UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 40-F
(Check one)
| [ ] | REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| [X] | ANNUAL REPORT PURSUANT TO SECTION 13(A) OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended: December 31, 2003 | Commission file number 001-34436 |
MIRAMAR MINING
CORPORATION
(Exact name of Registrant as specified in its charter)
|
Not Applicable (Translation of Registrant's name into English (if applicable)) |
British Columbia, Canada (Province of other jurisdiction of incorporation or organization) |
Not Applicable (I.R.S. Employer Identification Number (if applicable)) |
1040
(Primary Standard Industrial Classification Code Number (if applicable))
Suite 300 – 889
Harbourside Drive,
North Vancouver, British Columbia, Canada V7P 3S1
(604) 985-2572
(Address and telephone number of Registrant’s principal executive offices)
CT Corporation System,
111 Eighth Avenue, 13th Floor, New York, New York 10011
(212) 894-8940
Name, address (including zip code) and telephone number (including area code)
of agent for service in the United States)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
| Title of each class Common Shares |
Name of each exchange on which registered American Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
For annual reports, indicate by check mark the information filed with this Form:
| [X] Annual information form | [X] Audited annual financial statements |
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
As at December 31, 2003, 151,634,893 Common Shares without par value were issued and outstanding.
Indicate by check mark whether the Registrant by filing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). If “Yes” is marked, indicate the filing number assigned to the Registrant in connection with such Rule.
| Yes 82- | No X |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
| Yes X | No |
Explanatory Note: Miramar Mining Corporation (the “Company” or the “Registrant”) is a Canadian issuer eligible to file its annual report pursuant to Section 13 of the Securities Exchange Act of 1934 (the “1934 Act”) on Form 40-F. The Company is a “foreign private issuer” as defined in Rule 3b-4 under the 1934 Act and in Rule 405 under the Securities Act of 1933. Equity securities of the Company are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the 1934 Act pursuant to Rule 3a12-3.
NOTE REGARDING FORWARD LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 concerning the Company’s plans at the Giant Mine, the Hope Bay Project and other matters. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.
Statements concerning reserves and mineral resource estimates may also be deemed to constitute forward-looking statements to the extent that they involve estimates of the mineralization that will be encountered if the property is developed, and in the case of mineral reserves, such statements reflect the conclusion based on certain assumptions that the mineral deposit can be economically exploited. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be “forward-looking statements.” Forward-looking statements are subject to a variety of risks and uncertainties which could cause actual events or results to differ from those reflected in the forward-looking statements, including, without limitation:
| • | risks and uncertainties relating to the interpretation of drill results, the geology, grade and continuity of mineral deposits; |
| • | results of initial feasibility, pre-feasibility and feasibility studies, and the possibility that future exploration, development or mining results will not be consistent with the Company’s expectations; |
| • | mining and development risks, including risks related to accidents, equipment breakdowns, labour disputes or other unanticipated difficulties with or interruptions in production; |
| • | the potential for delays in exploration or development activities or the completion of feasibility studies; |
| • | risks related to the inherent uncertainty of production and cost estimates and the potential for unexpected costs and expenses; |
| • | risks related to commodity price fluctuations; |
| • | the uncertainty of profitability based upon the Company's history of losses; |
| • | risks related to failure to obtain adequate financing on a timely basis and on acceptable terms for the Company's planned exploration and development projects; |
| • | risks related to environmental regulation and liability; |
| • | risks related to the closure of the Con Mine, including risks that the costs related to environmental compliance, reclamation, post-closure control measures, monitoring and on-going maintenance will exceed the funds held in trust for such costs; |
| • | risks related to failure to obtain operating permits for future projects; |
| • | risks related to tax assessments; |
| • | political and regulatory risks associated with mining development and exploration; and |
| • | and other risks and uncertainties related to the Company's prospects, properties and business strategy. |
This list is not exhaustive of the factors that may affect any of the Company’s forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on the Company’s forward-looking statements.
Forward looking statements are made based on management’s beliefs, estimates and opinions on the date the statements are made and the Company undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. Further information regarding these and other factors is included in the filings by the Company with the U.S. Securities & Exchange Commission and Canadian provincial securities regulatory authorities.
Currency
Unless otherwise indicated, all dollar amounts in this report are Canadian dollars. The exchange rate of Canadian dollars into United States dollars, on December 31, 2003, based upon the noon buying rate in New York City for cable transfers payable in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York, was U.S.$1.00 = CDN $1.2923.
RESOURCE AND RESERVE ESTIMATES
All resource estimates incorporated by reference in this Registration Statement have been prepared in accordance with Canadian National Instrument 43-101 and the Canadian Institute of Mining and Metallurgy (“CIM”) Classification System. These standards differ significantly from the requirements of the United States Securities and Exchange Commission, and resource information incorporated by reference herein may not be comparable to similar information concerning U.S. companies.
For definitions of the terms mineral reserve, proven mineral reserve, probable mineral reserve, mineral resource, measured mineral resource, indicated mineral resource and inferred mineral resource under CIM standards, and a summary of the differences between CIM and U.S. standards, see the sections entitled “Information Concerning Preparation of Resource Estimates” and “Glossary and Defined Terms” beginning on page 4 of the Annual Information Form filed as Document 1 to this Annual Report and “Risk Factors – Reserves and Resources” beginning on page 35 of the Annual Information Form.
ANNUAL INFORMATION FORM
The Company’s Annual Information Form for the fiscal year ended December 31, 2003 is included herein as Document 1.
AUDITED ANNUAL
FINANCIAL STATEMENTS AND
MANAGEMENT’S DISCUSSION AND ANALYSIS
Audited Annual Financial Statements
The audited consolidated financial statements of the Company, including the report of the auditors with respect thereto, included herein as Document 2.
For a reconciliation of important differences between Canadian and United States generally accepted accounting principles, see the Supplementary Information Reconciliation with United States Generally Accepted Accounting Principles included herein as Document 3.
Management’s Discussion and Analysis
The Company’s management’s discussion and analysis (“MD&A”) is included herein as Document 4.
DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 of the United States Securities Exchange Act of 1934 (“Exchange Act”). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the period covered by this Annual Report on Form 40-F, no changes occurred in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures or internal controls and procedures will prevent all error and all fraud. A control system can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
CODE OF ETHICS FOR
CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER
AND CONTROLLER
The Company has adopted a Code of Ethics applicable to its Chief Executive Officer, Chief Financial Officer and Controller and other employees of the Company. A copy of the Company’s Code of Ethics for Chief Executive Officer, Chief Financial Officer and Controller is attached hereto as Exhibit 99.1 and available in print to any shareholder who requests it.
All amendments to the code, and all waivers of the code with respect to any of the officers covered by it, will be posted on the Company’s web site, submitted on Form 6-K and provided in print to any shareholder who requests them. The Company’s website is located at www.miramarmining.com.
CORPORATE GOVERNANCE GUIDELINES
The Company’s corporate governance practices are set forth on page 10 of the Company’s Management Information Circular dated April 14, 2004 (submitted to the SEC on Form 6-K on May 17, 2004) prepared in compliance with the rules of The Toronto Stock Exchange and available in print to any shareholder who requests them.
The terms of reference of each of the Audit and Corporate Governance Committee and the Compensation Committee of the Company are described in the Company’s Management Information Circular dated April 14, 2004 and available in print to any shareholder who provides the Company with a written request.
AUDIT COMMITTEE
The Company’s Board of Directors has a separately-designated standing Audit Committee for the purpose of overseeing the accounting and financial reporting processes of the Company and audits of the Company’s annual financial statements. As at the review of the audited consolidated financial statements of the Company for the year ended December 31, 2003 and as at the date of this Annual Report, the following individuals comprise the entire membership of the Company’s Audit Committee, which have been established in accordance with Section 3(a)(58)(A) of the Exchange Act:
|
Lawrence Bell Peter Nixon Christopher J. Pollard William E. Stanley |
Independence
The Company has adopted the criteria for director independence and unrelatedness for members of its audit committee that are consistent with the criteria prescribed by the Sarbanes-Oxley Act of 2002, and the rules and requirements of the Toronto Stock Exchange and the American Stock Exchange. Each member of the Company’s audit committee satisfies the criteria for director independence as currently in effect under the rules and regulations of the Toronto Stock Exchange and the American Stock Exchange.
Audit Committee Financial Expert
The Company’s Board of Directors has been determined that Lawrence Bell satisfies the requirements of an audit committee financial expert criteria prescribed by the Securities and Exchange Commission and has designated him as an audit committee financial expert for the Audit Committee. The aforementioned director has also been determined by the Company’s Board of Directors to be independent within the criteria referred to above under the subheading “Audit Committee — Independence”.
AUDIT COMMITTEE CHARTER
The Company’s Audit and Risk Management Committee Charter is attached hereto as Exhibit 99.2 and available in print to any shareholder who requests it.
PRINCIPAL ACCOUNTING FEES AND SERVICES – INDEPENDENT AUDITORS
The table setting forth the Company’s fees paid to its independent auditor, KPMG LLP for the years ended December 31, 2003 and December 31, 2002 are set forth below:
| Years ended December 31 | |||||
|---|---|---|---|---|---|
| 2003 | 2002 | ||||
| Audit: | $126,830 | $232,150 | |||
| Audit Related: | $ 10,550 | $ 8,695 | |||
| Tax | $122,515 | $107,550 | |||
| All Other Fees | 0 | 0 | |||
| Total | $259,895 | $348,395 | |||
“Audit Fees” are the aggregate fees billed by KPMG LLP for the audit of the Company’s consolidated annual financial statements, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements.
“Audit-Related Fees” are fees charged by KPMG LLP for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under “Audit Fees.” This category comprises fees billed for independent accountant review of the interim financial statement’s and Management Discussion and Analysis, as well as advisory services associated with the Company’s financial reporting.
“Tax Fees” are fees for professional services rendered by KPMG LLP for tax compliance, tax advice on actual or contemplated transactions.
PRE-APPROVAL OF AUDIT
AND NON-AUDIT SERVICES PROVIDED BY
INDEPENDENT AUDITORS
The Audit Committee pre-approves all audit services to be provided to the Company by its independent auditors. The Audit Committee’s policy regarding the pre-approval of non-audit services to be provided to the Company by its independent auditors is that all such services shall be pre-approved by the Audit Committee. Non-audit services that are prohibited to be provided to the Company by its independent auditors may not be pre-approved. In addition, prior to the granting of any pre-approval, the Audit Committee must be satisfied that the performance of the services in question will not compromise the independence of the independent auditors.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off balance sheet arrangements other than the pension obligations which are described in note 12 of the consolidated financial statements and certain financial instruments described in note 15 of the consolidated financial statements.
TABLE OF CONTRACTUAL COMMITMENTS
The following table lists as of December 31, 2003 information with respect to the Company’s known contractual obligations, in thousands of Canadian dollars.
| Contractual Obligations | Total | 2004 | 2005 | 2006 | 2007 | Thereafter | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Office Lease | $ 1,865 | $ 219 | $ 228 | $ 228 | $ 236 | $ 954 | |||||||
| Oxygen purchase | 2,580 | 780 | 780 | 1,020 | -- | -- | |||||||
| Deferred retirement benefits | 84 | 84 | |||||||||||
| Site reclamation and closure | 9,447 | 1,453 | 722 | 2,437 | 1,407 | 3,427 | |||||||
| Total | $12,570 | $2,528 | $3,120 | $3,064 | $1,211 | $2,647 | |||||||
For additional information related to the Company’s obligations and commitments see note 16 in the Company’s audited consolidated financial statements (Document 2).
AMEX CORPORATE GOVERNANCE
The Company’s common shares are listed on The American Stock Exchange (“AMEX”). Section 110 of the AMEX company guide permits AMEX to consider the laws, customs and practices of foreign issuers in relaxing certain AMEX listing criteria, and to grant exemptions from AMEX listing criteria based on these considerations. A company seeking relief under these provisions is required to provide written certification from independent local counsel that the non-complying practice is not prohibited by home country law. A description of the significant ways in which the Company’s governance practices differ from those followed by domestic companies pursuant to AMEX standards is as follows:
| Shareholder Meeting Quorum Requirement: The AMEX minimum quorum requirement for a shareholder meeting is one-third of the outstanding shares of common stock. In addition, a company listed on AMEX is required to state its quorum requirement in its bylaws. The Company’s quorum requirement is set forth in its Memorandum and Articles. A quorum for a meeting of members of the Company is two persons present and being, or representing by proxy, members holding not less than 5% of the issued shares entitled to be voted at such meeting. |
| Proxy Delivery Requirement: AMEX requires the solicitation of proxies and delivery of proxy statements for all shareholder meetings, and requires that these proxies shall be solicited pursuant to a proxy statement that conforms to SEC proxy rules. The Company is a “foreign private issuer” as defined in Rule 3b-4 under the 1934 Act, and the equity securities of the Company are accordingly exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the |
| Securities Exchange Act of 1934, as amended. The Company solicits proxies in accordance with applicable rules and regulations in Canada. |
The foregoing are consistent with the laws, customs and practices in Canada and the requirements of the Toronto Stock Exchange.
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
Undertaking
The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Securities and Exchange Commission (“SEC”) staff, and to furnish promptly, when requested to do so by the SEC staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.
Consent to Service of Process
The Company filed an Appointment of Agent for Service of Process and Undertaking on Form F-X signed by the Company and its agent for service of process on May 20, 2003 with respect to the class of securities in relation to which the obligation to file this annual report arises, which Form F-X is incorporated herein by reference.
DOCUMENTS FILED AS PART OF THIS REPORT
| 1. | Annual Information Form of the Registrant for the year ended December 31, 2003 |
| 2. | The following audited consolidated financial statements of the Registrant, are exhibits to and form a part of this Annual Report: |
| Auditors' Report on Consolidated Financial Statements |
| Consolidated Balance Sheets as of December 31, 2003 and 2002; |
| Consolidated Statements of Operations and Deficit for the years ended December 31, 2003 and 2002; |
| Consolidated Statements of Cash Flows for the years ended December 31, 2003 and 2002; |
| Notes to Consolidated Financial Statements. |
| 3. |
Supplementary Information Reconciliation with United States Generally Accepted Accounting Principles,
including Auditors' Report thereon |
| 4. | Management Discussion and Analysis of Financial Conditions and Results of Operations |
EXHIBITS
| 99.1 | Code of Conduct for Chief Executive Officer and Senior Accounting Officers |
| 99.2 | Audit and Risk Management Committee Charter |
| 99.3 | Certifications by the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) of the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 99.4 | Certifications by the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) of the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 99.5 | Certificate of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 99.6 | Certificate of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 99.7 | Consent of KPMG LLP |
| 99.8 | Consent of George Friesen, P.Eng., Chief Engineer, Giant Mine |
| 99.10 | Consent of John Wakeford, P.Geo, Vice President Exploration of the Corporation |
| 99.12 | Consent of SRK |
| 99.13 | Consent of Watts Griffiths and McQuat |
| 99.14 | Consent of Stephen Juras |
| 99.15 | Consent of George Wahl |
Signatures
| Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized. |
Registrant
MIRAMAR MINING CORPORATION
By /s/ David Long
David Long, Corporate Secretary
Date: May 19, 2004
1. ANNUAL INFORMATION FORM OF MIRAMAR MINING CORPORATION
MIRAMAR MINING CORPORATION
Suite 300 - 889 Harbourside Drive
North Vancouver, British Columbia
Canada V7P 3S1
Website Address: www.miramarmining.com
ANNUAL INFORMATION FORM
"AIF"
FOR THE YEAR ENDED DECEMBER 31, 2003
May 18, 2004
1.
TABLE OF CONTENTS
Description Page
Corporate Structure......................................................7
General Development of the Business......................................8
The Con Mine.............................................................8
The Giant Mine..........................................................10
The Hope Bay Project....................................................14
Equity Investments......................................................28
Selected Consolidated Financial Information.............................29
Directors and Officers..................................................30
Additional Information..................................................31
Supplementary Information...............................................32
Preliminary Notes
Incorporation of MD&A
Incorporated by reference in this AIF are the Corporation's consolidated
financial statements and management's discussion and analysis ("MD&A") which are
included in the Corporation's 2003 Annual Report at pages 14 to 31 and which
have been filed with Canadian securities regulatory authorities. All financial
information in this AIF is prepared in accordance with Canadian generally
accepted accounting principles ("GAAP").
Date of Information
All information in this AIF is as of May 18, 2004 unless otherwise indicated.
Forward Looking Statements
Certain statements in this AIF and in the information incorporated herein by
reference constitute "forward looking statements" within the meaning of the
United States Private Securities Litigation Reform Act of 1995. Such forward
looking statements include estimates of future gold production for specific
operations, estimated future production costs, exploration and development
expenditures and other expenses for specific operations and statements as to the
projected development of certain ore deposits, including estimates of capital
costs, expected production commencement dates and anticipated rates of return.
Such forward looking statements are subject to risks, uncertainties and other
factors which could cause actual results to differ materially from future
results expressed or implied by such forward looking statements. Specific
reference is made to "Risk Factors" and the MD&A incorporated by reference in
this AIF for a discussion of the source of the factors underlying forward
looking statements.
Resource and Reserve Estimates
All resource and reserve estimates contained in this AIF are calculated in
accordance with National Instrument 43-101, Standards of Disclosure for Mineral
Projects ("NI 43-101") and the Canadian Institute of Mining, Metallurgy and
Petroleum, as the CIM Standards on Mineral Resources and Reserves Definitions
and Guidelines adopted by CIM Council on August 20, 2000. These standards differ
from the requirements of the United States Securities and Exchange Commission.
Accordingly, resource and reserve information in this AIF may not be comparable
to similar information reported by United States companies.
The terms "Resource(s)" does not equate to "reserves" and normally may not be
included in documents filed with the Securities and Exchange Commission.
2.
Currency and Exchange Rates
All dollar amounts in this AIF are expressed in Canadian dollars unless
otherwise indicated. The revenue of the Corporation is derived primarily from
the sale of gold, which is denominated in U.S. dollars. The noon rate of
exchange on May 17, 2004 as reported by the Bank of Canada for the conversion of
Canadian dollars into U.S. dollars was CDN$1.3912 = U.S. $1.00; (Cdn.$1.00 =
US$0.7188). The following table sets forth (i) the rate of exchange for the
Canadian dollar, expressed in U.S. dollars, in effect at the end of the periods
indicated, (ii) the average exchange rates on the last day of each month during
such periods, and (iii) the high and low exchange rates during such periods,
each based on the noon rate of exchange as reported by the Bank of Canada for
conversion of Canadian dollars into U.S. dollars.
Year ended December 31
------------------------------------------------------------------
2003 2002 2001
-------------------------------- ----------------------------------
Rate at end of period $0.7713 $0.6339 $0.6278
-------------------------------- ----------------------------------
Average rate for last day $0.7749 $0.6374 $0.6458
-------------------------------- ----------------------------------
High for period $0.7710 $0.6618 $0.6711
-------------------------------- ----------------------------------
Low for period $0.7789 $0.6199 $0.6230
-------------------------------- ----------------------------------
Metric Equivalents
The following table sets forth the factors for converting imperial measurements
into metric equivalents:
------------------------------------------------------------------
To convert from Imperial To Metric Multiply by:
------------------------------------------------------------------
Acres Hectares 0.404686
------------------------------------------------------------------
Feet Meters 0.304800
------------------------------------------------------------------
Miles Kilometres 1.609344
------------------------------------------------------------------
Tons Tonnes 0.907185
------------------------------------------------------------------
Ounces (troy)/Ton Grams/Tonne 34.285700
------------------------------------------------------------------
3.
Glossary of Terms
The following is a glossary of technical terms that appear in this AIF:
Au Gold
Autoclave A high pressure and temperature vessel for oxidizing
refractory ore. Ore or concentrate is fed into the strong
vessel and placed under high pressure and temperature
conditions with elevated oxygen levels to liberate the gold
or base metals.
Backfill Waste material used to fill and support the void created by
mining an ore body.
Cyanidation The process of extracting gold or silver through dissolution
in a weak solution of sodium cyanide.
Corporation Miramar Mining Corporation.
Decline An underground passageway connecting one or more levels in a
mine or underground development, providing adequate traction
for heavy, self-propelled equipment. Such underground
openings are often driven in a downward spiral, much the
same as a spiral staircase.
Diamond drill A type of rotary drill in which the cutting is done by
abrasion rather than percussion. The cutting bit is set with
diamonds and is attached to the end of long hollow rods
through which water is pumped to the cutting face. The drill
cuts a core of rock which is recovered in long cylindrical
sections, an inch or more in diameter.
Dilution Waste material not separated from ore mined which was below
the calculated economic cut-off grade of the deposit.
Dilution results in increased tonnage mined and reduced
overall grade of the ore.
Dip The angle which a geological structure forms with a
horizontal surface, measured perpendicular to the strike of
the structure.
Dore Unrefined gold and silver in bullion form.
Feasibility study A comprehensive study of a deposit in which all geological,
engineering, operating, economic and other relevant factors
are considered in sufficient detail that it could reasonably
serve as the basis for a final decision by a financial
institution to finance the development of the deposit for
mineral production.
Grade The weight of precious metals in each tonne of ore.
g/t; g Au/t Grams per metric tonne; grams of gold per metric tonne.
4.
Indicated Mineral An 'Indicated Mineral Resource' is that part of a Mineral
Resource Resource for which quantity, grade or quality, densities,
shape and physical characteristics, can be estimated with a
level of confidence sufficient to allow the appropriate
application of technical and economic parameters, to support
mine planning and evaluation of the economic viability of
the deposit. The estimate is based on detailed and reliable
exploration and testing information gathered through
appropriate techniques from locations such as outcrops,
trenches, pits, workings and drill holes that are spaced
closely enough for geological and grade continuity to be
reasonably assumed.
Inferred Mineral An 'Inferred Mineral Resource' is that part of a Mineral
Resource Resource for which quantity and grade or quality can be
estimated on the basis of geological evidence and limited
sampling and reasonably assumed, but not verified,
geological and grade continuity. The estimate is based on
limited information and sampling gathered through
appropriate techniques from locations such as outcrops,
trenches, pits, workings and drill holes.
Measured Mineral A 'Measured Mineral Resource' is that part of a Mineral
Resource Resource for which quantity, grade or quality, densities,
shape, physical characteristics are so well established that
they can be estimated with confidence sufficient to allow
the appropriate application of technical and economic
parameters, to support production planning and evaluation of
the economic viability of the deposit. The estimate is based
on detailed and reliable exploration, sampling and testing
information gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and
drill holes that are spaced closely enough to confirm both
geological and grade continuity.
Metallurgy The science of extracting metals from ores by mechanical and
chemical processes and preparing them for use.
Mill A plant where ore is crushed and ground to expose metals or
minerals of economic value, which then undergo physical
and/or chemical treatment to extract the valuable metals or
minerals.
Mineral reserve A Mineral Reserve is the economically mineable part of a
Measured or Indicated Mineral Resource demonstrated by at
least a Preliminary Feasibility Study.
Mineral resource A concentration or occurrence of natural, solid, inorganic
or fossilized organic material in or on the Earth's crust in
such form and quantity and of such a grade or quality that
it has reasonable prospects for economic extraction. The
location, quantity, grade, geological characteristics and
continuity of a Mineral Resource are known, estimated or
interpreted from specific geological evidence and knowledge.
Mineralization, A mineralized body which has been intersected by sufficient
mineralized closely spaced drill holes and/or sampling to support
material, sufficient tonnage and average grade of metal(s) to warrant
mineralized further exploration-development work. A deposit does not
deposit, or qualify as a commercially mineable ore body until a final
deposit and comprehensive economic, technical, and legal feasibility
study based upon the test results is concluded and supports
Proven/Probable Mineral Reserves.
5.
Net profits A royalty payment made by a producer of metals based on a
royalty percentage of revenue from production, less deduction of the
costs of production, including exploration, capital and
operating costs.
Net smelter return A royalty payment made by a producer of metals based on
royalty/NSR gross metal production from the property, less deduction of
royalty certain limited costs including smelting, refining,
transportation and insurance costs.
Ore A metal or mineral or a combination of these of sufficient
value as to quality and quantity to enable it to be legally
mined at a profit.
Ounces/oz Troy ounces.
Oz/ton Troy ounces per short ton.
Preliminary A Study that includes adequate information on mining,
Feasibility Study processing, metallurgical, economic, and other relevant
factors that demonstrate, at the time of reporting, that
economic extraction can be justified.
Probably Mineral A 'Probable Mineral Reserve' is the economically mineable
Reserve part of an Indicated, and in some circumstances a Measured
Mineral Resource demonstrated by at least a Preliminary
Feasibility Study. This Study must include adequate
information on mining, processing, metallurgical, economic,
and other relevant factors that demonstrate, at the time of
reporting, that economic extraction can be justified.
Proven Mineral Mineral Reserve A 'Proven Mineral Reserve' is the
Reserve economically mineable part of a Measured Mineral Resource
demonstrated by at least a Preliminary Feasibility Study.
Refractory Ore that resists the action of chemical reagents in the
normal treatment processes and which may require pressure
leaching or other means to effect the full recovery of the
valuable minerals.
Roasting To heat a refractory ore to drive off volatile substances or
oxidize the ore. The oxidation of the ore liberates the
gold.
Sulphide Ore Ore containing a significant quantity of sulphide minerals.
Tailings The material that remains after all metals or minerals of
economic interest have been removed from ore during milling.
Ton Short ton (2,000 pounds).
Tonne Metric tonne (1,000 kilograms/2204 pounds).
6.
Corporate Structure
Miramar Mining Corporation was incorporated with the name Miramar Energy
Corporation under the Company Act (British Columbia) by memorandum and articles
of incorporation dated January 11, 1983. The memorandum of the Corporation was
amended on July 17, 1989 to change the Corporation's name to Miramar Mining
Corporation, on May 24, 1991 to increase the authorized capital from 20,000,000
to 100,000,000 shares without par value and on August 4, 1994 to increase the
authorized capital from 100,000,000 to 500,000,000 shares without par value
("Common Shares").
The registered office of the Corporation is at 2300 - 1055 Dunsmuir Street
Vancouver, British Columbia, V7X 1J1 and its principal executive office is
located at 300 - 889 Harbourside Drive, North Vancouver, British Columbia V7P
3S1.
The following table sets forth the name of each material subsidiary of the
Corporation, the jurisdiction of its incorporation and the direct or indirect
percentage ownership by the Corporation in such subsidiary.
JURISDICTION OF PERCENTAGE OWNERSHIP
NAME OF SUBSIDIARY INCORPORATION
--------------------------------------------------------------------------------
Miramar Hope Bay Ltd. Northwest Territories 100%
Miramar Con Mine Ltd. Ontario 100%
Miramar Giant Mine Ltd. British Columbia 100%
Miramar Bathurst Resources Ltd. Nunavut 100%
Where the context requires, the term "Corporation" includes the subsidiaries of
the Corporation.
General Development of the Business
The Corporation, together with its subsidiaries, is engaged in the mining and
processing of gold ore and the exploration for, and the acquisition and
development of, gold bearing mineral properties. Miramar's business is presently
focused in northern Canada in the Northwest Territories and Nunavut.
The Corporation, through Miramar Hope Bay Ltd. ("MHBL"), owns 100% of the Hope
Bay Project, a gold exploration project located in Nunavut, Canada. The
Corporation acquired a 50% interest in the Hope Bay Project in December 1999
from Hope Bay Gold Corporation Inc. ("Hope Bay Gold"). In May 2002, Hope Bay
Gold became a wholly owned subsidiary of the Corporation. In December 2003,
ownership of the Hope Bay Project was consolidated into MHBL.
