RNS Number:4049U
Moydow Mines International Inc
04 April 2007
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 2006 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, 2006. The MD&A has been
prepared as at March 28, 2007. 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.
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, 2006, 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, 2006, 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 Angola 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 $5,000,000 on or before October 1, 2007. Cimader and Endiama have a free
carried interest in the exploration phase of the project.
The Company entered into a separate agreement with Concord Minerals LLC
(Concord), a private Nevada company, whereby Concord was granted 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. However,
Concord has not exercised this right in full and it presently holds a 15%
interest in the Moydow-Concord agreement.
The Company's cumulative expenditures on the alluvial licence to December 31,
2006 amounted to $3,255,610 of which $1,484,043 was incurred during 2006
($1,466,775 was incurred during 2005). In addition Concord cumulative
expenditures to December 31, 2006 amounted to $688,797 ($688,797 -December 31,
2005).
Kimberlite
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 $10,000,000 on or before January 14, 2009. Cimader and Endiama have a free
carried interest in the exploration phase of the project. The granting of the
licence was ratified by the Angolan Council of Ministers on October 18th, 2006
and was subject to the Company making a deposit of $1.0 million with the Angolan
government. The deposit was made in 2006 and may be refunded provided that
Moydow meet certain conditions. The deposit has been included as a component of
the cost to acquire an interest in the Dala project.
The Company also has an agreement with Concord, whereby Concord was granted 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. As in the case of the alluvials, Concord has not exercised its right
in full and its interest presently stands at 15% in the Moydow-Concord
agreement.
The Company's cumulative expenditures on the kimberlite licence to December 31,
2006 amounted to $1,663,643 of which $1,663,643 was incurred during 2006.
Concord's cumulative expenditures to December 31, 2006 amounted to $nil.
Port Loko property, Sierra Leone
The Company has a 50% interest in the Port Loko bauxite exploration project in
Sierra Leone, West Africa. The other 50% interest in the project is held by
Gondwana Investments Limited (Gondwana), a company incorporated in Luxembourg.
The Company has applied to the Sierra Leone government for a renewal of its
licence in respect of its activity at Port Loko and expects to receive the
licence in mid 2007. In the event that the licence is not renewed, the company
will be required to write-off its investment in this project.
Cumulative expenditures by the Company to December 31, 2006 amounted to
$2,586,495 of which $945,367 was incurred in 2006.
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 by the
company due to the uncertainty associated with this asset. Newmont commenced
production on this property during 2006.
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, 2006. 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.
Okumpreko property, Ghana
On September 17, 2004, the Company signed an agreement with PW Limited, an
international engineering and mining contractor. Under the terms of the
agreement, the Company can earn a majority interest in the Nyaduom and Kushea
mining leases, which are collectively known as the Okumpreko gold project. On
January 23, 2007, the Minerals Commission cancelled the mining lease for
non-performance. The Company wrote off its investments in the amount of
$404,222, of which $165,832 was incurred during 2006.
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 $0.03
million was incurred during 2005, as exploration results are not promising such
that exploration will not be planned for the foreseeable future.
Commitments
The Company, either directly or through certain joint ventures, has obligations
to expend various amounts on its mineral properties and projects in order to
keep its mineral property rights in good standing. All agreements are in the
normal course of business.
Payments due ($ thousand) Total Less than 1 year 1 to 3 years
Exploration and development $15,523 $523 $15,000
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 2006 was $1.06 million or $0.03 per share compared to a loss of
$1.61 million in 2005 or $0.05 per share.
During 2006, the Company sold 45,000 Newmont common shares for proceeds of $2.52
million. The Company recognized a gain of $0.31 million on the sale of these
shares.
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).
On January 23, 2007, the Minerals Commission cancelled the mining lease on the
Okumpreko gold project, Ghana for non-performance. The Company wrote off its
investments in the amount of $0.40 million, of which $0.17 million was incurred
during 2006.
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
2005 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 2005 in
the amount of $0.04 million.
General and administrative expenses were $0.92 million in 2006 as compared with
$1.15 million in 2005. The decrease in 2006 compared with 2005 is a result of
operating currencies weakening against the United States dollars together with
decreased costs associated with investor relation cost, professional fees and
more stringent cost controls.
On March 1, 2006, the Company announced that it had reached an agreement with
Diamond Fields International Ltd. ("Diamond Fields") effective February 28,
2006; pursuant to which, Moydow common shareholders would have exchanged their
Moydow securities for securities of Diamond Fields ("the acquisition"). The
acquisition was subject to, among other things, 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. As all the necessary stipulations required under the terms
of agreement were not reached by May 31, 2006, the agreement was automatically
terminated. The Company incurred transaction and due diligence expense of $.402
million in connection with this transaction.
