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Ocean Finance Loans:
Market Cap
£118.19m
Change Today
-18.00p ()
Share Price
213.00p
Update - 3rd Quarter Results
Kirkland Lake Gold Inc
17 March 2008
KIRKLAND LAKE GOLD INC.
P.O. Box 370
Kirkland Lake, ON, P2N 3J7
March 17, 2008 Symbol - TSX & AIM: KGI
Third Quarter Results, Fiscal 2008
Kirkland Lake Gold Inc. (the 'Company') announces the results for its third
fiscal quarter of 2008.
"We are pleased with the development of the South Mine Complex and the high ore
grades realized from the area. We expect this trend to continue throughout
fiscal 2008/9 as considerable management time and resources continues to be
dedicated to infrastructure development and increasing reserves in this area."
commented Harry Dobson, KL Gold's Chairman.
Operational Highlights
----------------------
• Ore grades realized from the South Mine Complex (SMC) for the quarter
were 0.43 ounces of gold per ton (opt). Since the first ore was mined from
this newly discovered area in July 2007, the SMC has produced 23,718 tons at
a head grade of 0.60 opt, making it the highest grade zone in production.
This trend is expected to continue for the remainder of fiscal 2008.
Increasing tonnage from multiple faces on multiple zones will be possible
following the development of access ramps throughout the SMC which will
occur in fiscal 2009, beginning May 1, 2008.
• Development to access the SMC from the 5000 foot level accounted for
70% of all capital development completed during the quarter and 650 feet of
lateral and vertical operating stope development took place on four of the
newly discovered structures on 5300 foot level and two new structures
located at the 5000 foot level.
• Ore tonnage generated from the SMC increased 73% compared to the same
period in the prior year with 5,225 tons milled during the period.
• Exploration drilling to the south continues to expand the SMC and in
particular a subset called the New South Zone. Drill hole 50-866 returned
2.09 opt uncut (1.44 opt cut) over a core length of 30.0 feet on the New
South Zone extending the mineralization to the west. Drill hole 50-854
returned 0.36 opt over a core length of 28.0 feet on the New South Zone,
extending the mineralization to the southeast and increasing the down dip
component by 290 feet.
• Significant mineralization was also realized on the South Claims Joint
Venture with Queenston Mining Inc. Highlights include 2.54 ounces of gold
("opt") uncut (1.58 opt cut) over a core length of 21.5 feet in drill hole
53-909 and 0.75 opt over a core length of 49.2 feet in drill hole 50-901.
Both of these intersections are on the New South Zone and are 1,000 feet
apart from each other, opening up considerable exploration potential on
these claims which were jointly purchased with Queenston Mining in April
2007.
• On February 6, 2008 the Company and Queenston Mining Inc. entered into an
agreement to jointly (50%-50%) purchase a 100% interest in the Kirkland Lake
West property (KL West) in Ontario from Newmont Mining Corporation of Canada
Limited, a subsidiary of Newmont Mining Corporation, for CDN $1 million. The
KL West adjoins the western boundary of KL Gold's Macassa Mine and contains
the western extension of the Main/04 Break Ore horizon from which current
and previous mining operators have produced approximately 24 million ounces
of gold over the last 90 years.
Financial Highlights (compared to the quarter ended January 31, 2007)
---------------------------------------------------------------------
• Gold revenues were 16% higher at $9,576,271 (2007: $8,212,184),
reflecting an 11% increase in the realized gold price in Canadian dollars,
and a 5% increase in ounces sold.
• Operating expenses increased to $10,232,591 (2007: $10,123,751), an
increase of 1%, which reflects increases in mill expenses, depreciation,
inventory adjustments and royalties that were offset by decreases in mining,
environmental, general administration and engineering costs.
• Exploration programs increased 16% to $991,850 (2007: $856,778) as a
consequence of an additional electric drill coming on line on the 5000 level
in the South Mine Complex.
• Capital spending on mine development and equipment increased to $2.0
million (2007: $1.3 million) due to the purchase of underground equipment
and mill end repairs.
• Cash at the end of the nine month period was $34,150,213 (2007:$17,220,986).
Financial Highlights 3 months 9 months
(All amounts in 000s of Canadian ended January 31 ended January 31
Dollars, except shares and per
share figures)
2008 2007 2008 2007
--------------------------------------------------------------------------
Gold Sales (ounces) 11,949 11,351 37,966 37,256
Average Price (per ounce) $801 $723 $744 $701
---------------------------------------------------------------------------
Revenue 9,576 8,212 28,239 26,127
Operating Expenses 10,233 10,124 28,182 28,570
Exploration Expenditure 992 857 3,085 4,002
Net Income (loss) (1,895) (2,530) (4,252) (7,192)
Per share (basic and diluted) (0.03) (0.05) (0.08) (0.14)
Cash Flow from (used) operating 618 15 222 (4,497)
activities
194 1,791 (2,659) 18,341
Cash Flow from financing
activities (1,999) (1,253) (5,162) (6,035)
Cash Flow (used) for investing (1,186) 554 7,402 7,809
activities
18,848 17,221 - -
Net increase (decrease) in cash
90,573 69,473 - -
Cash at end of period
9,961 10,429 - -
Total Assets
32,770 13,770 - -
otal Liabilities
Working Capital
55,676,805 53,152,804 55,394,062 52,824,238
Weighted average number of
shares outstanding NIL NIL NIL NIL
Dividends per share
-------------------------------------------------------------------------------
Qualified Persons
-----------------
The scientific and technical results of the Company's exploration programs and
operations disclosed in this press release have been reviewed, verified
(including sampling, analytical and test data) and compiled by the Company's
geological and production staff (which includes a 'qualified person' in each
department, Stewart Carmichael P.Geo., the Company's Chief Exploration Geologist
in respect of exploration results, and Duncan Middlemiss, P. Eng., the Company's
Mine Manager in respect of production results, for the purpose of National
Instrument 43-101, Standards of Disclosure for Mineral Projects, of the Canadian
Securities Administrators). They also supervised the preparation of the
information that forms the basis of the technical disclosure in this MD&A.
Quality Assurance & Control
The Company has implemented a quality assurance and control (QA/QC) program to
ensure sampling and analysis of all exploration work is conducted in accordance
with the best possible practices. The drill core is sawn in half with half of
the core samples shipped to the Swastika Laboratories in Swastika, Ontario or to
the Macassa mine laboratory for analysis. The other half of the core is retained
for future assay verification. Other QA/QC includes the insertion of blanks, and
the regular re-assaying of pulps/rejects at alternate certified labs (Polymet,
Accurassay). Gold analysis is conducted by fire assay using atomic absorption or
gravimetric finish. The laboratory re-assays at least 10% of all samples and
additional checks may be run on anomalous values
For further information, please contact:
Brian Hinchcliffe Scott Koyich
President Investor Relations
Phone : +1 705 567 5208 Phone : +1 403 215 5979
Fax: +1 705 568 6444 E-mail: info@klgold.com
E-mail: bhinchcliffe@klgold.com
Website: www.klgold.com
Chelsea Hayes Robin Birchall, NOMAD
Pelham Public Relations Canaccord Adams Limited
Phone: +44 (0) 20 7743 6675 Phone: +44 (0) 20 7050 6500
E-mail: chelsea.hayes@pelhampr.com Email: Robin.Birchall@canaccordadams.com
About the Kirkland Lake Gold Inc.