The Corporation, through Miramar Giant Mine Ltd. ("Giant Ltd."), owns and
operates the Giant Mine, acquired in December 1999 and located adjacent to the
Con Mine. The Corporation acquired the Giant Mine in December 1999.
The Corporation, through Miramar Bathurst Resources Ltd. ("MBRL"), has an option
from Kinross Gold Corporation ("Kinross") to earn a 60% joint venture interest
in the Back River Project including George and Goose Lakes, located in Nunavut,
Canada. In order to earn the interest, MBRL must (i) spend $10 million on
exploration expenditures on the properties by August 31, 2005, and (ii) spend a
cumulative $25 million on exploration expenditures by August 31, 2006. If MRBL
has not spent a cumulative $25 million by August 31, 2006 but has spent a
cumulative $15 million by that date, MRBL may elect to extend the option by
spending a cumulative $28 million by August 31, 2008. If MBRL earns its 60%
7.
interest, MBRL and Kinross will fund further work proportionally. Kinross will
have the right to increase its interest to 50% after completion of a feasibility
study on any of the properties by paying to MRBL two times MRBL's aggregate
exploration costs which relate to the additional interest being acquired by
Kinross.
The Corporation owns 40.21% of Sherwood Mining Corporation, which owns mineral
rights in the territory of Nunavut, Canada. The Corporation has granted to
Sherwood an option to earn a 60% interest on the Chicago and Hecla properties
located in Nunavut, Canada.
The Corporation, through Miramar Con Mine Ltd. ("Con Ltd."), owns the Con Mine,
an underground gold mine located near Yellowknife, Northwest Territories,
Canada. The Con Mine recovered 62,166 ounces of gold in 2003 and 91,235 ounces
of gold in 2002. Underground mining operations at the Con Mine ceased in
November 2003; milling operations continue to process ore from Giant Mine and
metallurgical residues (arsenic waste) from the Con Mine.
The Con and Giant Mines produced and shipped approximately 84,269 ounces of gold
in 2003 and 115,134 ounces of gold in 2002.
Description of the Business
Con Mine
The Con Mine is owned by Con Ltd., a wholly owned subsidiary of the Corporation.
The Con Mine operated from 1938 (it was on care and maintenance from 1941 to
1945 and was closed during most of 1998 and part of 1999 as a result of strike
action by the hourly workers) until November 2003 when mining terminated. The
Con Mine was operated from 1986 to present by Con Ltd. (or its predecessor Nerco
Con Mine, Ltd.). Con Ltd. was acquired by the Corporation in 1993.
On August 8, 2000, Con Ltd. received a renewal of the water licence (the "Water
Licence") for the Con Mine issued under the Northwest Territories Waters Act.
The Water Licence expires on July 29, 2006. As a condition of the Water Licence,
Con Ltd. maintains a security deposit for the cost of future reclamation of the
Con Mine as required by the Mackenzie Valley Land and Water Board ("LW Board")
and in a form acceptable to the Canadian Department of Indian Affairs and
Northern Development ("DIAND"). The Water Licence required initial security in
2000 of $1.5 million and increases to the security deposit of $1.5 million per
year until a total of $9 million is on deposit. Con Ltd. provided a letter of
credit for the first $1.5 million in 2000 and the balance of the requirements
have been satisfied through the transaction described below.
On April 4, 2003 Con Ltd. sold the Bluefish Power Plant ("Bluefish") to the
Northwest Territories Power Corporation ("NTPC") for a purchase price of $10
million payable on December 31, 2004 (the "Bluefish Proceeds"). The purchase
price is evidenced by a non-interest bearing promissory note issued by the NTPC
(the "Bluefish Note") in the principal amount of $10 million. To satisfy the
security requirements under the Water Licence, on April 4, 2003 Con Ltd.
assigned the Bluefish Proceeds, including the Bluefish Note to DIAND. DIAND may
elect to receive early payment of the Bluefish Proceeds at a discounted rate. On
April 4, 2003, Con Ltd. also entered into a Reclamation Security Agreement with
DIAND in which Con Ltd. agreed to establish by December 31, 2004 a reclamation
security trust (the "First Con Mine Trust") to hold the Bluefish Proceeds. On
receipt of the Bluefish Proceeds, DIAND will deposit the Bluefish Proceeds to
the First Con Mine Trust. The First Con Mine Trust will be available to fund the
reclamation of the Con Mine if Con Ltd. does not meet its reclamation
obligations with respect to environmental compliance, reclamation, post-closure
control measures, monitoring and ongoing maintenance and adaptive management
programs for environmental impacts in connection with the operation of and
8.
closure of operations at the Con Mine under the Northwest Territories Waters Act
and the Water Licence.
In connection with the Bluefish sale, the Corporation and Con Ltd. granted to a
former owner of the Con Mine an indemnity with respect to any cost related to
the potential environmental liabilities associated with the operation of the Con
Mine. In addition, Con Ltd. agreed to establish a second reclamation security
trust (the "Second Con Mine Trust") to fund any reclamation of the Con Mine site
not funded by the First Con Mine Trust. Con Ltd. agreed to deposit to the Second
Con Mine Trust the remainder of the Bluefish Proceeds (if not all of the
Bluefish Proceeds are deposited by DIAND to the First Con Mine Trust) and all
proceeds of sale of the assets of the Con Mine (net of Con Ltd.'s reasonable
costs of sale).
Currently the Con Mine milling facility processes ore from the Giant Mine and
metallurgical residues from previous operations at the Con Mine. Giant Mine ores
are subjected to flotation to separate the gold-bearing sulphide minerals for
treatment in an autoclave located in the mill. Concentrates undergo pressure
oxidation in the autoclave to facilitate dissolution of the gold in the presence
of weak cyanide solutions. Gold in solution is separated from the spent ores by
means of filtration and is recovered from solution in a Merrill-Crowe facility
which uses zinc to precipitate the gold. The gold bearing precipitate is sent to
the refinery for final processing into dore. The spent ores or tailings are
deposited in a tailings impoundment adjacent to the mill site.
An autoclave facility was constructed and commenced operation during late 1992
to process refractory ores and gold-bearing arsenic sludge from historic
roasting operations. These metallurgical residues have been stored on site in
ponds and have average grades estimated between 0.35 to 0.50 ounces of gold per
ton. The autoclave facility can operate at a rate of 90 tons per day of ore
concentrate. Operation of the autoclave to process the arsenical sludge
eliminates a potential environmental liability at the site, rendering the toxic
chemical arsenic trioxide as a stable and environmentally benign chemical,
ferric arsenate. The autoclave has been processing arsenical sludges from the
Con Mine property since March 2000.
The Con Mine operated until November 2003. The following table sets forth
certain information relating to production from the Con Mine during the periods
indicated:
CON MINE 2003 2002 2001 2000 1999
------------------------------------------------------------------------------
Tons milled 193,753 279,638 298,455 300,516 119,347
Grade (ounces per ton) 0.330 0.375 0.377 0.378 0.349
Production 56,700 95,512 100,992 101,670 38,938
(recoverable ounces)
Recovery 88.8% 91.0% 89.8% 89.5% 93.5%
ARSENIC WASTE
Tons processed 11,904 5,307 9,187 3,260 -
Grade (ounces per ton) 0.350 0.548 0.470 0.457 -
Production 3,300 2,524 3,806 1,210 -
(recoverable ounces)
Recovery 79.1% 86.8% 88.1% 81.1% -
9.
Environmental Matters
The Con Mine is subject to environmental legislation regulating water, air and
land. The mine's management team is responsible for ensuring environmental
compliance. The mine has an environmental laboratory which maintains up-to-date
certification to ensure environmental compliance including health and safety
monitoring. Mine management monitors environmental issues as they arise and
supervises steps to remedy any concerns.
Part of the Con Mine property has shown elevated arsenic levels and, according
to mine management, a maximum of 30 hectares may need some form of remediation.
Ore from the Con Mine contains gold naturally associated with arsenic bearing
minerals. Until 1970 gold was extracted from refractory ore, where the gold is
intimately associated with arsenic, and recovered through roasting the arsenical
sulphides. While some of the elevated arsenic levels around the mine are likely
due to mining operations, it is also likely that the naturally occurring
background arsenic level is elevated due to the arsenic minerals in the
extensive mineralized shear zones. Remediation of arsenic contamination is part
of the long-term reclamation of the mine.
As required under the Water Licence, Con Ltd. filed a draft abandonment and
restoration plan in 2001 and a revised abandonment and restoration plan (the "A
& R Plan") with the LW Board in March 2003. The LW Board established a
working group with representatives from Environment Canada, Department of
Fisheries and Oceans, DIAND, Resources, Wildlife & Economic Development of
the Government of the Northwest Territories, Stanton Territorial Health
Authority, Ministry of Municipal and Community Affairs, City of Yellowknife,
Dene Nation, North Slave Metis Alliance, Dogrib Treaty II Council and Northwest
Territories Chamber of Mines and a schedule for reviewing each of the sections
of the A&R Plan. The LW Board held a public hearing in Yellowknife on April
27 and 28, 2004 to hear submissions from the public, regulatory agencies, First
Nations and the three levels of government on the A&R Plan. The working
group will be continuing its review and the corporation anticipates that the LW
Board will approve sections of the A&R Plan in the near future.
In November 2003, the City of Yellowknife made a referral to the Mackenzie
Valley Environmental Impact Review Board ("EIR Board") requesting that the EIR
Board conduct an environmental assessment of the A&R Plan pursuant to the
Mackenzie Valley Resource Management Act ("MVRMA"). The EIR Board decided that
it was not required to conduct an assessment under the MVRMA. The City made an
application to the Supreme Court of the Northwest Territories on January 21,
2004 for judicial review of the EIR Board's decision. Con Ltd. was granted
status as a respondent in this action. The hearing is set for June 28 and 29,
2004.
The autoclave is used to reprocess arsenic waste left from prior roaster
operations at the Con Mine. These materials are readily recoverable from surface
storage impoundments and are estimated to contain an average grade of 0.47
oz/ton gold, of which more than 80% is recovered during the pressure oxidation
and leach processes. Reprocessing of these materials in conjunction with
sulphide concentrates from the flotation circuit will stabilize the arsenic in
an environmentally benign form of ferric arsenate, effectively providing
permanent remediation of these materials. Reprocessing should be completed by
the end of 2004. Once all mining and processing activities are terminated at the
site, all other outstanding reclamation will be commenced as part of the current
closure plan, with physical site remediation to be completed over a three to
four year period. It has been estimated that ongoing water treatment and
monitoring of the site by Con Ltd. will continue for up to 20 years. These
activities are projected to be minimal.
10.
The goal of Con Mine Ltd. is to be in full compliance with all environmental
laws applicable in the Northwest Territories. However, this is not always
possible and charges were laid against Con Ltd. under the Northwest Territories
Waters Act with respect to alleged non-compliance events in 2001 and 2002. The
outcome of these charges was that Con Ltd. was fined $10,000 and contributed
$80,000 to a fund established by Environment Canada for non-compliance with the
Water Licence in connection with the discharge of effluent above permitted
levels over a weekend in 2002 and failing to immediately pump out seepage pits
adjacent to a tailings dam.
Giant Mine
The property on which the Giant Mine is situated consists of 32 mining leases
covering 3,050 acres and one surface lease covering 2,243 acres located in the
City of Yellowknife (adjacent to the Con Mine). The mining leases are each valid
for a 21 year term, expire at various times and can be extended.
Giant Ltd. acquired the Giant Mine, including its mineral assets, plant and
equipment, from DIAND for nominal cash consideration and a payment of $425,000
for parts and materials inventories. The payment was placed into the Giant Mine
Reclamation Security Trust ("RST"), a trust established to fund the cost of
environmental reclamation relating to the prior operation of the mine. The RST
will also receive payments from a net proceeds royalty on ores processed from
the Giant Mine under certain circumstances. The agreement between Giant Ltd. and
DIAND provides that DIAND will indemnify the Corporation from all environmental
liabilities related to the operation of the Giant Mine prior to the acquisition
of the mine by Giant Ltd.
The Giant Mine paid property taxes to the City of Yellowknife in 2000 and
2001.One third of the assessed taxes were used to purchase certain lands from
Giant Ltd. that have no mining value and one-third was reimbursed by each of the
Government of the Northwest Territories and DIAND as an exploration/development
grant for the Giant and Con Mines.
Giant Ltd. started mining at the Giant Mine in the first quarter of 2000. The
combined cash costs at the Con Mine and the Giant Mine were US$368 per ounce in
2003 and US$246 per ounce in 2002. All ore was processed at the Con Mine mill.
The following table sets forth certain information relating to production from
the Giant Mine during the periods indicated:
----------------------------------------------------------------
GIANT MINE 2003 2002
----------------------------------------------------------------
Tons Milled 73,508 71,536
----------------------------------------------------------------
Grade (ounces per ton) 0.353 0.379
----------------------------------------------------------------
Production (recoverable 22,103 23,899
ounces)
----------------------------------------------------------------
Recovery 85.3% 88.1%
----------------------------------------------------------------
The agreement between Giant Ltd. and DIAND provided that Giant Ltd. could elect
to transfer the mine back to DIAND after operating the mine for two years. Giant
Ltd. notified DIAND that it would return the Giant Mine effective December 14,
2001; however, an agreement was reached with DIAND to amend the existing
agreement to continue Giant Ltd.'s operation of the mine. Pursuant to the
amended agreement, DIAND currently funds environmental compliance and holding
costs at the Giant Mine, estimated at $300,000 per month, beginning December 15,
2001 throughout the period of extended operations. These costs were previously
borne by Giant Ltd. The indemnity against environmental liability was unaffected
by the amendment to the original agreement.
11.
Background
The Giant Mine is located approximately three miles north of Yellowknife and has
been in production since 1948. The Ingraham Trail, a paved all-weather highway
from Yellowknife, passes through the centre of the property. Mining is conducted
underground and ores shipped to the Con Mine mill for processing. Since 1948,
the Giant Mine has produced in excess of 7.1 million ounces of gold. In 1996,
the previous owner completed rehabilitation of the infrastructure that accesses
the Supercrest ore body described below.
History
During the first 25 years of mine life, gold production averaged in excess of
150,000 ounces per year and the mill head grade was in excess of 20.6 g/t Au. At
the end of this period, most of the major ore blocks had been mined out from the
underground. Mining of remnant and lower grade blocks began and resulted in the
head grade dropping below 10.3 g/t Au. In 1974, mining of the open pits
commenced and had a negative affect on the head grade. By the late 1980s the
pits were exhausted and mining again was primarily focused underground.
Most of the main ore stopes underground that had been mined by conventional cut
and fill were exhausted by the end of the 1970s. The mine entered a remnant
recovery phase that has continued to the present. This recovery phase involves
mining smaller satellite ore lenses around the old mined out cut and fill
stopes.
In November 1990, Royal Oak Resources Limited acquired control of the Pamour
group of companies which owned the Giant Mine properties and amalgamated all the
properties into one company, Royal Oak Mines Incorporated, ("Royal Oak") in July
1991. Royal Oak went into receivership in 1999 and in the same year Giant Ltd.
acquired the Giant Mine from DIAND.
Mining facilities
The Giant Mine operates as an underground mine with access provided by two large
service raises, five declines and the "C" shaft, which is the principal
operating opening for hoisting and extends to a depth of 2,124 feet. Mining is
by conventional underground mining techniques such as cut and fill. The mine is
mechanized with jumbo drills and 3-1/2 yard scoop trams. The mine operates on a
five day a week schedule. The power source for the Giant Mine is Northwest
Territories Power Corp. The main infrastructure of the Giant Mine has been in
place since 1946.
Prior to the acquisition of the Giant Mine by Giant Ltd., the ore produced from
the mine was processed at the mill located on the property using a roaster to
oxidize refractory ores. Giant Ltd. does not operate the roaster and all ore
produced at the Giant Mine is processed at the Con Mine mill.
Geology
The Giant Mine is in the Yellowknife Greenstone belt, a package of Archean
volcanic rocks similar to those related to the Con Mine. Deposits are hosted in
shear zones within the greenstones. Individual deposits are veins, quartz
lenses, or silicified areas within the shear. Gold is associated with
fine-grained arsenopyrite.
The Giant Mine ore bodies are bounded to the south by the West Bay Fault, to the
north by the Akaitcho Fault, and to the east by the angular unconformity with
the sediments along the Yellowknife Bay shoreline. The general trend of the
Giant ore body is north-south in the A shaft area between the West Bay Fault and
12.
the Townsite Fault, and is approximately N30E north of the Townsite Fault. The
dip of the alteration zone is generally to the east, but the angle is highly
variable. The alteration zone that hosts the Giant Mine ore bodies continues
north to the Akaitcho Fault on this trend. The alteration zone is characterized
by chloritic and/or sericitic alteration of the country rocks. The alteration
zones may appear massive, or weakly to strongly foliated.
Where the zones are strongly foliated, they have been referred to in the past as
shear zones. The major ore bodies have generally been located in sericite
schist, but the intensity of alteration and schistosity varies widely. Large ore
lenses have been found in weakly to moderately foliated, chlorite-to-chlorite
sericite altered zones. The alteration zones (and the ore zones within) have
been complexly folded. The foliation or schistosity (shearing) observed in the
mine is related to the D2 deformation. Mineralization in the south and central
portions of the mine is generally recognizable as quartz-carbonate-sericite
schist with disseminated sulphide mineralization, bounded by sericite to
chlorite schist. In the northern portion of the mine, gold is located within
generally narrow, shallow dipping zones chlorite to sericite altered zones in
relatively narrow (1 to 5 m wide) composite quartz carbonate veins that are
often folded or boudined. An unfoliated intense sericite alteration zone hosts
sections of the Supercrest ore zone between the 750 Level and the 1100 Level.
Employees
The mine currently operates with an employee base of approximately 77 employees,
of whom 59 are members of the Canadian Auto Workers Union. The union employees
are subject to the terms of a new collective bargaining agreement which provides
for wage increases of 8%, 4% and 3% plus other benefits over the three years
including six months notice of a shutdown, until the contract expires in 2005.
Mineral Reserves
The following table sets forth the estimated proven and probable mineral
reserves for the Supercrest and the 3rd Level areas at the Giant Mine as at
December 31, 2003 and December 31, 2002. The 3rd level area was added to the
reserves in 2003, following development of a detailed mine plan and economic
analysis for the area. The estimates include allowances for dilution and mining
losses, but not for losses in processing. The estimates were prepared by George
Friesen, P. Eng. Chief Engineer of the Giant Mine who is a qualified person
within the meaning of NI 43-101.
December 31, 2003 Tons Gold Grade Gold
(oz/ton) (ounces)
Proven Mineral Reserves 21,774 0.398 8,671
Probable Mineral Reserves 128,281 0.340 34,672
Total 150,055 0.349 52,343
December 31, 2002
Proven Mineral Reserves 22,139 0.386 8,536
Probable Mineral Reserves 79,772 0.318 25,363
Total 101,911 0.333 33,899
1. Proven and probable mineral reserves were determined by the use of mapping,
drilling, sampling, assaying and evaluation methods generally applied in
the mining industry. Proven and probable mineral reserves were calculated
using different cut-off grades depending on the deposit's properties and
based on the mine plan for the deposit.
13.
2. Mineral Reserves as at December 31, 2003 and December 31, 2002 have been
estimated assuming a gold price of US$388 and US$308 per ounce,
respectively, and have been restricted to material which can be accessed
without significant development expense. The increase in reserves from 2002
to 2003 was largely the result of using a higher gold price to estimate
reserves.
3. The proven and probable mineral reserves figures are estimates, and no
assurance can be given that the indicated levels of recovery of gold will
be realized. Ounces of contained gold are prior to any losses during
metallurgical treatment. Mineral reserve estimates may require revision
based on actual production experience. Market price fluctuations of gold,
as well as increased production costs or reduced recovery rates, could
render proven and probable mineral reserves containing relatively lower
grades of mineralization uneconomical to exploit and might result in a
reduction of mineral reserves.
In addition to proven and probable reserves, Giant Mine has measured resources
of approximately 75,000 tons grading 0.27 oz/ton for 20,000 ounces of contained
gold and indicated resources of approximately 264,000 tons grading 0.19oz/ton
for 51,000 ounces of contained gold; however the Corporation does not currently
expect to recover these ounces or convert them to reserves.
Environmental Matters
Prior to Giant Ltd.'s acquisition of the Giant Mine, ore was processed on site
using a roaster to oxidize refractory material prior to cyanidation. This
process generated arsenic bearing waste which is stored underground in specially
excavated chambers. This material presents a potential hazard to the environment
and a substantial cost to clean up. The agreement pursuant to which Giant Ltd.
acquired the Giant Mine from DIAND provides that DIAND will indemnify the
Corporation from any environmental liabilities arising from previous operations
at the mine. In exchange for this indemnification, Giant Ltd. has agreed to work
closely with the Federal and Territorial governments to develop a long term
reclamation strategy for the Giant Mine.
The goal of Giant Mine Ltd. is to be in full compliance with all environmental
laws applicable in the Northwest Territories.
Government Regulations
Federal and Territorial statutes, ordinances and regulations govern operations
at the Giant Mine. Included under Northwest Territorial jurisdiction are the
Apprentices and Tradesmen Regulations, the Boiler and Pressure Vessel
Regulations, Business License Fire Regulations, Explosive Use Regulations, Fire
Prevention Act, Labour Standards Ordinance, the Northwest Territories Mining
Safety Act, Workers Compensation Act, Public Health Ordinance, Emergency
Measures Act and Environmental Protection Ordinance. Under Federal jurisdiction
are, the Fisheries Act, Northwest Territories Waters Act, Mackenzie Valley
Resource Management Act, Canadian Environmental Protection Act, Territorial
Lands Act, Transportation of Dangerous Goods Act and Canada Mining Regulations.
Failure to comply with these statutes, ordinances and regulations may result in
cease work orders and/or fines.
Hope Bay Project
On December 17, 1999 MHBL acquired from Hope Bay Gold Corporation Inc. ("Hope
Bay Gold") for US$13,346,100 a 50% interest in a group of concession agreements
(the "NTI Concessions") and Federal mineral claims and mining leases located in
Nunavut and known as the Hope Bay Project. The NTI Concessions are granted by
Nunavut Tunnagavik Incorporated, the corporation representing the Inuit people
14.
of Nunavut, which owns subsurface mineral rights in Nunavut. The acquisition
occurred concurrently with Hope Bay Gold's acquisition of 100% of the Hope Bay
Project from BHP Diamonds Inc. for US$18,492,340.
In 2000, the Corporation and Hope Bay Gold entered into a joint venture
agreement (the "Hope Bay JVA") to govern all work on the Hope Bay Project. The
Hope Bay JVA created the Hope Bay Joint Venture which provided that MHBL and
Hope Bay Gold would fund exploration work in differing proportions until each
participant had incurred the same aggregate amount of purchase price and
exploration costs, after which each participant would fund exploration work
equally.
In 2002, the Corporation and Hope Bay Gold completed a business combination
pursuant to which Hope Bay Gold became a wholly owned subsidiary of the
Corporation. The Corporation issued to the shareholders of Hope Bay Gold 0.263
of a Common Share for each Hope Bay Gold common share held. In total the
Corporation issued approximately 39.5 million Common shares to Hope Bay Gold
shareholders which represented approximately 38% of the 102.7 million Common
Shares then outstanding. Total consideration for the acquisition, including
share consideration and acquisition costs was $51.7 million. In 2003, the
ownership of all of the Hope Bay properties was consolidated into MHBL.
Location and Access
The Hope Bay Project is located in Nunavut, 65km east of Bathurst Inlet and
685km northeast of Yellowknife. The centre of the area lies approximately 160km
above the Arctic Circle at latitude 670 30' N and longitude 1070 W. The nearest
communities are Umingmaktok, located 65km to the west on the east coast of
Bathurst Inlet, and Cambridge Bay located 170 kilometres to the northeast on
southern Victoria Island. The area is approximately 380km northeast of the Ekati
diamond mine and has tidewater access. Personnel, supplies and equipment are
flown into the site, generally from Yellowknife using aircraft. In the winter,
air strips on the ice are able to accommodate wheeled aircraft as large as
Hercules to bring in equipment and supplies. A permanent airstrip that can take
Twin Otter sized aircraft has been built at the Boston deposit. Except for the
Boston strip, float equipped aircraft must be used in the summer months. The
Hope Bay Project area is also accessible by barge or ship to Hope Bay and
Roberts Bay on the Arctic Ocean from mid-July to the end of September.
The Hope Bay Project has two camps, the Boston camp at Spyder Lake for the
Boston deposit and the Windy Lake camp for the Doris and Madrid deposits. The
Windy Lake camp is about 10km from Hope Bay on the Arctic Ocean.
Title
The Hope Bay project area comprises 64 mineral claims, 9 mining leases and 7
Inuit Owned Lands Exploration Agreements. The Hope Bay property comprises an
area of 1,078km2 and forms one continuous block that is approximately 80km long
north to south by between 7 and 20km wide east to west.
Exploration History
Exploration for gold and base metal deposits in the Hope Bay Greenstone Belt was
started in 1965 by Roberts Mining Company. During the late 1970s and early
1980s, Noranda Exploration Company explored the area for volcanogenic massive
sulphide ("VMS") deposits. In 1988, Abermin Corporation explored the area and
detected gold mineralization, which later became the Boston deposit.
15.
In 1991, BHP Minerals Canada Ltd. ("BHP") assembled a contiguous block of claims
covering approximately 1,016km2 and carried out systematic exploration airborne
and ground geophysical surveys, geological mapping and prospecting, overburden
drilling and over 177,000 m of diamond drilling. BHP's work resulted in the
discovery of the Boston, Doris and Madrid deposits. BHP also carried out
underground exploration and bulk sampling of the Boston deposit in 1996 and
1997. From 1991 to 1998, BHP spent approximately $73.5 million in exploring the
entire Hope Bay Greenstone Belt. From 2000 to December 31, 2003 an aggregate of
$67.5 million has been spent on exploration and supplies at the Hope Bay
Project.
Geology and Mineralization
Hope Bay is a typical Archean greenstone belt comparable to the Yellowknife,
Kirkland Lake and other such belts. The belt is comprised of mafic meta-volcanic
(mainly meta-basalts) and meta-sedimentary rocks that are bound by Archean
granite intrusives and gneisses. The greenstone package has been affected by
multiple deformation events and is transected by major north-south trending
shear zones that appear to exert a significant control on the occurrence of
mineralization, particularly where major flexures are apparent and coincident
with antiforms. Similar features are the locus for major gold deposits in other
Archean greenstone gold camps (e.g. Kirkland Lake).
Three gold deposits have been defined on the belt to date, which are known as
Boston, Doris and Madrid.
Boston Deposit
Gold mineralization at the Boston deposit is present in zones of extensive
hydrothermal alteration within a large iron-rich carbonate altered shear zone.
Gold occurs within and around structurally controlled quartz-carbonate veins.
Gold is associated with sulphide mineralization as clusters of pyrite within the
vein, as well as in the wall rocks.
Two major horizons of gold mineralization have been identified at the Boston
deposit, the B-2 and B-3 zones. Each zone extends to over 1km in length and is
composed of numerous, narrow quartz-carbonate veins commonly with pyrite. The
veins are 5cm to 3m in width and at variable lengths, within a 1 m to 40m wide
mineralized zone. Gold occurs in the quartz veins as well as in the surrounding
sheared and altered volcanic rocks. The B-2 Zone has been drill tested down to
approximately 1,000m below the surface and contains approximately 75% of the
total resources at Boston. It is characterized by a series of parallel,
en-echelon quartz-carbonate veins along the contact between basaltic and
sedimentary rocks.
