Medoro Resources Announces Third Quarter Results
TORONTO, Nov. 15 /CNW/ - Medoro Resources Ltd. (TSX-V/AIM: MRL) announced
today its third quarter and year-to-date results for the three and eleven-
month periods ending September 30, 2004. Medoro Resources was formed following
the business combination between Full Riches Investments Limited and a wholly-
owned subsidiary of Gold Mines of Sardinia, plc.
The new entity, Medoro Resources, has elected to report its financial
results on a calendar year basis. Full Riches previously reported its results
for the three months ended January 31, 2004, and, having been identified as
the acquirer for accounting purposes, this release includes results for both
the three and eleven-month periods ending September 30, 2004.
For the three and eleven-month periods ended September 30, 2004, Medoro
Resources reported a loss of $1.8 million and $4.9 million or $0.02 and $0.07
per share respectively. The loss largely reflects the impact of one-time costs
related to the business combination, as well as ongoing operating costs at its
90%-owned operating subsidiary in Sardegna.
In Sardegna, Gold Fields has completed the first phase of drilling at the
Monte Ollasteddu prospect and results are expected to be announced before the
end of November.
On October 20, 2004, the company announced the completion of the sale of
Gold Mines of Sardinia Pty. Ltd. to Sargold Resource Corporation. With this
sale, Medoro has significantly improved its financial position, with (euro)
6 million additional working capital and the elimination of all liabilities,
while retaining its interests in the Monte Ollasteddu and Pestarena projects.
The company is actively pursuing other opportunities in Italy, and elsewhere
in Europe.
Financial Statements and Management's Discussion & Analysis follow.
Medoro Resources Ltd.
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Consolidated Balance Sheets
Expressed in Canadian dollars
September 30, October 31,
2004 2003
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Assets Unaudited Audited
Current assets
Cash and equivalents $ 3,104,746 $ 3,221,339
Accounts receivable 2,640,631 9,468
Promissory note - 50,000
Inventories 607,088 -
Prepaids and deposits 199,947 1,973
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6,552,412 3,282,780
Loan receivable (Note 2 d) - 662,925
Mineral properties (Notes 2 f and 3) 23,762,477 -
Property, plant and equipment 5,358,149 -
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Total assets $ 35,673,038 $ 3,945,705
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Liabilities and shareholders' equity
Current liabilities
Accounts payable and accruals $ 4,324,846 $ 97,762
Long-term debt 8,988,187 -
Other long-term liabilities 4,743,320 -
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18,056,353 97,762
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Shareholders' equity
Share capital (Note 4) 28,981,977 6,706,001
Contributed surplus (Notes 2 c, 2f and 4c) 305,953 -
Shares to be issued (Note 3) - 15,000
Special warrants (Note 2 b) - 2,490,905
Subscriptions received (Note 2 c) - 1,255,000
Cumulative translation adjustment (185,480) -
Deficit (11,485,765) (6,618,963)
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17,616,685 3,847,943
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Total liabilities and shareholders' equity $ 35,673,038 $ 3,945,705
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These unaudited interim consolidated financial statements for the periods
ended September 30, 2004 have not been reviewed by the Company's auditor.
See accompanying notes to unaudited interim consolidated financial
statements.
Medoro Resources Ltd.
