administrative expenses are
incurred in Euros.
On June 26, 2005, the Company granted 100,000 stock options to officers,
directors, employees and consultants. The estimated fair value of the options
granted was $0.01 million or Cdn$0.15 per option. The Company recognizes this
expense over the period in which entitlement to the awards vest.
The foreign exchange gain in 2005 was $0.06 million compared to a gain of $0.18
million in 2004. The foreign exchange gain resulted from the movements in
exchange rates between operating currencies and the United States dollar.
The Company earned dividend income of $0.03 million and $0.04 million during
2005 and 2004 respectively. The dividend income was received from the Company's
shareholding in Newmont.
The Company earned deposit interest income of $0.01 million and $0.01 million in
2005 and 2004 respectively.
The Company's revenues are derived from: interest and dividend income, which is
dependent on available cash balances and prevailing interest rates and returns
on investments which are dependent on the prevailing market at the time of sale.
In 2005 and 2004, the Company recorded a recovery of income taxes in the sum of
$0.74 million and $0.80 million respectively. The underlying effective tax rate
for 2005 is 31.32% as compared to 29.25% in 2004.
Liquidity and Capital Resources
At December 31, 2005, the Company had working capital of $1.73 million (December
31, 2003 -$5.55 million). Cash and cash equivalents at December 31, 2005
amounted to $0.02 million compared to cash and cash equivalents as the end of
2004 of $0.81 million.
At December 31, 2005, the Company held 45,000 Newmont common shares with a
quoted market value of $2.40 million. The primary factor that could potentially
adversely affect our liquidity is the realised value of the Newmont common
shares.
Changes in future conditions could require material write-downs of the carrying
amounts of future expenditures. As at December 31, 2005, the company had an
excess of current assets over current liabilities of $1.73 million and has
recorded losses and net cash outflows from operations for the past two years.
On January 14, 2006, pursuant to the agreement with Endiama signed on December
16, 2005, the Company paid $1 million to the Angolan state diamond mining
Company. In order for the deposit to be refunded the Company must incur
expenditures of $1 million within six months of making the deposit. These
circumstances cast significant doubt as to the ability of the company to
continue as a going concern.
The Company entered into an agreement to complete a private placement (the "
Offering") of up to 6,644,518 common shares of the Company at a price of
Cdn$0.35 per share for gross proceeds of up to $2.00 million. Jennings Capital
Inc. has been retained to act as lead agent (the "Agent") in connection with the
Offering, to be conducted on a best efforts basis. The Agent and the Company
have agreed that the Company may provide a President's list of investors for up
to $0.60 million of the said gross proceeds.
The financial statements of the company have been prepared on the basis that the
Company will continue as a going concern which presumes that it will be able to
realize its assets and discharge its liabilities in the normal course of
business. The financial statements do not include any adjustments that might be
necessary if the company is unable to continue as a going concern. If management
is unsuccessful in securing capital, the Company's assets may not be realized or
its liabilities discharged at their carrying amounts and these differences could
be material.
Cash Flow Statements
Cash flow used in operating activities for the year ended December 31, 2005
including changes in non-cash working capital of $0.97 million, totalled $1.88
million as compared to $1.24 million in 2004. In the twelve months ended
December 31, 2005 cash from investing activities was $0.81 million of which
$3.18 million (2004-$1.69 million) was expended on exploration of mineral
properties incurred principally in Angola and Sierra Leone. During 2005, the
Company received $3.98 million from the sale of 95,000 Newmont common shares.
Cash flow from financing activities for the year ended December 31, 2005 was
$0.28 million, principally from the issue of 1,596,193 shares for cash (2004
cash flow used in financing activities - $27.57 million mainly represented by
the distribution to shareholders following the sale of Moydow Limited (Isle of
Man)).
Use of Financial Instruments
The Company has not entered into any specialized financial agreements to
minimize its investment risk, currency risk or commodity risk. There are no
off-balance sheet arrangements.
Changes in Accounting Policies
There was no change in accounting policies during 2005 and 2004.
Outstanding Share Data
As at March 3, 2006, the Company has 30,620,575 common shares in issue. Holders
of common shares are entitled to one vote on any ballot at meetings in respect
of each common share held. The Company has 2,100,000 stock options outstanding
at a weighted average price of Cdn$0.33 together with 200,000 warrants at an
exercise price of Cdn$0.38 for a vesting period of two years pursuant to
exploration agreements.
On June 26, 2005, the Company granted 100,000 stock options to officers,
directors, employees and consultants. The estimated fair value of the options
granted was $0.01 million or Cdn$0.15 per option. The Company recognizes this
expense over the period in which entitlement to the awards vest.
Transactions with Related Parties
Related party transactions relate primarily to the payment of fees under
contracts for services with companies in which a director is a shareholder and
director of the Company. The Company was charged a total of $0.25 million
during 2005 with respect to these services (2004 - $0.49 million). Included in
accounts payable and accrued liabilities at December 31, 2005 is $0.04 million
(2004 - $0.03 million) payable to these related parties for such services.
The Company's primary legal counsel is with a firm in which a director of the
Company is a partner. The Company was charged $0.07 million during 2005 (2004 -
$0.05 million) for legal services provided by this firm. Included in accounts
payable and accrued liabilities at December 31, 2005 is $0.06 million (2004 -
$nil) with respect to such services.