Much past exploration has been concentrated along the 1km stretch of the Boston
deposit area which contains the currently known resources. Surface drilling in
2001 extended the high-grade mineralization over 225m south of the Boston
decline. Mineralization remains open along strike to the south and at depth.
Doris Deposit
The Doris deposit is typical of the "Archean lode" deposit style. It consists of
a series of steeply dipping, quartz veins which extend over a 4km strike length
in folded and metamorphosed pillow basalts. The Doris veins are situated at an
inferred inflexion of a subsidiary shear to the regional Hope Bay break.
The Central and Lakeshore veins at Doris North are the most important of the
veins, and represent the limbs of a shallow northerly plunging anticline. The
Lakeshore vein is the most continuous and robust structure in the Doris system
and is in excess of 2,200m long, and varies in thickness from 2 to 20m. The
Central vein is less extensive and narrower but locally very high grade.
16.
These two veins occur at the contact between the high iron and high magnesium
tholeiites, within a narrow envelope of intense dolomite-sericite alteration.
Although they appear as separate veins along most of their strike length, at
their northern end, they are one continuous vein, folded around an anticline
with high magnesium tholeiites at its core. The Doris Hinge mineralization which
contain most of the Doris North resources are very high grade. The strongest
gold grades occur within the Central vein and Hinge zone at the crest of the
anticline. Detailed in fill drilling in 2002 confirmed the continuity of high
grade mineralization along a 300m strike extent of the Hinge zone. A feasibility
study was completed on the Hinge zone in January 2003.
Doris Central lies 1.2km to the south of the Doris Hinge, in an area where the
Lakeshore vein intersects with the Stringer zone and this intersection defines a
vertically plunging shoot. The Stringer zone is a zone of quartz stringer
mineralization within a dolomite alteration halo. It occurs in the same
alteration envelope that hosts a quartz vein, the C2 vein, along strike to the
north. At Doris Central, the Lakeshore vein is similar in its appearance to
Doris North. In the area of intersection of the Stringer zone and Lakeshore
vein, mineralized widths reach up to 30m.
The veins appear to lie at the contact between the high iron and high magnesium
tholeiites, within a narrow envelope of intense dolomite-sericite alteration. At
the north end, the veins are folded to create a high-grade anticlinal hinge zone
lying close to surface (Doris North), with high magnesium tholeiites at the core
of the anticline. The strongest gold grades occur within the Central vein and
Hinge zone at the crest of the anticline. Detailed infill drilling in 2002
confirmed the continuity of high grade mineralization along a 300m strike extent
of the Hinge.
The Doris Connector zone lies between Doris North and Doris Central and spans
approximately 500m in strike extent. The 2001 drill results confirmed the
presence of a shallow, sub-horizontal high grade shoot within the C2 vein in the
Connector area that runs parallel to and approximately 30m east of the Lakeshore
vein. Mineralization at Doris Connector appears to be localized in the vicinity
of the intersection of the C2 vein with a steep westerly dipping shear zone, as
well as in proximity to a sub- horizontal, post veining, altered mafic dyke.
Alteration is defined by carbonate, paragonite, pyrite and sericite. Gold is
found primarily at contacts between quartz vein and wall rock contacts and is
associated with dark-coloured troumaline-pyrite septa or ribbons.
MHBL proposes to develop the Doris North deposit as described below. The
majority of the mineralization in the Doris Central and Doris Connector zones
lies within 100 meters of the bottom of Doris Lake and cannot be mined under
current mining regulations without a specific authorization from the Mines
Inspection Branch.
Madrid Deposit
A series of four separate mineralized zones (Naartok, Perrin, Rand, and Suluk)
occur at Madrid, a 2km by 1.5km area at the north-eastern part of Patch Lake. It
is comprised largely of mineralization associated with interbedded basalt,
komatiitic volcanic flows, gabbros and black argillites. In early 2001,
discoveries to the west (Naartok) and southeast (Suluk) of Madrid returned
significantly higher grade mineralization and led to the realization that the
Deformation Zone, which transects the Madrid-Patch Lake area, is the locus of a
significant mineralized trend that includes Naartok and Suluk as well as the
previously drilled lower grade mineralization. Exploration has since extended
the trace of the Deformation Zone to approximately 11km, with additional
mineralized occurrences identified along this trend, including the new
discoveries of mineralization in the South Suluk, Marianas and Rand Spur areas.
The Deformation Zone contains highly deformed quartz-dolomite-sericite schist or
breccia and possible feldspar porphyry. It is highly altered and brecciated, and
defines a steeply dipping, high strain zone over at least 20km from south of
17.
Patch Lake until it reaches the Madrid Valley, where it abruptly bends nearly 90
degrees westward and follows the north side of the valley. Each of the gold
deposits and occurrences in the Madrid area has its own unique characteristics,
varying from vein or shear-hosted to stock work or breccia-hosted gold
mineralization. Most of the deposits are at or near the hanging wall of the
Deformation Zone or one of several parallel structures of splays. Most of the
deposits, except South Patch, consist of high grade cores surrounded by large
halos of lower grade mineralization. The current exploration program is
targeting the discovery and delineation of additional high grade mineralization
along the Deformation Zone and related structures, while also allowing MHBL to
evaluate the potential of the rocks along the Madrid trend to host large scale,
lower grade deposits.
Naartok Zone
The Naartok zone lies on the western edge of the Madrid area in a previously
unrecognized zone of gold mineralization. This zone is located in the hanging
wall of the Deformation Zone and characterized by a broad zone of >1g/t gold
assays. Recent modeling has resulted in the definition of three north dipping
mineralized lenses within this broad halo; a thicker one in the immediate
hanging wall of the Deformation Zone and two smaller ones farther into the
hanging wall and to the west.
Mineralization at Naartok occurs in a zone of multi-phase brecciation, quartz
stock working and silicification on the hanging wall of the Deformation Zone.
Better mineralization appears to be localized in an area where the Deformation
Zone is flexed, providing a possible dilation zone for the passage of
mineralizing fluids. Drilling to date has defined a steeply plunging zone of
more intense silicification and higher-grade gold values (15-25 g/t) extending
75-150m along strike, plunging 200+m and averaging 5-25m thick within a broader
halo of lower grade alteration and mineralization. Drilling in 2004 has further
extended this mineralized trend.
Suluk Zone
Drilling has tested an area approximately 600m southeast of Naartok along the
Defomation Zone under Patch Lake where previous drilling by BHP intersected
further gold mineralization in a setting broadly similar to that of Naartok and
the Perrin Bulge. This Suluk zone mineralization is associated with a flex in
the Deformation Zone and comprises four or more parallel and variable altered
and mineralized horizons that dip at -80 degrees to the west and have been
traced for 500m along strike and to depths of more than 600m below surface.
The mineralization at Suluk is similar to Naartok, with silicification, quartz
stock works and pyrite within a broader sericite-dolomite alteration halo.
However, mineralization is situated 15 to 60m east of the Deformation Zone, not
adjacent to it as at Naartok. The steeply west-dipping zones of mineralization
at Suluk are included within an intercalated basalt/argillite unit. The
ductility/rheology contrast between basalt and argillite, causing brittle
failure of basalt in the vicinity of argillite layers is thought to locally
control emplacement of mineralization. This mechanism would explain why a
majority of high grade basalt samples (15g/t) occur near the contacts with
graphitic argillite units or in brecciated basalt with a graphitic argillite
matrix. The better gold values seem to be associated with higher percentages
(5%) of fine-grained disseminated pyrite within the quartz carbonate-sericite
altered horizons, mostly within brecciated, silicified and sulphidized, mafic,
volcanic rocks. Lesser amounts of gold mineralization occur in the intercalated,
cherty, graphitic argillite. Preliminary metallurgical testing of a sample of
strongly graphitic sediment from the Suluk deposit has identified active carbon
that could potentially adversely affect the recovery of gold in a conventional
cyanidation recovery circuit.
Other Zones
18.
Significant gold mineralization is found along the trend of the Deformation Zone
outside of Naartok and Suluk, including South Suluk, Patch 7, South Patch 14,
Perrin, Marianas and Rand Spur Zones, each of which differs somewhat in the
style of mineralization but lies in close proximity to the Deformation Zone or,
in the case of South Patch 14, within it. These and less explored areas
associated with the Deformation Zone, remain important targets for future
exploration activities in the Madrid area.
Exploration
To date, exploration has targeted outcropping shear and vein hosted Archean lode
gold deposits, such as those discovered at Boston and Doris. However, the
discovery of the Naartok and Suluk deposits in 2001, the sources for the
majority of resource additions on the Hope Bay Project in 2001- 2003,
illustrates the potential for different styles of deposits including ones that
do not outcrop. Exploration in 2003 included areas with extensive cover and
areas with potential for different styles of mineralization to those previously
discovered on the belt.
Exploration in 2003 focused on evaluating the potential of the Madrid area, the
depth potential at the Boston deposit as well as a number of early stage,
covered targets.
Exploration underway in 2004 has two principal focuses: continued expansion of
the resources at Madrid, plus a significant exploration and resource upgrading
drill program at Boston. In addition, regional exploration activities will test
a number of areas with potential for the discovery of entirely new deposits
within the belt.
Doris North Development Plan
During the latter half of 2001, Steffen Robertson and Kirsten Consulting ("SRK")
undertook a Feasibility Study to consider the economic potential of a stand
alone development of the high grade, near surface Doris North zone. MHBL has
commissioned an update to the Feasibility Study to incorporate the results of
additional metallurgical studies and mine designs. In addition, MHBL will
examine the impact of recent increases to commodities such as fuel and steel.
MHBL does not expect that the update to the Feasibility Study will result in a
material change to the economics of the Doris North Project as estimated by the
Feasibility Study.
The following table sets forth certain information contained in the Feasibility
Study relating to the base case for bringing the Doris North Project into
production.
Assumptions Base Case
-----------
Gold price (US$/oz) $305 $325 $345
Exchange Rate (C$/US$) 1.575 1.575 1.575
Gold Price (C$/oz) $480 $512 $543
Production
Ore Milled (tonnes) 467,157
Daily Throughput (tonnes/day) 668
Operating Life (years) 2
Diluted Grade (g/t gold) 21.9
Metallurgical Recovery (%) 94.9%
Total Gold Recovered in 2 years (oz) 311,693
Cash Operating Cost (US$/oz) $109
Total Cost (US$/oz) $190
19.
Capital Costs (C$ millions) 39.3
The Feasibility Study assumes a two year operation focused solely on the mining
of the Doris North Project by underground methods and with ramp access.
Underground mining would be carried out by a combination of mechanized cut and
fill and open stoping, assuming a minimum mining width of 2.5m and external
dilution averaging 17% at zero grade. Mine engineering has been advanced to a
point well beyond what is considered normal for a feasibility study. The entire
deposit has been planned and scheduled, all required waste and on-ore
development has been laid out and individual stopes engineered with ore and
grade release schedules. Costs and productivity estimates utilize experience
from the Corporation's Yellowknife operations, adjusted to site specific
conditions.
Ore would be hauled from underground by truck to a crusher located adjacent to
the portal that would feed a semi-modular mill most of which will be
pre-constructed off site. Due to the modular nature of a significant portion of
the mill, it requires very few foundations and would be set on bedrock and
compacted fill. The ore would undergo conventional crushing and grinding with an
integrated gravity gold recovery circuit followed by flotation and cyanidation
of flotation concentrates, with gold dore produced on site.
The Doris North Project will be subject to a 12% net profits royalty with limits
on deductions which has the effect of establishing a minimum 1.8% net smelter
return royalty payable to NTI. The actual royalty that will be payable is not
yet determined and will depend upon the deduction of historical and current
explorations costs, capital and operating costs. These elements are currently
being determined by MHBL and NTI as part of the production lease.
Waste rock recovered from onsite quarries would be used for civil construction
projects such as a 4.8km permanent access road to a barge off-loading area on
the coast 3.7km to the north, a barge landing site, an airstrip, and for
tailings dam construction. Tailings are proposed to be deposited sub-aqueously
in a small lake to the east of the millsite locally known as Tail Lake.
As contemplated in the Feasibility Study, all equipment, bulk supplies and
materials would be moved to site by barge from Hay River, although alternatives
are being investigated. Other supplies and personnel will be transported to and
from site by aircraft. Camp facilities for up to 90 personnel would be
constructed, with employees retained on a fly-in, fly-out basis, with hiring
from southern Canadian communities and from the local communities in the West
Kitikmeot region. Total employment at the Doris North Project is estimated to be
150 persons.
Estimated Capital Costs
The following table sets forth the capital costs to bring Doris North into
production as estimated by the Feasibility Study.
----------------------------------- --------------------------
(C$ Millions)
----------------------------------- --------------------------
Process Plant & Buildings $17.75
----------------------------------- --------------------------
Site Preparation $13.58
----------------------------------- --------------------------
Power Plant $ 3.80
----------------------------------- --------------------------
Underground Equipment $ 2.46
----------------------------------- --------------------------
Miscellaneous $ 1.67
-------
----------------------------------- --------------------------
Total $39.26m
----------------------------------- --------------------------
20.
The estimated capital cost of $39.26 million represents the total capital
required over the life of the project. This includes all anticipated
lease/purchase costs for both the mill buildings and the power plant for a 36
month term. These amounts may change once the update to the Feasibility Study
has been completed.
Additional work completed since the Feasibility Study suggests a number of
potential opportunities to optimize the Doris North Project, and to take into
account potential for longer term production from other deposits such as the
Boston deposit. The updated study will not be complete until mid-2004, however,
preliminary results indicate that increases in the prices of fuel, steel and
other commodities will not materially increase the capital and operating costs.
Initial capital costs are expected to remain within the Feasibility Study
parameters of plus or minus 15% of the C$39.3 million estimated, while operating
costs are expected to remain within approximately 20% of the US$109 per ounce
cash cost estimate, with fuel price increases and a stronger Canadian dollar
proving to be the principal factors varying from feasibility cost estimates.
These cost increases are expected to be more than offset by the increase in the
price of gold since the date of the feasibility study.
The proposed Doris North development is affected less than other proposed mining
developments by recent increases in commodity prices because it is a relatively
small scale high grade underground mining operation, with minimal development
required to access very high grade reserves. Further the relatively smaller
scale of the proposed processing facility allows the Corporation greater
flexibility in designing the infrastructure to be less capital intensive,
avoiding the use of steel buildings.
Estimated Operating Costs
The following table sets forth the operating costs of the Doris North Project,
as estimated by the Feasibility Study, over the full project life.
----------------------------------- --------------------- ----------------------
(C$ Millions) (C$ per tonne milled)
----------------------------------- --------------------- ----------------------
Mining $20.88m $44.71/t
----------------------------------- --------------------- ----------------------
Milling $18.88m $40.42/t
----------------------------------- --------------------- ----------------------
General & administration $13.92m $29.81/t
------- --------
----------------------------------- --------------------- ----------------------
Total $53.68m $114.94/t
------- ---------
----------------------------------- --------------------- ----------------------
These amounts may change once the update to the Feasibility Study has been
completed.
Future Development Opportunities
The Feasibility Study is based on mining solely in the Doris North area.
However, there is potential to extend the mine life through the development and
mining of other resources in the Hope Bay Belt. Additional infill drilling and
other engineering work will be required to define a mineral reserve and
establish the feasibility of mining material from the Boston or Doris Connector
and Doris Central areas. These deposits could potentially be developed with
minimal additional surface disturbance and with limited capital, utilizing the
same infrastructure proposed for the Doris North zone. The majority of the
mineralization in the Doris Central and Doris Connector zones lies within 100
meters of the bottom of Doris Lake and cannot be mined under current mining
regulations without a specific authorization from the Mines Inspection Branch.
In parallel with the 2004 exploration activities at Hope Bay, the Corporation
commenced a drill program in April 2004 to upgrade portions of the inferred
resource at the Boston deposit to the indicated resource category during
2004-2005. An updated resource estimate will provide the basis for a preliminary
assessment to evaluate the economics of mining the upper portions of the Boston
resource. The objective of the in fill drilling is to demonstrate the potential
for a significantly extended production life at Hope Bay. The Corporation
21.
expects to complete this study in early 2005. The focus for an extended life is
concentrated on Boston because it appears to provide the most rapid and lowest
capital requirements at Hope Bay given the work completed to date and the
underground development already in place. The deeper resources at Boston, the
remainder of the Doris deposit and the Madrid resources may provide future
longer term options to extend production at Hope Bay and possibilities for
expanded levels of production, and will be evaluated as exploration and other
works progress. These options would be subject to completion of additional
permitting processes.
Development Schedule
The Corporation plans to develop the Doris North Project with two major
mobilizations, one in the summer of 2004 for surface earthworks and underground
development support and one in the summer of 2005 for major mill components and
operating supplies. This assumes that ongoing permitting activities support a
fourth quarter 2004 production decision and placement of orders for the mill,
followed by air-supported mobilization of the underground mining equipment
required for ramp development in the late first quarter of 2005. Once permits
are in place, underground development would commence during the second quarter
of 2005, with the major equipment and supplies mobilization scheduled for the
third quarter of 2005 to allow site construction to begin in the late third
quarter of 2005. Process plant operations would then begin in the last quarter
of 2005. The Corporation plans to seek project financing for the capital and
operating costs of the Doris North Project once a production decision has been
made.
2003 Resource Estimate
The following table sets forth the mineral resources at the Hope Bay Project as
at December 31, 2003 including Doris North Reserves.
Category/Deposit Tonnes Gold Grade Contained Gold
---------------- ------ ---------- --------------
(g/t)
--------------------------------------------------------------------------------
Measured & Indicated
--------------------
Boston 1,387 15.4 687
Doris 763 23.9 586
Madrid 3,606 4.9 565
--------------------------------------------------------------------------------
Total Measured & Indicated 5,756 9.9 1,838
Resources
Inferred
--------
Boston 2,574 10.9 901
Doris 1,675 14.7 795
Madrid 11,921 4.9 1,886
--------------------------------------------------------------------------------
Total Inferred Resources* 16,170 6.9 3,582
*Inferred resources are in addition to measured and indicated resources.
1. All resource and reserve estimates were prepared by the MHBL staff in
accordance with NI 43-101 and reviewed by John Wakeford, P. Geo.,
Vice-President, Exploration for the Corporation. Resource estimation models
for Boston and Doris (excluding the Doris Hinge and Doris Central zones)
have not changed since 2002 and used a two dimensional polygonal approach.
The Doris Hinge, Doris Central, Naartok and Suluk deposits were block
modelled using ordinary kriging methods, whereas other zones applied
inverse distance methods also the same as 2002. Resource estimation models
for the Madrid area used three dimensional block model methods, except for
22.
the South Suluk and South Patch 14 areas, which used a two dimensional
polygonal approach. Capping and cut off grades were applied. Measured
resources were estimated only in the Boston B2 Zone where the resource
blocks have been undercut. Indicated resources for all the deposits
generally lie within 25 metres of a drill hole within detail drilled areas
and inferred resources generally lie no more than 50 metres from a drill
hole. The estimates for the Madrid area (except South Patch 14) were
reviewed by Roscoe Postle Associates Inc. in 2003-4, while those for Doris
Central and Boston were audited by independent resource consultants Geostat
Systems Inc. of Montreal in 2001. The resource estimates for Doris Hinge,
Doris North and South Patch were audited by independent resource consultant
SRK Engineering of Toronto in 2002.
2. The mineral resources were determined by the use of mapping, drilling,
sampling, assaying and evaluation methods generally applied in the mining
industry. Inferred and indicated resource estimates were made using
different cut-off grades depending on properties of each deposit. The term
"cut-off grade" means the lowest grade of mineralized rock that can be
included in the resource estimate in a given deposit. Cut-off grades vary
between deposits depending upon prevailing economic conditions, mineability
of the deposit, amenability of the ore to gold extraction, and milling or
leaching facilities available.
3. The mineral resource estimates presented herein are estimates, and do not
constitute reserves. There is no assurance that a commercially viable ore
deposit exists on the Boston or Madrid properties.
4. 230,000 ounces lie within 30m of lake bottoms (pillars) and are unlikely to
be mined without significant economic and permitting challenges. The
regulations for pillars under lakes in Nunavut require the Mines Inspection
Branch to provide a variance for mining within 100m of a lake bottom.
5. Mineral resources that are not mineral reserves do not have demonstrated
economic viability. Mineral resource estimates do not account for
mineability, selectivity, mining loss and dilution. These mineral resource
estimates include inferred mineral resources that are normally considered
too speculative geologically to have economic considerations applied to
them that could enable them to be categorized as mineral reserves. There is
also no certainty that these inferred resources will be converted to
measured or indicated resources.
Regulatory Requirements
There are a number of federal and territorial regulatory authorities that have
jurisdiction in Nunavut, including four resource management boards: the Nunavut
Water Board ("NWB"), the Nunavut Impact Review Board ("NIRB"), the Nunavut
Wildlife Management Board ("NWMB") and the Nunavut Planning Commission ("NPC").
Overall project approval and operating permits will be dependent upon an
environmental assessment process together with community consultation and an
acceptable Inuit Impact and Benefit Agreement ("IIBA") made under the Nunavut
Land Claims Agreement ("NLCA").
Any use of Inuit surface land requires a land use permit, licence or lease. Such
permits are issued and administered by the Kitikmeot Inuit Association ("KIA").
Applications are reviewed by the KIA, NIRB and local communities. Land-use
licences are valid for up to three years. Amendments describing proposed work
must be submitted on an annual basis and are subject to local community review.
23.
Any water use on Inuit lands requires permitting. The NWB issues all water
licenses and permits within Nunavut subject to a review by NIRB, which could
provide recommendations to the Nunavut Water Board respecting permit issuances.
Doris North Permitting Progress
Most of the activities contemplated on the Doris North Project will be located
on land on which the Inuit retain both surface and mineral rights. NIRB is the
principal permitting regulatory agency for the Doris North Project under the
NLCA.
MHBL filed a preliminary project description with the NWB and KIA which was
referred to NIRB in March 2002, based on which NIRB issued guidelines for the
preparation of a draft environmental impact statement ("EIS") under the NLCA.
The Corporation filed a draft EIS with NIRB in January 2003. The draft EIS
details the Doris North Project and includes the project description,
environmental baseline studies, impact assessments, socio-economic
considerations, environmental management plans and reclamation and closure
plans. NIRB distributed the draft EIS to the various territorial and federal
agencies which have jurisdiction over the Doris North Project.
MHBL held public information meetings in local communities in February 2003 to
review the project and the draft EIS. NIRB held pre-hearing conferences in April
2003 to ensure that all major issues in relation to the Doris North Project had
been identified and that there were no major parties which were not in
consultation with NIRB. NIRB provided MHBL with comments on the draft EIS in
June 2003 and MHBL filed a final EIS in December 2003. MHBL held public
information meeting in these local communities in February 2004 to review the
project and the final EIS. In March 2004 NIRB held technical sessions with MHBL
and various interveners. MHBL filed in information supplemental to the final EIS
in April 2004.
NIRB has called final hearings to review the project in four local communities
for July 11-16, 2004 to discuss the permitting of the Doris North Project. This
is a one month delay from the originally scheduled dates of June 13 - 18, 2004.
NIRB has indicated that more time is required to review the supplemental
information submitted by MHBL.The Corporation expects that the hearings will
proceed as planned in July. MHBL expects that all required approvals will be
coordinated once the NIRB review process is complete. These include an
authorization to deposit tailings into Tail Lake, a federal lease of a portion
of Robert's Bay to allow construction of an offloading jetty and a water licence
from NWB. MHBL will also require a production lease from NTI allowing the
removal of minerals, various surface leases from the KIA and an Inuit Impact and
Benefits Agreement. MHBL is currently negotiating the terms of these agreements.
The Corporation anticipates that NIRB will complete its review of the Doris
North Project in the summer of 2004. The NIRB report must be accepted by the
Minister of Indian and Northern Affairs Canada. MHBL will apply to the various
Federal and Territorial agencies for all required permits and licences. The most
significant of these is the application to the Nunavut Water Board for a licence
to facilitate water use and tailings discharge and to the KIA for land use
permits. Assuming that these approvals are obtained in acceptable form and in a
timely manner, MHBL expects to be able to obtain all other necessary permits in
time to permit MHBL to commence construction and order major equipment so that
operations can commence at the end of 2005 or early 2006. In light of continued
permitting delays, MHBL is reviewing the Doris North production schedule.
Back River Projects (George Lake and Goose Lake)
The Corporation, through MBRL, has the right to earn a 60% joint venture
interest in the Back River Project from Kinross. Back River encompasses a number
of land packages, including the George Lake and Goose Lake projects. In order to
24.
earn the interest, MBRL must (i) spend $10 million on exploration expenditures
on the properties by August 31, 2005, and (ii) spend a cumulative $25 million on
exploration expenditures by August 31, 2006. If MRBL has not spent a cumulative
$25 million by August 31, 2006 but has spent a cumulative $15 million by that
date, MRBL may elect to extend the option by spending a cumulative $28 million
by August 31, 2008. If MBRL earns the interest, MBRL and Kinross will fund
further work proportionally. Kinross will have the right to increase its
interest from 40% to 50% after completion of a feasibility study on any of the
properties by paying to MRBL two times MRBL's aggregate exploration costs which
relate to the additional interest being acquired by Kinross.
Location & Access
The Back River Project encompasses approximately 390 km2 of mineral rights
located 520km northeast of Yellowknife, and approximately 165km southwest of the
Hope Bay Project. Since the discovery of gold at George Lake in the early 1980s,
more than 165,000m of drilling has defined a significant gold resource. Gold
mineralization is contained in banded iron formations ("BIF") that are analogous
to the recently closed Lupin Mine, 225 kilometres to the west.
The Back River Project comprises a total 45 Crown leases and one mineral claim
making up six distinct properties covering 38,975 hectares. These properties are
George Lake, Goose Lake, Boot Lake, Boulder Pond, Needle Lake and Bathurst
Inlet. Staging for exploration work on the project has been from Yellowknife and
Lupin, with access to the property being by air. The properties are also
accessible from Bathurst Inlet, where a barge/ship and ice road staging system
could be developed similar to that used at the Hope Bay Project.
Geology
The Back River Project lies within the Archean Slave Structural Province, as
does the Hope Bay Project. The numerous gold deposits in Back River are BIF type
deposits analogous to the Lupin Mine. Gold mineralization is closely associated
with sulphide bearing zones and quartz veining within iron formation and
sediments.
The Goose Lake property lies along a regional, doubly plunging synclinal fold.
The Goose Lake South Anticline lies on the edge of this syncline and plunges 45
degrees to the northwest. Mineralization is closely associated with the Goose
Lake South anticlinal structure, with most of the significant mineralization
occurring at or close to the fold nose and in the limbs of the BIF sequence. At
Goose Lake South, there are a number of gold bearing BIF units stacked on top of
each other, which appear to be thickened and enriched in the vicinity of the
fold nose. Mineralization is open in a number of directions, but particularly
down plunge on the fold nose.
The George Lake area deposits appear to be representative of a simpler style of
mineralization than at Goose Lake. The BIF occurs in three belts, which may
represent one sequence of BIF that has been separated and repeated by folding
and faulting. All three of the belts contain gold occurrences, but the most
important deposits occur in the George Lake Belt which hosts the Locale 1 and
Locale 2 deposits (which are mostly tabular, near vertical deposits), GH and
perhaps the Lone Cow Pond deposits. Most of the gold deposits comprise two
parallel gold bearing BIF units in close proximity to each other. The Fold Nose
Belt hosts the Slave Deposit and the other Slave occurrences.