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Consolidated Statements of Operations and Deficit
Expressed in Canadian dollars, unaudited
Three Months Three Months Eleven Months Year
Ended Ended Ended Ended
Sept. 30, Oct. 31, Sept. 30, Oct. 31,
2004 2003 2004 2003
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Interest
income $ 13,192 $ 6,292 $ 93,411 $ 6,516
General and
administrative
expenses (1,264,335) (690) (3,562,194) (198,408)
Stock compensation
expense
(note 4c) (126,600) - (126,600) -
Exploration
expenses (441,858) - (997,472) -
Loss on
disposal of
capital assets - - - (1,844)
Amortization - - (305,870) (97)
Foreign exchange
gains (losses) (13,505) 5,617 31,923 (2,850)
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Net earnings
(loss) for the
period from
continuing
operations (1,833,106) 11,219 (4,866,802) (196,683)
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Net loss from
discontinued
operations - (150,000) - (150,000)
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Net loss for
the period (1,833,106) (138,781) (4,866,802) (346,683)
Deficit,
beginning of
period (9,652,659) (6,480,182) (6,618,963) (6,272,280)
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Deficit, end
of period $(11,485,765) $ (6,618,963) $(11,485,765) $ (6,618,963)
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Basic and
diluted loss
per share
Continuing
operations $ (0.02) - $ (0.07) $ (0.01)
Net $ (0.02) $ (0.02) $ (0.07) $ (0.03)
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Weighted
average number
of common shares
outstanding 86,022,667 11,871,849 65,106,039 11,871,849
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See accompanying notes to unaudited interim consolidated financial
statements.
Medoro Resources Ltd.
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Consolidated Statements of Cash Flows
Expressed in Canadian dollars, unaudited
Three Months Three Months Eleven Months Year
Ended Ended Ended Ended
Sept. 30, Oct. 31, Sept. 30, Oct. 31,
2004 2003 2004 2003
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Cash provided
by (used in):
Operating
activities
Net earnings
(loss) for the
period from
continuing
operations $(1,833,106) $ 11,219 $(4,866,802) $ (196,683)
Items not
affecting cash:
Loss on
disposal of
assets - - - 1,844
Amortization - - 305,870 97
Stock
compensation
expense 126,600 - 126,600 -
Foreign
exchange
(gains)
losses 13,505 (5,617) (31,923) 2,850
Bridge
financing fee - 15,000 - 15,000
Changes in
non-cash working
capital items:
Accounts
receivable (645,607) (126,334) (1,009,545) (8,107)
Promissory note - - 50,000 -
Inventories 15,188 - 10,752 -
Prepaids and
deposits 256,363 2,465 (49,932) 2,465
Accounts
payable and
accrued
liabilities 886,510 99,952 880,282 80,414
Other long-term
liabilities (25,187) - 158,340 -
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(1,205,734) (3,315) (4,426,358) (102,120)
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Investing
activities
Acquisition of
Sardinia Gold
Mining
SpA, net of
acquired cash
(Note 2) (48,507) - (2,152,786) -
Advances to
Gold Mines of
Sardinia plc - (662,925) - (662,925)
Acquisition of
mineral
properties(Note 3) - - (1,008,042) -
Proceeds on
disposal of
property, plant
and equipment,
net 15,861 - 4,313 -
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(32,646) (662,925) (3,156,515) (662,925)
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Financing
activities
Proceeds from
bridge financing - 660,900 - 660,900
Repayment of
bridge financing - (660,900) - (660,900)
Issuance of
special warrants - 2,490,905 295,000 2,490,905
Issuance of
subscription
receipts - 1,255,000 8,015,000 1,255,000
Issuance costs - - (781,515) -
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- 3,745,905 7,528,485 3,745,905
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Foreign exchange
impact on cash (49,419) - (62,205) -
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Net increase
(decrease) in
cash and
equivalents (1,287,799) 3,079,665 (116,593) 2,980,860
Cash and
equivalents,
beginning of
period 4,392,545 141,674 3,221,339 240,479
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Cash and
equivalents, end
of period $ 3,104,746 $ 3,221,339 $ 3,104,746 $ 3,221,339
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See accompanying notes to unaudited interim consolidated
financial statements.
Medoro Resources Ltd.
Notes to Unaudited Interim Consolidated Financial Statements
For the Three and Eleven Month Periods Ended September 30, 2004 and the
Three and Twelve Month Periods Ended October 31, 2003
All Amounts Expressed in Canadian Dollars
Unaudited
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1. Basis of Presentation
The interim consolidated financial statements include the accounts of the
amalgamated entity resulting from the Business Combination (as described
in Note 2) and its wholly owned subsidiaries, principally Gold Mines of
Sardinia Pty. Ltd. ("GMS Australia"), Sardinia Gold Mining SpA ("Sardinia
Gold") and Miniere di Pestarena srl. Pursuant to the Business
Combination, the amalgamated company, formed on March 2, 2004, has
continued under the name of Medoro Resources Ltd. (the "Company").