Selected Consolidated Annual Financial Information
Set forth below is certain financial data for the last three completed financial
years
December 31,2005 $ December 31,2004 $ December 31,2003
$
Total revenue - - -
Basic and diluted (loss) earning per share (0.06) (0.07) 1.10
Total assets 6,334,596 9,296,704 39,712,942
(Loss) net income for the year (1,1612,359) (1,938,765) 30,908,193
Total long term financial liabilities - - -
Dividends declared - - 27,752,267
Quarterly Information
The following table summaries the results of the Company for each of the most
recent eight quarters:
March March June June Sept Sept Dec Dec
2005 2004 2005 2004 2005 2004 2005 2004
$ $ $ $ $ $ $ $
Revenues - - - - - - - -
Net profit/(loss) (529,462) (758,992) (678,423) (1,868,233) (735,771) 562,407 331,297 126,053
Basic and diluted (0.018) (0.026) (0.023) (0.065) (0.025) 0.02 0.011 0.004
(loss)/ earnings
per Common share
Total assets 7,225,175 11,247,041 6,821,886 8,869,545 6,662,268 9,714,493 6,334,596 9,296,704
Number of
common shares 28,964,382 28,784,382 28,964,382 28,784,382 30,620,575 28,814,382 30,620,575 28,964,382
outstanding
Net profit for the three months ended December 31, 2005 and 2004 was $0.33
million or $0.011 per share and $0.13 million or $0.004 per share, respectively.
During the fourth quarter of 2005, the Company sold 15,000 Newmont common shares
and received cash of $0.70 million. The Company recognized a loss of $0.01
million on the sale of these shares. The Company also recorded a gain of $0.10
million on the write-up of its remaining 45,000 Newmont common shares to their
original cost (market value on December 31, 2005-$2.40 million).
During the fourth quarter of 2005, the Company wrote off expenditures incurred
on a number of other minor projects in the amount of $0.01 million
During the fourth quarter of 2004, the Company decided not to continue with the
renewal application of the Botwood Basin Licence, located in central
Newfoundland and Labrador, as exploration results were not promising, and it has
written off its investment in the amount of $0.31 million.
As exploration results were not promising on the option property from Altius,
located in the Baie d'Espoir property in south-central Newfoundland and
Labrador. The Company wrote of investment in the amount of $0.07 million in
December 2004.
General and administrative expenses were $0.24 million in the fourth quarter of
2005 as compared with $0.33 million in the same period in 2004.
The foreign exchange loss in fourth quarter of 2005 was $0.07 million compared
to a gain of $0.12 million in 2004. The foreign exchange loss resulted from the
movements in exchange rates between operating currencies and the United States
dollar and also from the write off of foreign exchange movements previously
capitalised in Mineral Properties.
The Company earned dividend income of $0.01 million and $0.01 million during the
fourth quarter of 2005 and 2004 respectively. The dividend income was received
from the Company's shareholding in Newmont.
The Company earned deposit interest income of $0.001 million and $0.004 million
in the last quarter of 2005 and 2004 respectively.
In the last quarter of 2005 and 2004, the Company recorded a recovery of income
taxes in the sum of $0.58 million and $0.80 million respectively. The
underlying effective tax rate for 2005 is 31.32% as compared to 29.25% in 2004.
Cash flow used in operating activities for the fourth quarter to December 31,
2005 including changes in non-cash working capital of $0.17 million, totalled
$0.14 million as compared to cash flow from operating activities $1.08 million
in the same period in 2004. In the last quarter of 2005 cash used investing
activities was $0.56 million of which $1.27 million (2004-$0.67 million) was
expended on exploration of mineral properties incurred mainly in Angola. During
the last quarter of 2005, the Company received $0.70 million from the sale of
15,000 Newmont common shares.
Cash flow from financing activities in the last quarter of 2005 was $0.01
million.
Regulatory, Environmental and Other Risk Factors
The Company intends to fulfil all statutory commitments on its current licences
over the next year and will apply for licence renewals in the normal course of
business.
The Company's operating income and cash flow are affected by changes in the U.S.
/Canadian dollar exchange rate together with movement in the local currencies in
Angola, Sierra Leone, Ghana, and Ireland, as a portion of the Company's costs
are incurred in these currencies.
The profitability of any mining operation will be significantly affected by
changes in the market price of commodities. Commodity prices fluctuate on a
daily basis and are affected by numerous factors such as world supply, Central
Bank selling, stability of exchange rates, forward sales and inflationary
forces, among other factors beyond Moydow's control.
Exploration companies are subject to various laws and regulations including but
not limited to environmental and, health and safety matters together with
political risks which are outside the Company's control. Moydow is committed to
a program of environmental protection at all of its projects and exploration
sites.
The financial statements of the Company have been prepared on the basis that the
company will continue as a going concern which presumes that it will be able to
realize its assets and discharge its liabilities in the normal course of
business. The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern. If management
is unsuccessful in securing capital, the Company's assets may not be realized or
its liabilities discharged at their carrying amounts and these differences could
be material.
Outlook
The Company will focus its efforts on securing capital to enable Moydow complete
the proposed merger with Diamond Fields International Ltd. The Company will
continue to add value to its diamond property in Angola and complete the
feasibility study on the bauxite property in Sierra Leone.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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