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 2006 was $0.03 million compared to a gain of $0.06
million in 2005. 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 $0.001 million and $0.03 million during
2006 and 2005 respectively. The dividend income was received from the Company's
shareholding in Newmont. During 2006, the Company disposed of its shares in
Newmont.
The Company earned deposit interest income of $0.01 million and $0.01 million in
2006 and 2005, 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 2006 and 2005, the Company recorded a recovery of income taxes in the sum of
$0.32 million and $0.74 million respectively. The underlying effective tax rate
for 2006 is 22.90% as compared to 31.32% in 2005.
Liquidity and Capital Resources
At December 31, 2006, the Company had negative working capital of $2.24 million
(December 31, 2005 - $1.73 million). Cash and cash equivalents at December 31,
2006 amounted to $0.14 million compared to cash and cash equivalents as the end
of 2005 of $0.02 million.
During 2006, the Company entered into an unsecured loan agreement with certain
parties. The Company was advanced $1.43 million (including $0.13 million for
related parties) which is repayable on demand. The loan is non-interest
bearing. On March 29, 2007 the Company reached agreement with its lenders to
convert the outstanding debt into common shares of the Company at Cdn$0.20 per
share subject to among other things receipt of all necessary regulatory and
stock exchange approval.
At December 31, 2005, the Company held 45,000 Newmont common shares with a
quoted market value of $2.40 million.
These financial statements have been prepared using Canadian generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and settlement of liabilities in the normal course of
business as they come due. As at December 31, 2006, the Company had an excess
of current liabilities over current assets of $2.24 million and has recorded
losses and net cash outflows from operations for the past two years. The Company
is also required to make expenditures (as outlined in note 4 to the Consolidated
Financial Statements) in the near term to keep its mineral property rights in
Angola. The Company will have to secure additional financing to meet its
required commitments. These circumstances lend substantial doubt as to the
ability of the Company to meet its obligations as they come due and,
accordingly, the appropriateness of the use of accounting principles applicable
to a going concern.
In recognition of these circumstances, the Company is exploring various
initiatives to secure capital so that Moydow can continue as a going concern.
It is not possible to determine, with any certainty, the success, adequacy or
sufficiency of these initiatives.
Cash Flow Statements
Cash flow used in operating activities for the year ended December 31, 2006,
including changes in non-cash working capital of $0.44 million, totalled $0.68
million as compared to $1.88 million in 2005. In the twelve months ended
December 31, 2006 cash used in investing activities was $1.88 million of which
$4.41 million (2005 - $3.18 million) was expended on exploration of mineral
properties incurred principally in Angola and Sierra Leone. During 2006, the
Company received $2.520 (2005 - $3.98 million) million from the sale of 45,000
Newmont common shares.
Cash flow from financing activities for the year ended December 31, 2006, was
$2.69 million, principally from the issue of 7,655,143 shares for cash in the
amount of $1.26 million (2005 cash flow from financing activities - $0.27
million mainly represented by the issue of common shares). During 2006, the
Company was advanced $1.43 million (including $0.13 million for related parties)
which is repayable on demand. The loan is non-interest bearing. On March 29,
2007, the Company reached agreement with its lenders to convert the outstanding
debt into common shares of the Company at Cdn$0.20 per share subject to among
other things receipt of all necessary regulatory and stock exchange approval.
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 2006 and 2005.
Future Accounting Changes
Effective January 1, 2007, the Company will be required to comply with the new
provisions of the Canadian Institute of Chartered Accountants (CICA) Handbook on
accounting for Financial Instruments. Under the new standard, all financial
assets must be classified as available for sale, held for trading, held to
maturity, or loans and receivables. All financial
instruments classified as available for sale or held for trading are required to
be recognized at fair value on the consolidated balance sheet while financial
instruments classified as loans and receivables or other will generally be
measured at amortized cost. The standards allow the Company to designate
certain financial instruments, on initial recognition, as held for trading.
Changes in the fair value of financial instruments classified as held for
trading will be reported in net income. Unrealized gains or losses on financial
instruments classified as available for sale will be reported in other
comprehensive income until they are realized. Based on the Company's review to
this point, it does not expect that the new guidance will result in a material
impact on net income.
Outstanding Share Data
As at March 28, 2007, the Company has 38,275,718 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 1,600,000 stock options
outstanding at a weighted average price of Cdn$0.33.