The unaudited interim period financial statements have been prepared by
the Company in accordance with Canadian generally accepted accounting
principles ("GAAP"). All financial summaries included are presented on a
comparative and consistent basis showing the figures for the
corresponding period in the preceding year. The preparation of financial
data is based on accounting principles and practices consistent with
those used in the preparation of annual financial statements. Certain
information and footnote disclosure normally included in financial
statements prepared in accordance with GAAP has been condensed or
omitted. These unaudited interim period statements should be read
together with the audited financial statements and the accompanying notes
included in Full Riches Investments Limited's ("FRI") latest annual
report. In the opinion of the Company, its unaudited interim financial
statements contain all adjustments necessary in order to present a fair
statement of the results of the interim periods presented.
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
2. Acquisition of Sardinia Gold Mining SpA
(a) The business combination
On October 3, 2003, FRI entered into an arm's length agreement with Gold
Mines of Sardinia plc, a public company formed under the laws of England
and Wales ("GMS England") pursuant to which FRI and GMS England agreed to
complete a business combination (the "Business Combination"). GMS England
is a gold exploration and development company with interests on the
Italian island of Sardinia through its operating subsidiary Sardinia
Gold, a joint venture with the Sardinian regional Government, in which
GMS England holds a 90% interest through GMS Australia and the Sardinian
regional Government the remaining 10%.
FRI received approval in February 2004 from the TSX Venture Exchange to
amalgamate with GMS England's wholly owned subsidiary, Medoro Resources
Ltd. ("GMS Canada"), incorporated under the laws of the Yukon, to create
the Company. The amalgamation was completed February 24, 2004. GMS
England transferred all of the issued and outstanding shares in the
capital of GMS Australia from GMS England to GMS Canada in consideration
for an aggregate of 38,726,261 shares of GMS Canada. Pursuant to the
terms of the amalgamation:
(i) GMS England, as the sole shareholder of GMS Canada, received common
shares of the Company, representing approximately 50% of the
Company's issued and outstanding shares as of the date of the
completion of the amalgamation. In conjunction with the completion
of the Business Combination, GMS England distributed the shares it
received of the Company to its shareholders; and
(ii) The shareholders of FRI received common shares of the Company
representing, in aggregate, approximately 50% of the Company's
issued and outstanding shares as of the date of the amalgamation.
In identifying the acquirer in this Business Combination, consideration
was given to the proposed relative composition of the Board of Directors
and Management of the Company. FRI was identified as the acquirer.
(b) Initial private placement
Completion of the Business Combination was subject to the successful
completion of $10,000,000 (gross) in equity financings by FRI (the
"Private Placements"). The use of proceeds of the financings is for
future exploration and development expenses and general working capital.
In connection with the Business Combination, FRI announced a non-brokered
private placement of up to 40,500,000 special warrants (the "Special
Warrants") at a price of $0.10 per Special Warrant for gross proceeds of
$4,050,000 (the "Initial Private Placement"). On October 27, 2003, FRI
completed the issue and sale of 25,000,000 Special Warrants for aggregate
proceeds of $2,500,000. FRI completed the issue and sale of the balance
of the $1,550,000 on December 11, 2003. The Special Warrants were
subsequently exercised for common shares prior to the completion of the
amalgamation and each FRI common share received on such exercise was
exchanged of 0.5 common shares of the Company pursuant to the
amalgamation. Issuance costs related to the transaction amounted to
$43,798.