Kirkland Lake Gold Inc. purchased the Macassa Mine and the 1,500 ton per day
mill along with four former producing gold properties - Kirkland Lake,
Teck-Hughes, Lake Shore and Wright Hargreaves - in December 2001. These
properties, which have historically produced some 22 million ounces of gold,
extend over seven kilometres between the Macassa Mine on the west and Wright
Hargreaves on the east and, for the first time, are being developed and explored
under one owner. This camp is located in the Southern Abitibi Greenstone Belt of
Kirkland Lake, Ontario, Canada. The Company's corporate goal is to expand its
gold reserves and to become a profitable gold producer.
Neither the Toronto Stock Exchange nor the AIM Market of the London Stock
Exchange has reviewed and neither accepts responsibility for the adequacy or
accuracy of this news release.
Cautionary Note Regarding Forward Looking Statements
This Press Release may contain statements which constitute 'forward-looking
statements' within the meaning of the Private Securities Litigation Reform Act
of 1995 of the United States of America, including statements regarding the
plans, intentions, beliefs and current expectations of the Company, its
directors, or its officers with respect to the future business activities and
operating performance of the Company. The words "may", "would", "could", "will",
"intend", "plan", "anticipate", "believe", "estimate", "expect" and similar
expressions, as they relate to the Company, or its management, are intended to
identify such forward-looking statements. Investors are cautioned that any such
forward-looking statements are not guarantees of future business activities or
performance and involve risks and uncertainties, and that the Company's future
business activities may differ materially from those in the forward-looking
statements as a result of various factors. Such risks, uncertainties and factors
are described in the Company's periodic filings with the Securities and Exchange
Commission, including the Company's annual report on Form 20-F and current
report on Form 6-K, which may be viewed on EDGAR at www.sec.gov, and its
periodic filings with the Canadian securities regulatory authorities, including
the Company's Annual Information Form and quarterly and annual Management's
Discussion & Analysis, which may be viewed on SEDAR at www.sedar.com. Should one
or more of these risks or uncertainties materialize, or should assumptions
underlying the forward-looking statements prove incorrect, actual results may
vary materially from those described herein as intended, planned, anticipated,
believed, estimated or expected. Although the Company has attempted to identify
important risks, uncertainties and factors which could cause actual results to
differ materially, there may be others that cause results not be as anticipated,
estimated or intended. The Company does not intend, and does not assume any
obligation, to update these forward-looking statements.
KIRKLAND LAKE GOLD INC.
UNAUDITED FINANCIAL STATEMENTS
THREE AND NINE MONTH PERIODS ENDED JANUARY 31, 2008
(EXPRESSED IN CANADIAN DOLLARS)
The accompanying unaudited financial statements of Kirkland Lake Gold Inc. (the
"Company") have been prepared by and are the responsibility of the Company's
management.
These statements have been approved by the Audit Committee and the Board of
Directors of the Company.
The Company's independent auditor has not performed a review of these financials
statements in accordance with standards established by the Canadian Institute of
Chartered Accountants for a reveiw of interim financials statements by an
entity's auditor.
KIRKLAND LAKE GOLD INC.
Balance Sheets
Unaudited)
As at January 31, 2008 and April 30, 2007
(expressed in Canadian dollars, except share amounts)
January 31 April 30
2008 2007
----------------------------
Assets
Current assets
Cash and short-term investments (Note 4) $ 34,150,213 $ 26,748,622
Accounts receivable 1,639,079 1,608,666
Inventories (Note 5) 3,993,780 4,102,165
Prepaid expenses and deposits 126,234 264,590
----------------------------
39,909,306 32,724,043
Mineral properties (Note 6) 35,616,557 34,364,062
Property, plant and equipment (Note 7) 12,778,131 11,460,258
Mine closure bonds (Note 8) 2,269,076 2,220,506
---------------------------
$ 90,573,070 $ 80,768,869
===========================
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 7,139,619 $ 6,317,611
Contingencies - 125,005
Asset retirement obligation (Note 8) 2,822,001 2,700,480
---------------------------
9,961,620 9,143,096
---------------------------
Shareholders' Equity
Capital stock (Note 9)
Authorized
Unlimited common shares without par value
Issued
55,703,312 (2008 - 54,504,019) common shares 153,421,306 140,926,034
Options (Note 10) 1,176,959 674,137
Warrants (Note 11) 677,891 595,163
Contributed surplus (Note 12) 2,954,374 2,797,768
Deficit (77,619,080) (73,367,329)
-----------------------------
80,611,450 71,625,773
-----------------------------
$ 90,573,070 $ 80,768,869
============================
Operations, going concern and measurement uncertainty (Note 1)
Approved by the Board of Directors:
(signed) "Brian E. Bayley" Director (signed) "Brian Hinchcliffe" Director
--------------------------- -----------------------------
The accompnaying notes are an integral part of these interim financial
statements.
KIRKLAND LAKE GOLD INC.
Statements of Operations, Comprehensive Loss and Deficit
(Unaudited)
For the three and nine months ended January 31, 2008 and 2007
(expressed in Canadian dollars, except share amounts)
THREE MONTH THREE MONTH NINE MONTH NINE MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
JANUARY 31 JANUARY 31 JANUARY 31 JANUARY 31
2008 2007 2008 2007
----------------------------------------------------
Mining revenue $ 9,576,271 $ 8,212,184 $ 28,238,708 $ 26,126,929
Operating expenses
Operating costs 8,939,268 8,998,040 24,205,817 25,061,112
Stock-based compensation for
operational personnel
- 428 39,408 16,870
Amortization and depletion 908,397 783,323 2,807,846 2,466,826
Royalties 384,926 341,960 1,129,225 1,025,409
---------------------------------------------------
10,232,591 10,123,751 28,182,296 28,570,217
---------------------------------------------------
Operating margin (656,320) (1,911,567) 56,412 (2,443,288)
----------------------------------------------------
Other expenses
General and administrative 361,511 633,717 1,711,630 1,959,818
Stock-based compensation for
administrative personnel
241,063 6,409 669,174 45,275
Exploration 991,850 856,778 3,084,979 4,002,256
Interest and bank charges 34,126 (26,945) 69,934 51,951
Interest and other income (390,144) (201,400) (1,227,554) (660,062)
----------------------------------------------------
1,238,406 1,268,559 4,308,163 5,399,238
---------------------------------------------------
Loss before future income tax (1,894,726) (3,180,126) (4,251,751) (7,842,526)
recovery
Future income tax recovery - (650,035) - (650,035)
---------------------------------------------------
Loss being Comprehensive Loss (1,894,726) (2,530,091) (4,251,751) (7,192,491)
for the period
Deficit-beginning of period (75,724,354) (69,646,324) (73,367,329) (64,983,924)
----------------------------------------------------
Deficit-end of period $(77,619,080) (72,176,415) (77,619,080) (72,176,415)
=====================================================
Basic and diluted loss per $ (0.03) $ (0.05) $ (0.08) $ (0.14)
share =====================================================
Weighted average number of
shares outstanding 55,676,805 53,152,804 55,394,062 52,824,238
=====================================================
The accompnaying notes are an integral part of these interim financial
statements.
KIRKLAND LAKE GOLD INC.