History
Following the discovery of the Lupin gold deposit, exploration in the Slave
geologic province resulted in the discovery of gold at George Lake in 1985 and
at Goose Lake in 1987. Initially, exploration focused on the George Lake area,
25.
resulting in the discovery of a number of BIF hosted gold deposits. Exploration
shifted to Goose Lake in 1993, resulting in the discovery of a number of gold
occurrences, including the Goose Lake South deposit. To the end of 2003 938
holes had been drilled, 221 of which (46,469m) were at Goose Lake and 717
(120,868m) were at George Lake, totalling 167,337m of drilling.
Resources
The resources for Goose Lake were estimated in 2002 by Watts Griffis and McOuat
Limited ("WGM"). The resources for George Lake were estimated by AMEC (formerly
MRDI) in 1998 and reviewed for compliance with N1 43-101 in 2001. A detailed
audit of the MRDI resource estimate for Locale 2 and a cursory review of the
Locale 1 resource was undertaken by WGM in 2002.
--------------------------------------------------------------------------------
Goose Lake / George Lake - Mineral Resource at a 5 g/t Au Cut-off
-------------------------------------------------------------------------------
Deposit Indicated Resources Additional Inferred Resources
-------------------------------------------------------------------------------
Tonnes Grade* Ounces Tonnes Grade* Ounces
(g/t) (g/t)
===============================================================================
George Lake 2,620,000 9.9 836,000 1,289,000 10.1 419,000
-------------------------------------------------------------------------------
Goose Lake 1,750,000 9.6 540,000 595,000 9.5 182,000
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Total 4,370,000 9.8 1,376,000 1,884,000 9.9 601,000
-------------------------------------------------------------------------------
*High Grade Assays cut to 34.29 g/t.
Goose Lake resources Estimated by WGM 2002 - George Lake resources
Estimated by AMEC (formerly MRDI) July, 1998.
--------------------------------------------------------------------------------
AMEC's resource estimate was completed using a 5 g/t gold cut-off grade and was
based on 3-dimensional block models utilizing commercial mine planning software
(MineSight(R)). The block sizes were generally 2m by 10m by 10m except the Slave
block model, which had blocks that were 5m long. All assays were capped at 34.3
g/t gold. The resource categories were classified by a proximity to composite
protocol. Blocks containing an estimate with two or more samples from different
drill holes within 30 metres or one sample within 15 metres were classified as
indicated resource. Inferred resource material was set in blocks having one
composite within 60 metres. As part of the AMEC review in 2001 the mineral
resource calculation method and appropriateness of mineral resource
classification categories used were examined to ensure compliance NI 43-101.
Stephen Juras of AMEC was the Qualified Person responsible for the resource
estimate.
The WGM updated resource estimate for Goose Lake was completed based on
geological interpretations imported into the software package Surpac Version
4.1Jh ("Surpac"), which was used to complete geostatistics, generate wireframes,
create solids, generate the block model, interpolate grade, assign resource
classification categories and estimate resources. Sample composites were capped
at 34.28 g/t gold. Grade was interpolated using inverse distance cubed ("ID3"),
inverse distance squared ("ID2"), and nearest neighbour to approximate a
polygonal method. A minimum of 3 and maximum of 15 composites were used to
interpolate grade. Resources were estimated at 5 g/t cut off assuming blocks 1m
by 10m by 10m. The mineral resource estimates and mineral resource
classifications were completed in compliance with NI 43-101. George Wahl of WGM
was the Qualified Person responsible for the resource estimate.
As part of its ongoing activities at the Back River project, MBRL continues to
review resource estimates and supporting data for the George Lake and Goose Lake
deposits that contain the resources within the Back River project. Prior
26.
resource estimates were prepared by AMEC and WGM. The WGM also made a number of
recommendations to improve the quality of the database and the accuracy of the
resource estimates. MBRL intends to address WGM's recommendations as well as any
other issues identified during its own ongoing review. MBRL's 2004 work program
includes limited drilling within the Goose Lake resource to better understand
the geology and controls on mineralization, plus step-out drill holes intended
to expand the resource. At this point in time MBRL has focused the majority of
its exploration and compilation efforts on the Goose Lake property at Back
River. On completion of the 2004 program, MBRL may calculate a new resource
estimate for Goose Lake incorporating the new drilling and the results of its
review. Late in 2004 and early 2005 a similar program of work is contemplated to
address the George Lake portion of the resource. At this point in its drilling
program and on going review of the existing information, MBRL cannot determine
what effect any changes that might be made to the resource assumptions or
methodology or underlying database would have on the existing resource
estimates.
Exploration Opportunities
There is potential to significantly increase the resources at both Goose and
George Lake, and to discover new deposits within the extensive property package.
The most likely potential for increasing the resources in the Goose Lake deposit
lies in tracing the down plunge extension of the fold nose and zones of
mineralization associated with both the east and west limbs of the fold. At the
George Lake deposit, there is potential to increase the resource at depth below
the existing resource at Locale 2, to extend the other resource areas and to
look for new deposits.
Numerous other mineral occurrences exist on the properties, where some 35 known
gold occurrences are contained within the estimated 210 km of folded iron
formation identified on the Goose Lake/George Lake properties.
Planned Work
A program of exploration and drilling commenced at Goose Lake in April 2004,
initially focussed on confirming and expanding the resources at Goose Lake. MBRL
plans further work in the summer of 2004 and beyond to evaluate the potential of
George Lake and the numerous showings and untested sections of banded iron
formation on both properties that offer potential for new discoveries.
Exploration plans call for expenditures of C$6.5 to C$7 million during 2004,
which allows for an initial 13,000m of core drilling and mobilization of
supplies sufficient to complete up to an additional 12,000m during the year
dependent on results. The principal target in 2004 will be testing for
extensions to the Goose Lake deposit where there are a number of gold bearing
zones within BIF units which are stacked and folded into an anticline. The BIF
units appear to be thickened and enriched in the vicinity of the fold nose,
which lies just below surface. The most obvious potential for increasing the
resources in the Goose Lake deposit lies in tracing the extensions of the fold
nose and zones of mineralization associated with both the east and west limbs of
the fold to the north and south. For example, drilling in the fall of 2002
tested the iron formation at depth and intercepted 18.9m of 7.3 g/t gold
(including 8.6m of 12.4 g/t gold) and 13.3m grading 23.6 g/t gold. In addition,
there is an area south of the current resource where shallow drilling
intercepted significant gold values over considerable widths (including 14.0m of
17.7 g/t gold, 15.6m of 9.5 g/t gold and 18.2m of 9.1 g/t gold), which lie
outside the current resource but could provide additional near surface resources
as drilling progresses.
Sherwood Mining Corporation
The Corporation owns 10,000,000 shares of Sherwood Mining Corporation
("Sherwood") representing a 40.2% interest. Sherwood is a publicly traded
company listed on the TSX Venture Exchange.
27.
In December 2003, the Corporation granted to Sherwood the option to earn a 60%
interest in the Chicago Area of the Hope Bay belt, encompassing the Chicago/Kell
trend and the newly discovered Heku trend. The Chicago Area consists of 11
claims covering 9,162 hectares located in the southwest portion of the Hope Bay
Belt, and lies approximately 15 Km southwest of the Corporation's Boston Camp.
Under the terms of the agreement, Sherwood has been granted an option to earn up
to a 60% interest in the Chicago Trend by spending $3.1 million on exploration
work in phases over a period of three years. The Corporation will have a one
time back-in right whereby it may increase its interest to 50% in the Chicago
Trend by paying $500,000 to Sherwood. The Corporation may elect to exercise its
back-in right within 120 days of receiving notice that Sherwood has completed
its earn-in.
In connection with the Chicago area option, Sherwood has granted to the
Corporation a 30 day right of first refusal to acquire all or any portion of the
Elu Property should Sherwood propose to sell all or any portion of the Elu
Property. Sherwood grants to the Corporation the right to acquire a 50% interest
in the Elu Property and be the operator of all work thereon, exercisable within
90 days of completion of a feasibility study on the Elu Property by Sherwood. To
acquire the 50% interest the Corporation must pay Sherwood an amount equal to
100% of the amount that Sherwood has spent on exploration and development of the
Elu Property to the date of election. Sherwood has also granted to the
Corporation the right to participate in all future equity offerings by Sherwood
in proportion to the Corporation's then ownership of Sherwood.
Northern Orion Explorations Ltd.
The Corporation holds a net smelter proceeds agreement (the "Proceeds
Agreement") which requires Northern Orion Explorations Ltd. ("Northern Orion")
to pay to the Corporation an amount equal to 2.5% of the net smelter returns
from all product sold from the Agua Rica and Mantua properties (described
below). The Proceeds Agreement also requires Northern Orion to pay to the
Corporation 50% of the net proceeds of sale of any interest in the Agua Rica or
Mantua properties. The maximum amount payable under the Proceeds Agreement is
$15 million. The Company held approximately400,000 shares of Northern Orion at
December 31, 2003. The Agua Rica copper/gold property is a large copper porphyry
deposit located on a group of exploitation concessions and mining claims located
in Catamarca Province, Argentina. The Mantua copper project consists of a
secondary enriched copper deposit located in Pinar del Rio Province, Cuba, 240
kilometres west of Havana.
28.
Selected Consolidated Financial Information
The following table sets forth selected consolidated financial information for
the last five completed fiscal years (in thousands of dollars, except per share
amounts):
As at or for the year ended December 31
2003 2002 2001 2000 1999
Revenue 46,877 54,067 55,821 52,703 28,893
Net earnings (loss) (17,555) 604 (5,899) (43,391) (20,143)
- per share (0.13) 0.01 (0.10) (0.76) (0.35)
Total assets 244,118 203,423 102,266 152,517 202,951
Liabilities and 41,678 40,755 21,535 67,768 65,006
non-controlling interest
The Corporation's consolidated financial statements are prepared in accordance
with generally accepted accounting principles in Canada. The selected
consolidated financial information should be read in conjunction with the
Corporations consolidated financial statements.
Management's Discussion and Analysis
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in pages 14 to 20 of the annual report to shareholders of
the Corporation for the year ended December 31, 2003 is incorporated herein by
reference.
The following table sets forth selected consolidated financial information for
the last eight quarters ended December 31, 2003 (in thousands of dollars except
per share amounts) is set forth below:
Dec 31, Sept 30, Jun 30, Mar 31, Dec 31,
2003 2003 2003 2003 2002
Revenue 9,513 11,905 9,782 15,677 11,543
Net Earnings (loss) (4,470) (5,688) (7,441) 44 (3,554)
- per share (0.03) (0.04) (0.06) 0.00 (0.03)
Sept 30, Jun 30, Mar 31,
2002 2002 2002
Revenue 15,096 12,593 14,835
Net Earnings (loss) 1,206 2,387 565
- per share 0.01 0.03 0.0
Market for Securities
The Common Shares are listed for trading on The Toronto Stock Exchange and the
American Stock Exchange under the trading symbols "MAE" and "MNG", respectively.
Dividend Policy
The Corporation has not paid dividends on the Common Shares since its
incorporation. The Corporation does not have any present intention of paying
dividends, as it anticipates that the cash resources of the Corporation will be
used to undertake exploration and development programs on its mineral properties
as well as the acquisition of additional mineral resource properties.
29.
Directors and Officers
The following table sets forth the names and municipalities of residence of the
directors and officers of the Corporation, their positions held with the
Corporation and their principal occupations.
--------------------------------- ------------------- --------------------------
Name and Municipality of Position(s) Principal Occupation
Residence Held
--------------------------------- ------------------- --------------------------
Lawrence Bell(1)(5) Director Corporate Director, BC
West Vancouver, B.C. Hydro, electrical utility
--------------------------------- ------------------- --------------------------
David Fennell(2) Executive Vice- Mining Executive
Nassau, Bahamas Chairman and
Director
--------------------------------- ------------------- --------------------------
Catherine McLeod-Seltzer(3)(5) Director President & Director,
West Vancouver, B.C. Pacific Rim Mining
Corporation, mining
company
--------------------------------- ------------------- --------------------------
Peter Nixon(1)(5) Director Corporate Director
Keswick, Ontario
--------------------------------- ------------------- --------------------------
Anthony J. Petrina(2)(4)(5) Chairman of the Mining Engineer, Corporate
Vancouver, B.C. Board and Director
Director
--------------------------------- ------------------- --------------------------
Christopher J. Pollard(1)(4) Director Associate Counsel, Clark
Vancouver, B.C. Wilson, law firm
--------------------------------- ------------------- --------------------------
William E. Stanley(1)(2)(3) Director Mining Engineer, Industry
West Vancouver, B.C. Consultant
--------------------------------- ------------------- --------------------------
Peter Steen(3)(4) Director President, Peter Steen
Salmon Arm, B.C. Consulting Inc.,
consulting company
--------------------------------- ------------------- --------------------------
Anthony P. Walsh(2) Officer & President and Chief
West Vancouver, B.C. Director Executive Officer of the
Corporation
--------------------------------- ------------------- --------------------------
Elaine Bennett, Officer Vice-President and
North Vancouver, B.C. Controller of the
Corporation
--------------------------------- ------------------- --------------------------
Brian Labadie Officer Executive Vice-President,
Maple Ridge, B.C. Chief Operating Officer of
the Corporation
--------------------------------- ------------------- --------------------------
A. David Long, Officer Vice President Legal of
West Vancouver, B.C. the Corporation
--------------------------------- ------------------- --------------------------
Stephen P. Quin, Officer Executive Vice-President
West Vancouver, B.C. of the Corporation
--------------------------------- ------------------- --------------------------
John Wakeford Officer Vice President Exploration
North Vancouver, B.C. of the Corporation
--------------------------------- ------------------- --------------------------
(1) Member of the Audit & Risk Management Committee
(2) Member of the Executive committee
(3) Member of Human Resources Committee
(4) Member of the Safety & Environmental committee
(5) Member of the Corporate Governance, Nominating Committee
Jonathan Goodman has indicated to the Corporation that he will be unable to
stand for re-election as a director at the 2004 Annual General Meeting.
Each of the foregoing individuals has been engaged in the principal occupation
set forth opposite his or her name during the past five years except for: Elaine
Bennett who, prior to 2002, was the Corporate Controller of the Corporation; Mr.
30.
Walsh who, prior to August 1999, was the Vice-President and Chief Financial
Officer of the Corporation; David Fennell who, prior to 2002 was the President
and Chairman of Hope Bay Gold Corporation Inc.; Peter Nixon who, prior to 2000,
was President of Dundee Securities (U.S.A.) Inc., Institutional Sales Trading;
and Mr. Bell who, prior to August 2001, was President of Shato Holdings Ltd., a
food services and real estate management and holding company.
Directors are elected at each annual meeting of shareholders and serve until the
next annual meeting or until their successors are elected or appointed.
The directors and senior officers of the Corporation beneficially own, directly
or indirectly, or exercise control or direction over, approximately 1.9% of the
outstanding Common Shares of the Corporation.
Additional Information
Tax Reassessment
In 1995, the Corporation entered into a joint exploration transaction with an
investor that resulted in the sale of an interest in the assets comprising the
Con Mine as detailed below. The transaction was based upon an independent
valuation prepared for the Corporation. In 2000, Canada Customs and Revenue
Agency (the "CCRA") issued a re-assessment notice challenging the valuation that
formed the basis for the transaction. This re-assessment does not give rise to
any taxes payable by the Corporation. As part of the transaction in 1995, the
Corporation agreed to compensate the investor for any shortfall in the value of
the assets transferred, to a maximum of $2.7 million, plus accrued interest of
approximately $1.8 million (at December 31, 2003) such amounts to be payable
should a ruling denying the transfer of certain tax pools be made against the
Corporation. At present the Corporation has requested information from CCRA and
is awaiting a response. While management intends to strenuously defend the
independent valuation, the outcome of the matter is not determinable.
Executive Retirement Plan
The Corporation has established a supplemental executive retirement plan for
five senior executives (the "Plan"). The Plan provides that the Corporation will
pay to each executive on retirement or termination of employment a benefit equal
to the difference between the amount of the Corporation's contributions to the
executive's individual RRSP plan and investment returns thereon and a pension
amount based upon such executive's years of service and salary averaged over the
highest consecutive 60 months of employment. The Plan credits the executives
with services from 1998. All of the executives in the Plan were employed by the
Corporation prior to 1998. The aggregate accrued benefit obligations under the
Plan for services for the six year period from January 1, 1998 to December 31,
2003 were $465,260 ($233,520 Anthony Walsh, $118,489 Brian Labadie, $75,716
Stephen Quin, $34,585 David Long, $2,949 Elaine Bennett). The Plan obligations
are not funded by the Company until retirement or termination and therefore the
Plan had a deficit at December 31, 2003 of $465,260.
Risk Factors
Gold Price Volatility
31.
The profitability of the Corporation's operations is significantly affected by
changes in the gold price. The gold price can fluctuate widely and is affected
by numerous factors beyond the Corporation's control, including industrial and
jewellery demand, inflation and expectations with respect to the rate of
inflation, the strength of the Canadian and U.S. dollar, interest rates, gold
sales by central banks, forward sales by producers, global or regional political
or economical events, and production and cost levels in major gold producing
regions. In addition, the gold price is sometimes subject to rapid short term
changes because of speculative activities. The supply of gold consists of a
combination of new production from mining and existing stocks of bullion and
fabricated gold held by governments, public and private financials institutions,
industrial organizations and private individuals. As the amounts produced in any
single year constitute a small portion of the total potential supply of gold,
annual variations in production do not necessarily have a significant impact on
the supply of gold or its price
Foreign Currency Exposure
All of the Corporation's revenues from sales of gold are denominated in US
dollars. The Corporation has sold forward contracts for gold in Canadian dollars
to hedge against changes in currency. The Corporation monitors the economic
environment, including foreign exchange rates, on an ongoing basis. In order to
manage its exposure to currency fluctuations, the Corporation periodically
enters into currency forward sales to establish fixed exchange rates.
Gold Refining, Sales and Hedging Activities
To mitigate the risk of adverse price fluctuations and to ensure that the
Yellowknife operations achieve cash flow projections necessary to complete the
planned closure and in accordance with the hedging policy authorized by the
Corporation's board of directors, the Corporation has entered into spot deferred
forward sales contracts and written call options for a portion of the
Yellowknife mines' expected future production. This is in part because the
mining operations have been historically high cost and the mines are not
considered core assets. The Corporation hedged Canadian dollars when the
Canadian dollar was weak. The Corporation does not hold these financial
instruments for speculative or trading purposes and the Corporation is not
subject to any margin requirements on any of its hedging lines.
On July 11, 2002, the Corporation completed a transaction with the financial
institution holding the gold forward contracts and the gold call options to
revise the delivery schedule for a portion of the hedge position and recalculate
pricing based on interest rates at the time of the transaction. As at December
31, 2003, the Corporation the following remaining gold contracts:
AVERAGE PRICE ANTICIPATED FAIR VALUE
OUNCES PER OUNCE DELIVERY/ IN C$000
EXPIRY
------------------------------------------------
Gold forward sales contracts 19,800 $478 2004 ($1,270)
Gold call options sold 36,000 $478 2004 ($2,596)
There are no margin restrictions in any of the trading agreements relating to
these gold contracts. However, the Corporation is in breach of certain financial
covenants contained in the trading agreement relating to these contracts as a
result of the closure of the Con Mine. The financial institution has agreed to
modify the affected covenants for a period of time which the Corporation
believes is adequate to comply with the covenants. As a result of the
termination of underground mining at the Con Mine, forecast gold production is
expected to be insufficient to meet all of the remaining obligations as
described in the table above. The Corporation plans to continue to deliver all
available production into these contracts and financially settle those contracts
32.
for which no production is available before the end of December 2004. The
Corporation has recorded an unrealized loss of $1.7 million for the forecast
settlements.
Environmental
The Corporation has been granted various licences and permits relating to the
operation of the Con and Giant mines and the exploration activities at the Hope
Bay Project. As a condition of these licences and permits, the Corporation has
an obligation to reclaim and restore areas of operation and disturbance to
acceptable standards as established by the responsible government agencies.
Under the terms of various permits and licences, the Corporation has established
cash collateral security deposits totalling $6.3 million ($3.8 million in 2001).
For the Con Mine, Con Ltd. has pledged the proceeds from the Bluefish Note as
security for the annual increments (see "Con Mine - Mining Operations"). As a
condition of the acquisition of the Giant Mine, Giant Ltd. issued promissory
notes totalling $4.8 million as security against the reclamation costs of the
Giant Mine. These promissory notes are secured solely by the assets of the Giant
Mine and are due from Giant Ltd. only upon default of the Giant Mine water
licence.
Permitting
The Corporation's subsidiaries currently have permits to operate the Con Mine
and Giant Mine. Production from any deposit at the Hope Bay Project, including
the Doris North Project, or at the George Lake and Goose Lake projects will be
subject to permitting requirements. There can be no assurance that any required
permits will be obtained in a timely manner or at all, or that they will be
obtained without conditions which would prohibit development.
Competition
The Corporation competes with other mining companies for the acquisition of
mineral claims, permits, concessions and other mineral concessions as well as
for the recruitment and retention of qualified employees. There is significant
competition for the limited number of gold acquisition opportunities and, as a
result, the Corporation may be unable to acquire attractive gold mining
properties on terms it considers acceptable.
Production Estimates
Estimates of future production for the Giant Mine are derived from the
Corporation's mining plans. The plans are developed based on, among other
things, mining experience, reserve estimates, assumptions regarding ground
conditions and physical characteristics of ores (such as harness and presence or
absence of certain metallurgical characteristics) and estimated rates and costs
of production. Actual production may vary from estimates for a variety of
reasons, including risks and hazards of the types discussed previously, actual
ore mined varying from estimates in grade and metallurgical and other
characteristics, mining dilution, wall failures or cave-ins, strike and other
actions by labour at unionized locations, restriction imposed by government
agencies and other factors. Estimates of production from properties not yet in
production or from operations that are to be extended are based on similar
factors (including in some instances, feasibility studies prepared by the
Corporation or external consultants) but it is possible that actual cash
operating costs and economic return will differ significantly from those
currently estimated. It is not unusual in new mining operations to experience
unexpected problems during the start-up phase. Delays often can occur in the
commencement of production.
Aboriginal Land Claims
Negotiations are ongoing between the Federal Government of Canada and various
native groups relating to aboriginal land claims in the Northwest Territories.
The Corporation is not aware of any aboriginal land claims having been made or
33.
threatened in relation to the Con Mine or the Giant Mine. Based on indications
from the Federal Government, the Corporation is of the view that it is unlikely
that any such claims will affect the Con Mine or the Giant Mine. However, there
can be no assurance that such aboriginal land claims will not be brought in the
future in relation to, or that may affect, the Con Mine or the Giant Mine.
Aboriginal land claims in Nunavut were settled by the creation of the territory
of Nunavut. A number of the Corporation's interests in the Hope Bay Project are
held directly with the relevant aboriginal representative bodies with the
remainder being issued by the relevant department of the Federal Government of
Canada.
Speculative Nature of Gold Exploration and Uncertainty of Development Projects
Gold exploration is highly speculative in nature, involves many risks and
frequently is not productive. There can be no assurance that the Corporation's
gold exploration efforts will be successful. Success in increasing reserves is
the result of a number of factors, including the quality of a Company's
management, its level of geological and technical expertise, the quality of land
available for exploration and other factors. Once gold mineralization is
discovered, it may take several years in the initial phases of drilling until
production is possible, during which time the economic feasibility of production
may change. Substantial expenditures are required to establish proven and
probable reserves through drilling, to determine the optimal metallurgical
process to extract the metals from the ore and, in the case of new properties,
to construct mining and processing facilities. As a result of these
uncertainties, no assurance can be given that the Corporation's exploration
programs will result in the expansion or replacement of current reserves with
new reserves.
Development projects have no operating history upon which to base estimates of
future cash operating costs. Particularly for development projects, estimates of
proven and probable reserves and cash operating costs are, to a large extent,
based upon the interpretation of geologic data obtained from drill holes and
other sampling techniques, and feasibility studies which derive estimates of
cash operating costs based upon anticipated tonnage and grades of ore to be
mined and processed, the configuration of the ore body, expected recovery rates
of gold from the ore, estimated operating costs, anticipated climatic conditions
and other factors. As a result, it is possible that actual cash operating costs
and economic returns will differ significantly from those currently estimated
for a project prior to production. It is not unusual in new mining operations to
experience unexpected problems during the start-up phase, and delays often can
occur in the commencement of production.
Mining/Operations Risks
The business of gold mining is subject to a number of risks and hazards
including environmental hazards, industrial accidents, labour disputes,
encountering unusual or unexpected geologic formation or other geological or
grade problems, unanticipated changes in metallurgical characteristics and gold
recovery, encountering unanticipated ground or water conditions, cave-ins, pit
wall failures, flooding, rock bursts, periodic interruptions due to inclement or
hazardous weather conditions, and other acts of God or unfavourable operating
conditions and bullion losses. Such risks could result in damage to, or
destruction of mineral properties or processing facilities, personal injury or
death, loss of key employees, environmental damage, delays in mining, monetary
losses and possible legal liability.
Risks of Non-Availability of Insurance
Where considered practical to do so, the Corporation maintains insurance against
risks in the operation of its business in amounts which it believes to be
reasonable. Such insurance, however, contains exclusions and limitations on
coverage. There can be no assurance that such insurance will continue to be
available, will be available at economically acceptable premiums or will be
34.
adequate to cover any resulting liability. In some cases, coverage is not
available or considered too expensive relative to the perceived risk.
Dilution
There are a number of outstanding securities and agreements pursuant to which
Common Shares of the Corporation may be issued in the future. This would result
in further dilution to the Corporation's shareholders.
Additional Funding Requirements
Although the Corporation currently has sufficient financial resources to
undertake its presently planned exploration and development program, further
exploration on, and development of, the Corporation's mineral resource
properties in Nunavut will require additional capital. In addition, a positive
production decision on the Doris North Project would require capital for project
engineering and construction. Accordingly, the continuing development of the
Doris North Project will depend upon the Corporation's ability to obtain
financing on reasonable terms. There is no assurance the Corporation will be
successful in obtaining the required financing.
Title Matters
While the Corporation has investigated title to all of its mineral claims and,
to the best of its knowledge, title to all such properties is in good standing,
the properties may be subject to prior unregistered agreements or transfers and
title may be affected by undetected defects.
Reserves and Resources
The proven and probable reserve figures set forth in this AIF are estimates and
there is no certainty that the indicated levels of gold production will be
realized. Reserve estimates may require revision based on various factors such
as actual production experience, market price fluctuation of gold, production
costs or recovery rates. Mineral resources which are not mineral reserves do not
have demonstrated economic viability. All reserve and resource estimates
included herein are in accordance with NI 43-101.
Note to U.S. Readers: The terms "Mineral Reserve," "Proven Mineral Reserve" and
"Probable Mineral Reserve" used in this AIF are Canadian mining terms as defined
in accordance with NI 43-101 under the guidelines set out in the Canadian
Institute of Mining, Metallurgy and Petroleum (the "CIM") Standards on Mineral
Resources and Mineral Reserves Definitions and guidelines adopted by the CIM
Council on August 20, 2000.
In the United States, a mineral reserve is defined as a part of a mineral
deposit which could be economically and legally extracted or produced at the
time the mineral reserve determination is made. Under United States standards:
"Reserve" means that part of a mineral deposit which can be economically and
legally extracted or produced at the time of the reserve determination.
"Economically," as used in the definition of reserve, implies that profitable
extraction or production has been established or analytically demonstrated to be
viable and justifiable under reasonable investment and market assumptions.
"Legally," as used in the definition of reserve, does not imply that all permits
needed for mining and processing have been obtained or that other legal issues
have been completely resolved. However, for a reserve to exist, there should be
35.
a reasonable certainty based on applicable laws and regulations that issuance of
permits or resolution of legal issues can be accomplished in a timely manner.