(c) Agency Private Placement
In connection with the satisfaction of the condition to complete the
balance of the Private Placements, FRI retained an agent (the "Agent") in
connection with the private placement of 22,900,000 subscription receipts
(the "Subscription Receipts") at a price of $0.35 per Subscription
Receipt for aggregate proceeds of $8,015,000 (the "Agency Private
Placement"). Each Subscription Receipt was exercisable, for no additional
consideration, into one FRI common share. The private placement was
completed on January 16, 2004. The Subscription Receipts were exercised
for FRI common shares prior to the amalgamation and each FRI common share
received on the exercise was subsequently exchanged for 0.5 common shares
of the Company pursuant to the amalgamation.
In connection with the Agency Private Placement, FRI paid the Agent a
commission of $480,900 equal to 6% of the aggregate proceeds from the
Agency Private Placement and issued 1,374,000 Agent's Warrants. Each
Agent's Warrant entitles the holder to acquire one FRI common share at a
price of $0.35 until January 15, 2006. In addition, each Agent's Warrant
was exchanged for 0.5 replacement warrants of the Company at $0.70 per
warrant pursuant to the amalgamation. The fair value of the Agent's
Warrants of $117,950, included in contributed surplus, was calculated
using the Black-Scholes pricing model assuming a risk-free interest rate
of 2.87%, volatility of 40% and no dividend payments.
Total issuance costs related to the Subscription Receipts were $864,762
including the commission, warrants and advisory and legal fees.
(d) Interim financing of GMS England and Sardinia Gold
In conjunction with the Business Combination, FRI arranged interim
financing (the "Interim Financing") for GMS England consisting of US
$1,500,000 advanced by FRI in two tranches pursuant to a loan agreement
between FRI and GMS England dated October 3, 2003 (the "GMS Loan
Agreement"). The loans bore interest at a rate of 10% per annum from the
date of issue and matured following the completion of the Business
Combination such that the obligations of GMS England thereunder expired
on closing of the Business Combination. The loans were direct obligations
of GMS England, secured by a charge over the shares of GMS Australia. All
funds advanced under the Interim Financing were paid directly to Sardinia
Gold. In February 2004, prior to the Business Combination, FRI advanced
("SGM Advances") additional funds of $211,968 directly to Sardinia Gold
for working capital purposes. Pursuant to the Business Combination, the
obligations of GMS England under the Interim Financing and SGM Advances
were acquired by the Company.
(e) Joint venture
Pursuant to the terms of the Business Combination, the Company entered
into a binding letter of intent with a wholly-owned subsidiary of Gold
Fields Limited ("Gold Fields"). Under the letter of intent, the Company
granted Gold Fields an exclusive option over all of its properties in
Sardinia not currently under option to Bolivar Gold Corp. or Sargold
Resource Corporation. Gold Fields has a period of 12 months to perform
preliminary evaluations on the properties, during which period Gold
Fields has the right to acquire up to a 70% interest in specific
properties, with 50% to be earned by sole-funding all expenditures
through to completion of a bankable feasibility study. Upon completion of
a bankable feasibility study, Gold Fields and Sardinia Gold will each be
responsible for funding further exploration, development and other work
on the property in accordance with their respective percentage interests.
(f) Other matters
(i) In consideration for their services, in introducing the parties,
assistance with the Italian authorities, due diligence, assisting
with the financing and continued services in completing the Business
Combination, a total of 10,000,000 FRI common shares were issued,
after receiving TSX Venture Exchange approval, to Next com Italia
srl, Jose Francisco Arata and Endeavour Financial. Pursuant to the
amalgamation, each of these common shares were exchanged for 0.5
common shares of the Company.
(ii) FRI retained McFarlane Gordon Inc. to act as sponsor (the "Sponsor")
in connection with the Business Combination in accordance with the
policies of the TSX Venture Exchange. As consideration for the
services rendered by the Sponsor, FRI agreed to issue 250,000 FRI
common shares which, pursuant to the amalgamation, were subsequently
exchanged for 0.5 common shares of the Company.