Statements of Cash Flows
(Unaudited)
For the periods ended January 31, 2008 and 2007
(expressed in Canadian dollars, except share amounts)
THREE MONTH THREE MONTH NINE MONTH NINE MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
JANUARY 31 JANUARY 31 JANUARY 31 JANUARY 31
2008 2007 2008 2007
-------------------------------------------------------
Cash flows from operating
activities
Loss being Comprehensive
Loss for the period $(1,894,726) $(2,530,091) $(4,251,751) $(7,192,491)
Items not affecting cash
Amortization and depletion 908,397 783,323 2,807,846 2,466,826
Stock-based compensation 241,063 6,837 708,582 62,145
Asset retirement obligation 40,507 27,687 121,521 83,061
Gain on sale of equipment - - (28,319) -
Future income tax recovery - (650,035) - (650,035)
Changes in non-cash working
capital items
Accounts receivable 193,853 (43,778) (30,413) 1,854,061
Inventories 472,333 134,295 108,385 486,024
Prepaid expenses and deposits 198,123 (41,460) 138,356 (168,610)
Accounts payable, accrued
liabilities and other
liabilities 476,193 2,328,502 697,003 (1,437,901)
Interest on mine closure bond (17,713) - (48,570) -
--------------------------------------------------
618,030 15,280 222,640 (4,496,920)
=================================================
Cash flows from financing
activities
Net proceeds from issuance of
capital stock and warrants 193,700 1,792,630 12,341,346 17,841,332
Security deposits - (1,225) - 499,388
----------------------------------------------------
193,700 1,791,405 12,341,346 18,340,720
----------------------------------------------------
Cash flows applied to
investing activities
Purchase of property, plant
and equipment (1,057,788) (304,695) (3,077,185) (1,610,898)
Proceeds from disposal of - - 196,798 -
property, plant and equipment
Additions to mineral (940,796) (948,079) (2,282,008) (4,423,839)
properties -----------------------------------------------------
(1,998,584) (1,252,774) (5,162,395) (6,034,737)
-----------------------------------------------------
Increase (decrease) in cash
and cash equivalents (1,186,854) 553,911 7,401,591 7,809,063
Cash and cash equivalents-
Beginning of period 35,337,067 16,667,075 26,748,622 9,411,923
----------------------------------------------------
Cash and cash equivalents-
End of period $ 34,150,213 $ 17,220,986 $ 34,150,213 $ 17,220,986
======================================================
The accompanying notes are an integral part of these interim financial
statements.
KIRKLAND LAKE GOLD INC.
Notes to Unaudited Financial Statements
For the three and nine months ended January 31, 2008 and 2007
(expressed in Canadian dollars)
1. NATURE OF OPERATIONS AND GOING CONCERN
=========================================
Operations
----------
Kirkland Lake Gold Inc. (the Company) owns gold mining and milling operations in
Kirkland Lake, Canada, which were inactive when acquired in December 2001.
Going concern
-------------
While the accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and liquidation of
liabilities during the normal course of operations, certain historical adverse
conditions and events cast substantial doubt upon the validity of this
assumption.
During the years ended April 30, 2007, 2006 and 2005, the Company incurred
losses of $8.4 million, $6.5 million and $28.2 million, respectively. Cash flow
required for operating activities, including exploration costs charged to
operations of $18.0 million, aggregated $37.7 million for the three years in
total. The funds required to continue operations and exploration activities
during this period have been financed primarily from the issue of equity or
convertible debt instruments.
At January 31, 2008, the Company had working capital of $32.8 million.
Management estimates that these funds, together with cash flow from targeted
operations, will be sufficient to meet the Company's obligations and capital
expenditure plans for the next year. However, differences between actual results
and those projected by management may be material. It is possible that the
operations will not generate sufficient cash flow for the Company to continue in
the normal course without funding being provided from outside sources.
While management has been successful in obtaining sufficient funding for the
Company's operating and capital exploration requirements in the past, there is
no assurance that such funding will be available to the Company, or that it will
be available on terms which are acceptable to management. If funding does not
become available, the Company may not be able to continue as a going concern.
These financial statements do not reflect the adjustments to the carrying values
of assets and liabilities and the reported expenses and balance sheet
classifications that would be necessary were the going concern assumption
inappropriate, and these adjustments could be material.
Measurement uncertainty
-----------------------
The Company's history of operating losses from mining operations indicate that
the recorded costs for mineral properties and related property, plant and
equipment may not be recoverable. Management estimates, using a constant gold
price of $600 per ounce and operating costs similar to historical costs incurred
over the past year, that annual production of 50,000 to 60,000 ounces in fiscal
2008 and 80,000 ounces of gold for each year thereafter would be required to
cover costs of operations and estimated capital expenditures required for mining
operations. To date the Company has not been successful in achieving and
sustaining this rate of production. To recover these costs, and the carrying
values of mineral properties and other mining assets over the life of the mine
will require a significant increase in the average tonnes of ore processed and
ounces of gold produced annually compared to the previous three years, a
reduction in the workforce and associated mining costs through the curtailment
of certain development projects, or both.
There is significant uncertainty associated with the ability of the Company to
achieve the increase in production or reduction in costs necessary to recover
the carrying value of the mineral property and related assets. In addition, gold
price or Canadian/U.S. dollar exchange rate movements, the success of the
Company in realizing the benefit of the production improvements noted above,
changes in the costs of labour, and the other costs or unforeseen production
difficulties all would have an impact on the ability of the Company to achieve
its goals from operations. The amount of working capital currently available for
use by the Company could mean that a minor adverse development could have a
significant impact on the Company's operations and ability to recover costs.
2. ADOPTION OF NEW ACCOUNTING STANDARDS
=======================================
Effective January 1, 2007, the Company adopted Canadian Institute of Chartered
Accountants ("CICA") Handbook Section 1530, Comprehensive Income, CICA Handbook
Section 3855, Financial Instruments Recognition and Measurement and CICA
Handbook Section 3251, which introduces a new component of equity referred to as
accumulated other comprehensive income.
Under these new standards, all financial instruments included on the balance
sheet are either classified as held for trading, held£to£maturity investments
or available£for£sale and are measured either at fair market value or, in
limited circumstances, at cost or amortized cost. The unrealized gain or loss
arising from a change in the fair value of a financial asset classified as
available£for£sale is recognized in other comprehensive income until the
financial instrument is derecognized and the cumulative gains or losses are then
recognized in earnings. The Company is recognizing gains and losses on its
instruments classified as available£for£sale in other comprehensive income,
and these instruments are described in Note 16.
The initial adoption of these new standards had no material impact on the
Company's financial statements.
3. SIGNIFICANT ACCOUNTING POLICIES
==================================
(a) BASIS OF PRESENTATION
The accompanying unaudited interim financial statements are prepared in
accordance with generally accepted accounting principals ("GAAP") in Canada.
They do not include all of the information and disclosures required by Canadian
GAAP for annual audited financial statements. In the opinion of management, all
adjustments considered necessary for fair presentation have been included in
these financial statements. The interim financial statements should be read in
conjunction with the Company's financial statements including the notes thereto
for the year ended April 30, 2007.
(b) SHORT-TERM INVESTMENTS
Short-term investments include Government of Canada 90 day Treasury Bills and
deposits with major International and Canadian banks. The Company also holds a
small investment in a private fund company. All short-term investments are
carried at market value.
4. CASH AND SHORT-TERM INVESTMENTS
===================================
Cash and short-term investments includes:
Cash $ 14,169,803
Letters of Credit:
Ministry of Northern Development and Mines 4,452,975
Independent Electrical System Operator of Ontario 225,000
Short£term Investments:
Government of Canada 90 day Treasury Bills 14,999,898
Investment in Mutual Fund for Employees 237,537
Deposit in favour of Great West Life 65,000
---------------
$ 34,150,213
===============
Letters of credit are in place with the Ministry of Northern Development and
Mines to cover the estimated total costs of reclamation and site restoration
(Note 8) and with the Independent Electrical System Operator of Ontario to
secure the provision of electricity.
Government of Canada 90 day Treasury Bills bear interest at 3.75% per annum and
mature on 17 April, 2008.