Mineral Reserves are categorized as follows on the basis of the degree of
confidence in the estimate of the quantity and grade of the deposit.
Proven Mineral Reserve means, in accordance with CIM Standards, for the part of
a deposit which is being mined, or which is being developed and for which there
is a detailed mining plan, the estimated quantity and grade or quality of that
part of a measured mineral resource for which the size, configuration and grade
or quality and distribution of values are so well established, and for which
economic viability has been demonstrated by adequate information on engineering,
operating, economic and other relevant factors, so that there is the highest
degree of confidence in the estimate.
The definition for "proven mineral reserves" CIM standards differs from the
standards in the United States, where proven or measured reserves are defined as
reserves which (a) quantity is computed from dimensions revealed in outcrops,
trenches, workings or drill holes; (b) grade and/or quality are computed from
the results of detailed sampling and (c) the sites for inspection, sampling and
measurement are spaced so closely and the geographic character is so well
defined that size, shape, depth and mineral content of reserves are well
established.
Probable Mineral Reserve: means, in accordance with CIM Standards, the estimated
quantity and grade or quality of that part of an indicated mineral resource for
which economic viability has been demonstrated by adequate information on
engineering, operating, economic and other relevant factors, at a confidence
level which would serve as a basis for decisions on major expenditures.
The definition for "probable mineral reserves" under Canadian standards differs
from the standards in the United States, where probable mineral reserves are
defined as reserves for which quantity and grade and/or quality are computed
from information similar to that of proven reserves (under United States
standards), but the sites for inspection, sampling, and measurement are further
apart or are otherwise less adequately spaced, and the degree of assurance,
although lower than that for proven mineral reserves, is high enough to assume
continuity between points of observation. The degree of assurance, although
lower than that for proven mineral reserves, is high enough to assume continuity
between points of observation.
The terms "Mineral Resource", "Measured Mineral Resource", "Indicated Mineral
Resource", "Inferred Mineral Resource" used in this report are Canadian mining
terms as defined in accordance with NI 43-101 under the guidelines set out in
the CIM Standards.
Inferred Mineral Resource: Under CIM Standards, an Inferred Mineral Resource is
that part of a Mineral Resource for which quantity and grade or quality can be
estimated on the basis of geological evidence and limited sampling and
reasonably assumed, but not verified, geological and grade continuity. The
estimate is based on limited information and sampling gathered through
appropriate techniques from locations such as outcrops, trenches, pits, workings
and drill holes.
Indicated Mineral Resource: Under CIM Standards, an Indicated Mineral Resource
is that part of a Mineral Resource for which quantity, grade or quality,
densities, shape and physical characteristics, can be estimated with a level of
confidence sufficient to allow the appropriate application of technical and
economic parameters, to support mine planning and evaluation of the economic
viability of the deposit. The estimate is based on detailed and reliable
exploration and testing information gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill holes that are
spaced closely enough for geological and grade continuity to be reasonably
assumed.
36.
Measured Mineral Resource: Under CIM standards is that part of a mineral
resource for which quantity, grade or quality, densities, shape and physical
characteristics are so well established that they can be estimated with
confidence sufficient to allow the appropriate application of technical and
economic parameters, to support production planning and evaluation of the
economic viability of the deposit. The estimate is based on detailed and
reliable exploration, sampling and testing information gathered through
appropriate from locations such as outcrops, trenches, pits, workings and drill
holes that are spaced closely enough to confirm both geological and grade
continuity.
While the terms "mineral reserve", "proven mineral reserve", "probable mineral
reserve", "mineral resource," "measured mineral resource," "indicated mineral
resource," and "inferred mineral resource" are recognized and required by
Canadian regulations, they are not defined terms under standards in the United
States. As such, information contained in this report concerning descriptions of
mineralization and resources under Canadian standards may not be comparable to
similar information made public by U.S. companies subject to the reporting and
disclosure requirements of the Securities and Exchange Commission. "Indicated
mineral resource" and "inferred mineral resource" have a great amount of
uncertainty as to their existence and a great uncertainty as to their economic
and legal feasibility. It can not be assumed that all or any part of an
"indicated mineral resource" or "inferred mineral resource" will ever be
upgraded to a higher category. Investors are cautioned not to assume that any
part or all of mineral deposits in these categories will ever be converted into
reserves.
SUPPLEMENTARY INFORMATION
The Corporation will provide to any person, upon request to the Secretary of the
Corporation:
(a) when the securities of the Corporation are in the course of a
distribution under a preliminary short form prospectus or a short form
prospectus;
(i) one copy of this AIF, together with one copy of any document, or
the pertinent pages of any document, incorporated by reference in
this AIF;
(ii) one copy of the comparative financial statements of the
Corporation for its most recently completed financial year for
which financial statements have been filed together with the
accompanying report of the auditor and one copy of the most
recent interim financial statements of the Corporation that have
been filed, if any, for any period after the end of its most
recently completed financial year;
(iii)one copy of the information circular of the Corporation in
respect of its most recent annual meeting of shareholders that
involved the election of directors or one copy of any annual
filing prepared in lieu of that information circular, as
appropriate; and
(iv) one copy of any other documents that are incorporated by
reference into the preliminary short form prospectus or the short
form prospectus and are not required to be provided under (i),
(ii) or (iii) above; or
(b) at any other time, one copy of any other document referred to in
(a)(i), (ii) and (iii) above, provided the Corporation may require the
payment of a reasonable charge if the request is made by a person who
is not a security holder of the Corporation.
Additional information including directors' and officers' remuneration and
indebtedness, principal holders of securities of the Corporation, options to
purchase securities and interests of insiders in material transactions, where
37.
applicable, is contained in the management information circular of the
Corporation for its most recent annual meeting of shareholders that involved the
election of directors. Additional financial information is provided in the
comparative financial statements of the Corporation for its most recently
completed financial year.
2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF MIRAMAR MINING CORPORATION
| Consolidated Financial Statements of |
| MIRAMAR MINING CORPORATION |
| For the years ended December 31, 2003 and 2002 |
AUDITORS’ REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Miramar Mining Corporation as at December 31, 2003 and 2002 and the consolidated statements of operations and deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2003 and 2002 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. As required by the Company Act (British Columbia) we report that, in our opinion, these principles have been applied on a consistent basis.
KPMG LLP
/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
February 27, 2004
5
MIRAMAR MINING CORPORATION
Consolidated Balance Sheets
(expressed in thousands of Canadian dollars, except per share
amounts)
As at December 31, 2003 and 2002
| 2003 | 2002 | ||||
|---|---|---|---|---|---|
| Assets | |||||
| Current assets: | |||||
| Cash and cash equivalents | $ 69,921 | $ 16,085 | |||
| Short-term investments | -- | 23,694 | |||
| Accounts receivable | 1,577 | 1,157 | |||
| Inventory (note 6) | 6,443 | 11,163 | |||
| Prepaid expenses | 554 | 162 | |||
| 78,495 | 52,261 | ||||
| Note receivable (note 4) | 9,592 | -- | |||
| Power credits receivable (note 4) | 4,345 | -- | |||
| Property, plant and equipment (note 7) | 134,906 | 128,732 | |||
| Cash collateral deposits (note 8) | 6,274 | 6,338 | |||
| Investment in Northern Orion Explorations Ltd. (note 3) | 10,112 | 15,173 | |||
| Investment in Sherwood Mining Corporation (note 5) | 294 | 803 | |||
| Other assets (note 9) | 100 | 116 | |||
| $ 244,118 | $ 203,423 | ||||
| Liabilities and Shareholders' Equity | |||||
| Current liabilities: | |||||
| Accounts payable and accrued liabilities | $ 9,537 | $ 10,905 | |||
| Deferred gain (note 4) | 4,345 | -- | |||
| Provision for site reclamation and closure costs | 9,831 | 9,142 | |||
| Deferred retirement benefits (note 12) | 84 | 1,833 | |||
| Future income tax liability (note 11) | 17,881 | 18,875 | |||
| 41,678 | 40,755 | ||||
| Shareholders' equity | |||||
| Share capital (note 10) | 371,079 | 313,808 | |||
| Contributed surplus | 744 | 688 | |||
| Deficit | (169,383 | ) | (151,828 | ) | |
| 202,440 | 162,668 | ||||
| $ 244,118 | $ 203,423 | ||||
Commitments and contingencies (note
16).
Subsequent events (note 10(c) and note 16 (g)).
See accompanying notes to consolidated financials statements.
ON BEHALF OF THE BOARD:
|
Anthony P. Walsh
Director |
David A. Fennell
Director |
6
MIRAMAR MINING CORPORATION
Consolidated Statements of Operations and Deficit
(expressed in thousands of Canadian dollars, except per share
amounts)
Years ended December 31, 2003 and 2002
| 2003 | 2002 | ||||
|---|---|---|---|---|---|
| Revenue | |||||
| Sale | $ 42,552 | $ 53,122 | |||
| Other income (note 4) | 4,325 | 945 | |||
| 46,877 | 54,067 | ||||
| Expenses | |||||
| Cost of sales | 45,857 | 41,262 | |||
| Depreciation and depletion | 4,517 | 6,381 | |||
| General and administration | 4,222 | 3,260 | |||
| Foreign exchange loss | 69 | 18 | |||
| Reclamation | 1,739 | 1,916 | |||
| Severances and closure (note 7) | 4,995 | -- | |||
| Write down of assets (note 7) | 7,780 | -- | |||
| 69,179 | 52,837 | ||||
| Earnings (loss) from operations before items noted below | (22,302 | ) | 1,230 | ||
| Equity loss | (509 | ) | (372 | ) | |
| Earnings (loss) before income taxes | (22,811 | ) | 858 | ||
| Income taxes: (note 11) | |||||
| Current | (436 | ) | (254 | ) | |
| Future | 5,692 | -- | |||
| 5,256 | (254 | ) | |||
| Earnings (loss) for the period | (17,555 | ) | 604 | ||
| Deficit, beginning of the year | (151,828 | ) | (152,432 | ) | |
| Deficit, end of the year | $ (169,383 | ) | $ (151,828 | ) | |
| Earnings (loss) per share, basic and diluted | $ (0.13 | ) | $ 0.01 | ||
| Weighted average number of common shares outstanding | 132,508,456 | 95,841,089 | |||
See accompanying notes to consolidated financial statements.
7
MIRAMAR MINING CORPORATION
Consolidated Statements of Cash Flows
(expressed in thousands of Canadian dollars, except per share
amounts)
Years ended December 31, 2003 and 2002
| 2003 | 2002 | ||||
|---|---|---|---|---|---|
| Cash provided by (used in): | |||||
| Operations | |||||
| Earnings (loss) for the year | $(17,555 | ) | $ 604 | ||
| Items not involving cash: | |||||
| Depreciation and depletion | 4,517 | 6,381 | |||
| Gain on sale of assets | (45 | ) | (98 | ) | |
| Write-down of assets | 7,780 | -- | |||
| Reclamation | 689 | 530 | |||
| Equity loss | 509 | 372 | |||
| Future income tax | (5,692 | ) | -- | ||
| Other | (256 | ) | 24 | ||
| Net change in non-cash working capital: | |||||
| Accounts receivable | (420 | ) | 784 | ||
| Inventory | 1,960 | (1,853 | ) | ||
| Prepaid expenses | (392 | ) | 28 | ||
| Accounts payable and accrued liabilities | (3,117 | ) | 1,253 | ||
| (12,022 | ) | 8,025 | |||
| Investments: | |||||
| Expenditures on plant, equipment and deferred exploration | (24,931 | ) | (18,158 | ) | |
| Investment in Hope Bay Gold Corporation, net of cash acquired (note 2) | -- | (2,317 | ) | ||
| Sale (purchase) of short term investments | 23,694 | (23,694 | ) | ||
| Net proceeds on sale of Northern Orion shares (note 3) | 5,062 | 3,822 | |||
| Collateral deposits | 64 | 156 | |||
| 3,889 | (40,191 | ) | |||
| Financing: | |||||
| Issue of common shares for cash | 61,969 | 34,758 | |||
| 61,969 | 34,758 | ||||
| Increase in cash and cash equivalents | 53,836 | 2,592 | |||
| Cash and cash equivalents, beginning of the year | 16,085 | 13,493 | |||
| Cash and cash equivalents, end of the year | $ 69,921 | 16,085 | |||
| Supplementary information | |||||
| Income taxes paid | $ 436 | 254 | |||
| Non-cash investing and financing activities | |||||
| Fair value of note receivable, received on sale of assets (note 4) | 9,267 | -- | |||
| Sale of assets (note 4) | 8,898 | -- | |||
| Common shares issued for acquisition of Hope Bay Gold (note 2) | -- | 49,843 | |||
| Common shares received for disposition of mineral property | -- | 98 | |||
See accompanying notes to consolidated financial statements.
8
MIRAMAR MINING CORPORATION
Notes to the Consolidated Financial Statements
(expressed in thousands of Canadian dollars)
Years ended December 31, 2003 and 2002
| 1. | Significant accounting policies: |
| (a) | Basis of preparation: |
| The consolidated financial statements include the accounts of Miramar Mining Corporation (the “Company”) and its material subsidiaries. Investments in entities when the Company’s interest is less than 20% are accounted for by the cost method from the date significant influence could no longer be applied. Investments in other entities are accounted for by the equity method. The Company’s subsidiaries and its percentage ownership in each at December 31, are as follows: |
| Miramar Con Mine Ltd. | 100 | .0% | |
| Miramar Giant Mine Ltd. | 100 | .0% | |
| Miramar Hope Bay Ltd. | 100 | .0% | |
| Miramar Gold Corporation | 100 | .0% | |
| Orcana Resources Corporation | 100 | .0% | |
| Talapoosa Mining Corp. | 100 | .0% | |
| The preparation of financial statements requires management to make estimates that affect the reported values of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates relate to the determination of impairment of assets, reclamation and closure obligations, assumptions used in determining stock-based compensation, future income taxes and rates for amortization of property, plant and equipment. Actual results could differ from these estimates. |
| (b) | Cash and cash equivalents: |
| Cash and cash equivalents include investments with terms to maturity of 90 days or less when purchased. |
| (c) | Short-term investments: |
| Short-term investments with terms to maturity of greater than 90 days but not more than one year are recorded at the lower of cost and market determined on an aggregate portfolio basis. |
| (d) | Revenue recognition and inventory: |
| Revenue is recognized on production and product inventories are recorded at estimated net realizable value. Materials and supplies inventories are valued at average cost less appropriate allowances for obsolescence. |
| (e) | Property, plant and equipment: |
| Property, plant and equipment, which includes mine plant and equipment and mineral properties, is recorded at the lower of cost and estimated net recoverable amount. Buildings and equipment are depreciated over their estimated useful lives, not to exceed the estimated proven and probable ore reserves. Mining equipment and vehicles are depreciated on a straight-line basis over estimated useful lives of two to 15 years. Prior to their disposition, hydro-electric assets were depreciated on a straight-line basis over 95 years. Office furniture and computer equipment are depreciated using the declining balance method at 20% and 30%, respectively. The cost of mineral properties and related exploration and development costs are deferred until the properties are placed into production, sold or abandoned. Capitalized costs are amortized over the estimated useful life of the properties following the commencement of production or written off if the properties are sold, allowed to lapse or abandoned. It is management’s policy to review the carrying value of all mineral properties on an ongoing basis. |
9
MIRAMAR MINING CORPORATION
Notes to the Consolidated Financial Statements
(expressed in thousands of Canadian dollars)
Years ended December 31, 2003 and 2002
| (f) | Provision for site reclamation and closure costs: |
| Costs related to ongoing site restoration programs are expensed as incurred. Estimated costs of mine closure and site restoration are accrued and expensed over the estimated remaining life of the mineral properties on a unit-of-production basis. Estimates of the ultimate site reclamation and closure costs are based on current laws and regulations and expected costs to be incurred. |
| (g) | Pension expenses and obligation: |
| The Company maintains defined benefit pension plans and provides certain non-pension post-retirement benefits consisting of extended health and other benefits. The cost of providing pension and other post-retirement benefits is actuarially determined and charged to earnings using the projected unit credit actuarial method based upon management’s best estimate assumptions. Pension fund assets are valued at fair value. The pension expense for the year includes adjustments for plan amendments, experience gains and losses, and changes in assumptions that are being amortized on a straight-line basis over the expected average remaining service lives of the plan members. Any differences between the cumulative amounts expensed and the funding contributions are reflected as either an asset or a liability. |
| (h) | Stock-based compensation plan: |
| The Company’s has a stock-based compensation plan which is described in note 10 (c). On May 28, 2002, the Company retroactively to January 1, 2002 removed the stock appreciation rights of all outstanding employee stock options. The Company accounts for all stock-based payments to non-employees, and employee awards that are direct awards of stock, call for settlement in cash or other assets, or are stock appreciation rights that call for settlement by the issuance of equity instruments, granted on or after January 1, 2002, using the fair value based method. No compensation cost is recorded for all other stock-based employee compensation awards. Consideration paid by employees on the exercise of stock options is recorded as share capital and contributed surplus. The Company discloses the pro forma effect of accounting for these awards under the fair value based method. |
| Under the fair value based method, stock-based payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable. The fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete, and any change therein is recognized over the period and in the same manner as if the Company had paid cash instead of paying or using equity instruments. The cost of stock-based payments to non-employees that are fully vested and non-forfeitable at the grant date is measured and recognized at that date. |
| Under the fair value based method, compensation cost attributable to awards to employees that call for settlement by the issuance of equity instruments, is measured at fair value at the grant date and recognized over the vesting period. Compensation cost attributable to awards to employees that call for settlement in cash or other assets is measured at intrinsic value and recognized over the vesting period. Changes in intrinsic value between the grant date and the measurement date result in a change in the measurement of compensation cost. For awards that vest at the end of the vesting period, compensation cost is recognized on a straight-line basis; for awards that vest on a graded basis, compensation cost is recognized on a pro-rata basis over the vesting period. |
10
MIRAMAR MINING CORPORATION
Notes to the Consolidated Financial Statements
(expressed in thousands of Canadian dollars)
Years ended December 31, 2003 and 2002
| (i) | Translation of foreign currency: |
| The accounts of foreign operations are translated into Canadian dollars as follows: |
| • | monetary assets and liabilities at the rates of exchange prevailing at the balance sheet date |
| • | other assets and liabilities at applicable historical exchange rates |
| • | revenues and expenses at the average rate of exchange for the period covering the statement of operations except for expenses related to non-monetary assets which are at the rates used for the translation of the related assets. |
| Translation gains and losses are included in earnings. |
| (j) | Derivative financial instruments: |
| The Company uses forward sales agreements and options for the purpose of managing price and currency exposures on its anticipated gold sales. The Company assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective. Gains and losses relating to such instruments are recorded in income the same period as gold is produced to meet the hedged commitment. Realized and accumulated unrealized gains or losses associated with derivative instruments which have been terminated or cease to be effective prior to maturity, are deferred under other current, or non-current, assets or liabilities on the balance sheet and recognized in income in the period in which the underlying transaction is recognized. In the event a designated hedged item is sold, extinguished or matures prior to the termination of the related derivative instrument, any realized or unrealized gain or loss on such derivative instrument is recognized in income at that time. The fair value charges in ineffective hedges is recognized in the statement of operations due to its nature. |
| The Company sells written call options. For written call options sold subsequent to October 24, 2000, the premiums received at the inception of the written call options are recorded as a liability. Changes in the fair value of the liability are recognized in the statement of operations at each reporting period. For written call options sold prior to October 24, 2000 changes in fair value are recognized in the statement of operations when settled. |
| (k) | Income taxes: |
| The Company uses the asset and liability method of accounting for future income taxes. Under the asset and liability method, future income tax assets and liabilities are determined based on differences between the financial statement carrying values of existing assets and liabilities and their respective income tax bases (temporary differences) and loss carryforwards. Future income tax assets and liabilities are measured using the substantively enacted tax rates expected to be in effect when the temporary differences are likely to reverse. The effect on future income tax assets and liabilities of a change in tax rates is included in the results of operations in the period in which the change is substantively enacted. Future income tax assets also result from unused loss carry forwards, resource related pools and other deductions. The amount of future tax assets recognized is limited to the amount that management considers more likely than not to be realized. |
| (l) | Net earnings (loss) per share: |
| Basic earnings (loss) per share is calculated by dividing earnings (loss) available to common shareholders by the weighted average number of common shares outstanding in the period. For all periods presented, earnings (loss) available to common shareholders equals the reported earnings (loss). Diluted earnings (loss) per share is calculated by the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding for the calculation of diluted earnings (loss) per share assumes that the proceeds to be received |
11
MIRAMAR MINING CORPORATION
Notes to the Consolidated Financial Statements
(expressed in thousands of Canadian dollars)
Years ended December 31, 2003 and 2002
| on the exercise of dilutive stock options are applied to repurchase common shares at the average market price for the period. |
| For the year ended December 31, 2003, diluted loss per share is the same as basic loss per share as the affect of the outstanding options and warrants would be anti-dilutive. |
| (m) | Comparative figures: |
| Certain of the prior year comparative figures have been restated to conform to the presentation adopted for the current year. |
| 2. | Acquisition of Hope Bay Gold |
| On May 23, 2002, the Company acquired Hope Bay Gold Corporation (“Hope Bay Gold”). Under the terms of the agreement, the Company issued 39,464,430 common shares to shareholders of Hope Bay Gold on the basis of 0.263 shares of the Company for each one Hope Bay Gold share outstanding at April 4, 2002. In addition, the Company issued 2,353,850 stock options and 3,923,872 share purchase warrants as outlined in notes 10 (c) and 10 (d). In 2002 during the period prior to acquisition, the Company loaned Hope Bay Gold approximately $2.5 million, which was used to fund its requirements for the Hope Bay project and to pay general corporate costs. |
| The fair value of the common shares and warrants and stock options to be issued by the Company was determined based on the average closing price of the Company’s stock at the time the terms of the acquisition were agreed to and announced. The assets acquired and liabilities assumed of Hope Bay Gold have been recorded at their fair values at the acquisition date as follows: |
| Fair value of net assets acquired: | |||
| Current assets | $ 1,013 | ||
| Equipment | 42 | ||
| Investment in Sherwood Mining Corporation | 838 | ||
| Resource properties | 64,690 | ||
| Reclamation deposits | 1,804 | ||
| 68,387 | |||
| Less: | |||
| Current liabilities | 3,854 | ||
| Reclamation liability | 650 | ||
| Future income taxes | 12,140 | ||
| Fair Value of Net Assets Acquired | $51,743 | ||
| Consideration: | |||
| Share consideration | $49,173 | ||
| Acquisition costs | 1,900 | ||
| Stock options and warrants | 670 | ||
| Total Consideration: | $51,743 | ||
12
MIRAMAR MINING CORPORATION
Notes to the Consolidated Financial Statements
(expressed in thousands of Canadian dollars)
Years ended December 31, 2003 and 2002
| 3. | Investment in Northern Orion Explorations Ltd.: |
| During the year ended December 31, 2002, unrelated option holders exercised an option granted by the Company to acquire 48 million shares of Northern Orion Explorations Ltd. (“Northern Orion”) and Northern Orion convertible notes having a face value of $6.9 million for a total purchase price of $3.84 million. As a result of this transaction, the Company ceased equity accounting for its interest in Northern Orion as of June 30, 2002. |
| At January 1, 2003, the Company had 22 million shares of Northern Orion, which represents approximately 11.7% of Northern Orion and a net proceeds interest royalty (“NPI”) in certain Northern Orion mineral properties which it acquired pursuant to a restructuring agreement with Northern Orion. The NPI entitles the Company to receive the economic equivalent of a 2.5% net smelter return on certain of Northern Orion’s mineral properties as well as 50% of the proceeds from the disposition of certain Northern Orion mineral properties, all to a maximum of $15 million. During the year ended December 31, 2003, Northern Orion consolidated its shares on a one-for-ten basis. Also during 2003, the Company sold a total of 1.7 million shares of Northern Orion for gross proceeds of $5.1 million. The Company has recorded the proceeds as a reduction of the carrying values of its interests in Northern Orion. Recovery of the remaining carrying value of the combined investment amounting to $10.1 million is dependant upon the sale of Northern Orion shares and receipt of net proceeds from eventual production from the properties or their sale by Northern Orion. |
| 4. | Sale of Bluefish: |
| On April 4, 2003, the Company completed the sale of the Bluefish hydroelectric power plant (“Bluefish”) to Northwest Territories Power Corporation. Bluefish is a 7.0 mega volt-ampere hydroelectric power generating facility, located 25 miles northwest of Yellowknife, which supplies power to the Company’s Con mine. Sale consideration included a non-interest bearing note for $10 million payable on December 31, 2004, the supply of power to the Con mine, free of charge, equal to the historic generation profile of Bluefish until December 31, 2004 (note 16 (b)) and the supply of power to the Con mine, free of charge, at an annual rate of 5 million kilowatts and 18,000 kilo volt-ampere of demand for a five year period from 2005 to 2009, (the “power credits”). The $10 million note receivable and the power credits were recorded at their fair values of $9.3 million and $7.0 million respectively. In addition, the Company recorded a deferred gain of $7.0 million relating to the fair value consideration of the power credits. As the power credits are consumed, the Company recognizes a corresponding gain in the statement of operations. During the year ended December 31, 2003, approximately $2.7 million of the fair value of the power credits was consumed and has been recorded in cost of sales and a corresponding $2.7 million gain has been recorded in other income. |
| For accounting purposes, the note receivable on the sale of Bluefish will be accreted to its face value of $10 million over the period to its maturity. During 2003, the Company accreted interest of approximately $0.3 million which has been recorded in other income. |
| 5. | Investment in Sherwood Mining Corporation: |
| As a result of the acquisition of Hope Bay Gold in May 2002 (note 2), the Company holds 40.21% of Sherwood Mining Corporation (“Sherwood”) and commenced equity accounting in June 2002. The Company supplied services on a cost recovery basis to Sherwood totaling $123,526 (2002 – $916,341) during the year ended December 31, 2003. As at December 31, 2003, the Company had received advances of $9,496 (2002 – $133,022) related to the planned exploration program in 2003. |
13
MIRAMAR MINING CORPORATION
Notes to the Consolidated Financial Statements
(expressed in thousands of Canadian dollars)
Years ended December 31, 2003 and 2002
| 6. | Inventory: |
| 2003 | 2002 | ||||
|---|---|---|---|---|---|
| Gold and silver | $ 2,774 | $ 4,074 | |||
| Materials and supplies (note 7) | 3,669 | 7,089 | |||
| $ 6,443 | $11,163 | ||||
| 7. | Property, plant and equipment: |
| 2003 | 2002 | ||||
|---|---|---|---|---|---|
| Producing: | |||||
| Property, plant and equipment | $ 55,478 | $ 77,064 | |||
| Deferred exploration and development | 51,367 | 52,584 | |||