(iii)Post-amalgamation, the Company issued:
- 1,182,888 options to holders of GMS England options;
- 5,793,918 warrants to holders of GMS England warrants as
consideration for the assignment to, and assumption by, the
Company of certain GMS England Agreements; and
- 319,857 common shares to Williams de Broe in consideration of
services performed in connection with the amalgamation.
(iv) On February 24, 2004, the Business Combination was completed and
shares in the Company began trading on March 2, 2004. The
acquisition of 100% of GMS Australia has been accounted for using
the purchase method and the results of operations have been included
in the earnings of the Company from the date of amalgamation. The
preliminary allocation of the purchase price is summarized below:
44,171,118 shares issued at $0.20 per share
(Notes 2 a, 2 f (i), 2 f (ii) and 2 f (iii)) $ 8,834,223
Fair value of GMS England options and warrants exchanged
for options and warrants of the Company (Note 2 f (iii)) 61,403
Acquisition costs 1,450,000
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Total consideration $10,345,626
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Net assets acquired:
Cash $ 467,080
Accounts receivable 1,751,366
Inventories 655,756
Prepaids and deposits 158,821
Mineral interests 21,017,046
Property, plant and equipment 6,197,089
Accounts payable and accrued liabilities (3,001,865)
Interim Financing and SGM Advance (Note 2 d) (2,203,968)
Long-term debt (9,544,655)
Other long-term liabilities (5,151,044)
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$10,345,626
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The fair value of the options and warrants was determined using the
Black-Scholes option pricing model assuming no dividends were paid, a
volatility of the Company's shares of 40%, an expected life of
options and warrants ranging between 0.5 years and 5 years and annual
risk-free interest rate ranging between 2.15% and 3.48%.
As at September 30, 2004, $356,806 of the acquisition costs was
included in accounts payable and accrued liabilities.
3. Acquisition of Miniere di Pestarena srl
On March 23, 2004, the Company acquired 100% of the share capital in
Miniere di Pestarena srl, an Italian company with exploration rights
covering the Pestarena and Lavanchetto concessions located in the
Piedmont Region in Northern Italy for total consideration amounting to
$3,208,042 represented by a cash payment of $979,835 ((euro) 600,000),
acquisition costs of $28,207 and the issuance of 4,000,000 common shares
of the Company on May 5, 2004. The acquisition has been accounted for
using the purchase method and the purchase price has been allocated to
mineral properties.
4. Capital Stock
(a) Common shares
Authorized
Unlimited common shares without par value
Issued and outstanding
Number of Amount
shares
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Opening balance as at October 31, 2003 11,871,849 $ 6,706,001
Issued prior to amalgamation:
As consideration for bridge facility
(see below) 150,000 15,000
Upon exercise of Special Warrants
(Note 2 b) 40,500,000 4,006,202
Upon exercise of Subscription Rights
(Note 2 c) 22,900,000 7,150,238
As consideration for services in
connection with the Business
Combination (Note 2 f (i)) 10,000,000 1,000,000
As consideration for services rendered
by the Sponsor (Note 2 f (ii)) 250,000 25,000
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Balance as at February 24, 2004, prior to
amalgamation 85,671,849 $18,902,441
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Number of Amount
shares
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Opening balance as at February 24, 2004,
post-amalgamation, after giving effect
to exchange of 0.5 common shares of
the Company for each FRI common share 42,835,925 $18,902,441
Issued to GMS England pursuant to the
Business Combination (Note 2 a) 38,726,261 7,745,252
Issued as consideration for services in
connection with the amalgamation
(Note 2 f (iii)) 319,857 63,971
Issued in settlement of accrued
liabilities (see below) 140,624 70,313
Issued to acquire Miniere
di Pestarena srl (Note 3) 4,000,000 2,200,000
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Closing balance as at September 30,
2004 86,022,667 $28,981,977
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FRI issued 150,000 common shares to Endeavour Mining Capital Corp. as
part of the consideration for providing it with a bridge facility of
US $500,000 bearing interest at a rate of 10% per annum that matured
on October 31, 2003.