5. INVENTORIES
==============
JANUARY 31 APRIL 30
2008 2007
---------------------------
Mine operating supplies $ 1,211,391 $ 1,184,806
Gold in process 2,782,389 2,694,267
Surface stockpile - 223,092
$ 3,993,780 $ 4,102,165
6. MINERAL PROPERTIES
=====================
JANUARY 31 APRIL 30
2008 2007
Balance - Beginning of period $ 34,364,062 $ 29,986,447
Additions:
Development costs 2,469,507 6,044,890
Depletion (1,217,012) (1,667,275)
------------------------------
Balance - End of period $ 35,616,557 $ 34,364,062
==============================
ACCUMULATED JANUARY 31 APRIL 30
COST DEPLETION 2008 2007
---------------------------------------------------
Acquisition allocation $ 1,265,522 $ 173,898 $ 1,091,624 $ 873,687
Underground development
37,415,033 5,433,693 31,981,340 30,850,669
Underground pumping 2,050,942 418,400 1,632,542 1,694,129
Mill & surface facilities 149,371 31,193 118,178 122,663
Lakeshore property 1,000,411 207,538 792,873 822,914
-----------------------------------------------------
$ 41,881,279 $ 6,264,722 $ 35,616,557 $ 34,364,062
=====================================================
7. PROPERTY, PLANT AND EQUIPMENT
================================
ACCUMULATED JANUARY 31
COST AMORTIZATION 2008
NET
----------------------------------------
Computer equipment $ 706,471 $ 542,823 $ 163,648
Mine and mill equipment 19,598,133 7,353,582 12,244,551
Vehicles 129,493 96,009 33,484
Buildings 591,822 255,374 336,448
-----------------------------------------
$ 21,025,919 $ 8,247,788 $ 12,778,131
==========================================
ACCUMULATED APRIL 30
COST AMORTIZATION 2007
NET
-------------------------------------------
Computer equipment $ 647,830 $ 428,327 $ 219,503
Mine and mill equipment 16,723,590 5,992,127 10,731,463
Vehicles 129,493 76,587 52,906
Buildings 688,926 232,540 456,386
-------------------------------------------
$ 18,189,839 $ 6,729,581 $ 11,460,258
===========================================
8. ASSET RETIREMENT OBLIGATION
==============================
The Company has assumed responsibility for the reclamation and site restoration
plans originally filed with the Ontario Ministry of Northern Development and
Mining (MNDM) in connection with all the Kirkland Lake properties. The estimated
total costs of reclamation and site restoration at January 31, 2008 are
$4,452,975 and financial assurance has been provided to the MNDM by way of mine
closure bonds in the amount of $2,269,076. Pending the approval of the January
2008 Mine Closure Plan submission to the Ministry of Northern Development &
Mines, the company is likely to receive back the existing $2.2 million bond.
A reconciliation for asset retirement obligations is as follows:
JANUARY 31 APRIL 30
2008 2007
----------------------------
Balance - Beginning of year $ 2,700,480 $ 1,845,780
Revision to estimate cash flows - 743,952
Accretion 121,521 110,748
----------------------------
Balance - End of period $ 2,822,001 $ 2,700,480
=============================
There were no liabilities incurred or settled during fiscal 2008 and 2007.
The provision for asset retirement obligations is based on the following key
assumptions.
• The total undiscounted cash flow as at January 31, 2008 is $4,452,975.
• The expected settlement to be in 2020.
• A credit adjusted risk free rate at which the estimated payments have been
discounted of 6%.
• An inflation rate of 2%.
9. CAPITAL STOCK
================
Number of Stated
shares value
-------------------------------
Balance - Beginning of period 54,504,019 $ 140,926,034
Exercise of options (Note 10) 60,500 333,004
Exercise of warrants (Note 11) 670,924 7,639,865
Private placements 467,869 5,317,500
Share issuance costs - (117,206)
Share proceeds allocated to warrants - (677,891)
--------------------------------
Balance - End of period 55,703,312 $ 153,421,306
================================
(a) On May 10, 2007, the Company issued 12,940 common shares valued at $125,000
for the first tranche related to the purchase of the South Claims. On January 8,
2008 the Company issued 4,929 shares valued at $62,500 for the second tranche
related to the purchase of the South Claims.
(b) On September 25, 2007 the Company closed a brokered private placement of
450,000 units at a price of $11.40 per unit for gross proceeds of $5,130,000.
Each unit consisted of one common share and one half of a share purchase
warrant. Each whole warrant is exercisable to purchase a further common share at
a price of $13.00 for a period of two years. The Company incurred commissions,
fees and legal costs totalling $110,572 in connection with this placement. The
share purchase warrants issued as part of this placement have been recorded at a
fair value of $677,891.
10. OPTIONS
============
The Company has adopted a stock option plan. The plan allows the Company to
grant options to directors, senior officers and employees of or consultants to
the Company or employees of a corporation providing management services to the
Company. The aggregate number of shares which may be subject to issuance
pursuant to options granted under this plan is 3,500,000 shares.
The plan provides that the exercise price of an option granted under the plan
shall not be less than the market price at the time of granting the option.
Options have a maximum term of 10 years and terminate on the 90th day after the
optionee ceased to be any of a director, officer, consultant or employee; on the
30th day after the optionee ceased to be an employee or consultant if the
optionee was engaged in providing investor relations services for the Company;
or the earlier of the 90th day and the third month after the optionee ceased to
be an employee or officer if the optionee is subject to the tax laws of the
United States of America.
Notwithstanding that options can have a maximum term of 10 years it is presently
the policy of the Company to issue options for terms of five years.
The changes in stock options issued during the 9 month period ended January 31,
2008 are as follows:
Weighted
average
Number of exercise
shares price
--------------------------
Options outstanding - May 1 561,000 $ 7.09
Granted 40,000 12.50
Exercised (60,500) 4.69
Forfeited (120,000) 8.65
--------------------------
Options outstanding - January 31 420,500 $ 7.50
==========================
Options exercisable - January 31 258,000 $ 6.19
=========================
The following table summarizes information about stock options outstanding and
exercisable at January 31, 2008:
Exercise price Options Options Outstanding Exercisable
outstanding exercisable options options
weighted weighted
average average
remaining remaining
life (years) life (years)
-----------------------------------------------------------------------------
2.80 10,000 10,000 0.54 0.54
3.95 106,000 106,000 0.82 0.82
4.70 19,500 19,500 1.65 1.65
8.65 245,000 122,500 4.00 1.90
12.50 40,000 - 4.73 -
----------------------------------------------------------------------------
2.80 - 12.50 420,500 258,000 3.08 2.38
============================================================================
The Company grants all employee stock options with an exercise price equal to
the market value of the underlying common shares on the date of grant.
Compensation costs for all grants under the employee stock option plan have been
determined by the fair value method. Compensation expense recorded for the nine
months ended January 31, 2008 was $708,582.
The fair value of each option at the date of grant was estimated using the Black
£Scholes option£pricing model.
JANUARY 31 APRIL 30
2008 2007
-----------------------------
Expected life of options 5 years 5 years
Risk-free interest rate 4 - 5% 4 -5%
Expected stock price volatility 50% 50%
Expected dividend yield 0% 0%
Option pricing models require the input of highly subjective assumptions
including the expected price volatility. Changes in the subjective input
assumptions can materially affect the fair value estimate, and therefore, the
existing models do not necessarily provide a reliable measure of the fair value
of the Company's stock options.