| Accumulated depreciation, depletion and write-downs | (101,029 | ) | (109,846 | ) | |
| 5,816 | 19,802 | ||||
| Non-Producing: | |||||
| Property, plant and equipment | 2,199 | 1,977 | |||
| Mineral properties | 127,937 | 107,983 | |||
| Accumulated depreciation and depletion | (1,046 | ) | (1,030 | ) | |
| 129,090 | 108,930 | ||||
| $ 134,906 | $ 128,732 | ||||
| In the second quarter of 2003, the Company recorded a write down of $7.3 million to reflect the revised forecast of cash flow from its Con Mine operations reducing capital assets for the Con Mine by $5.0 million and supplies inventory by $2.3 million. In addition, the Company increased the provision for reclamation and site closure for the Con Mine by $0.5 million to reflect the lower number of gold ounces expected to be produced over the remaining life of the mine. On August 25, 2003, the Company made the decision to terminate mining from its underground operations at the Con Mine in November 2003. As a result of this decision, severance and closure costs of approximately $5.0 million were incurred and paid in the year ended December 31, 2003. These costs relate to severance payments made to employees as well as unrealized gold forward contract losses resulting from reduced gold production forecast impact on the assessment of hedge effectiveness. Mining will continue from the Giant Mine and ore will continue to be processed at the Con Mine milling facility. In the fourth quarter, the Company recorded a further write down of $0.5 million on supplies inventory. |
14
MIRAMAR MINING CORPORATION
Notes to the Consolidated Financial Statements
(expressed in thousands of Canadian dollars)
Years ended December 31, 2003 and 2002
| 8. | Cash collateral deposits: |
| The Company has established the following cash deposits with chartered banks to serve as collateral for letters of credit pledged in favour of various governmental agencies and others under several water licenses and mineral exploration and mining agreements. The deposits are invested in guaranteed investment certificates and bear interest at market rates. These funds will be returned to the Company upon completion of reclamation of the properties to which they relate. |
| 2003 | 2002 | ||||
|---|---|---|---|---|---|
| Con Mine water license (note 16(d)) | $1,500 | $1,500 | |||
| Bluefish water license | 100 | 100 | |||
| Giant Mine water license | 200 | 200 | |||
| Con Mine road permit | 50 | 50 | |||
| Golden Eagle reclamation | 341 | 405 | |||
| Talapoosa reclamation | 233 | 233 | |||
| Hope Bay water licenses and land permits | 3,850 | 3,850 | |||
| $6,274 | $6,338 | ||||
| 9. | Other assets: |
| 2003 | 2002 | ||||
|---|---|---|---|---|---|
| Investments | $100 | $106 | |||
| Other | -- | 10 | |||
| $100 | $116 | ||||
| 10. | Share capital: |
| (a) | Authorized: |
| 500, common shares without par value. |
| (b) | Issued: |
| Common shares | Special warrants | ||||||||
|---|---|---|---|---|---|---|---|---|---|
|
Number of shares |
Amount |
Number of shares |
Amount | ||||||
| Balance December 31, 2001 | 61,009,783 | $ 230,463 | 2,290,215 | $ 2,700 | |||||
| Issued: | |||||||||
| Common shares, net of issue costs | 19,973,365 | 34,501 | |||||||
| Conversion of special warrants into common shares | 2,290,215 | 2,700 | (2,290,215 | ) | (2,700 | ) | |||
| Future income tax effect of flow-through shares | -- | (3,286 | ) | ||||||
| Common shares issued for acquisition of Hope Bay Gold (note 2) | 39,369,688 | 49,055 | |||||||
| Common shares to be issued for acquisition of Hope Bay Gold | 94,742 | 118 | |||||||
| On exercise of warrants | 19,282 | 26 | |||||||
| On exercise of stock appreciation rights | 138,598 | -- | |||||||
| On exercise of stock options | 248,000 | 231 | |||||||
15
MIRAMAR MINING CORPORATION
Notes to the Consolidated Financial Statements
(expressed in thousands of Canadian dollars)
Years ended December 31, 2003 and 2002
| Common shares | Special warrants | ||||||||
|---|---|---|---|---|---|---|---|---|---|
|
Number of shares |
Amount |
Number of shares |
Amount | ||||||
| Balance, December 31, 2002, carried forward | 123,143,673 | 313,808 | -- | $ -- | |||||
| Issued: | |||||||||
| Common shares, net of costs | 25,923,574 | 58,598 | |||||||
| Future income tax effect of flow-through shares | -- | (4,698 | ) | ||||||
| On exercise of warrants | 724,946 | 1,090 | |||||||
| On exercise of stock options | 1,842,700 | 2,281 | |||||||
| Balance December 31, 2003 | 151,634,893 | $ 371,079 | -- | $ -- | |||||
| On March 11, 2002, the Company completed a private placement of 2,666,666 flow-through common shares at a price of $1.50 per common share. The agent for the flow though share offering received commissions of $260,000 on closing and an option to purchase 186,666 common shares at $1.50 per share that expires on March 11, 2004 of which 133,962 were exercised. The fair value of these options at the grant date was $30,000 and has been shown on a net basis in share capital. |
| On June 20, 2002, the Company completed a private equity placement consisting of 12,500,000 units at a price of $2.00 per unit plus 2,500,000 flow-through common shares at a price of $2.00 per share for gross proceeds of $30, through a syndicate of underwriters. Each unit consists of one common share and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $2.50 until June 20, 2003 which expired unexercised. The syndicate of underwriters received a 6% commission totalling $1,800,000 on closing and an option to purchase 900,000 common shares at $2.03 per share until June 20, 2003 which expired unexercised. The fair value of these options at the grant date was $125,000 and has been recorded on a net basis in share capital. |
| On December 19, 2002, the Company completed a private placement of 2,306,699 flow-through common shares at a price of $1.50 per common share. The agent for the flow-though share offering received commissions of $192,000 on closing and an option to purchase 128,000 common shares at $1.50 per share that expired on December 19, 2003 which was exercised prior to expiry. The fair value of these options at the grant date was $33,000 and has been recorded on a net basis in share capital. |
| On June 25, 2003, the Company completed a private placement of 3,572,000 flow-through common shares at a price of $2.10 per common share. The Company must incur Canadian exploration expenditures as defined in the Income Tax Act (Canada) in the amount of $7,501,200 by December 31, 2004. The underwriter for the flow-though share offering received commissions of $437,850 on closing and an option to purchase 208,500 common shares at $2.10 per share that expires on June 25, 2004. The fair value of these options at the grant date was $75,000 and has been shown on a net basis in share capital. |
| On August 14, 2003, the Company completed a public offering of 16,700,000 common shares at a price of $2.10 per share for gross proceeds of $35,070,000. The underwriters received commissions of $1,753,500 and an option to purchase 835,000 common shares at $2.10 per share that expires on February 14, 2005. The fair value of these options at the grant date was $410,000 and has been shown on a net basis in share capital. |
| On December 10, 2003, the Company completed a private placement of 4,151,574 flow-through common shares at a price of $3.65 per common share and 1,500,000 units at a price of $3.05 per unit for gross proceeds totalling $19,728,245. Each unit consisted of one common share and one-half of one common share purchase warrant. In consideration for their services the underwriters received $922,250 and broker warrants exercisable to purchase 265,000 |
16
MIRAMAR MINING CORPORATION
Notes to the Consolidated Financial Statements
(expressed in thousands of Canadian dollars)
Years ended December 31, 2003 and 2002
| 2005. common shares at $3.05 per common share until June 10, 2005. The fair value of these warrants at the grant date was $156,000 and has been shown on a net basis in share capital. The Company must incur Canadian exploration expenditures as defined in the Income Tax Act (Canada) in the amount of $15,153,245 by December 31, 2004. |
| (c) | Stock options: |
| Stock options are granted at the closing market price of the common shares on the last trading day before the date of grant. Options have a maximum term of ten years and usually terminate 30 days following the termination of the optionee’s employment. The vesting periods of stock options granted vary with terms determined by the Board of Directors. At December 31, the Company had stock options outstanding as follows: |
| 2003 | 2002 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
|
Shares options |
Average exercise price |
Shares options |
Average exercise price | ||||||
| Outstanding, beginning | |||||||||
| of year | 4,273,721 | $1.25 | 1,722,121 | $1.33 | |||||
| Granted | 1,730,318 | 1.94 | 1,009,500 | 1.24 | |||||
| Converted on acquisition of | |||||||||
| Hope Bay Gold (note 2) | -- | -- | 2,353,850 | 1.37 | |||||
| Exercised | (1,842,700 | ) | 1.24 | (577,000 | ) | 0.88 | |||
| Forfeited or expired | (54,000 | ) | 1.20 | (234,750 | ) | 3.99 | |||
| Outstanding, end of year | 4,107,339 | $1.54 | 4,273,721 | $1.25 | |||||
| During the year ended December 31, 2003, no compensation costs were recorded in the statement of operations for options granted to employees. Had compensation costs been determined using the fair value based method at the grant dates for awards under the Plan, the Company’s pro forma net earnings, earnings per share and fully diluted earnings per share would have been as follows: |
| 2003 | 2002 | ||||
|---|---|---|---|---|---|
| Pro forma earnings (loss) | $ (18,423 | ) | $ 204 | ||
| Pro forma earnings (loss) per share, basic and diluted | $ (0.14 | ) | $ 0.00 | ||
| The compensation costs reflected in these pro forma amounts were calculated using the Black-Scholes option pricing model assuming a risk-free interest rate of 4.3%, a dividend yield of 0%, an expected volatility of 55% and expected lives of stock options of 5 years. As at December 31, 2003, 3,807,339 options were fully vested and expire as follows: |
| Year | Number | Exercise price | |||
|---|---|---|---|---|---|
| 2004 | 158,000 | 1.30 | |||
| 2005 | 767,600 | 1.74 | |||
| 2006 | 1,403,521 | 1.16 | |||
| 2007 | 516,000 | 1.22 | |||
| 2008 | 962,218 | 1.96 | |||
| Subsequent to December 31, 2003, the Company granted 2,664,060 stock options at an average price of $3.10. |
17
MIRAMAR MINING CORPORATION
Notes to the Consolidated Financial Statements
(expressed in thousands of Canadian dollars)
Years ended December 31, 2003 and 2002
| (d) | Warrants and brokers compensation options: |
| At December 31, the Company had warrants and brokers compensation options outstanding as follows: |
| 2003 | 2002 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
|
Warrants and options |
Average exercise price |
Warrants and options |
Average exercise prise | ||||||
| Outstanding, beginning | |||||||||
| of year | 10,479,539 | $6.13 | 206,116 | $ 1.30 | |||||
| Granted | 1,308,500 | 2.29 | 7,464,666 | 2.40 | |||||
| Converted on acquisition of | |||||||||
| Hope Bay Gold (note 2) | -- | -- | 3,923,872 | 7.53 | |||||
| Exercised | (724,946 | ) | 1.51 | (19,282 | ) | 1.37 | |||
| Forfeited or expired | (9,701,889 | ) | 6.50 | (1,095,833 | ) | 11.24 | |||
| Outstanding, end of year | 1,361,204 | $2.26 | 10,479,539 | $ 6.13 | |||||
| 11. | Income and resource taxes: |
| At December 31, 2003, the Company has unused tax loss carry forwards in Canada of $33.8 million (2002 — $29.0 million) expiring between the years 2004 and 2010 which are available to reduce taxable income and capital losses of $59.5 million (2002 — $43.7 million) which are available indefinitely, but can only be utilized against capital gains. The ability of the Company to utilize the loss carry forwards and the capital losses is not considered more likely than not and therefore a valuation allowance has been provided against the tax assets. |
| The tax effect of the significant components within the Company’s future tax asset (liability) at December 31 were as follows: |
| 2003 | 2002 | ||||
|---|---|---|---|---|---|
| Loss carry-forwards | $ 11,791 | $ 10,864 | |||
| Capital losses | 10,590 | 7,780 | |||
| Property, plant and equipment | 15,253 | 11,736 | |||
| Canadian mining royalty | -- | 14,232 | |||
| Canadian resource deductions | 2,137 | 4,378 | |||
| Reclamation liabilities | 2,854 | 2,535 | |||
| Equity investment | 730 | 3,637 | |||
| Other | 4,006 | 1,701 | |||
| 47,361 | 56,863 | ||||
| Valuation allowance | (47,361 | ) | (56,863 | ) | |
| Net future tax asset | -- | -- | |||
| 2003 | 2002 | ||||
|---|---|---|---|---|---|
| Future income tax liability of Hope Bay Gold (note 2) | (8,293 | ) | (12,140 | ) | |
| Future income tax liability on flow-through shares | (9,588 | ) | (6,735 | ) | |
| Net future income tax liability | $(17,881 | ) | $(18,875 | ) | |
18
MIRAMAR MINING CORPORATION
Notes to the Consolidated Financial Statements
(expressed in thousands of Canadian dollars)
Years ended December 31, 2003 and 2002
| The income tax expense differs from the amounts computed by applying the combined federal and provincial income tax rate of 34.1% (2001 – 43.1%) to pretax losses as a result of the following: |
| 2003 | 2002 | ||||
|---|---|---|---|---|---|
| Earnings (losses) before equity loss and income taxes | $(22,811 | ) | $1,230 | ||
| Computed "expected" tax expense (recovery) | $(7,605 | ) | $ 530 | ||
| Adjustment to income taxes resulting from change in | |||||
| valuation allowance | (9,502 | ) | (530 | ||
| Adjustment to future tax assets and liabilities for enacted | |||||
| changes in tax rates | (5,483 | ) | -- | ||
| US losses not recognized | 3,229 | -- | |||
| Canadian mining royalty pools not recognized | 14,232 | -- | |||
| Share issue costs | (1,263 | ) | -- | ||
| Losses expired | 1,960 | -- | |||
| Capital taxes | 436 | 254 | |||
| Other | (1,270 | ) | -- | ||
| Income taxes | $(5,266 | ) | $ 254 | ||
| 12. | Pension plan and other post-retirement benefits: |
| The Company has four defined benefit pension plans covering substantially all of the employees at the Con Mine and the Giant Mine. These plans are funded on an ongoing basis, based on periodic actuarial valuations and statutory requirements. In addition, the Company, by practice, provides for other post-retirement benefits. The ultimate liability for these benefits is estimated for accounting purposes on an ongoing basis using periodic actuarial calculations. |
| Summary information related to the defined benefit pension plans and other benefits are as follows: |
| Pension benefit plans | Other benefit plans | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2003 | 2002 | ||||||
| Accrued benefit obligation | $ 16,621 | $ 16,394 | $ 142 | $ 1,010 | |||||
| Fair value of plan assets | 14,927 | 12,969 | -- | -- | |||||
| Funded status surplus (deficit) | (1,694 | ) | (3,425 | ) | (142 | ) | (1,010 | ) | |
| Unamortized past service costs | 1,878 | 857 | (328 | ) | (499 | ) | |||
| Unamortized experience loss (gain) | 202 | 2,244 | -- | -- | |||||
| Accrued benefit asset (liability) | $ 386 | $ (324 | ) | $(470 | ) | $(1,509 | ) | ||
19
MIRAMAR MINING CORPORATION
Notes to the Consolidated Financial Statements
(expressed in thousands of Canadian dollars)
Years ended December 31, 2003 and 2002
| Reconciliation of accrued benefit obligation: |
| Pension benefit plans | Other benefit plans | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2003 | 2002 | ||||||
| Balance, beginning of year | $ 16,393 | $ 14,305 | $ 1,010 | $ 947 | |||||
| Current service cost | 670 | 730 | 27 | 27 | |||||
| Interest cost | 1,099 | 1,062 | 68 | 65 | |||||
| Benefits paid | (1,122 | ) | (827 | ) | (68 | ) | (29 | ) | |
| Plan improvement | -- | 864 | -- | -- | |||||
| Actuarial gains (losses) | 633 | 260 | 3 | -- | |||||
| Gain due to curtailment | (1,052 | ) | -- | (898 | ) | -- | |||
| Accrued benefit obligation, end of year | $ 16,621 | $ 16,394 | $ 142 | $ 1,010 | |||||
| Reconciliation of plan assets: |
| Pension benefit plans | Other benefit plans | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2003 | 2002 | ||||||
| Fair value, beginning of year | $ 12,968 | $ 14,625 | $-- | $-- | |||||
| Actual return on plan assets | 1,727 | (1,309 | ) | -- | -- | ||||
| Employer contributions | 1,354 | 480 | -- | -- | |||||
| Benefits paid | (1,122 | ) | (827 | ) | -- | -- | |||
| Fair value of plan assets, end of year | $ 14,927 | $ 12,969 | $-- | $-- | |||||
| Pension expense during the year for the pension plans was $1,984,000 (2002 — $803,000). Other benefit plans recovery for the year is $970,300 (2002 – $158,400). Pension expense for the year was comprised of the following: |
| 2003 | 2002 | ||||
|---|---|---|---|---|---|
| Current service cost | $ 670 | $ 730 | |||
| Interest cost | 1,099 | 1,062 | |||
| Expected return on plan assets | (981 | ) | (1,083 | ) | |
| Amortization of experience gains/(losses) | 542 | 11 | |||
| Amortization of past service costs | 294 | 83 | |||
| Loss due to curtailment | 360 | -- | |||
| $ 1,984 | $ 803 | ||||
| In two (2002 – two) of the defined benefit pension plans, the accrued benefit obligation exceeds the fair value of plan assets at year-end by $2,829,000 (2002 — $4,433,000). Payments are being made to fund the excess of the accrued benefit obligation over the fair value of plan assets in accordance with applicable legislation. For purposes of measuring other benefits, an 80% probability was assigned to termination of employees in five years due to mine closure. |
| The significant actuarial assumptions used in 2003 and 2002 in the measurement of the Company’s benefit obligation are shown in the following table: |
| Pension benefits |
Other benefits | ||||
|---|---|---|---|---|---|
| Discount rate | 6.25 | % | 6.25 | % | |
| Expected long-term rate of return on plan assets | 7.50 | % | n/a | ||
| Weighted average rate of compensation increase | 2.00 | % | n/a | ||
20
MIRAMAR MINING CORPORATION
Notes to the Consolidated Financial Statements
(expressed in thousands of Canadian dollars)
Years ended December 31, 2003 and 2002
| 13. | Business segments: |
| (a) | Reportable Segments – The Company’s operating mine produces gold and is located in Canada. Hope Bay is an exploration stage gold property located in Canada. Reportable assets and revenues do not differ materially from the amounts disclosed in these consolidated financial statements, as there are no material inter-segment sales. |
| (b) | Geographic Segments — The Company operates in Canada. |
| The Company’s property, plant and equipment and expenditures, revenues and earnings (loss) before equity loss and income taxes by operating and geographic segment are as follows: |
| 12 months ended December 31, 2003 |
Property, plant and equipment |
Expenditures on property, plant and equipment |
Revenues |
Earnings (loss) before equity loss and income taxes | |||||
|---|---|---|---|---|---|---|---|---|---|
| Gold operations | $ 5,780 | $ 3,908 | $ 45,602 | $(19,444 | ) | ||||
| Gold exploration | 128,024 | 20,911 | -- | -- | |||||
| Other | 1,102 | 112 | 1,275 | (2,858 | ) | ||||
| $134,906 | $24,931 | $ 46,877 | $(22,302 | ) | |||||
| 12 months ended December 31, 2003 |
Property, plant and equipment |
Expenditures on property, plant and equipment |
Revenues |
Earnings (loss) before equity loss and income taxes | |||||
|---|---|---|---|---|---|---|---|---|---|
| Gold operations | $ 19,802 | $ 6,669 | $53,122 | $ 3,668 | |||||
| Gold exploration | 107,983 | 73,815 | -- | -- | |||||
| Other | 947 | 94 | 945 | (2,438 | ) | ||||
| $128,732 | $80,578 | $54,067 | $ 1,230 | ||||||
| 14. | Financial risk management: |
| (a) | Gold hedging: |
| In order to manage its exposure to fluctuations in the price of gold, the Company enters into fixed forward, spot deferred and options contracts in the course of its business. Forward sales agreements obligate the Company to sell gold at a specified price on a specified date. Spot deferred contracts allow the Company to defer the delivery of gold under the contracts to a later date at the original contract price plus the prevailing premium (contango) at the time of the deferral, thereby allowing the Company to participate in current market price increases while providing future downside protection. Put options provide the holder with the right, but not the obligation, to sell gold at the contract price. Call options written provide the holder with the right, but not the obligation, to purchase gold at the contract price. |
| The Board of Directors has approved a hedging policy and reviews the Company’s hedging position periodically. As at December 31, 2003, the Company had entered into the following gold contracts: |
|
Anticipated delivery/expiry |
Hedged ounces |
Average price per ounce |
Call options sold |
Average price per ounce | |||||
|---|---|---|---|---|---|---|---|---|---|
| 2004 | 19,800 | CAD $478 | 36,000 | CAD $478 | |||||
21
MIRAMAR MINING CORPORATION
Notes to the Consolidated Financial Statements
(expressed in thousands of Canadian dollars)
Years ended December 31, 2003 and 2002
| (b) | Credit risks: |
| The Company’s ability to realize on the above contracts is dependent upon the ability of the counter-parties to perform in accordance with the terms of the agreements. The Company deals only with major financial institutions with investment grade credit ratings and does not expect any counter-parties to fail to meet their obligations. |
| 15. | Financial instruments: |
| Fair value estimates are made at the balance sheet date, based upon relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties in significant matters of judgement. Changes in assumptions and market conditions could significantly affect these estimates. Factors used in determining the fair value of gold call options are the contracted sales price of gold in comparison to current spot price and the probability of movements in the price of gold over the term of the option. As at December 31, 2003, the combination of the spot price of U.S. 415 per ounce and the probability of future price changes has had a significant effect on the fair value of gold call options sold. However, the effect of the probability of future price changes on the fair value estimate diminishes over the life of the option. The carrying values of all financial instruments approximated fair values, except the investment in Sherwood and derivative instruments. In addition, the fair value of the investment in Northern Orion is undeterminable due to the inherent difficulty in the determination of the fair value of such an instrument. |
| The fair value excess (deficiency) of derivative instruments and the fair values based on the quoted market values and carrying values of the investment in Sherwood and other assets, at December 31 are as follows: |
| 2003 | 2002 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
|
Carrying value |
Fair value |
Carrying value |
Fair value | ||||||
| Investment in Sherwood | $ 294 | $ 3,350 | $ 803 | $ 1,200 | |||||
| Other assets | 100 | 1,500 | 116 | 116 | |||||
| Derivatives: | |||||||||
| Gold forward sales cont | ts -- | (1,270 | ) | (1,225 | ) | (5,382 | ) | ||
| Gold calls sold | (1,742 | ) | (2,596 | ) | (940 | ) | (4,300 | ) | |
| The Company has an agreement with a financial institution for the purchase and sale of swaps and derivatives that contains certain financial covenants that the Company must maintain with respect to net tangible assets, current ratio, total liabilities, trade creditors and liquid assets. If the Company fails to meet any of these covenants, the financial institution has the right to demand payment of the net value of any contracts that are outstanding at the time of default. As a result of the termination of underground mining at the Con mine, the Company was in breach of certain of these financial covenants. However, the financial institution has agreed in writing to modify the affected covenants for a period of time which the Company believes is sufficient in order for the Company to comply with the covenants. |
| 16. | Commitments and contingencies: |
| (a) | Miramar Con Mine Ltd. (“MCML”) is committed to the purchase of $780,000 of liquid oxygen per annum through 2007, subject to an ongoing purchase option in the Company’s favour at the discounted value of the remaining payments. |
22
MIRAMAR MINING CORPORATION
Notes to the Consolidated Financial Statements
(expressed in thousands of Canadian dollars)
Years ended December 31, 2003 and 2002
| (b) | As part of the arrangement to sell Bluefish described in note 4, the Company has entered into an indemnity agreement with NERCO Minerals Company (“NERCO”), the previous owners of the Con Mine, in which the Company agrees to hold NERCO harmless against any future third party claims that relate to environmental conditions of the Con Mine. The terms of the indemnity agreement provide for no limitation to the maximum potential future payments under the guarantee. The Company has not provided for any current carrying amount of the liability, contingent or otherwise, for the obligations under the guarantee. The Company has granted the indemnification in order to allow NERCO to release a similar guarantee provided by Red Lion Management Ltd. (“Red Lion”) in connection with the acquisition of the Con Mine. Red Lion held a security interest in all the assets of the Con Mine, including the Bluefish assets, as collateral for the indemnity against environmental liability given to NERCO. As security for the indemnification given to NERCO, the Company has granted a security interest on the Con Mine assets to NERCO and agreed that the net proceeds from the sale of these assets will be placed in a reclamation security trust, to be used to pay for the eventual reclamation of the mine. |
| (c) | As a condition of the acquisition of the Giant Mine assets, Miramar Giant Mine Ltd. (“MGML”) has established cash collateral security of $200,000 (note 8) and has issued promissory notes payable in the total amount of $6.8 million as security under the existing water licence. The promissory notes are secured solely by the Giant Mine assets and are due only from MGML upon default of the Reclamation Security Agreement (“RSA”). No value has been ascribed to this security interest in the consolidated financial statements. The amendment to the RSA completed in November 2001 provided that MGML continue to operate the mine and hold the property in compliance with environmental requirements for an indefinite term. In compensation for environmental and holding costs, MGML will be reimbursed $300,000 monthly by Department of Indian Affairs and Northern Development (“DIAND”). Termination of the RSA agreement by MGML requires written notice one month prior to termination date. |
| (d) | On August 8, 2000, MCML received a renewal water licence for the Con Mine issued under the Northwest Territories Waters Act. This licence expires on July 29, 2006. As a condition of a water license held by the MCML, the Company maintains security deposits for the cost of future reclamation. On April 4, 2003, the Company completed an agreement with DIAND the to fund security deposits by assigning the Company’s right to $10 million receivable from the Northwest Territories Power Corporation (note 4) in connection with the sale of Bluefish and assigning the $10 million promissory note receivable from the Northwest Territories Power Corporation to DIAND. The proceeds, once received by DIAND, are to be deposited in a reclamation security trust established by the Company. The Company will also maintain the existing bond of $1.5 million (note 8) until such time as the reclamation security trust contains $9 million or such other amount as is required by the terms of the Water License as security. The reclamation security trust will be used to fund the reclamation of the site on completion of operations. |
| (e) | In 1995, the Company entered into a joint exploration transaction with an investor that resulted in the sale of an interest in the assets comprising the Con Mine. The transaction was based upon an independent valuation prepared for the Company. In 2000, Canada Revenue Agency (“CRA”) issued a re-assessment notice challenging the valuation that formed the basis for this transaction. This re-assessment does not give rise to any taxes payable by the Company. However, as part of the transaction in 1995, the Company agreed to compensate the investor for any shortfall in the value of the assets transferred to a maximum of $2.7 million plus accrued interest, which amounts to approximately $1.8 million at December 31, 2003, such amounts to be payable should a ruling denying the transfer of certain tax pools be made against the Company. The Company has requested certain information from CRA and is awaiting a response. While management intends to strenuously defend the independent valuation, the outcome of this issue is not yet determinable. No provision for these costs has been recorded at December 31, 2003. |
23
MIRAMAR MINING CORPORATION
Notes to the Consolidated Financial Statements
(expressed in thousands of Canadian dollars)
Years ended December 31, 2003 and 2002
| (f) | In October 2002, the Company entered into a long-term lease for office space for its corporate and exploration office. The Company has minimum commitments under operating leases for its premises totalling approximately $225,000 annually for ten years. |
| (g) | On November 17, 2003, the Company entered into a letter agreement with Kinross Gold Corporation whereby the Company has the option to earn a 60% interest in the George and Goose Lake projects in Nunavut. Under the terms of the letter agreement, the Company would earn a 60% interest in the properties and related rights and facilities by spending a total of $25 million over a 30 month period. Subsequent to December 31, 2003, a formal agreement was finalized and executed. |
24
3.
SUPPLEMENTARY INFORMATION
RECONCILIATION WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
MIRAMAR MINING CORPORATION
Supplementary Information, Page 1
Reconciliation with United States Generally Accepted Accounting Principles
(Dollar amounts expressed in thousands of Canadian dollars,
except per share amounts)
Years ended December 31, 2003 and 2002
================================================================================
Miramar Mining Corporation (the "Company") follows generally accepted accounting
principles in Canada ("Canadian GAAP") which are different in certain respects
from those applicable in the United States ("U.S. GAAP") and from practices
prescribed by the United States Securities and Exchange Commission. The material
measurement differences between Canadian GAAP and U.S. GAAP with respect to the
Company's consolidated financial statements are as follows:
(a) Stock-based compensation:
Under U.S. GAAP, entities are encouraged to adopt a fair value methodology
of accounting for stock-based compensation. As permitted by U.S. GAAP, the
Company has elected to continue measuring employees stock-based
compensation costs using the intrinsic value based method of accounting.