During 2006, the Company was advanced $1.43 million (including $0.13 million for
related parties) which is repayable on demand. The loan is non-interest
bearing. On March 29, 2007, the Company reached agreement with its lenders to
convert the outstanding debt into common shares of the Company at Cdn$0.20 per
share subject to among other things receipt of all necessary regulatory and
stock exchange approval.
Transactions with Related Parties
Related party transactions relate primarily to the payment of fees under
contracts for services with companies in which a Moydow director is a
shareholder and director. The Company was charged a total of $0.39 million
during 2006 (2005 - $0.25 million) with respect to drilling and administration
services. Included in accounts payable and accrued liabilities as at December
31, 2006 is $0.61 million (2005 - $0.36 million) payable to these related
parties.
The Company's primary legal counsel is a firm in which directors of the Company
are partners. The Company was charged $.25 million during 2006 (2005 - $0.68
million) for legal services provided by this firm.
These transactions are made in the normal course of business.
Selected Consolidated Annual Financial Information
Set forth below is certain financial data for the last three completed financial
years:
December 31,2006 December 31,2005 December 31,2004
$ $ $
Total revenue - -
Basic and diluted (loss) earning per share (0.03) (0.05) (0.07)
Total assets 8,358,027 6,334,596 9,296,704
(Loss) net income for the year (1,060,179) (1,612,359) (1,938,765)
Total long term financial liabilities - - -
Dividends declared - - -
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
2006 2005 2006 2005 2006 2005 2006 2005
$ $ $ $ $ $ $ $
Revenues - - - - - - - -
Net profit/(loss) 33,490 (529,462) (331,574) (678,423) (335,633) (735,771) (426,462) 331,297
Basic and diluted
(loss)/ earnings per
Common share 0.001 (0.018) (0.011) (0.023) (0.010) (0.025) (0.011) 0.011
Total assets 6,841,872 7,225,175 7,110,675 6,821,886 8,931,585 6,662,268 8,358,027 6,334,596
Number of common
shares outstanding 30,620,575 28,964,382 30,620,575 28,964,382 38,275,718 30,620,575 38,275,718 30,620,575
Net loss for the three months ended December 31, 2006 was $0.43 million or
$0.011 per share and compared to a profit of $0.33 million or $0.011 per share
in the same period in 2005.
During 2006, the Company incurred transaction and due diligence expense of
$401,902 in connection with the proposed merger with Diamond Fields. During the
fourth quarter of 2006, the Company renegotiated their professional fees in
relation to this transaction and received a discount of $0.14 million.
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).
The Company wrote off its investments on the Okumpreko gold project located in
Ghana in the amount of $0.404 million as the Minerals Commission cancelled the
mining lease for non-performance on January 23, 2007.
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
General and administrative expenses were $0.28 million in the fourth quarter of
2006 as compared with $0.24 million in the same period in 2005.
The foreign exchange loss in fourth quarter of 2005 was $0.15 million compared
to a loss of $0.07 million in 2005. 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 $nil million and $0.01 million during the
fourth quarter of 2006 and 2005, respectively. The dividend income was received
from the Company's shareholding in Newmont. The company disposed of its shares
in Newmont in the first quarter of 2006.
The Company earned deposit interest income of $0.001 million and $0.001 million
in the last quarter of 2006 and 2005, respectively.
In the last quarter of 2006 and 2005, the Company recorded a recovery of income
taxes in the sum of $0.24 million and $0.58 million, respectively. The
underlying effective tax rate for 2006 is 22.90% as compared to 31.32% in 2005.
Cash flow used in operating activities for the fourth quarter to December 31,
2006, including changes in non-cash working capital of $1.47 million, totalled
$2.23 million as compared to cash flow from operating activities $0.14 million
in the same period in 2005. In the last quarter of 2006, cash used investing
activities was $2.07 million of which (2005 - $1.27 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 2006 and 2005 was
$0.44 million and $0.01 million, respectively. During the fourth quarter of
2006, the Company was advanced $0.44 million which is repayable on demand. The
loan is non-interest bearing. On March 29, 2007 the Company reached agreement
with its lenders to convert the outstanding debt into common shares of the
Company at Cdn$0.20 per share subject to among other things receipt of all
necessary regulatory and stock exchange approval.
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 continue to add value
to its diamond property in Angola, complete the feasibility study on the bauxite
property in Sierra Leone and evaluate new opportunities.
This information is provided by RNS
The company news service from the London Stock Exchange
END
STREAELLESAXEFE
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