For the nine month period ended January 31, 2008, the value ascribed to
unexercised options recorded as a component of shareholders' equity is as
follows:
JANUARY 31 APRIL 30
2008 2007
---------------------------
Balance - Beginning of period $ 674,137 $ 1,079,766
Accretion of options granted 708,582 347,853
Exercise of options (49,154) (753,482)
Options forfeited (156,606) -
----------------------------
Balance - End of period $ 1,176,959 $ 674,137
============================
11. WARRANTS
============
The changes in warrants outstanding are as follows:
Weighted
average
Number of exercise
shares price
--------------------------
Warrants outstanding - May 1, 2007 670,924 $ 10.50
Granted 225,000 13.00
Exercised (670,924) 10.50
--------------------------
Warrants outstanding - January 31, 2008 225,000 $ 13.00
==========================
The value ascribed to unexercised warrants recorded as a component of
shareholders' equity is as follows:
JANUARY 31 APRIL 30
2008 2007
----------------------------
Balance - Beginning of period $ 595,163 $ -
Unit proceeds allocated to warrants - (55,298)
Warrants issued in private placement 677,891 879,467
Exercise of warrants (595,163) (229,006)
----------------------------
Balance - End of period $ 677,891 $ 595,163
============================
12. CONTRIBUTED SURPLUS
=======================
JANUARY 31 APRIL 30
2008 2007
-----------------------------
Balance - Beginning of period $ 2,797,768 $ 2,797,768
Forfeited options 156,606 -
-----------------------------
Balance - End of period $ 2,954,374 $ 2,797,768
=============================
13. RELATED PARTY TRANSACTIONS
==============================
The following related party transactions occurred during the period:
The Company paid office facilities and administration services in the amount of
$10,500 (2006 - $10,500) to a Company related by a director and officer in
common.
These transactions were in the normal course of operations and were measured at
the exchange value which represented the amount of consideration established and
agreed to by the related parties.
14. CAPITAL DISCLOSURES
=======================
The Company's objectives when managing capital are:
(a) to safeguard the Company's ability to continue as a going concern.
(b) to raise sufficient proceeds from share issuances to meet any deficiencies
in operations.
(c) to provide sufficient funding to support ongoing exploration and capital
develpment plans.
The Company is required by the Toronto Stock Exchange to have sufficient working
capital to finance 18 months of general and administrative expenditures.
Management are also required to ensure the Company has adequate working capital
and an appropriate capital structure to carry on its business.
15. SEGMENTED INFORMATION
=========================
The Company has one operating segment consisting of a mining and milling
operation located in Kirkland Lake, Canada. During the periods ended January 31,
2008 and 2007 all of the Company's capital assets and operations were in Canada.
16. FINANCIAL INSTRUMENTS
=========================
The Company's financial instruments consist of cash and cash equivalents, short
term investments, security deposits, accounts receivable, mine closure bonds,
accounts payable and accrued liabilities and other liabilities. At January 31,
2008, the carrying values of these instruments approximate their fair values
based on the nature of these instruments. Unless otherwise noted, it is
management's opinion that the Company is not exposed to significant interest,
currency or credit risks arising from these financial instruments.
As at April 30, 2007, the Company had an outstanding commodity contract with
Johnson Matthey to fix the price of 232 ounces of gold at an average price of
$753 per ounce to be delivered under this contract. Fair value was not
significantly different from stated value. As at January 31, 2008, the Company
did not have any outstanding contracts.
17. SUBSEQUENT EVENTS
=====================
(a) On February 6, 2008 the Company and Queenston Mining Inc. entered into an
agreement to jointly (50%-50%) purchase a 100% interest in the Kirkland Lake
West ("KL West") property in Ontario from Newmont Mining Corporation of Canada
Limited, a subsidiary of Newmont Mining Corporation for CDN $1 million.
Management's Discussion & Analysis ('MD&A')
Third Quarter - Fiscal 2008
This MD&A is intended to help the reader understand Kirkland Lake Gold Inc.
('us', 'KGI' or 'the Company'), our operations and our present business
environment.
This MD&A has been prepared as of March 13, 2008 and covers the results of
operations for the quarter and nine month period ended January 31, 2008. It is
intended to supplement the unaudited Financial Statements and notes thereto
which are expressed in Canadian Dollars and prepared in accordance with Canadian
Generally Accepted Accounting Principles. This MD&A should be read in
conjunction with both the annual audited financial statements and notes thereto
for the year ended April 30, 2007 and the related annual MD&A. Additional
information relating to the Company is available from the Company's Annual
Information Form ('AIF') filed with the Canadian securities regulators on SEDAR
at www.sedar.com.
FORWARD LOOKING INFORMATION
===========================
Certain statements in this document constitute 'forward looking statements' and
these statements are made as of the date hereof. Any forward looking statements
are based upon reasonable assumptions, but no guarantees or assurances can be
given that actual results will be consistent with such statements.
Forward looking statements involve known and unknown risks, uncertainties and
other factors, which may cause actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by such forward looking statements. Such risks,
uncertainties and other factors include, but are not limited to, the following:
* Risks inherent in the natural resource exploration, development and
production
* Lack of operating cash flow and the Company's dependency on additional
capital
* Competition in the mineral exploration and mining industries
* Governmental regulation and environmental liability
* Uncertainty of title of resource properties
* Results of legal claims made by or against the Company
A comprehensive list of the risks and uncertainties are set out in the Company's
AIF. Readers should not place undue reliance on any forward looking statements.
OUR BUSINESS
============
The Company is an operating gold mining company located in Kirkland Lake,
Ontario, which owns the Macassa Mine and Mill and four contiguous former gold
producing properties. The Company's corporate goal is to expand its gold
reserves and to become a profitable gold producer.
The Company's common shares trade on the TSX (Toronto Stock Exchange) and on the
AIM (Alternative Investment Market) of the London Stock Exchange.
OPERATIONS REVIEW - INCLUDING A REVIEW OF REVENUES AND COSTS
============================================================
The loss for the quarter ended January 31, 2008 was $1,894,726 or $0.03 per
share, which compares with a loss of $2,393,263 or $0.04 per share for the
previous quarter and a loss of $2,530,091 or $0.05 per share for the same period
of fiscal 2007. The reasons for the decrease in this loss are discussed below.
During the quarter:
• 40,813 tons of rock were hoisted from underground operations, of which
30,944 tons were milled as ore producing 10,079 ounces of gold (2007-Q3:
hoisted tons: 43,821, milled tons: 33,368, and 10,348 ounces). In the
previous quarter: 35,908 tons were hoisted, 23,579 tons were milled, and
from that 11,460 ounces were produced.
• Ore grade to the mill was 0.3394 ounces of gold per ton (opt) for the
quarter, which is 6% higher than the third quarter of fiscal 2007 (2007-
Q3: 0.321 opt). The head grade for the current fiscal year to date is 0.399
opt compared 0.343 opt in the same period of fiscal 2007. This is a
consequence of increased mining of higher-grade deposits in the SMC.
• As a percentage of hoisted ore tons during the third quarter, the l
ong-hole mining method only contributed 22% (6,677 tons long-hole/ 30,337
tons total) compared to 50% (17,027 tons long-hole/ 33,801 tons total) in
the same quarter of fiscal 2007. Compared to the previous quarter
(2008-Q2: 12%), long-hole tons rose 10%. The slight increase over the last
quarter was due to more longhole mining opportunities in the Upper D-Zone.
Longhole dilution results have been reduced due primarily to a modified
drill pattern.