Under the intrinsic value method, compensation cost is the excess, if any,
of the quoted market value of the stock at grant date over the amount an
employee must pay to acquire the stock. As the exercise prices of options
granted by the Company to employees and directors approximate market value
at the grant date, the Company has determined that the adoption of this
accounting policy for U.S. GAAP purposes does not result in a Canadian/U.S.
GAAP difference.
Stock options granted to non-employees for services rendered to the Company
are required to be accounted for based on a fair value methodology. This
method is similar to the Canadian GAAP standard adopted for grants made on
or after January 1, 2002, and, as such, does not result in a Canadian/U.S.
GAAP difference for the years presented.
In prior years, the Company had issued stock options that could be
exercised as share appreciation rights providing for an optionee to elect
to terminate options and to receive an amount in common shares equal to the
difference between the fair market value at the time of termination and the
exercise price for those options terminated. Under U.S. GAAP, such rights
are considered to be compensatory in nature and the changes in the value of
shares issuable as stock appreciation rights are recognized on an ongoing
basis by a charge or credit to income. During 2002, the Company removed the
stock appreciation rights from its stock option plan for all outstanding
employee stock options. Accordingly, under Canadian GAAP, such options are
not considered to be stock appreciation rights at the date of adoption of
the new Canadian standard. However, a charge (credit) to operations of
$1,234 in 2002 would be required under U.S. GAAP reflecting the effect of
changes in the market price of the Company's shares to the date of the
removal of the rights.
Effective January 1, 2004, the Company is adopting the amended Canadian
accounting standard for stock-based compensation which will require the use
of the fair value method to calculate all stock-based compensation
associated with granting stock options. This standard will be applied
retroactively to all grants made on or after January 1, 2002.
For purposes of the reconciliation to U.S. GAAP, the Company plans to adopt
the fair value method in accordance with the modified prospective
transition provisions pursuant to Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure". Accordingly, adoption of these new Canadian and U.S.
standards is not expected to result in a significant difference in the
impact on net income (loss) arising from stock-based compensation
arrangements.
MIRAMAR MINING CORPORATION
Supplementary Information, Page 2
Reconciliation with United States Generally Accepted Accounting Principles
(Dollar amounts expressed in thousands of Canadian dollars,
except per share amounts)
Years ended December 31, 2003 and 2002
================================================================================
(b) Mining and mineral property assets:
U.S. GAAP requires that the carrying value of long-lived assets, such
as property, plant and equipment, be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. In performing the review for
recoverability, the Company is to estimate the future cash flows
expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is recognized. SEC staff have
interpreted U.S. GAAP to require that mineral property exploration and
land use costs must be expensed as incurred, until commercially
mineable deposits are determined to exist within a particular
property, as cash flows cannot be reasonably estimated prior to such
determination. Accordingly, for U.S. GAAP purposes, for all periods
presented, the Company has expensed all land use costs for mineral
properties and deferred exploration costs, that have been incurred by
the Company or its equity investees, for which commercially mineable
revenues, as defined, do not exist. For Canadian GAAP, cash flows
relating to mineral property exploration and land use costs are
reported as investing activities. For U.S. GAAP, these costs would be
characterized as operating activities.
As a result of expensing exploration costs of $18,349 (2002 - $8,851),
the related future income tax liability recorded under Canadian GAAP
is reversed by crediting share capital. As such, total liabilities
would be decreased by $9,588 (2002 - $6,735) and shareholders' equity
would increase by $9,588 (2002 - $6,735).
(c) Derivative financial instruments:
Effective January 1, 2001, the Company adopted FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), and the corresponding amendments under FASB Statement No. 138
("SFAS 138"). SFAS 133 and 138 requires that all derivative financial
instruments that do not qualify as a hedge be measured at fair value
and recognized in the financial statements regardless of the purpose
or intent for holding them. Changes in the fair value of such
derivative financial instruments are recognized periodically in
income. For U.S. GAAP, all written call options sold are carried at
fair value with the changes in fair value recorded to operations. The
Company has determined that its gold forward contracts meet the
definition of normal sales contracts as the obligations are met by
physical delivery of gold, and therefore are excluded from the scope
of SFAS No. 133 and 138.
(d) Flow-through equity financing:
Under Canadian income tax legislation, a company is permitted to issue
shares whereby the company agrees to incur qualifying expenditures and
renounce the related income tax deductions to the investors. The
Company has accounted for the issue of flow-through shares by
crediting share capital for the amount of the proceeds received, in
accordance with Canadian GAAP.
MIRAMAR MINING CORPORATION
Supplementary Information, Page 3
Reconciliation with United States Generally Accepted Accounting Principles
(Dollar amounts expressed in thousands of Canadian dollars,
except per share amounts)
Years ended December 31, 2003 and 2002
================================================================================
(d) Flow-through equity financing (continued):
For U.S. GAAP, the amount received by the Company on the issuance of
flow-through shares in excess of the fair value of common shares is
required to be credited to liabilities and included in operations over
the period in which the Company incurs the qualified expenditures.
During 2003, total flow-through share premiums received were $4,221
(2002 - $1,317), of which $1,186 relates to qualified expenditures
made in 2003 (2002 - $1,138) and, therefore, would have been credited
to earnings under U.S. GAAP as a deferred tax benefit, and $3,035
would remain in liabilities at December 31, 2003 (2002 - $179) under
U.S. GAAP. In addition, the $179 premium liability at December 31,
2002 would be credited to earnings in 2003 as the qualified
expenditures were made in 2003.
Also, notwithstanding there is no specific contractual restrictions or
requirements to segregate the funds received for the flow-through
shares, funds that are unexpended at the consolidated balance sheet
dates are considered to be restricted funds and are not considered to
be cash or cash equivalents under the SEC staff interpretation of U.S.
GAAP. Such amounts would be required to be disclosed separately in a
consolidated balance sheet prepared in accordance with U.S. GAAP. As
at December 31, 2003, unexpended flow-through funds were $14,769 (2002
- $4,834).
(e) Investments:
Under Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("FAS 115"), the Company's
portfolio investments and marketable securities would be classified as
available-for-sale securities and carried at fair value. Unrealized
holding gains and losses on available-for-sale securities are excluded
from earnings under U.S. GAAP and reported in a separate component of
shareholders' equity until realized net of the related tax effect.
(f) Revenue recognition:
Under Canadian GAAP, the Company recognizes revenue on production and
records its gold bullion inventory at net realizable value. SEC staff
interpretations of U.S. GAAP require gold bullion to be carried at the
lower of cost of production and net realizable value. The Company has
determined that the adoption of this accounting policy for U.S. GAAP
purposes does not result in a material Canadian/U.S. GAAP difference.
(g) Accounting for asset retirement obligations:
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 143, "Accounting for
Asset Retirement Obligations" ("SFAS 143"). SFAS 143 requires the
Company to record the fair value of an asset retirement obligation as
a liability in the period in which it incurs a legal obligation
associated with the retirement of tangible long-lived assets that
result from the acquisition, construction, development and/or normal
use of the assets. The Company also records a corresponding asset
which is amortized over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the obligation
will be adjusted at the end of each period to reflect the passage of
time (accretion expense) and changes in the estimated future cash
flows underlying the obligation (asset retirement cost). For purposes
of the reconciliation, the Company adopted SFAS 143 effective January
1, 2003.
MIRAMAR MINING CORPORATION
Supplementary Information, Page 4
Reconciliation with United States Generally Accepted Accounting Principles
(Dollar amounts expressed in thousands of Canadian dollars,
except per share amounts)
Years ended December 31, 2003 and 2002
================================================================================
(g) Accounting for asset retirement obligations (continued):
Canadian GAAP requires the Company make an estimation of future site
reclamation costs based on undiscounted future cash outflows.
Previously, US accounting principles for asset retirement obligations
were comparable to Canadian accounting principles.
Under U.S. GAAP, on January 1, 2003, the Company would have recorded a
gain of $1,708 as the cumulative effect of the change in accounting
principle, a net increase of $607 to property, plant and equipment and
a reduction of the provision for site closure and reclamation costs of
$1,101 to reflect the effect of this change in the method of
accounting for asset retirement obligations compared to the amounts
previously recorded in the Company's financial statements prepared
under Canadian and U.S. GAAP.
For the year ended December 31, 2003, the application of the asset
retirement obligation standard in U.S. GAAP to the Company would have
decreased site closure and reclamation costs recorded under Canadian
GAAP by $861, and increased the provision for site closure and
reclamation costs with respect to accretion by $659 and increased
depreciation expense with respect to amortization of the increase in
property, plant and equipment by $243.
The continuity of the reserve for site closure and reclamation costs
under U.S. GAAP for the year ended December 31, 2003 would be as
follows:
-----------------------------------------------------------------------------
Balance, December 31, 2002 $ 9,142
Impact of adoption of SFAS No. 143 (1,101)
-----------------------------------------------------------------------------
Opening balance after cumulative effect of change in
accounting policy 8,041
Liabilities incurred in the current year -
Site closure and reclamation costs incurred (172)
Accretion expense 659
-----------------------------------------------------------------------------
Balance, December 31, 2003 $ 8,528
-----------------------------------------------------------------------------
Effective January 1, 2004, the Company is adopting the new Canadian
accounting standard for asset retirement obligations, which is
substantively the same as SFAS 143. On adoption of the Canadian
standard, the amount of the adjustment to site closure and reclamation
costs will be measured retroactively and recognized on January 1,
2004. Accordingly, the above difference between Canadian and United
States accounting principles will be eliminated for 2004 and future
periods.
(h) Impact of recent United States accounting pronouncements:
(i) During 2003, FASB issued Financial Interpretation No. 46,
"Consolidation of Variable Interest Entities", which addresses
the consolidation of variable interest entities (including those
referred to as "Special-Purpose Entities"). The provisions of
this interpretation, as revised, would be effective for the
Company in the three month period ending March 31, 2004. As the
Company does not currently hold interests in variable interest
entities, adoption of the provisions of this Interpretation are
not expected to impact the consolidated financial statements.
MIRAMAR MINING CORPORATION
Supplementary Information, Page 5
Reconciliation with United States Generally Accepted Accounting Principles
(Dollar amounts expressed in thousands of Canadian dollars,
except per share amounts)
Years ended December 31, 2003 and 2002
================================================================================
(h) Impact of recent United States accounting pronouncements (continued):
(ii) In November 2002, the EITF reached a consensus on Issue 00-21,
"Revenue Arrangements with Multiple Deliverables" ("EITF 00-21").
This consensus addresses issues related to separating and
allocating value to the individual elements of a single customer
arrangement involving obligations regarding multiple products,
services, or rights which may be fulfilled at different points in
time or over different periods of time. EITF 00-21 guidance is
applicable for arrangements entered into in fiscal periods
beginning after June 15, 2003. The adoption of EITF 00-21 has not
had a material effect on the Company's consolidated financial
statements.
The effect of the material measurement differences between Canadian GAAP
and U.S. GAAP on the amounts reported in the consolidated balance sheets,
statements of operations and cash flows are as follows:
--------------------------------------------------------------------------------
Balance Sheets 2003 2002
--------------------------------------------------------------------------------
Assets, under Canadian GAAP $244,118 $203,423
Mineral property exploration and development (b) (41,135) (22,787)
Adjustment to equity investment for mineral property
exploration and development (b) (339) (336)
Adjustment for unrealized holding gain (e) 2,784 1,610
Addition to mineral property and development costs (g) 364 -
--------------------------------------------------------------------------------
Assets, under U.S. GAAP $205,792 $181,910
--------------------------------------------------------------------------------
Liabilities, under Canadian GAAP $ 41,678 $ 40,755
Future income tax liability (b) (9,588) (6,735)
Fair value of written call options (c) 854 3,360
Premium on unexpended flow-through funds (d) 3,035 179
Adjustment to provision for site closure and (1,303) -
reclamation costs (g)
--------------------------------------------------------------------------------
Liabilities, under U.S. GAAP $ 34,676 $ 37,559
--------------------------------------------------------------------------------
Shareholders' equity, under Canadian GAAP $202,440 $162,668
Mineral property exploration and development (b) (41,135) (22,787)
Adjustment to equity loss for mineral property
exploration and development (b) (339) (336)
Future income tax liability (b) 9,588 6,735
Fair value of call options (c) (854) (3,360)
Premium on unexpended flow-through funds (d) (3,035) (179)
Adjustment for asset retirement obligations (g) (41) -
Adjustment for unrealized holding gain (e) 2,784 1,610
Cumulative effect of change in accounting policy (g) 1,708 -
--------------------------------------------------------------------------------
Shareholders' equity, under U.S. GAAP $171,116 $144,351
--------------------------------------------------------------------------------
MIRAMAR MINING CORPORATION
Supplementary Information, Page 6
Reconciliation with United States Generally Accepted Accounting Principles
(Dollar amounts expressed in thousands of Canadian dollars,
except per share amounts)
Years ended December 31, 2003 and 2002
================================================================================
--------------------------------------------------------------------------------
Years ended December 31,
-----------------------
Statements of Operations 2003 2002
--------------------------------------------------------------------------------
Net earnings (loss) for the year,
Canadian GAAP $(17,555) $ 604
Change in fair value of share appreciation rights (a) - (1,234)
Mineral property exploration costs and writedowns (b) (18,349) (8,851)
Adjustment to equity loss for mineral property
exploration and development (b) (3) (336)
Premium on flow-through shares (d) 1,365 1,138
Change in fair value of outstanding contracts (c) - (9)
Change in fair value of written call options (c) 2,506 (2,455)
Adjustment for differences in asset retirement
obligations (g) (41) -
--------------------------------------------------------------------------------
Loss for the year under U.S. GAAP before cumulative
effect of change in accounting policy (32,077) (11,143)
Cumulative effect of adjustment for change in
accounting policy for site closure and
reclamation costs (g) 1,708 -
--------------------------------------------------------------------------------
Loss for the year, U.S. GAAP (30,369) (11,143)
Other comprehensive income:
Adjustment for unrealized holding gain (e) 1,174 1,610
--------------------------------------------------------------------------------
Comprehensive loss $(29,195) $ (9,533)
--------------------------------------------------------------------------------
Loss per share before cumulative effect of change
in accounting policy, basic and diluted under
U.S. GAAP $ (0.24) $ (0.12)
--------------------------------------------------------------------------------
Loss per share, basic and diluted under U.S. GAAP $ (0.23) $ (0.12)
--------------------------------------------------------------------------------
Diluted loss per share has not been presented as it would be anti-dilutive.
--------------------------------------------------------------------------------
Years ended December 31,
------------------------
Statements of Cash Flows 2003 2002
--------------------------------------------------------------------------------
Cash provided by operating activities, under
Canadian GAAP $(12,022) $ 8,025
Mineral property exploration and development
expenditures (b) (18,349) (8,851)
--------------------------------------------------------------------------------
Cash used in operating activities, under U.S. GAAP $(30,371) $ (826)
--------------------------------------------------------------------------------
Cash used in investing activities, under Canadian
GAAP $ 3,889 $40,191)
Mineral property exploration and development
expenditures (b) 18,349 8,851
--------------------------------------------------------------------------------
Cash used in investing activities, under U.S. GAAP $ 22,238 $31,340)
--------------------------------------------------------------------------------
Cash provided by financing activities, under Canadian
GAAP $ 61,696 $34,758
Change in restricted cash from issue of flow-through
shares (d) (9,935) (4,143)
--------------------------------------------------------------------------------
Cash provided by financing activities, under U.S. GAAP $ 51,761 $30,615
--------------------------------------------------------------------------------
Cash and cash equivalents end of year, under Canadian
GAAP $ 69,921 $16,085
Restricted cash from issue of flow-through shares (d) (14,769) (4,834)
--------------------------------------------------------------------------------
Cash and cash equivalents end of year, under U.S. GAAP $ 55,152 $11,251
--------------------------------------------------------------------------------
4.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF
OPERATIONS
MIRAMAR MINING
CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
OVERVIEW
The Company’s mining and exploration assets are all gold assets in Canada’s North. They include the Hope Bay belt in Nunavut, an option on the George and Goose Lake projects in Nunavut and the Giant Mine in Yellowknife in the Northwest Territories. The Company has built up considerable experience in operations, exploration and logistics in the North as this is where the Company has focused its activities.
2003 Highlights
| • | Successful exploration activity at Hope Bay resulting in a 25% increase in resources. |
| • | Drilling at Madrid resulted in expansion of the mineralization at Suluk. |
| • | Deep drilling at Boston resulted in a high-grade intercept well below previous defined resources. |
| • | Completion of an agreement on an option to earn 60% of the George and Goose Lake projects. |
| • | Equity financings of $62 million (net) completed during the year. |
| • | Mining terminated at the Con Mine in November as result of continued poor mining performance. |
| • | Production of 84,269 ounces of gold at cash costs of US$380 per ounce. |
| • | Consolidated net loss of $17.6 million, $0.13 per share. Excluding write down, closure and severance costs for Con Mine and gain related to future income taxes, the net loss was $10.5 million, $0.08 per share. |
During 2003, the major focus of the Company continued to be the advancement of the Hope Bay project through exploration drilling programs and the completion of a feasibility study for the development of the Doris North deposit. The feasibility study demonstrated positive economics for a small-scale operation on this high-grade deposit. Throughout the year, the Company worked to advance the Doris North Project through the permitting process. The permitting process in Nunavut is directed by the Nunavut Impact Review Board (“NIRB”). A draft Environmental Impact Study (“EIS”) was submitted to NIRB during the first quarter. During the third and fourth quarters the Company received comments from NIRB which were incorporated into a final EIS and submitted in December. NIRB has scheduled public hearings for June 2004 and the Company continues to anticipate that the Doris North Mine could start operations in the fourth quarter of 2005.
25
MIRAMAR MINING
CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
Highlights of exploration activities at Hope Bay included a number of intercepts from the Madrid area that resulted in expansion of the mineralization in the Suluk deposit at strike and to depth as well as the discovery of lenses to the south. These results, combined with new geologic models for the balance of the Madrid area resulted in the definition of a lower grade, bulk tonnage resource at Madrid. Further, exploration activities at Boston resulted in a significant intercept (9.0 meters grading 54.7 g/t) which was encountered at approximately 1,000 meters below surface, well below previously defined resources.
In Yellowknife, operations significantly underperformed forecast gold production due to ore losses, lower than expected grade and reduced recoveries for both free milling and refractory ores at the Con Mine. After a detailed review of the mine’s performance it was determined that continuing operations at the Con Mine could not achieve the Company’s stated goal of generating positive free cash flow. As a result, underground mining activities at the Con Mine were terminated at the end of November. The termination of mining at the Con Mine resulted in the lay-off of approximately 200 employees. Mining operations are expected to continue at Giant Mine with ore processed at the Con Mine mill facility. The completion of the sale of the Bluefish hydroelectric facility in April has provided the required funding for bonding requirements and future reclamation of the site.
EARNINGS AND CASH FLOW
For the twelve months ended December 31, 2003, the net loss was $17.6 million or $0.13 per share. Excluding write down ($7.8 million), closure and severance ($5.0 million) and the gain related to future income taxes ($5.7 million), the net loss was $10.5 million or $0.08 per share. This compares with net earnings of $0.6 million or $0.01 per share for the same period in 2002. The loss resulted from significant underperformance of gold production from the Yellowknife operations during the year. Gold production decreased in 2003 by 27% or 30,865 ounces resulting in $14.2 million lower sales revenue. Higher gold prices partially offset the decrease in production: the average gold sales price in 2003 was CAD$505 per ounce compared to CAD$461 per ounce in 2002, a $44 per ounce or 9% increase, contributing $3.7 million in additional sales revenue.
26
MIRAMAR MINING
CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
Selected Financial Data
The following table summarizes total revenues and income (loss) over the last three fiscal
years.
| 2003 | 2002 | 2001 | |||||
|---|---|---|---|---|---|---|---|
| Total Revenue | $ 46,877 | $54,067 | $ 55,821 | ||||
| Income (Loss) | $(17,555 | ) | $ 604 | $(5,899 | ) | ||
| Per Share | $ (0.13 | ) | $ 0.01 | $ (0.10 | ) | ||
The following tables summarize total revenue and income (loss) over the last eight fiscal quarters.
| 2003 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Q1 | Q2 | Q3 | Q4 | ||||||
| Total Revenue | $15,677 | $ 9,782 | $ 11,905 | $ 9,513 | |||||
| Income (Loss) | $ 44 | $(7,441 | ) | $(5,688 | ) | $(4,470 | ) | ||
| Per Share | $ 0.00 | $(0.06 | ) | $ (0.04 | ) | $(0.03 | ) | ||
| 2002 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Q1 | Q2 | Q3 | Q4 | ||||||
| Total Revenue | $14,835 | $ 12,593 | $15,096 | $ 11,543 | |||||
| Income (Loss) | $ 565 | $ 2,387 | $ 1,206 | $(3,554 | ) | ||||
| Per Share | $ 0.00 | $ (0.03 | ) | $ 0.01 | $ (0.03 | ) | |||
Free cash flow in 2003 was an outflow of $15.7 million compared to inflow of free cash of $1.4 million for the same period in 2002. “Free cash” flow from operations is a non-GAAP measure of financial performance which the Company uses to measure the net cash generated or used by its gold mining operations, and is derived by subtracting cash invested in mine capital and development at the Company’s operating mines from cash from operations as shown in the following table.
| 2003 | 2002 | ||||
|---|---|---|---|---|---|
| Cash from operations | (12,022 | ) | 8,025 | ||
| (Includes corporate general and administration) | |||||
| Less: mine capital and development | (3,674 | ) | (6,669 | ) | |
| Net free cash flow from gold operations | (15,696 | ) | 1,356 | ||
27
MIRAMAR MINING
CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
OPERATIONS OVERVIEW
Revenue
For the twelve months ended December 31, 2003, the Company produced 84,269 ounces of gold compared to 115,134 ounces in 2002. Revenue from gold sales was $42.6 million compared to $53.1 million in 2002. Included in revenue in 2002 was an unrealized loss of $2.2 million on gold spot deferred contracts and call options which reversed in 2003.
| 2003 | 2002 | ||||
|---|---|---|---|---|---|
| Gold | $40,387 | $ 55,287 | |||
| Effects of hedging | 2,165 | (2,165 | ) | ||
| Total gold sales | 42,552 | 53,122 | |||
| Interest and other income | 4,325 | 945 | |||
| Revenue | $46,877 | $ 54,067 | |||
During 2003, the Company realized US$352 per ounce of gold sold compared to US$293 per ounce realized in 2002. The average price for gold in the spot market was US$364 per ounce in 2003. In Canadian dollar terms, the realized price per ounce was $505 in 2003 as compared to $311 per ounce on the spot market and $461 in the same period of 2002. Other income was $4.3 million in 2003 compared to $0.9 million in the same period of 2002. Other income includes interest earned on short-term cash investments and included in 2003 was the realization of a portion of the gain on the power credits which were received as part of the sale of the Bluefish hydroelectric facility as described in note 4 of the consolidated financial statements.
Mining Operations
The Yellowknife mining operations, consisting of the Con and Giant mines, fell significantly short of production targets with shipments of 84,269 ounces at cash costs of US$380 per ounce during 2003. For the corresponding period in 2002, operations produced and shipped 115,134 ounces at a cash cost of US$246 per ounce.
| Yellowknife Operations | 2003 | 2002 | ||||
|---|---|---|---|---|---|---|
| Giant - Refractory | ||||||
| Tons of ore processed | 73,508 | 71,536 | ||||
| Average grade (ounce per ton) | 0.353 | 0.379 | ||||
| Average recovery rate (%) | 85.28 | 88.07 | ||||
| Ounces of gold recovered | 22,103 | 23,899 | ||||
| Con - Free Milling | ||||||
| Tons of ore processed | 137,109 | 203,029 | ||||
| Average grade (ounce per ton) | 0.360 | 0.405 | ||||
| Average recovery rate (%) | 90.46 | 92.21 | ||||
| Ounces of gold recovered | 44,687 | 75,799 | ||||
28
MIRAMAR MINING
CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
| Yellowknife Operations | 2003 | 2002 | |||
|---|---|---|---|---|---|
| Con - Refractory | |||||
| Tons of ore processed | 56,645 | 76,609 | |||
| Average grade (ounce per ton) | 0.255 | 0.297 | |||
| Average recovery rate (%) | 83.01 | 86.59 | |||
| Ounces of gold recovered | 12,013 | 19,714 | |||
| Arsenic tailings | |||||
| Tons of tailings processed | 11,904 | 5,307 | |||
| Ounces of gold recovered | 3,300 | 2,524 | |||
| Total ounces of gold recovered | 82,102 | 121,935 | |||
| Total ounces of gold shipped | 84,269 | 115,134 | |||
| Production Cost per Ounce Shipped $US | |||||
| Direct mining expense* | $ 367 | $ 257 | |||
| Deferred mining expense (net) | (7 | ) | (2 | ) | |
| Work-in-progress inventory and other | 8 | (9 | ) | ||
| Cash operating cost | $ 368 | $ 246 | |||
| Depreciation | 24 | 14 | |||
| Reclamation and mine closure | 11 | 7 | |||
| Other** | (1 | ) | 6 | ||
| Total production cost | $ 402 | $ 273 | |||
| * | Excludes the non-cash charge for "free" power as described below in Operating Costs which is offset by a gain of equal value in Other Income. |
| ** | Excludes write down of assets and severance and closure costs. |
Due to continued poor performance at the Con Mine, management determined that operations could not achieve positive cash generation. As a result, operations were terminated at the end of November 2003. Ongoing operations will focus on mining and processing of Giant mine ores. For the year, production from the Giant Mine was as planned. Total tons mined were 73,508 tons grading 0.353 opt or 94% of plan. The minor shortfall in tonnage was attributed to redirecting activities to developing ore from C-Shaft third level for 2004 processing. As discussed both Con free milling and refractory production were well below expectations. Free mill tons mined and processed were 137,109 tons grading 0.360 opt or only 80% of plan. This primarily resulted from significant losses within remaining remnant areas and termination of mining in November. Con refractory also under performed, producing only 56,645 tons grading 0.255 opt or 55% of plan. This significant shortfall resulted from the decision to abandon mining in 2900 north and from ore losses within the AW trend.
The significant increase in direct mining expenses per ounce of gold shipped in 2003 compared to 2002 is due primarily to the significant shortfall in recovered ounces. Total Con Mine operating costs were higher than in the previous period; however, the production shortfall was more significant as the ton and ounce return for mining dollars spent was adversely impacted by lower
29
MIRAMAR MINING
CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
productivity for both free milling and refractory ores. Operating costs were also impacted by higher labour benefit costs as provided for in the new collective agreements signed in 2002. The increase in deferred mining expenses resulted from lower produced ounces from the Con Mine to amortize deferred development costs against. Total dollars deferred in the periods were similar, reflecting similar development activities. The increase in work-in-progress inventory per ounce over 2002 is the result of the build up of Con and Giant refractory ores stockpiled during shutdown for which costs were deferred until consumed in 2003. Depreciation costs decreased year over year, but increased on a cost per ounce basis due to significantly lower units of production. Reclamation and mine closure costs includes an adjustment of $0.5m as a result of the revised mine operating plan.