On May 5, 2004, pursuant to the approval of the TSX Venture Exchange,
the Company issued an aggregate of 140,624 common shares in final
payment of $70,313 of accrued liabilities owed to four consultants to
the Company.
(b) Escrow shares
As at September 30, 2004, there were 3,639,000 common shares of the
Company held in escrow.
(c) Stock options
As at September 30, 2004, there are 2,825,000 stock options of the
Company outstanding exercisable at $0.70 per common share, including
325,000 stock options of the Company granted in February 2004 to
certain officers and consultants of FRI.
In addition, subsequent to the amalgamation, 1,182,888 stock options
of the Company were issued to holders of GMS England options expiring
through mid-2006 at exercise prices ranging from $1.45 to $3.25 per
common share.
In August 2004, the Company granted 2,705,000 stock options
exercisable at $0.18 per common share and vesting immediately to
certain officers and consultants. The fair value of these stock
options of $126,600, included in contributed surplus and stock
compensation expense, was calculated using the Black-Scholes pricing
model assuming a risk-free interest rate of 2.78%, volatility of 40%
and no dividend payments.
(d) Stock warrants
As at September 30, 2004, there were 5,793,918 warrants (Note 2 f
(iii)) outstanding with expiry dates ranging up until 2008 and
exercise prices ranging from $0.70 to $3.30 per common share. In
addition, there were 687,000 Agent's Warrants (Note 2 c) outstanding
exercisable at $0.70 per common share expiring on January 15, 2006.
5. Related Party Transactions
During the eleven months ended September 30, 2004, the Company paid the
following amounts to related parties:
(a) Consulting fees of $63,204 and rent of $4,000 (2003 - $15,000) were
paid to a company in which a director of the Company is an officer.
(b) Consulting fees of $212,580 were paid (2003 - $32,500) to Next com
Italia srl, a company in which the President of Sardinia Gold is
managing director.
6. Segmented Information
The Company operates in one principal business segment, gold exploration
and development, principally conducted through its operating subsidiaries
located in Italy.
7. Subsequent Event
On October 20, 2004, the Company completed the sale of all of its shares
in GMS Australia, including its 90% interest in Sardinia Gold, to Sargold
Resource Corporation ("Sargold") for consideration consisting of (euro)
6.0 million in cash, payable over a period of sixty months, $1.0 in
common shares of Sargold, and a 2% net smelter royalty interest. Sargold
has the right to buy back the royalty interest for US $1.0 million per
percent. As a result of the transaction, the Company has no debt and its
mineral properties comprise its investment in Miniere di Pestarena srl
and its interest in the Monte Ollasteddu concession in Sardinia.
Management's Discussion and Analysis of Results of Operation and
Financial Condition for the three and eleven-month periods ended
September 30, 2004
This Management's Discussion and Analysis should be read in conjunction
with the company's unaudited consolidated financial statements for the periods
ended September 30, 2004 and related notes thereto which have been prepared in
accordance with Canadian generally accepted accounting principles. In
addition, the following should be read in conjunction with the 2003 audited
consolidated financial statements. All figures are expressed in Canadian
dollars unless otherwise noted.
This Management's Discussion and Analysis has been prepared with
reference to National Instrument 51-102 "Continuous Disclosure Obligations" of
the Canadian Securities Administrators. This Management's Discussion and
Analysis has been prepared as of November 15, 2004.
Overview
Medoro Resources Ltd. was created in February 2004 as a result of the
business combination between Full Riches Investments Limited and GMS Canada,
whose principal assets were the exploration and formerly-producing gold assets
belonging to Gold Mines of Sardinia (GMS).
The original focus of GMS was the exploration, development and production
of gold on the island of Sardegna in Italy. GMS was successful in this regard,
having produced, in total, 130,000 ounces of gold during the period 1997 -
2003. This was not a particularly prosperous period for gold producers, large
and small, as the price of gold was hovering around 20-year lows. As a result,
GMS' ability to explore for and develop additional gold resources was
constrained by available cash flow. Having exhausted all readily-available
sources of ore in February 2003, the company suspended operations and pursued
alternatives that would enable GMS shareholders to realize some value for its
extensive portfolio of exploration concessions.