• Ore tonnage generated from the SMC during the quarter accounted for
5,225 tons or nearly 17% of the quarterly milled tonnage compared to the
third quarter of fiscal 2007 when production from this zone was 3,102 ore
tons or 9% of milled tons. (2008-Q2: 3,251 ore tons, 14% of milled tons)
• Ore grades realized from the SMC for the quarter were 0.43 opt. Since
the first ore was mined from this newly discovered area in July 2007, the
SMC has produced 23,718 tons at a head grade of 0.60 opt, making it the
highest grade zone in production. This trend is expected to continue for
the remainder of fiscal 2008 as considerable management time and resources
continues to be dedicated to infrastructure development and increasing
reserves in this area. Increasing tonnage from multiple faces on multiple
zones will be possible following the development of access ramps throughout
the SMC which will occur in fiscal 2009, beginning May 1, 2008.
• 292 feet of lateral flow-through development was completed by December 31,
2007 providing access through the 5300 foot level for diamond drill
platforms to further explore and define the SMC.
• 2,213 feet (2007-Q3: 2,214 feet) of lateral and vertical operating
stope development was completed. Zone development within the New South Zones
accounted for 650 feet and took place on four of the newly discovered
structures on the 5300 foot level and two new structures located at the 5000
foot level. During the third quarter of fiscal 2008, a significant portion
of stope development also occurred in the Upper D-Zone and in the existing
ore blocks within the '04 Break.
• 757 feet (2007-Q3: 1,069 feet) of capital drift and raise development
was completed, a decrease of 29% primarily due to the completion of a bored
waste pass from 5000 - 5600 foot levels in fiscal 2007- Q3. Development to
access the new South Mine Complex (SMC) from the 5000 foot level accounted
for 70% of all capital development.
--------------------------------------------------------------------------------
| | 3 months | 9 months |
| | | |
| | ended January 31 | ended January 31 |
|Financial Highlights | | |
| | | |
|(All amounts in 000s of +-----------+-----------+-----------+----------+
|Canadian Dollars, except shares| 2008 | 2007 | 2008 | 2007 |
|and per share figures) | | | | |
| | | | | |
+-------------------------------+-----------+-----------+-----------+----------+
| | | | | |
| | | | | |
|Gold Sales (ounces) | 11,949 | 11,351 | 37,966 | 37,256 |
| | | | | |
|Average Price (per ounce) | $801 | $723 | $744 | $701 |
+-------------------------------+-----------+-----------+-----------+----------+
| | | | | |
|Revenue | 9,576 | 8,212 | 28,239 | 26,127 |
| | | | | |
|Operating Expenses | 10,233 | 10,124 | 28,182 | 28,570 |
| | | | | |
|Exploration Expenditure | 992 | 857 | 3,085 | 4,002 |
| | | | | |
|Net Income (loss) | (1,895) | (2,530) | (4,252) | (7,192) |
| | | | | |
|Per share (basic and diluted) | (0.03) | (0.05) | (0.08) | (0.14) |
| | | | | |
|Cash Flow from (used) operating| 618 | 15 | 222 | (4,497) |
|activities | | | | |
| | 194 | 1,791 | (2,659) | 18,341 |
|Cash Flow from financing | | | | |
|activities | (1,999) | (1,253) | (5,162) | (6,035) |
| | | | | |
|Cash Flow (used) for investing | (1,186) | 554 | 7,402 | 7,809 |
|activities | | | | |
| | 18,848 | 17,221 | - | - |
|Net increase (decrease) in cash| | | | |
| | 90,573 | 69,473 | - | - |
|Cash at end of period | | | | |
| | 9,961 | 10,429 | - | - |
|Total Assets | | | | |
| | 32,770 | 13,770 | - | - |
|Total Liabilities | | | | |
| | | | | |
|Working Capital | | | | |
| |55,676,805 |53,152,804 |55,394,062 |52,824,238|
|Weighted average number of | | | | |
|shares outstanding | NIL | NIL | NIL | NIL |
| | | | | |
|Dividends per share | | | | |
+-------------------------------+-----------+-----------+-----------+----------+
Compared to the quarter ended January 31, 2007:
• Gold revenues were 16% higher at $9,576,271 (2007: $8,212,184), reflecting
an 11% increase in the realized gold price in Canadian dollars, and a 5%
increase in ounces sold.
• Operating expenses increased to $10,232,591 (2007: $10,123,751), an
increase of 1%, which reflects increases in mill expenses, depreciation,
inventory adjustments and royalties that were offset by decreases in mining,
environmental, general administration and engineering costs.
• Exploration programs increased 16% to $991,850 (2007: $856,778) as a
consequence of an additional electric drill coming on line on the 5000 level
in the South Mine Complex.
• Capital spending on mine development and equipment increased to $2.0
million (2007: $1.3 million). There was 29% less capital development
performed in 2008-Q3 (757 feet) versus the same period, 2007-Q3
(1,069 feet). A major contributor to higher level of development in fiscal
2007 was a raise bore hole - no such development took place in fiscal 2008.
The decrease in capital development was offset by an increase in the
purchase of underground equipment and mill end repairs.
• Net proceeds from financing activities were $1.6 million lower as no
flow through financing was completed in the current quarter. (2007-Q3: $1.8
million)
• Cash and short-term investments at the end of the nine month period
was $34,150,213 (2007: $17,220,986). Cash and short-term investments include
$15 million of Government of Canada 90 day Treasury Bills and further
information is disclosed in Note 4 of the accompanying financial statements.
For the first nine months and compared to the same period in fiscal 2007:
• Gold revenues were 7% higher at $28,238,708 (2007: $26,126,929),
reflecting a 1% increase in ounces sold and a 6% increase in the realized
gold price in Canadian dollars.
• Operating expenses decreased marginally to $28,182,296 (2007:
$28,570,217), a decrease of 1%. This decrease in spending reflects increases
in mining, depreciation, amortization and royalties, which were offset by
decreases in mill processing, general administration, and inventory
adjustment expenses.
• Exploration expenditure fell 23% to $3,084,979 (2007: $4,002,256) as a
result of an increase in the level of definition drilling and recovery of
costs associated with our exploration joint venture with Queenston.
• Capital spending on mine development and equipment fell 15% ($0.8 million)
to $5.2 million (2007: $6.0 million). This change is consistent with the
absolute lower level of capital development, offset by an increase in the
purchase of capital equipment.
• Cash flows from financing activities was $6 million lower than for the
same period last year. This decrease is a result of a net decrease of $5.5
million on the issuance of common shares and common share purchase warrants
(including $1.8 million of flow through financing) and a $0.5 million
reduction in security deposits received from our former bankers.
Summary of Quarterly Results
----------------------------
The quarterly results for the Company for the last eight fiscal quarters are set
out in the following table.
+--------------------------------+----------+----------+----------+---------+
|All amounts in 000s of Canadian | 4th | 3rd | 2nd | 1st |
|Dollars, except Loss per share | | | | |
|figures | Quarter | Quarter | Quarter | Quarter |
+--------------------------------+----------+----------+----------+---------+
|Fiscal 2008 | | | | |
+--------------------------------+----------+----------+----------+---------+
|Revenue | | 9,576 | 7,362 | 11,300 |
+--------------------------------+----------+----------+----------+---------+
|Net Loss | | (1,895) | (2,393) | 36 |
+--------------------------------+----------+----------+----------+---------+
|Loss per Share (Basic & Diluted)| | (0.03) | (0.04) | (0.0) |
+--------------------------------+----------+----------+----------+---------+
|Fiscal 2007 | | | | |
+--------------------------------+----------+----------+----------+---------+
|Revenue | 10,529 | 8,212 | 9,398 | 8,517 |
+--------------------------------+----------+----------+----------+---------+
|Net Loss | (1,191) | (2,530) | (1,367) | (3,295) |
+--------------------------------+----------+----------+----------+---------+
|Loss per Share (Basic & Diluted)| (0.02) | (0.06) | (0.03) | (0.06) |
+--------------------------------+----------+----------+----------+---------+
|Fiscal 2006 | | | | |
+--------------------------------+----------+----------+----------+---------+
|Revenue | 10,632 | | | |
+--------------------------------+----------+----------+----------+---------+
|Net Loss | (2,464) | | | |
+--------------------------------+----------+----------+----------+---------+
|Loss per Share (Basic & Diluted)| (0.04) | | | |
+--------------------------------+----------+----------+----------+---------+
A major capital development program involving substantial ramp, raise and drift
development will start in fiscal 2009. These developments will provide access to
new high grade ore stopes between the 5000 foot level to 5600 foot level
elevations of the South Mine Complex.