Operating Costs
The cost of sales in 2003 was $45.9 million compared to $41.3 million in 2002. The increased cost of sales was the result of: (1) a non-cash charge of $2.7 million for the realization of a portion of the gain on “free power” received as part of the sale of the Bluefish hydroelectric facility as described in note 4 of the 2003 consolidated financial statements. This charge is offset by a gain on the transaction recorded in other income for the same amount; (2) consumption of work-in-progress inventory which was built up in 2002 for which costs were deferred until consumed in 2003, and (3) offset by decreased labour costs as a result of workforce reduction in the third and fourth quarters. General and administrative expenses in 2003 were $4.2 million compared to $3.3 million in 2002; of note were higher listing fees resulting from listing on the American Stock Exchange and higher investor relations expenditures. Depreciation and depletion expense in 2003 was $4.5 million compared to $6.4 million in 2002 as a result of the write down of Con Mine assets in the second quarter. Reclamation expense in 2003 was $1.7 million compared to $1.9 million in 2002. As a result of the decision to terminate underground mining at Con Mine, the Company recorded a write down on Con Mine assets totaling $7.8 million during the year and incurred closure costs and severance costs of $5.0 million.
Exploration Activities
The prime focus for the Company continues to be the Hope Bay project. The Company is committed to a two-pronged strategy to both explore the project and to advance a portion of the project to a production decision. Exploration programs carried out in 2003 at Hope Bay consisted of two major components: 29,467 meters of core drilling in the Madrid area and 8,850 meters of core drilling targeting the deep potential below at the Boston deposit. Ongoing regional exploration continued the search for new discoveries and included 4,296 meters of reverse circulation drilling.
30
MIRAMAR MINING
CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
Exploration programs began in mid-February with the commencement of drilling at Madrid. The program was successful in expanding mineralization at Suluk along strike and to depth. The positive results at Suluk led the Company to examine the potential for a higher tonnage bulk mining scenario. These results at Suluk coupled with the re-evaluation of Naartok resulted in an 80% increase in total resources at Madrid.
The deep drilling program at Boston was initiated in mid-March and continued into the third quarter. It successfully demonstrated the depth potential of the Boston mineralizing system: all holes intersected significant sections of alteration similar to those as seen at shallower depths and all holes encountered gold values, suggesting the potential for additional resources. Overall the program successfully expanded the favourable alteration to depths of almost 1,400 meters, well below any previous results, over a strike length of up to 750m. The Boston deposit currently has an indicated resource of 687,000 oz at a grade of 15.5g/t and an inferred resource of 901,000 oz at a grade of 10.9g/t which are largely above the 500 meter level. During the third quarter, work commenced on a master hole which was expected to provide a drill platform for continued deeper drilling for a series of step-out holes to be wedged off the master hole. Technical difficulties forced a suspension of drilling from the master hole at the end of the 2003 season. This program is being re-evaluated and is proposed to be re-initiated in 2004.
Permitting continued throughout the period with completion of the review of the draft EIS by NIRB, consultations with the Department of Fisheries & Oceans on fisheries compensation requirements, and issuance of an EIS deficiency letter by NIRB in July. This letter provided the comments necessary to enable the Company to complete the final EIS which was submitted to NIRB in December. No parties have asserted that the Doris North Mine should not be permitted to proceed. The Company will need to address the technical concerns of NIRB and other parties in order to obtain construction and operation permits. The Company continues to forecast start-up of the mine in the fourth quarter of 2005. During 2003, engineering activities were completed to support the EIS process and to allow for final design criteria development, such as the tailings impoundment design, additional cyanide destruction work and transportation studies.
Capital Programs
During fiscal 2003, the Company had capital expenditures of $20.9 million for exploration and project activities at Hope Bay compared to expenditures of $73.8 million for the acquisition of Hope Bay Gold and exploration and project activities at Hope Bay in 2002. Additionally, the Company incurred $3.7 million on mine capital and development at the Yellowknife operations.
31
MIRAMAR MINING
CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
This compares with capital expenditures of $6.7 million for mine capital and development at Yellowknife in the same period of 2002.
CRITICAL ACCOUNTING POLICIES
The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as well as the reported expenses during the reporting period. The most critical accounting policies upon which the Company depends are those requiring estimates of gold reserves and resources and future recoverable gold ounces and assumptions of future gold prices. Such estimates and assumptions affect the determination of the potential impairment of long-lived assets as well as value of product inventory and the rate in which depreciation and amortization are charged to the earnings. In addition, management estimates costs associated with reclamation and closure of mining properties described above. Management re-evaluates its estimates and assumptions on an ongoing basis; however, due to the nature of estimates, actual amounts could differ.
Accounting for Exploration and Development Cost
Exploration expenditures related to mineral properties are deferred only if it is probable that these costs will be recovered from future operations. The carrying values of the mineral properties are assessed at balance sheet date to determine whether any persuasive evidence exists that the properties may be permanently impaired. The Company’s progress in its development activities towards its planned operations is a key factor to be considered as part of the ongoing assessment of the recoverability of the carrying amount of capital assets and deferred development and pre-operating costs. If there is persuasive evidence of impairment, the asset is written down to its estimated net recoverable value. Deferred exploration expenditures for the Hope Bay group of properties totals $127.0 million at December 31, 2003 and $108.0 million at December 31, 2002 (see note 7 of the consolidated financial statements).
FINANCING AND LIQUIDITY
At December 31, 2003, the Company had consolidated working capital of $69.0 million compared to $41.4 million at the end of 2002. Of the $69.0 million working capital, $69.9 million was cash and cash equivalents compared to $39.8 million in 2002. In addition to working capital, at December 31, 2003 the Company had $6.3 million in cash collateral deposits for reclamation bonds, unchanged from December 31, 2002 and $9.6 million in notes receivable from a transaction completed in the second quarter of 2003 for the sale of the Company’s Bluefish hydroelectric power plant (described below).
32
MIRAMAR MINING
CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
On April 4, 2003, the Company’s subsidiary completed the sale of the Bluefish hydroelectric power plant to the Northwest Territories Power Corporation (“Power Corporation”) in consideration for a promissory note in the principal amount of $10 million due on December 31, 2004. In addition, until December 31, 2004, the Power Corporation will continue to supply power equal to the historic generation profile of Bluefish to Con Mine, free of charge; and, for the five year period 2005-2009, the Power Corporation will provide power to the Con Mine, free of charge, up to an annual rate of 5 million kilowatts and 1,500 KVA of monthly demand.
Bluefish is a 7.0 mega volt-ampere hydroelectric power generating facility, located 25 miles northwest of Yellowknife, which supplies power for use by the Con Mine. As part of the arrangement to sell Bluefish, the Company granted an indemnity to NERCO Minerals Company (“NERCO”), the previous owners of the Con Mine, in which the Company agreed to hold NERCO harmless against any future third party claims that relate to environmental conditions of the Con Mine. The Company granted the indemnification in order to allow NERCO to release a security interest for a similar guarantee provided to it by Red Lion Management Ltd. (“Red Lion”) in connection with the acquisition of the Con Mine. Red Lion held a security interest in all the assets of the Con Mine, including the Bluefish assets, as security for the indemnity against environmental liability given by it to NERCO. As security for the indemnification given to NERCO, the Company granted a security interest on the Con Mine assets to NERCO and agreed that the net proceeds from sale of these assets will be placed in a reclamation trust, to be used to pay for the eventual reclamation of the mine.
On June 25, 2003, the Company completed the private placement of 3,572,000 flow-through common shares (of which 3,475,000 were sold through an underwriter) at a price of $2.10 per common share. The Company must incur Canadian exploration expenditures (as defined in the Income Tax Act (Canada)) on the Hope Bay project in the amount of $7,501,200 by December 31, 2004. The underwriter received a commission of $437,850 and an option to purchase 208,500 common shares at $2.10 per share that expires on June 25, 2004.
On August 14, 2003, the Company completed a public offering through a syndicate of underwriters of 16,700,000 common shares at a price of $2.10 per share for gross proceeds of $35,070,000. The underwriters received commissions of $1,753,500 and an option to purchase 835,000 shares at $2.10 per share that expires on February 14, 2005. The Company plans to use the net proceeds of this financing to advance its Hope Bay project and for general corporate purposes.
33
MIRAMAR MINING
CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
On December 10, 2003, the Company completed a private placement of 4,151,574 flow-through common shares at a price of $3.65 per common share and 1,500,000 units at a price of $3.05 per unit for gross proceeds totaling $19,728,245. Each unit consisted of one common share and one half of one share purchase warrant. In consideration for their services the underwriters received commissions of $922,250 and a broker warrant exercisable to purchase 265,000 common shares at $3.05 per common share until June 10, 2005. The Company must incur Canadian exploration expenditures (as defined in the Income Tax Act (Canada)) in the amount of $15,153,245 by December 31, 2004.
During the year, the Company sold a portion of its shares in Northern Orion Exploration Ltd. (“Northern Orion”) for proceeds of $5.1 million. As a result of the share restructuring completed by Northern Orion in June 2003, the number of shares held by the Company was reduced to 2.2 million, of which the Company has sold 1.7 million. The Company will retain the net proceeds royalty interest with Northern Orion as described in note 3 to the consolidated financial statements.
The Company believes it has sufficient cash resources and liquidity to sustain its planned operations for the near term. The Company further believes that the repayment of the note received on the sale of Bluefish will provide sufficient cash to meet the current and future closure obligations of the Con Mine. The ongoing exploration and development of the Hope Bay project will require the Company to raise additional capital through one or a combination of project debt financing and equity offerings. The Company’s strategy is to use equity financing to finance exploration activities and maximize project debt to build mining infrastructure until sufficient cash flow is generated from mining production.
Liabilities and Contingencies
As a condition of a water license held by the Con Mine, the Company maintains security deposits for the cost of future reclamation. On April 4, 2003, the Company completed an agreement with the Department of Indian Affairs and Northern Development (“DIAND”) to fund security deposits by assigning the proceeds from the repayment of the $10 million promissory note from the Power Corporation to a reclamation security trust. The Company will also maintain the existing bond of $1.5 million described in note 8 until such time as the promissory note is repaid. The reclamation security trust will be used to fund the reclamation of the site on completion of mining operations.
In 1995, the Company entered into a joint exploration transaction with an investor that resulted in the sale of an interest in the assets comprising the Con Mine. The transaction was based upon
MIRAMAR MINING
CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
an independent valuation prepared for the Company. In 2000, Canada Revenue Agency (“CRA”) issued a re-assessment notice challenging the valuation that formed the basis for this transaction. This re-assessment does not give rise to any taxes payable by the Company. However, as part of the transaction in 1995, the Company agreed to compensate the investor for any shortfall in the value of the assets transferred, to a maximum of $2.7 million plus accrued interest, which amounts to approximately $1.8 million, such amounts to be payable should a ruling denying the transfer of certain tax pools be made against the Company. At present, the Company has requested information from CRA and is awaiting a response. While management intends to strenuously defend the independent valuation, the outcome of this matter is not yet determinable. No provision for these costs has been recorded at December 31, 2003.
On November 17, 2003, the Company entered into a letter agreement with Kinross Gold Corporation for an option to earn a 60% interest in the George and Goose Lake projects in Nunavut for expenditures of C$25 million over a thirty month period. Subsequent to December 31, 2003, a formal agreement was finalized and executed.
Commitments
To mitigate the risk of adverse price fluctuations and to ensure that the Yellowknife operations achieve cash flow projections necessary to complete the planned closure, the Company has entered into spot deferred forward sales contracts and written call options for a portion of the Yellowknife mine’s expected future production. The Company has hedged foreign currency risk by fixing exercise prices in Canadian dollars. The Company does not hold these financial instruments for speculative or trading purposes and the Company is not subject to margin requirements on any of its hedging lines. The Company, however, has an agreement with a financial institution for the purchase and sale of swaps and derivatives that contain certain financial covenants that the Company must maintain with respect to net tangible assets, current ratio, total liabilities, trade creditors and liquid assets. If the Company fails to meet any of these covenants, the financial institution has the right to demand payment of the net value of any contracts that are outstanding at the time of default. As a result of the termination of underground mining at the Con Mine, the Company is in breach of certain of these financial covenants. However, the financial institution has agreed to modify affected covenants for a period of time which the Company believes is adequate to comply with the covenants.
Further, as a result of the termination of underground mining at Con Mine, forecast gold production is expected to be insufficient to meet all of the remaining obligations as detailed in the table below and the Company plans to financial settle affected contracts.
35
MIRAMAR MINING
CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
The Company has recorded an unrealized loss of $1.7 million on the affected contracts as discussed in the paragraph following the table below.
The following table sets out the outstanding number of contract ounces, average expected realized prices and maturities for the gold commodity derivative contracts as at December 31, 2003:
| Period |
Hedged ounces |
Average price |
Call options sold |
Average strike price | |||||
|---|---|---|---|---|---|---|---|---|---|
| 2004 | 19,800 | CAD36,000 | CAD$478 | ||||||
The fair value of 36,000 ounces of other call options was negative $2.6 million at December 31, 2003 and was negative $4.3 million at December 31, 2002. The Company has recorded an unrealized loss of $1.7 million for these call options to reflect the ineffectiveness of the hedge as a result of the termination of underground mining at the Con Mine and the forecast reduction in gold production. The changes in the fair value of the remaining call options will be recorded in financial statements at maturity in accordance with accounting recommendations in place prior to October 24, 2000, as the contracts were written prior to the date of issuance of the accounting recommendations for written call options.
The fair value of the gold forward sales and spot deferred forward sales contracts was negative $1.3 million on December 31, 2003 and was negative $5.4 million at December 31, 2002. The change in the fair value has not been recorded in accordance with accounting recommendations for hedging contracts. The Company has not entered into any gold sales or option contracts since July 2003 and will continue to reduce the position through gold delivery and financial settlement.
Contractual Obligations
The following table summarizes the annual contractual obligations for the next five years and amounts due thereafter are presented in total.
| 2004 | 2005 | 2006 | 2007 | Thereafter | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Oxygen plant | 780 | 780 | 1020 | -- | -- | |||||||
| Office lease costs | 219 | 228 | 228 | 236 | 954 | |||||||
36
MIRAMAR MINING
CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
The Company is obligated to fund reclamation and closure costs for its mining and exploration operations as a condition of associated water licenses, however the timing of those specific payments has not been determined and they will be deferred to the extent that the Company continues to be engaged in active mining and exploration operations.
Off Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements other than the pension obligations which are described in note 12 of the consolidated financial statements and certain financial instruments described in note 15 of the consolidated financial statements.
OUTLOOK
Future operations in Yellowknife will depend upon the profitable mining at the Giant Mine and the continued processing of gold bearing arsenic sludges and calcines from the Con Mine. It is expected that these operations will produce approximately 40,000 ounces in 2004. The Company anticipates that final approval for the Con Mine abandonment and restoration plan will be received in 2004 which will permit the Company to conduct final reclamation activities in subsequent periods.
The longer term outlook for the Company continues to be heavily weighted to the successful exploration and development of the Hope Bay project. As a result of the acquisition of Hope Bay Gold in 2002, the Company owns 100% of the Hope Bay project, which has measured and indicated resources of 1.8 million ounces of gold and inferred resources of a further 3.6 million ounces of gold. The Company’s strategy is to build an initial small, low capital cost mining operation that will generate significant cash flow to continue exploration and development of the Hope Bay belt. The feasibility study on Doris North projected positive economics; at a US$325 per ounce (CAD$512 per ounce) gold price, the project has a 136% rate of return and generates $69 million cash flow after payback of construction capital.
The Company plans to continue to work towards making a development decision on the Doris North project, including advancement of the permitting process and negotiation of an Inuit Impact Benefits agreement. When completed, the Company will then make the final decision on commitment to the construction process. If approved by the Company, production could commence by late 2005.
The Company also intends to assess the potential of the George and Goose Lake projects to become additional mining assets.
37
MIRAMAR MINING
CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
RISKS AND UNCERTAINITIES
The Company must obtain additional capital to pursue its exploration and development work at Hope Bay. Given the nature of capital market demand for speculative investment opportunities, there is no assurance that additional financing will be available for the appropriate amounts and at the times required. The Company has developed a cash management plan that will enable it to invest on a priority basis in projects likely to generate favourable results in the near-to-medium term. The impact of fluctuations in the price of gold is a risk to the Company’s future profitability and cash flow. As the gold market price is denominated in U.S. currency, the Company is also at financial risk as the currency exchange rate between Canadian and U.S. Dollars can fluctuate and impact the reported earnings and resulting cash flow. If the Canadian dollar strengthens compared to the U.S. dollar, revenue from gold sales, which is generated in U.S. dollars, will convert to fewer Canadian dollars available to pay for operating costs that are almost entirely incurred in Canadian dollars. However, the Company does not expect a further rise in the Canadian dollar to have a material impact on mining operations in Yellowknife because a Canadian dollar gold price assumption of $478 was used in short-term cash forecasting for the purpose of establishing cut-off grades and life-of-mine planning.
NON GAAP MEASURES
The Company has included certain non-GAAP performance measures throughout this document. These non-GAAP performance measures do not have any standardized meaning prescribed by GAAP and, therefore, are unlikely to be comparable to similar measures presented by other companies. The Company believes that, in addition to conventional measures, prepared in accordance with Canadian GAAP, certain investors use this information to evaluate the Company’s performance. Accordingly, they are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with Canadian GAAP. Set out below are definitions for these performance measures and reconciliation’s of the non-GAAP measures to report GAAP measures.
38
MIRAMAR MINING
CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
Unit Costs
A reconciliation of costs per ounce of gold produced: calculated in accordance with the Gold Institute Standard to the cost of sales and depletion, depreciation and amortization is included below:
| 2003 | |||||
|---|---|---|---|---|---|
|
Cash Operating Cost |
Total Production Cost | ||||
| Costs of sales (Income Statement) | $ 45,857 | $ 45,857 | |||
| "Free" power (note a.) | (2,692 | ) | (2,692 | ) | |
| Depletion of deferred development (b.) | 1,410 | ||||
| Depreciation and depletion | 4,517 | ||||
| Reclamation | 1,739 | ||||
| Reclamation adjustment (c.) | (500 | ) | |||
| Foreign exchange | (221 | ) | |||
| Operating cost base for calculation | $ 44,575 | $ 48,700 | |||
| Gold produced | Oz | 84,269 | 84,269 | ||
| Foreign exchange, CAD:USD | 1.436 | 1.436 | |||
| Operating cost base/ gold ounce produced | $/oz | $ 368 | $ 402 | ||
| 2002 | |||||
|---|---|---|---|---|---|
|
Cash Operating Cost |
Total Production Cost | ||||
| Costs of sales (Income Statement) | $ 41,262 | $ 41,262 | |||
| Depletion of deferred development (b.) | 3,496 | ||||
| Depreciation and depletion | 6,381 | ||||
| Reclamation | 1,916 | ||||
| Foreign exchange | 18 | ||||
| Other | (119 | ) | |||
| Operating cost base for calculation | $ 44,639 | $ 49,577 | |||
| Gold produced | Oz | 115,113 | 115,113 | ||
| Foreign exchange, CAD:USD | 1.572 | 1.572 | |||
| Operating cost base/ gold ounce produced | $/oz | $ 246 | $ 273 | ||
Notes:
| (a.) | "Free" power described in note 4 of the consolidated financial statements is excluded as it is offset with a gain of equal value in Other Income. |
| (b.) | Depletion of deferred development is included in Cash Operating Cost consistent with the Gold Institute Standard. |
| (c.) | Reclamation adjustment recorded as a result of mine closure is excluded along with other closure related amounts which expensed in the income statement. |
EXHIBIT 99.1
CODE OF ETHICS
[GRAPHIC OMITTED] MIRAMAR MINING CORPORATION
Code of Ethics
To: Miramar Mining Corporation
In my role as an employee of Miramar Mining Corporation, I certify to you that I
adhere to and advocate the following principles and responsibilities governing
my professional and ethical conduct.
To the best of my knowledge and ability:
1. I act with honesty and integrity, avoiding actual or apparent conflicts of
interest in personal and professional relationships.
2. I provide constituents with information that is accurate, complete,
objective, relevant, timely and understandable.
3. I comply with rules and regulations of federal, provincial and local
governments, and other appropriate private and public regulatory agencies.
4. I act in good faith, responsibly, with due care, competence and diligence,
without misrepresenting material facts or allowing my independent judgment
to be subordinated.
5. I respect the confidentiality of information acquired in the course of my
work except when authorized or otherwise legally obligated to disclose.
Confidential information acquired in the course of my work is not used for
personal advantage.
6. I share knowledge and maintain skills important and relevant to my
constituents' needs.
7. I proactively promote ethical behavior as a responsible partner among peers
and staff in my work environment.
8. I achieve responsible use of and control over all assets and resources
employed or entrusted to me.
9. I foster a work environment that encourages all employees to act ethically
and with integrity.
EXHIBIT 99.2
AUDIT AND RISK MANAGEMENT COMMITTEE CHARTER
[GRAPHIC OMITTED] MIRAMAR MINING CORPORATION
Audit and Risk Management Committee Charter
Organization
The Audit and Risk Management Committee (the "Committee") should be composed of
directors who are independent of the management of the corporation and are free
of any relationship that, in the opinion of the board of directors, would
interfere with their exercise of independent judgment as a Committee member.
Statement of Policy
The Committee should provide assistance to the corporate directors in fulfilling
their responsibility to the shareholders, potential shareholders, and investment
community relating to corporate accounting, reporting practices of the
corporation, and the quality and integrity of the financial reports of the
corporation. In so doing, it is the responsibility of the Committee to maintain
free and open means of communication between the directors, the independent
auditors and the financial management of the corporation.
Responsibilities
In carrying out its responsibilities, the Committee believes its policies and
procedures should remain flexible, in order to best react to changing conditions
and to ensure to the directors and shareholders that the corporate accounting
and reporting practices of the corporation are in accordance with all
requirements and are of the highest quality.
In carrying out these responsibilities, the Committee will:
o Be responsible for reviewing and recommending for approval to the
Board the annual and quarterly financial statements of the
Corporation. Included in this review is assessing the use of
management estimates in the preparation of the financial statements.
The Committee is responsible for ensuring that systems are in place to
limit the potential for material misstatement in the financial
statements and that the financial statements are complete and
consistent with information known to the Committee.
o Review and recommend to the directors the independent auditors to be
selected to audit the financial statements of the corporation.
o Meet with the independent auditors and financial management of the
corporation to review the scope of the proposed audit for the current
year and the audit procedures to be utilized, and at the conclusion
thereof review such audit, including any comments or recommendations
of the independent auditors.
o Review with the independent auditors, the company's financial and
accounting personnel, the adequacy and effectiveness of the accounting
and financial controls and systems of the corporation, and elicit any
recommendations for the improvement of such internal control
procedures and systems or particular areas where new or more detailed
controls or procedures are desirable. Particular emphasis should be
given to the adequacy of such internal controls to expose any
payments, transactions, or procedures that might be deemed illegal or
otherwise improper. Further, the committee periodically should review
company policy statements to determine their appropriateness.
o Review the Company's hedging and risk management systems and policies
o Review the financial statements contained in the annual report to
shareholders with management and the independent auditors to determine
that the independent auditors are satisfied with the disclosure and
content of the financial statements to be presented to the
shareholders. Any changes in accounting principles should be reviewed.
o Provide sufficient opportunity for the independent auditors to meet
with the members of the Committee without members of management
present. Among the items to be discussed in these meetings are the
independent auditors' evaluation of the corporation's financial,
accounting, and auditing personnel, and the cooperation that the
independent auditors received during the course of the audit.
o Review accounting and financial human resources and succession
planning within the company.
o Submit the minutes of all meetings of the Committee to, or discuss the
matters discussed at each Committee meeting with, the board of
directors.
o Investigate any matter brought to its attention within the scope of
its duties, with the power to retain outside counsel for this purpose
if, in its judgment, that is appropriate.
o The audit committee will review their own performance on a continual
basis and make recommendations to the Board for changes to these
"Terms of Reference" and the composition of the committee.
o Have the right, for the purpose of performing its duties, to inspect
all of the books and records of the Company and its affiliates within
the Company's control and to discuss such accounts and records and any
matters relating to the financial position or condition of the Company
with the officers and auditors of the Company and its affiliates.
EXHIBIT 99.3
CERTIFICATIONS BY CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) OF THE EXCHANGE ACT, AS ADOPTED PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATIONS PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Anthony P. Walsh, certify that:
I have reviewed this annual report on Form 40-F of Miramar Mining Corporation;
1. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
2. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
issuer as of, and for, the periods presented in this annual report;
3. The issuer's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the issuer, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the issuer's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the issuer's internal control
over financial reporting that occurred during the period covered by the annual
report that has materially affected, or is reasonably likely to materially
affect, the issuer's internal control over financial reporting; and
5. The issuer's other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
issuer's auditors and the audit committee of the issuer's board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the issuer's ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant
Date: May 18, 2004 By: /s/ Anthony P. Walsh
---------------------------------------
Chief Executive Officer
EXHIBIT 99.4
CERTIFICATIONS BY CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) OF THE EXCHANGE ACT, AS ADOPTED PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATIONS PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Elaine Bennett, certify that:
I have reviewed this annual report on Form 40-F of Miramar Mining Corporation;
1. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
2. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
issuer as of, and for, the periods presented in this annual report;
3. The issuer's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the issuer, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the issuer's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the issuer's internal control
over financial reporting that occurred during the period covered by the annual
report that has materially affected, or is reasonably likely to materially
affect, the issuer's internal control over financial reporting; and
5. The issuer's other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
issuer's auditors and the audit committee of the issuer's board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the issuer's ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant
Date: May 18, 2004 By: /s/ Elaine Bennett
---------------------------------------
Chief Financial Officer
EXHIBIT 99.5
CERTIFICATE OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION PURSUANT
TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Miramar Mining Corporation (the “Company”) on Form 40-F for the period ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anthony P. Walsh, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| May 18, 2004 |
/s/ Anthony P. Walsh
Anthony P. Walsh Chief Executive Officer |
A signed original of this written statement required by Section 906 has been provided to Miramar Mining Corporation and will be retained by Miramar Mining Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 99.6
CERTIFICATE OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION PURSUANT
TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Miramar Mining Corporation (the “Company”) on Form 40-F for the period ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Elaine Bennett, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| May 18, 2004 |
/s/ Elaine Bennett
Elaine Bennett Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to Miramar Mining Corporation and will be retained by Miramar Mining Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 99.7
CONSENT OF KPMG LLP
EXHIBIT 99.8
CONSENT OF GEORGE FRIESEN, P. ENG, CHIEF ENGINEER, GIANT MINE
CONSENT OF
George Friesen, P.Eng.
To the Board of Directors of Miramar Mining Corporation.
I consent to the incorporation by reference in this annual report on Form
40-F of Miramar Mining Corporation for the year ended December 31, 2003, of the
description of the reports, which were prepared under my direct supervision, of
the description of certain mineral resources of the information that forms the
summary of the Giant Gold Mine and the description of certain mineral reserves
of the Giant Gold Mine as at December 31, 2002 and December 31, 2003 and to the
use of my name under in this annual report as a named expert.
Dated as of the 14th day of May 2004
George Friesen, P. Eng.
/s/ George Friesen
------------------------------------
EXHIBIT 99.10
CONSENT OF JOHN WAKEFORD, P. GEO, VICE PRESIDENT EXPLORATION OF THE CORPORATION
EXHIBIT 99.11
CONSENT OF SRK
EXHIBIT 99.12
CONSENT OF
WATTS GRIFFITHS AND McQUAT
EXHIBIT 99.14
CONSENT OF
STEPHEN JURAS
EXHIBIT 99.15
CONSENT OF
GEORGE WAHL