The Full Riches transaction achieved this objective. In addition to
providing badly needed cash resources, a key requirement of the transaction
was that Full Riches secure the participation of a senior partner who would
take on the responsibility of funding an aggressive program of exploration of
GMS' concessions. This commitment was fulfilled by the participation of a
wholly-owned subsidiary of Gold Fields Limited, who have a 12-month exclusive
right to explore any GMS concession not previously optioned to another party
and can earn a 70% interest in any such property by funding all costs through
to the completion of a bankable feasibility study.
In addition to the Gold Fields Joint Venture, GMS had previously
negotiated two exploration joint ventures, one with Sargold Resource
Corporation for exploration in the Furtei area and one with Bolivar Gold Corp.
for the exploration of the Monte Ollasteddu concession. Bolivar Gold Corp. has
earned 15% and can earn a further 55% interest in the property by funding all
expenditures through to the completion of a bankable feasibility study. A
wholly-owned subsidiary of Gold Fields is currently earning a 60% interest in
the property from Bolivar Gold by funding all of Bolivar Gold's obligations.
On October 20, 2004, the company completed a restructuring of the Sargold
agreement whereby Sargold acquired Medoro's entire interest in all Sardinian
assets, except Monte Ollasteddu, in exchange for (euro) 6 million in cash, the
assumption of all liabilities and $1 million in common shares of Sargold.
Medoro Resources' vision is to create a European-focused gold exploration
company with a diverse portfolio of gold prospects throughout the region. To
achieve this objective, the company has leveraged off of its existing land
position in Sardegna to focus on a smaller number of more prospective
properties. Given the company's current financial and technical resources,
Medoro's strategy will initially be to rely extensively on joint ventures with
highly-qualified, well-financed partners to fund exploration of both existing
concessions as well as newly-acquired opportunities elsewhere in Italy and
throughout Europe.
In order to achieve this strategy, the company has reduced the negative
cash flow associated with the formerly producing GMS assets to a point where
Medoro is now organized and operated on a largely 'cash neutral' basis, with
almost all exploration funding provided by joint venture partners. In the
longer term, this strategy is only viable if economic quantities of gold are
discovered and developed on at least one of the company's properties and
thereby generate positive cash flow sufficient to cover all corporate costs on
an ongoing basis.
Results of Operations
With the recently completed business combination, comparisons between
current costs and prior periods are not meaningful. However, the following
comments identify various issues related to the results of operations for the
periods ending September 30, 2004 and the company's financial condition as of
that date.
With mining operations in Sardegna suspended as of February 2003, the
only tangible activity in the group was general and administrative costs
related to the business combination as well as ongoing administrative costs,
primarily in Italy and Canada. These costs amounted to $3.6 million in the
eleven months ended September 30, 2004, with $1.3 million occurring in the
most recent three months. In addition, a total of $442,000 was expended in the
past three months on exploration that is not recoverable from joint venture
partners. After adjusting for non-cash items and changes in non-cash working
capital, operating activities consumed $1.2 million in the three months ended
September 30, 2004and a further $3.2 million in the preceding eight months.
Investing activities in the eleven-month period ended September 30, 2004
consists largely of the acquisition of GMS and the Pestarena property in
northwestern Italy. During the eleven months ended September 30, 2004 the
company raised net proceeds of $7.5 million through the sale of 22.9 million
subscription receipts which were exercisable, for no additional consideration,
into common shares of Full Riches which, pursuant to the business combination,
were exchanged for 0.5 common shares of Medoro Resources each.