Compared to the same quarter in fiscal 2007, the number of full time employees
has increased 12% from 200 to 224. The Company's successful training program is
a contributing factor to this increase, being effective in attracting and
retaining new young talent within the company. In addition to the program, the
Company's improved personnel development processes and employee retention
schemes have aided in retaining employees in this highly competitive industry.
The Company had an excellent year in calendar 2007 with regards to safety. There
were no lost time accidents on the property (including contractors) and the
Company will receive the Angus Campbell Award for Safety on March 19, 2008,
which recognises zero frequency for lost time associated with accidents.
Management have also achieved a dramatic decrease in medical aid injury
frequency. In calendar 2007, medical aid injury frequency decreased by more than
half to 1.9, with only 4 medical aid injuries being reported as compared to 4,
with 9 injuries being reported for 2006. In recognition of these positive safety
results, the Company received a $400,000 worker's compensation funding rebate
during the quarter.
Subsequent Events
-----------------
On February 6, 2008 the Company and Queenston Mining Inc. entered into an
agreement to jointly (50%-50%) purchase a 100% interest in the Kirkland Lake
West property ("KL West") in Ontario from Newmont Mining Corporation of Canada
Limited, a subsidiary of Newmont Mining Corporation, for CDN $1 million. The KL
West adjoins the western boundary of KL Gold's Macassa Mine and contains the
western extension of the Main/04 Break Ore horizon from which current and
previous mining operators have produced approximately 24 million ounces of gold
over the last 90 years.
Exploration Update
------------------
Exploration drilling to the south continues to expand the South Mine Complex and
in particular a subset of the SMC called the New South Zone. Drill hole 50-866
returned 2.09 opt uncut (1.44 opt cut) over a core length of 30.0 feet on the
New South Zone extending the mineralization to the west. Drill hole 50-854
returned 0.36 opt over a core length of 28.0 feet on the New South Zone,
extending the mineralization to the southeast and increasing the down dip
component by 290 feet.
Other significant intersections in the New South Zone included drill hole 53-897
which returned 0.58 opt over a core length of 23.3 feet and drill hole 50-854W
which returned 0.99 opt over a core length of 20.8 feet. For more information
visit our website at www.klgold.com.
Qualified Persons
-----------------
The scientific and technical results of the Company's exploration programs and
operations disclosed in this MD&A have been reviewed, verified (including
sampling, analytical and test data) and compiled by the Company's geological and
production staff (which includes a 'qualified person' in each department,
Stewart Carmichael P.Geo., the Company's Chief Exploration Geologist in respect
of exploration results, and Duncan Middlemiss, P. Eng., the Company's Mine
Manager in respect of production results, for the purpose of National Instrument
43-101, Standards of Disclosure for Mineral Projects, of the Canadian Securities
Administrators). They also supervised the preparation of the information that
forms the basis of the technical disclosure in this MD&A.
Quality Assurance & Control
---------------------------
The Company has implemented a quality assurance and control (QA/QC) program to
ensure sampling and analysis of all exploration work is conducted in accordance
with the best possible practices. The drill core is sawn in half with half of
the core samples shipped to the Swastika Laboratories in Swastika, Ontario or to
the Macassa mine laboratory for analysis. The other half of the core is retained
for future assay verification. Other QA/QC includes the insertion of blanks, and
the regular re-assaying of pulps/rejects at alternate certified labs (Polymet,
Accurassay). Gold analysis is conducted by fire assay using atomic absorption or
gravimetric finish. The laboratory re-assays at least 10% of all samples and
additional checks may be run on anomalous values.
OUTLOOK
=======
The Company continues to
• invest heavily in its people and equipment to improve production and
partially finance the ongoing exploration program, and
• attract and retain underground employees by adopting and implementing best
practices in its employee relations, investing in training programs and
promoting employee retention schemes.
Production forecasts for fiscal year ending April 30, 2008 indicate revised
annual gold production in the range of 50,000 ounces. See 'Forward Looking
Information' for a description of the factors that may cause actual results to
differ from this forecast.
Mine design to access and recover ore from higher grade zones in the SMC
continues, as well as ongoing definition drilling and development which is
needed to provide valuable geotechnical information and insight into future mine
plans.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
===================================================
To date, the Company has relied significantly on private placement financings of
equity securities to finance its operations. With current cash resources and
expenses exceeding income at this stage, the liquidity risk could be material. A
series of cost reduction measures as well as control process improvements have
been implemented to tighten expenditure controls. However, success will depend,
for the most part, upon increased production as well as the Company's ability to
add reserves as cost effectively as possible.
Sales of gold dore bars and the majority of the Company's expenses are incurred
in Canadian Dollars therefore the Company is substantially protected against
movements in foreign exchange. The Company's principal exchange rate risk
relates to movements between the Canadian Dollar and US Dollar on the price of
gold.
Our holding of cash balances is kept under constant review and surplus funds are
held on deposit at the best available market rates set by reference to the
prevailing Prime Rate. There are no fixed, floating rate or interest free
financial liabilities by way of borrowing.
Cash and short-term deposits were as follows:
+-----------------+-------------+-------------+-------------+
|Currency | At January | At October | At January |
| | 31, 2008 | 31, 2007 | 31, 2007 |
| | | | |
| | | | |
+-----------------+-------------+-------------+-------------+
|Canadian Dollars | 34,130,197 | 34,747,404 | 16,992,468 |
+-----------------+-------------+-------------+-------------+
|US Dollars | 20,016 | 18,700 | 228,518 |
+-----------------+-------------+-------------+-------------+
|Total | 34,150,213 | 34,766,104 | 17,220,986 |
+-----------------+-------------+-------------+-------------+
Interest received on Canadian Dollar deposits range from 3.5 - 4% per year and
interest received on US dollar balances is currently 2.25% per year. A breakdown
of cash and short-term deposits is available in Note 4 of the accompanying
Financial Statements.
The Company generated $618,030 in operating cash flows during the quarter. This
was primarily a consequence of a reduction in net losses.
Net proceeds from financing activities was $197,700, resulting from the exercise
of common share purchase warrants.
Cash flow applied to investing activities of $1,998,584 was higher than in
previous quarters as a result of an increase in the purchase of underground
mobile equipment.
The Company's cash resources of $34,150,213 are expected to be sufficient to
fund the Company's planned exploration and development activities for the next
12-18 months. As at March 13, 2008, the Company had cash resources of
$33,086,285.
Financial Instruments
---------------------
The Company's financial instruments as at year end consist of cash and cash
equivalents, short-term investments, security deposits, accounts receivable,
accounts payable, and other liabilities. At January 31, 2008, the carrying
values of these instruments approximate their fair values based on the nature of
these instruments. Unless otherwise noted, it is management's opinion that the
Company is not exposed to significant interest, currency or credit risks arising
from these financial instruments.