The following tables provide selected financial information for the three
most recent years and eight most recent quarters. All results from business
activities preceding the GMS acquisition have been treated as discontinued
operations.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three most recent years Oct. 31 Oct. 31 Oct. 31
2003 2002 2001
-------------------------------------------------------------------------
a) Revenues $ 0 $ 798,695 $ 979,116
b) Income before discontinued
operations 0 0 0
- per share 0.00 0.00 0.00
c) Net income (346,683) (507,972) (42,559)
- per share (0.03) (0.04) (0.00)
d) Total assets 3,945,705 448,219 258,515
e) Long term debt 0 0 0
f) Dividends per
share 0.00 0.00 0.00
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Summary of
Quarterly Results Sept. 30 Jun. 30 Mar. 31 Jan. 31
2004 2004 2004(x) 2004
-------------------------------------------------------------------------
a) Revenues $ 0 $ 0 $ 0 $ 0
b) Income before
discontinued
operations (1,833,106) (1,879,832) (1,064,016) 0
- per share (0.02) (0.02) (0.02) 0.00
c) Net income (1,833,106) (1,879,832) (1,064,016) (89,848)
- per share (0.02) (0.02) (0.02) (0.01)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(x) two-month period
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Summary of
Quarterly Results Oct. 31 Jul. 31 Apr. 30 Jan. 31
2003 2003 2003 2003
-------------------------------------------------------------------------
a) Revenues $ 0 $ 0 $ 0 $ 0
b) Income before
discontinued
operations 0 0 0 0
- per share 0.00 0.00 0.00 0.00
c) Net income (138,781) (156,046) (26,289) (25,567)
- per share (0.01) (0.01) (0.00) (0.00)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liquidity and Financial Resources
At September 30, 2004, Medoro Resources had $3.1 million in cash and
working capital of $2.2 million. Subsequent to the end of the quarter, the
company completed the previously announced sale of most of its Sardinian
assets for (euro) 6 million receivable over 60 months, of which (euro) 500,000
was received on closing and the balance will be included in short and long
term receivables, with essentially all short and long term liabilities being
assumed by the buyer.
Disclosure of Outstanding Share Data
Medoro Resources' outstanding voting or equity securities, or securities
convertible into, or exercisable or exchangeable for, voting or equity
securities of the company, are as follows:
-------------------------------------------------------------------------
Securities Sep 30 Jun 30 Mar 31 Oct 31
2004 2004 2004 2003
-------------------------------------------------------------------------
Common shares 86,022,667 86,022,667 81,882,043 11,871,849
Warrants, with 5,793,918 5,793,918 5,793,918 Nil
expiry dates
ranging up until
2008 and exercise
prices ranging from
$0.70 to $3.30
Agent's warrants, 687,000 687,000 687,000 Nil
exercisable until
January 15, 2006 at
$0.70
Stock options, with 6,712,888 4,007,888 4,007,888 Nil
expiry dates
ranging up until
February 2009 and
exercise prices
ranging from
$0.18 to $3.49
-------------------------------------------------------------------------
Transactions with Related Parties
All transactions with related parties have occurred in the normal course
of operations and are measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties. During the
eleven month period ended September 30, 2004, Medoro Resources paid the
following amounts to related parties: (i) consulting fees of $63,204 and rent
of $4,000 (2003 - $15,000) to a company in which a director of the Company is
an officer; and (ii) consulting fees of $212,580 were paid (2003 - $32,500) to
Next com Italia srl, a company in which the President of Sardinia Gold is
managing director.
Off-Balance Sheet Arrangements
Medoro Resources has no off-balance sheet arrangements that have, or are
reasonably likely to have, a current or future effect on the results of
operations or financial condition of the company including, without
limitation, such considerations as liquidity and capital resources.
Changes in Accounting Policies Including Initial Adoption
Medoro Resources' unaudited interim financial statements are prepared in
accordance with Canadian generally accepted accounting principles ("GAAP").
They do not include all of the information and disclosures required by
Canadian GAAP for annual financial statements. In the opinion of management,
all adjustments considered necessary for fair presentation have been included
in these financial statements.
Additional information relating to the company is available on SEDAR at
www.sedar.com.
For further information: Peter Volk, Assistant Secretary,
(416) 603-4653, info@medororesources.com
(MRL.)
END
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