As at year ended April 30, 2007, the Company had an outstanding commodity
contract with Johnson Matthey Plc. to fix the price of 232 ounces of gold at an
average price of $753 per ounce to be delivered under this contract. Fair value
was not significantly different from stated value when the gold was delivered on
May 9, 2007. As at January 31, 2008, the Company did not have any outstanding
contracts.
Commitments
-----------
At the end of January 2008, the Company submitted a revised closure plan to the
Ministry of Northern Development & Mines of the Province of Ontario. If this
plan is approved, the value of the closure obligation will increase from
$2,235,829 to $4,452,975. A letter of credit has been arranged through HSBC Bank
Canada to cover the Company's obligation and is disclosed in Note 4 of the
accompanying financial statements. The existing mine closure bond of $2.2
million is likely to be returned upon the approval of the revised plan.
Related Party Transactions
--------------------------
Pursuant to an agreement between the Company and Quest Management Ltd., the
Company pays $3,500 per month to Quest in consideration of Quest providing
corporate and accounting services to the Company. During the quarter, the total
fees paid to Quest for services performed under the agreement were $10,500. Year
to date, the total fees paid to Quest were $31,500 (2007: $32,500). Quest is a
private management company and has one director in common and a corporate
secretary in common with the Company.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
==========================================
The details of the Company's accounting policies are presented in accordance
with Canadian generally accepted accounting principles (GAAP) as set out in Note
2 to the financial statements. The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts 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 year. The preparation
of the Company's financial statements depend upon estimates of proven and
probable reserves, measured and indicated mineral resources and recoverable
ounces, assumptions of operating costs and future gold prices and possible
values assigned to potential resources on exploration properties. Such estimates
and assumptions affect the cost recovery of long-lived assets and the rate at
which depletion and amortization are charged to earnings. In addition,
management must estimate costs associated with mine reclamation and closure
costs.
The following estimates are considered by management to be the most critical for
investors to understand some of the processes and reasoning that go into the
preparation of the Company's financial statements, providing some insight also
to uncertainties that could impact the Company's financial results.
Going Concern
-------------
While the annual financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and liquidation of
liabilities during the normal course of operations, certain historical adverse
conditions and events cast substantial doubt upon the validity of this
assumption.
During the years ended April 30, 2007, 2006 and 2005, the Company incurred
losses of $8.4 million, $6.5 million and $28.2 million, respectively. Cash flow
required for operating activities, including exploration costs charged to
operations of $18.0 million, aggregated $37.7 million for the three years in
total. The shortfall in operating activities and exploration funds during this
period have been financed primarily from the issue of equity and convertible
debt instruments.
At January 31, 2008, the Company had working capital of $32.8 million and spent
$1.8 million of eligible flow£through expenditures before December 31, 2007.
Management estimates that these funds, together with cash flow from targeted
operations, will be sufficient to meet the Company's obligations and capital
expenditure plans for the next 12-18 months. However, differences between actual
results and those projected by management may be material. It is possible that
the operations will not generate sufficient cash flow for the Company to
continue in the normal course without funding being provided from outside
sources.
While management has been successful in obtaining sufficient funding for the
Company's operating and capital exploration requirements in the past, there is
no assurance that such funding will be available to the Company, or that it will
be available on terms which are acceptable to management. If funding does not
become available, the Company may not be able to continue as a going concern.
These financial statements do not reflect the adjustments to the carrying values
of assets and liabilities and the reported expenses and balance sheet
classifications that would be necessary were the going concern assumption
inappropriate, and these adjustments could be material.
Measurement Uncertainty
-----------------------
The Company's history of operating losses from mining operations indicate at
January 31, 2008, that the recorded costs for mineral properties and related
fixed assets may not be recoverable. Management estimates, using a constant gold
price of approximately CDN $600 per ounce (average sales price per ounce sold in
the quarter was $801) and operating costs similar to historical costs incurred
over the past year, that annual production of approximately 50,000 - 60,000
ounces in fiscal 2008 and 80,000 ounces for each year thereafter would be
required to cover costs of operations and estimated capital expenditures
required for mining operations. To date the Company has not been successful in
achieving and sustaining this higher rate of production. To recover these costs,
and the carrying values of mineral properties and other mining assets over the
life of the mine will require a significant increase in average tonnes of ore
processed and ounces of gold produced annually compared to the last three years.
There is significant uncertainty associated with the ability of the Company to
achieve the increase in production or reduction in costs necessary to recover
the carrying value of the mineral property and related assets. In addition, gold
price or Canadian/U.S. dollar exchange rate movements, the success of the
Company in realizing the benefit of the production improvements noted above,
changes in the costs of labour, and the other costs or unforeseen production
difficulties all would have an impact on the ability of the Company to achieve
its goals from operations. The amount of working capital currently available for
use by the Company could mean that a minor adverse development could have a
significant impact on the Company's operations and ability to recover costs.
Mineral Reserves & Deferred Exploration Costs
---------------------------------------------
The Company expenses exploration expenditures and near term ore development
costs as incurred. Property acquisition costs and longer term development costs
incurred to expand ore reserves are deferred and depleted on a units£of£
production basis over proven and probable reserves which are currently
accessible by the Company. Management's estimate of gold price, recoverability,
proven and probable reserves, operating capital and reclamation costs are
subject to risk and uncertainties affecting the recoverability of the Company's
investment in mineral properties. The Company assesses capitalized costs for
recoverability on an annual basis or more frequently if changes in circumstances
suggest that possible impairment. Where information is available and conditions
suggest impairment, estimated future net cash flows are calculated using
estimated future prices, reserves and operating, capital and reclamation costs
on an undiscounted basis. If the net carrying value of the property exceeds the
estimated future net cash flows, the property will be written down to fair
value.
Closure Costs
-------------
The Company has an obligation to reclaim its properties after the minerals have
been mined from the site, and has estimated the costs necessary to comply with
existing reclamation standards. These estimates are recorded as a liability at
their fair values in the periods in which they occur. If the estimate of
reclamation costs proves to be inaccurate, the Company could be required to
increase the provision for site closure and reclamation costs, which would
increase the amount of future reclamation expense, resulting in a reduction in
the Company's earnings and net assets.
Internal Controls over Financial Reporting
------------------------------------------
There have been no changes in the Company's internal control over financial
reporting that occurred during the period ended January 31, 2008 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
CHANGES IN ACCOUNTING POLICIES
==============================
Financial Instruments, Comprehensive Income and Hedges
In January 2005, the CICA Handbook Sections 3855, 'Financial instruments -
Recognition and Measurement', 1530, 'Comprehensive Income', and 3865 'Hedges.'
These new standards are effective for interim and annual financial statements
relating to fiscal years commencing on or after October 1, 2006 on a prospective
basis.
The Company has evaluated the impact of these new standards on its financial
statements and determined that no adjustments are currently required.
OTHER MATTERS
=============
Outstanding Share, Option & Warrant Data
As at the date of this MD&A the following securities are outstanding:
+---------------+---------------+------------------------------------+
|Security | Shares issued | Weighted Average Exercise Price |
| | or Issuable | |
+---------------+---------------+------------------------------------+
|Common Shares | 55,703,312 | -- |
+---------------+---------------+------------------------------------+
|Options | 420,500* | $7.51 |
+---------------+---------------+------------------------------------+
|Warrants | 225,000 | $13.00 |
+---------------+---------------+------------------------------------+
*if all options have fully vested
Further Information
------------------
Additional information relating to the Company, including its Annual Information
Form, is on SEDAR at www.sedar.com.
This information is provided by RNS
The company news service from the London Stock Exchange